Introduction to IHRM
International Human Resource Management (IHRM) is a subject whose definition is not simple, neither is the work of a HR manager. The operation of multinational corporation (MNC) differs from organization to organization and depends on several factors. Loosely defined, IHRM is the procedure of procuring, assigning, and efficiently making use of the human resource available in a MNC. If operations are controlled from the mother country, then the duties of the International HR Manager is normally little, however, if the operation in each country is controlled from the host country with objectives different from those of the mother country, then the HR managers usually has a lot to do (Sadri & Lees, 2001, p.857). They have to deal with issues such as international taxation, adoption and implementation of foreign labor policies and administrative duties as hiring of expatriates.
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Expatriates are employees who are contracted from the parent country, host country or a third country to work in the local division of the MNC (Boyacigiller, 1990, p.142). They are normally employed in core areas of the firm to protect company interests, widen global knowledge, train the natives and perform other managerial tasks. The reason why this has become an issue is that there has been ongoing debate of whether the expatriates are normally treated according to international standards (Wang, 1993, p.173).
The objective of the paper is to undertake a literature review on the issue of hiring expatriates from foreign countries by MNCs to work in their local offices.
There have been growing calls for the need to provide IHRM practices that specifically relate to expatriates as this category of workers have been exposed to poor working conditions with respect to payment, appraisal, and promotion (Lengnick-Hall & Lengnick-Hall, 1988, p.460). Expatriates play a big role in representing the MNCs at foreign offices and ascertain that these offices are managed with respect to the company’s policies (Sohn & Paik, 1994, p.401). Yet, despite these efforts, expatriates are normally treated unfairly in several ways, these include poor pay packages in the host nations, poor living conditions and lack of medical cover and lack of compensation when they are transferred or go back to their countries. For example, an expatriate in China who is paid $90,000 may find that the buying power of his wages reduce due to the strengthening of the Yuan with respect to the US dollar (Dowling et al, 1999, p.50), their pay should therefore reflect the value of the home currency with respect to that of their country of residence.
Several disputes have been reported at workplaces because of poor relationship between the expatriates and local staff or their employee (Murphy & Cleveland, 1991, p.582) and these can be sourced to the treatment of expatriates. Solutions to these issues can be found by revising the pay packages offered to expatriates, and secondly, by using local expatriates in case there are qualified personnel (Creswell, 1994, p.397). The main reason for choosing this topic is due to the importance of the human resource to any organization.
Should Expatriates be given a Fair Pay package?
The first reason for a fair package is to compensate for the difficulties that the expatriate will undergo because of moving from his home country, sometimes in unfavorable weather conditions (Laurent, 1983, p.76). Secondly, the company needs to motivate the expatriate so that he may be diligent in his assignments (Hofstede & Bond, 1988, p.17). This motivation occurs in many different angles, including self-motivation, career motivation, technical motivation and they make the staff more competent in their areas.
Such a package is made up of two constituents: monetary and non-monetary (Harzing, 1995, p.209). Monetary pay can be based on the host policies, expatriate’s home country home or international standards, other allowances such as housing, hardship, medical cover and allowances due to home currency fluctuations with respect to that of the foreign.
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Use of Local Expatriates
This is a cost cutting strategy that can be employed by a MNC in a case where the required skills are available locally, this strategy has been employed by many companies such as Nissan Corp (Doz & Prahalad, 1986, p.63). As the companies also incur loses by sending workers to foreign countries, there has been a growing question of whether they should continue with this practice. Using local expatriates benefits both the worker and the MNC and they should only be sent to another country in case the required technology or expertise is not available but this should be for the purpose of training the locals who will then take over the operations (Welch, 1998, p.332).
Benefits of Using Local Staff
- They are well-informed of the local business needs and how to execute financial transactions effectively. Besides, the firm can benefit from their influence in the locality as they can easily deal with the concerned authorities than foreignners;
- They are versed on the local culture and customs that may benefit the business, therefore, they are able to design products geared towards the market segments;
- They carry out business activities from an insider’s point of view and are able to make rapid adjustments with the shifting market forces;
- They may access information relating to the local market with relative ease than the foreign expatriates and make appropriate adjustments;
- Finally, the cost of employing foreign expatriates is almost three to five times higher that employing a local staff (Welch & Welch, 1991, p.924), hence this is a cost cutting measure.
Despite giving solutions to the expatriate issue, these solutions are not satisfactory as both choices seem to present a vast range of advantages and challenges. The first solution will be costly to the company, especially if the number of expatriates is large, the second choice cannot work if there are no qualified personnel in the host country (Lipiec, 2001, p.43). Therefore, further studies should focus on finding solutions that are more concrete to expatriates.
Apart from finding solutions, research should be carried out in the future to investigate whether the locals can be trained abroad, then deployed into their countries to train others. When it succeeds, this would be a big boost to the MNC as there would be no need to deploy expatriates from other countries. An MNC will plan such that it starts the training program before establishing itself in the said foreign country, after training the locals, it will establish its plant in the country and deploy a few of its staff to oversee the start of operations. There will be a smooth transition as the locals gradually take over the running of the company, obviously, some expatriates will have to stay for a longer time. This strategy will save the company quite a substantial amount of money, including the benefits discussed earlier.
In the absence of any clear approach to the expatriate/ locals debate, the final decision is left to managers to consider the benefits of each system with respect to company goals and objectives and come up with the best policy.
The success of an MNC is pegged on its IHRM as an organization’s workforce is its best asset. Just as the adoption of sound human resource management policies by an organization is the way to success, the same also applies to MNCs. With the point on pay package for expatriates, we conclude that the monetary and non-monetary factors are vital components for explaining why and how firms compensate their expatriates. However, since the cost of maintaining foreign expatriates is very high, this paper gave ways of cutting costs by making use of the locals. However, a company cannot eliminate the role of expatriates, therefore, a flexible expatriate plan can be chosen to eliminate the compensation packages. Flexible programs can be in the form of shorter assignments and using younger employees as these consider such programs as an opportunity for professional growth, rather than part of their duty to the firm. As the world becomes more globalized, people may develop a global approach and may see the need to make use of locals rather than send expatriates to a foreign country. This is an ongoing discussion among human resource experts and a more acceptable management policy may be adopted, this could be a hybrid system of both local and foreign expatriates.
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Sadri, G. and Lees, B. (2001). Developing corporate culture as a competitive advantage. Journal of Management Development, Vol. 20 No. 10; pp. 853-859.
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