Whi Is Ihrm Such an Important Issue for Mne’s ?

Why is IHRM such an important issue for MNE’s? International Human Resources Management is the process of procuring, allocating, and effectively utilizing human resources in a multinational corporation. It is born thanks to globalization and to the growth of multinational enterprises all around the world. Globalization and the effective use of international human resources are two major issues facing firms in today’s global economy. As more and more firms operate internationally, there is a clear need to understand how to manage human resources that are located outside the domestic environment.

A HRM system cannot be an efficient approach for a multinational enterprise (MNE) to optimize their employees’ performances because compared to IHRM: it has less HR activities, a smaller perspective, less involvement in employees’ personal lives, and difficulties to adapt to the workforce mix (expatriates and locals). Indeed, an MNE has to deal with different types of employees:  Host-country Nationals (HCNs): locals of a country a MNE operates in a subsidiary.  Parent-country Nationals (PCNs): expatriates from the country where the MNE has its headquarters. Third country Nationals (TCNs): employees from countries other than the host or home country. These are also expatriates. The correlation between HCNs and PCNs in an MNE is crucial because they both have different points of view about the activity. HCNs are useful thanks to their knowledge of foreign market, language and needs and they know human resources policies for local employees, whereas PCNs have the ability to maintain control (for example with a newly established subsidiary), to adapt an ethnocentric attitude and to process an expatriation management (staffing, training, compensation).

An IHRM system is a product of distinct activities, functions and processes that are directed at attracting, developing and maintaining the human resources of a MNE. Indeed, IHRM seeks to assist organizations to make the most effective use of their human resources in the international context. Schuler said: “IHRM for many firms is likely to be critical to their success, and effective IHRM can make the difference between survival and extinction for many MNEs”. This quote means that an MNE has different choices for its IHRM approach.

The four generic IHRM orientations of MNEs: ethnocentric, polycentric, geocentric, and regiocentric, introduced by Perlmutter (1969) and Perlmutter and Heenan (1979), are widely recognized.  In an ethnocentric approach, the MNE exports the home HRM system abroad. Strategic decisions are made at the headquarters and subsidiaries are managed by expatriates. Like Porter said: “In a global industry, a firm must integrate its activities like HRM on a worldwide basis to capture the linkages among countries”. An MNE with a polycentric approach adapts to the local HRM system that the local companies use.

Foreign subsidiaries have a large autonomy and HCNs fill the senior positions. HCNs are more likely to be promoted to positions at headquarters. In a geocentric approach, the MNE takes a worldwide approach to its operations: employees can be promoted to senior positions in both headquarters and subsidiaries according to their capabilities, regardless of nationality and location. The regiocentric approach is similarly to the geocentric approach, but senior managers enjoy regional rather than global autonomy in decision-making.

Each of these four approaches has certain advantages and disadvantages. The choice of approaches to IHRM depends on the interaction of home-country factors, host-country factors and firm characteristics. The firm has to adapt its HRM activities to each host country’s specific requirements. It is also linked to cultural environment, like Hofstede said: “Culture awareness from senior and middle management is essential”. The location of the country is one aspect of the context in which MNEs operate.

The home-country factors include home HRM systems and domestic political, legal, economic and sociocultural factors. These factors impact on IHRM through their influence on a firm’s characteristics. Organizations in one country might thus share many similarities while being essentially different from those headquartered in other countries. According to Ferner (1997), even the most global companies remain deeply rooted in the national business systems of their country of origin. Without any internal or external influence, an MNE would export all of its own home HRM system to subsidiaries.

IHRM is definitely an essential issue for MNEs because it depends on it to avoid barriers of distance, language, time and culture between employees, which often make it very difficult for managers to resolve conflicts. Nowadays, we can still wonder if it is possible to develop a generic IHRM model that could be widely applicable. “IHRM is of fundamental importance in realizing an efficient and effective multinational organization because it enables the firm to deal with control and cross-cultural issues that are both internal and external to the firm” (Adler and Ghadar 1990).