Challenges of IHRM

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IHRM Challenges
 1. Competing, recruiting, and selecting
globally (staffing globally)
 2. Coping with cultural differences
 3. Cross-cultural communication and
workforce diversity
 4. International coordination
 5. Develop and manage talent or human
capital
 6. Global knowledge management

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IHRM Challenges
 7. Equity in compensation
 8. Challenge for MNC trainers
 9. Embracing new technology
 10. Complexity in global workforce
planning
 11. Global security and terrorism
 12. Local and global sustainability
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1. Competing, Recruiting, and
Selecting Globally
 To grow and prosper and to survive,
international companies will likely to see
talent employees in global markets.
 Employees today who, via the Internet, are
well informed about global job opportunities.
 Gauging the knowledge and skill base of
international workers and figuring out how
best to hire and train them is a challenge.

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Competing, Recruiting, and
Selecting Globally
 There are also many challenges to MNCs in their quests to
select the best employees for international assignments. They
have to deal with the following 8 issues:
 1. language—Do the expatriates need to learn the language of
the host country? Do local workforce need to know the
language of the parent firm?
 2. Gender—How acceptable are women managers in the host
country?
 3. Family—How do deal with family problems and concerns of
the expatriates?
 4. Lifestyle—How do find ways to accommodate expatriates’
outside-of-work lifestyle in the host country? The expatriate
may not be able to enjoy the same type of lifestyle in the host
country.

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Competing, Recruiting, and
Selecting Globally
 5. Localization of ‘going native’
 This involves the expatriate staying for an extended
period in a foreign assignment.
 The expatriate may have learned to live like a local,
or may have married a local and raising a family, and
yet are still receiving an expensive expatriate
compensation package.
 Although many MNCs have developed policies to
convert it into a local compensation package after
some period of time, usually 5 years, it still creates
specific problems for dealing with this particular
situation.

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Competing, Recruiting, and
Selecting Globally
 6. Career development—How do utilize expatriate’s
foreign experience for their career advancement
upon repatriation?
 7. Costs of international assignment—How do
minimize the costs of sending people for overseas
assignments?
 8. Developing a pool of international assignee
candidates—How do develop a pool of potential
candidates? This may involve challenges such as
early identification and assessment of candidates,
early preparation in terms of training, and early HR
planning for future needs.

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2. Coping with Cultural
Differences
 Coping with cultural differences, and
recognizing how and when these differences
are relevant, is a constant challenge for
international firms.
 Understanding the impact that the cultural
environment can have on staff performance
and well-being is a key challenge.
 Helping to prepare staff and their families for
working and living in a new cultural
environment has become a key activity for HR
dept. in MNCs.
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3. Cross-Cultural Communication
and Workforce Diversity
 Across countries, the demographic
composition of the workforce continues
to evolve over time.
 International HR managers must deal
with such changes by keeping
themselves informed of the changes
and be prepared at all times to respond
effectively.
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Cross-Cultural Communication
and Workforce Diversity
 Employees of various nationalities:
consists of PCNs, HCNs, and TCNs.
 For example:
 Workers stationed all over the US are
increasingly finding themselves working
virtually with people from other cultures
who speak different languages.

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Cross-Cultural Communication
and Workforce Diversity
 In Malaysia, we have employees of different races;
foreign workers from Indonesia, Vietnam, Nepal,
Cambodia, Pakistan, and other developing countries;
and expatriates from UK, US, German, Japan, and
other developed countries.
 Over the years, more and more women have entered
the workforce in Singapore and Malaysia.
 The workforce of Singapore is aging. There is an
increase in the labor force from the older age groups
and a decrease from the younger ones.

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4. International Coordination
 International coordination HR activities,
systems, and policies is a challenge due to
vast distance involved across countries.
 Key questions are:
 Should HR function be centralized or
decentralized?
 Is it realistic for a MNC to have one standard
HR system in all offices around the world?

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Centralization or Decentralization
of HR Function
 Generally,
 1. The more global-oriented firm the more
centralized the HR function.
 2. The more mature the firm, the more likely it has
centralized those HR activities it considers strategic
such as HR planning.
 3. The nature of the HR activities, for instance,
training and development is more often to be
centralized. For example: Motorola, a US
multinational, has its own ‘university’; Lufthansa (the
German airlines) and IKEA (the Swedish furniture
retailer), have their own ‘business schools’.

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A Global HR System?
 Given cross-cultural differences, is it realistic
to have a standard, global HR system?
 A recent study suggests that the answer is
“yes”, although the firm may have to refer to
the local managers on some specific issues.
 In this study, the researchers interviewed HR
managers from 6 global companies—Agilent,
Dow, IBM, Motorola, Proctor and Gamble,
and Shell.
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A Global HR System?
 Their overall conclusion is that companies that
successfully implement global HR systems apply
various international HR best practices in doing so.
 This enables them to do the following:
 1. Create global HR systems that are globally
acceptable by all managers.
 2. Develop a more effective HR system by forming
global development teams or global HR networks.
 3. Implement the system more effectively through
communication and adequate support and resources
for the global HR efforts.

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A Global HR System?
 The challenge is to know how to create
and implement the global HR system
that is globally acceptable and effective.

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5. Develop and Manage Talent
or Human Capital
 Human capital is intangible and cannot be
managed the way organizations manage jobs,
products, and technologies.
 Employees, not the organization, own their
own human capital.
 If valued employees leave a company, they
take their human capital with them.
 Any investment the company has made in
training and developing them is lost.

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Develop and Manage Talent or
Human Capital
 To build human capital in organizations managers
must continue to develop superior knowledge, skills,
and experience within their workforce.
 Staffing programs will focus on identifying, recruiting,
and hiring the best and the brightest talent available.
 Training programs complement these staffing
practices to provide skill enhancement, particularly in
areas that cannot be transferred to another company
if an employee leaves.

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6. Global Knowledge
Management
 Knowledge management faces both more
opportunities and obstacles in the global
environment.
 The key challenge for MNCs is to exploit the
scale and scope of their knowledge resources.
 For example, Unilever, a multinational fast-
moving consumers goods company, is one
MNC that has been strategically managing its
knowledge assets.
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Global Knowledge
Management
 Unilever uses multiple ways to expand,
create, and transfer new knowledge across
countries.
 It uses internal and external specialists fro
project advice, virtual teams, task teams,
communities of practice (pools of people with
practice-based expertise), world conferences,
partnerships and collaborations with
customers, suppliers, professional
associations and universities.
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7. Equity in Compensation
 For example:
 Many MNCs routinely pay a foreign service
premium to their PCN employees on overseas
assignment, but are reluctant to pay
premiums to foreign nationals assigned to the
home country of the firm
 Such a policy confirms the traditional
perception of many HCN and TCN employees
that PCN employees (particularly US and
European PCNs) are given preferential
treatment.
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Equity in Compensation
 In fact, salary levels and benefit provisions
invariably differ significantly among the
various countries in which an MNC operates.
 Employees performing essentially similar jobs
in different countries will receive varying
amounts and forms of compensation.
 This is due to differing costs of living and
general pay levels throughout these
economies, and varying traditions and values
for particular jobs.
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Equity in Compensation
 Thus, it is increasingly difficult to develop and
maintain a compensation package that
attracts and retains qualified expatriates and
local managers, that copes successfully with
fluctuating exchange rates and inflation rates,
and that is still consistently fair to both
expatriates and local employees.
 Complex equity issues arise when employees
of various nationalities work together, and
the resolution of these issues remain one of
the major challenges in the IHRM field.

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8. Challenge for MNC Trainers
 Many problems confronting the MNCs when come to
training in foreign subsidiaries.
 The following questions may need to be addressed
when training its local workforce around the world:
 1. Who should deliver training in the foreign
subsidiaries and joint ventures? Trainers from the HQ?
Local trainers? Independent trainers?
 2. How should the training be delivered? Are there
cultural differences need to be considered?
 3. What are the effects of language differences? Will
there be translation problems? Who should take the
responsibility for translation? HQ personnel or host-
country specialists?
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Challenge for MNC Trainers
 4. Should training programs be exported from
HQ? Or should overseas employees be
brought to centralized or regional training
facilities? Can training programs be developed
in various locations and made available to
everyone?
 5. Should courses for management
development be handled differently when
training for parent-country and third-country
employees?
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Challenge for MNC Trainers
 6. To ensure respect for each host country’s
culture, should each subsidiary or joint
venture develop its own training? Do they
have the capability?
 7. How does a MNC adapt a training program
to different countries and cultures, in terms of
both the content and the process of the
training?

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Challenge for MNC Trainers
 Of course, part of the challenge for MNC
trainers and IHR managers is that there are
no easy answers to these questions.
 Because of that, many firms develop
international training practices to fit their
particular needs, resources, and assumptions
about what should work best.

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9. Embracing New Technology
 Advancements in IT have enabled
organizations to take advantage of the
information explosion.
 With computer networks, unlimited amounts
of data can be stored, retrieved, and used in
a wide variety of ways, from simple record-
keeping to controlling complex equipment.
 The effect is so dramatic that at the
international level, organizations are changing
the way they do business—the use of the
Internet to do business transactions.
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Embracing New Technology
 The Web has also created a new
generation of “virtual” workers who
work from home, hotels, or wherever
their work takes them and who search
for jobs via social networking websites
such as Linked-In, Facebook, and My
Space.

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Embracing New Technology
 The challenge here is how to develop a HRIS, which
can be a potent weapon for lowering administrative
costs, increasing productivity, speeding up response
times, and improving decision-making and service to
managers and employees.
 Many routine HR activities such as payroll processing,
maintaining employee records, administering
benefits programs can be automated.
 International companies can now use HR software to
recruit, screen, and pretest applicants online before
hiring them, as well as to train, track, and promote
employees once they have been hired.

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Embracing New Technology
 For example:
 Merck’s HR system was redesigned to enable line
managers and employees to enter, retrieve, and edit
data in order to make better decisions faster.
 Merck’s staffing management system supports the
hiring process by tracking applicants’ information,
scanning resumes, and making the information
immediately accessible to line managers so they can
search systematically for the people whose skills they
want.
 Managers can search online for internal and external
talent by running searches of candidates who have
been categorized by skill set.

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10. Complexity in Global
Workforce Planning
 This challenge of global HR planning derives
from the complexities added by operating in
the global environment.
 A MNC’s activities are potentially spread all
over the world, in dozens or hundreds of
locations, languages, and cultures.
 And the labor pool from which they forecast
and draw employees is also located in all of
those places, languages, cultures, and diverse
employment and industrial structures.
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Complexity in Global
Workforce Planning
 This leads to the difficulties in preparing
both the MNC’s workforce demand on a
global basis, as well as the gathering of
data for the labor force supply around
the world.

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11. Global Security and
Terrorism
 Another global challenge for
international employers is the threat of
terrorism.
 Following the terrorist attacks of
September 11, 2001, firms around the
world develop terror response and
security for both operations and
employees.
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Global Security and Terrorism
 Terrorist threats and incidents have
significantly affected airlines, hotels,
travel companies, construction firms,
and even restaurants like McDonald’s.
 HR management must respond to such
concerns as part of transnational
operations and risk management
efforts.
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Global Security and Terrorism
 For example,
 An HRIS can be designed to track the
whereabouts of international employees.
 This can be important in the event of a
transportation accident, a natural disaster
such as tsunami, a terrorist attack, or civil
riots if evacuation plans must be
implemented.

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12. Local and Global
Sustainability
 A major challenge for HR practitioners
working in local and global contexts is
to raise the professionalism of IHRM so
that it can fulfill a more responsible
contributions to organizations and
societies, and consequently maintain a
higher status for sustainability.

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Local and Global Sustainability
 One of the many problems facing IHRM
practitioners is the need to get more
involved in social responsibility and the
development and maintenance of high
standards of ethical management.

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Local and Global Sustainability
 The challenge to IHRM practitioners is how to play a
more strategic role in assisting social responsibility.
 They must understand how HR policies, decisions,
and activities impact on
 1. the society and environment.
 2. the stakeholders such as recruitment agencies and
local employees.
 They must also understand what best practices are
with respect to responsible organizational behavior.

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Local and Global Sustainability
 Creating HR policies and practices to satisfy a
company’s multiple stakeholders is very
challenging.
 It takes a great deal of knowledge and the
involvement of many employees.
 It also takes much time and understanding.
 But if the international firm is succeeded in
satisfying multiple stakeholders, it will gain a
competitive advantage and ultimately global
sustainability.
 END

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