International Human Resource Management - Essay Example

Faculty of Business Environment and Society Contents Contents Introduction 3 Discussion 4 Critical literature review and its implications 4 Relevancy of identified issues 8 Conclusion & Recommendations 13 References 15 Introduction This study would reflect upon various dimensions of international human resource management. Human resource management encompasses employment practices and work systems of an organization. Collective as well as individual perspectives are included in order to manage people efficiently. For any real world organization, there are certain human resource management practices such as selection and recruitment, training and development, compensation system, reward system, human resource planning, performance appraisal system and employee development strategies. In this study main focus shall be on international human resource management. IHRM gained importance when firms decided to expand its business operations across the globe. There are human resource management issues witnessed in multinational firms which have foreign subsidiaries in different countries. Internationalization process requires productive strategies in context of managing employees so as to deliver desirable outcomes. International human resource management establishes a relationship between foreign working environment and HRM practices of a firm. This report would be based on hotel and leisure industry. Excelsia International Hotel and Leisure Group, is an organization belonging to this sector and is based in United States. The firm was initially operating in the home country but now it decides to expand its business in other locations. Excelsia hotel group has its business operations confined to only United States but now its internationalization process might lead to wide array of HRM issues. There shall be one non-EU country and one EU country taken into consideration in this study. Austria and China would be two international markets where the firm will expand on its wide scale of operations. Employment conditions, legislation and expectations will differ in these two countries. A strategic overview shall be presented in this particular study to the management of the hotel group so as to help them implement best employment practices. Over the years, hospitality sector has witnessed varying trend across different countries. Discussion Critical literature review and its implications International human resource management is able to portray differences between managing domestic operations and global operations. Multinational enterprises are seen to develop strategies to manage human resources across wide array of nations. These practices are closely knitted with historical, social, economic, cultural, political and legal characteristics. Multinational enterprises are expanding on its business operations because there is increased demand towards regulating efficiency and costs. International firms sustain their competitiveness through managing its global operations efficiently. The global strategic business decisions are strongly related with international human resource management practices. Strategic perspectives of this concept are HRM practices which are taken into consideration for strategic implementation. On the other hand, strategic factors associated with operations of MNEs have impact on human resource management policies or frameworks. Goal attainment of MNEs is also affected by IHRM factors (Dowling, Festing and Engle, 2008). IHRM issues can be stated as a major area of concern for all multinational firms. These issues can be classified into intraunit and interunit needs and various other challenges. An integrative model of the basic IHRM practice noticed in global firm has been outlined in figure 1. Figure 1: Integrated IHRM model (Source: Briscoe, Schuler and Tarique, 2012) As per figure1, country’s culture, legislative framework, economic conditions, etc., play a significant role in framing effective international human resource management practices. MNE has different set of operations across nations but it serves as a single entity. Hence there has to be a proper balance between integration and differentiation. Global firms should be able to address environmental demands by establishing a link between global strategies and internal local operations. Prime responsibilities are assigned by multinational enterprises to its regional units like labour relations and training program, local benefits and compensation system, etc. The major functions of IHRM can be categorized into three different areas. Firstly, appropriate orientation of human resources of global firms. Second function is allocation of money, time or energy to human resource department of multinational firm. Other function is to facilitate decision making process and maximum utilization of resources. International assignees are provided by organizations so that they are able to manage global human resources. Employee compensation is also a matter of concern for multinational firms. Global management cadre is developed by providing managerial training with the support of expert professionals. IHRM operations however are not standardized across global firms (Briscoe, Schuler and Tarique, 2012). Centralized HR function is a common approach which is observed in all IHRM structures. The centralized policy development is a key feature to drive organizational success. IHRM concept is highly concerned with managing global workforce. This aspect is not inclined towards framing staffing policies or recruiting individuals on board. It encompasses cross-cultural studies in order to analyze cultural trend across the world. Culture determines nature of employees and their preference in workplace environment. There are four main IHRM approaches such as ethnocentric, polycentric, regiocentric and geocentric. Ethnocentric approach states that key organizational positions are occupied by nationals who are part of parent company. Geocentric approach indicates talented individuals are recruited in the company irrespective of their nationality. Host country nationals are at times hired in order to manage subsidiary operations. This approach is known as polycentric mechanism. Regiocentric approach is followed when within a particular region talented individuals are recruited within operating region of a business subsidiary. The approaches clearly reveal that there are distinct approaches to be followed by MNEs who desire to expand their operations in international markets. Intercultural working approaches are dependent on certain factors such as economic business factors, political influences, social factors and regulations. These issues are prominent for any business organization which has its operations in foreign countries. As demonstrated in figure 2, exogenous factors greatly affect business operations of MNEs. This particular dimension encompasses industry characteristics, regional aspects and country characteristics. Hospitality sector has contributed largely towards economic growth and development of countries. The employment rate in certain countries has been improved due to rapid expansion of hotel industry. Hospitality sector has proved to be a key economic driver for all European countries. Labour market flexibility is observed in European regions. During economic prosperity, hospitality sector seeks higher performance level but in economic down times it is adversely affected. Employment conditions basically differ from one industry to another. These conditions are dependent on goals or objectives of an organization. Corporate strategies should be well aligned with human resource management strategies. IHRM policies of hospitality sector are generally focused on cross-cultural management. Culture affects skills or behaviour of employees. In hospitality sector, customer relationship management is an essential component. Employees can develop effective relationship with guests when they are able to understand their hidden demand and deliver superior service quality. Hence training programs are essential to incorporate necessary skills within team members (Ascoli, 2008). Migrant labour is found in many countries and this helps companies operating in hospitality sector to access wide base of labour. HRM practice currently employed by Excelsia International Hotel and Leisure Group in its home country might not be applicable for other foreign subsidiaries. Austria and China has their own set of employment conditions and legislative structure. IHRM practices shall be different for both these foreign markets. For instance, if labour market is not flexible in China then the company would opt for placing expatriate employees in that location. Employees who are posted abroad receive higher compensation in comparison to nationals. Leadership style is not a part of IHRM practice but it rather includes managing cultural dimensions of employees. Sensitivity or language training is incorporated within IHRM practice. Reward strategy is designed for employees in such manner that it addresses international components. Effect of inflation is taken into consideration while designing reward structure. Employment legislation denotes minimum wage and other employee benefits which should be provided by companies. On the contrary, major challenge faced by global firms while operating in other countries is formulation of compensation system (Harzing and Pinnington, 2014). Purchasing power of employees in home country of the company would be distinct compared to team members residing in host country. IHRM is associated with designing of a system which can equalize such purchasing powers. Home country and overseas might not have similar incentive structure as it is interlinked with employee legislative structure. Qualitative differences observed in various locations can be eradicated only through addressing needs of employees. Internationalization process is not only related to acquiring high profit margins but also to develop a productive employee base. Employee motivation is dependent on compensation which encompasses cost of living allowances, income tax rate, educational allowances, medical coverage, etc. Relevancy of identified issues There are certain issues identified in literature of international human resource management. IHRM is not about acquiring or retaining talent within the system. There is wide array of issues which indicate success or failure of organizations operating in foreign countries. Austria has been chosen as one of the European Union country where Excelsia International Hotel and Leisure Group shall expand on its operations. The GDP growth rate of Austria annually is 3.3%. 10.7% of the total employment opportunities are constituted by hospitality sector. Hospitality sector in this country has been growing over the years by 4.2%. Global economic downturn was witnessed by Austria during time period of 2000 to 2010. Austria’s economy has improved to desirable percentage after the downturn. 3% of overall employee turnover is contributed by the hospitality industry. Austria also offers immense opportunities to other companies due to its stable economic and political environment. Competitive rivalry in this market place tends to initiate demand towards innovative strategies. In the future years, hospitality sector in this region is bound to experience further growth due to increased customer spending. Declination in unemployment rate would be because of higher demand of hospitality sector. Success of this particular sector is driven by reduced VAT percentage and stable tax environment. Tourism has always been a source of funds in Austria. Historical places located in Austria also attracts wide base of individuals towards this destination. Hospitality employment index in Austria is well represented in figure 2. Figure 2: Hospitality employment index (Source: EYGM, 2013) According to figure2, employment index in this sector have increased over the years. This reveals presence of flexible labour market in Austria. Employment contract in Austria is different from that of United Kingdom. Recruitment policy in this country is well aligned with employee contract. Working hours in Austria is approximately 40 hours in a week. There is strict legislation imposed on companies that exceed their scheduled working hours. On the other hand, employment conditions of the country also denote that extra working hour needs to be compensated with extra pay. Austrian government is also concerned about additional benefits which are offered to employees (European Foundation for the Improvement of Living and Working Conditions, 2012). Annual paid vacation is provided to all employees who have completed six months of their job tenure. The holiday entitlement gradually increases and employees are given salary during that period. Austrian workplace culture is based on performance driven pay structure. Incentives or compensation are higher for those employees who have performed well. Training programs are an essential component since citizens of this country are competitive by nature. Political influence is widely noticed in structuring IHRM practices. Multinational enterprises have to obtain permission while operating in foreign countries. Hospitality sector supports economic development in Austria so governmental support is noticed in this particular field. Availability of land and labour would not be a major issue for the leisure group in Austria (ABA, 2013). Trade union problems are faced by firms in this country if they fail to well address employment conditions. Social conditions play an integral role in context of global human resource management practices. The net disposable income of individuals in Austria has been highlighted in figure 3. Figure 3: Gross and Net Disposable Income (Source: EYGM, 2013) Figure 3 states that disposable income in case of Austria has been gradually increasing over the years. Individuals possessing high disposable income would prefer to spend in hospitality sector. It even indicates employee compensation structure needs to be favourable in order to support such high disposable income. China has been chosen as another location where Excelsia International Hotel and Leisure Group can expand on its operations. This country encompasses a framework of employment conditions which should be followed by all domestic as well as foreign firms. There are no such specific rules which are applicable to hotel industry. Flexibility to certain extent is given to all MNEs who plan to operate in this country. Employment contract law in recent years has undergone some changes in China. Penalties are issued for those companies who fail to sign employment contract with recruited candidates. Fixed term contracts are eradicated by government of China so as to ensure job security for all individuals. Employee consultation procedures are followed in this geographical region to adopt regulations, rules or policies of an organization. Employment service agencies of China also are responsible for supplying talented individuals to an organization. An organization needs to give better protection to those individuals who are hired through such agencies. Working hours in China is different from that of Austria. This would be an issue for the hotel group planning to establish its position in China. Standard working hours are maintained by Chinese regulations. Employees in China should only work for eight hours in a particular day. Flexible working hour system could be designed by organizations only upon receiving government approval (Various national contributors, 2012). Longer working hours are promoted in certain cases without providing any extra pay to individuals. However average working hours needs to be consistent throughout the system. On the contrary, overtime exceeding average working hours should be compensated with excess pay. As per Chinese regulation, flexible work structure requires sales and managerial staff so as to work for extra hours without any higher pay scale. There is no six working day structure present in China. Saturdays are Sundays are official holidays in China. Rest days are arranged by employer so that employees can enjoy their leisure time. 150% is usually paid by companies operating in China as their overtime wages. Local government formulates minimum wage for employees. Annual leaves are provided to all employees and this serves as an employee motivation tool. Organizational culture in China is inclined towards non-monetary rewards rather than monetary rewards. Acknowledgement is a prime area of concern for employees in China. Expatriates placed by the company in this location needs to understand traditional value system so as to accomplish set performance standards. Chinese officials believe in developing long term relationship and this can be achieved through respecting Chinese culture. Chinese government has certain regulatory framework whereby foreign companies have to work in collaboration with domestic companies. Environmental legislation is also strict in this particular location. Tourism industry and hospitality sector are two major components contributing towards economic growth of China (Zimmerman, 2010). Social influences are in terms of high cultural value existing within individuals. Companies establishing their market position in this region are influenced to recruit nationals rather than selecting candidates from other location. IHRM approaches in relation to China shall include traditional belief system compared to profit oriented objectives of companies. Conclusion & Recommendations This study has highlighted differences in economic, political or cultural conditions in two different countries and its impact on human resource management practices. In domestic firms, HRM practices are centred towards recruitment and selection process, training and development programs, performance appraisal system, etc. HRM practices do not take into consideration cross cultural management but IHRM practices deals with managing different cultural background individuals. It is evident that human resource management is an important function within organizational structure. IHRM approaches are linked with sustaining organizational goals and enhancing employee performance. Cultural aspect is greatly taken into consideration by all MNEs. These firms witness challenge in context of operating in global market place. Global markets not only offers wide range of opportunities to companies but even brings forth challenge of aligning all team members with a common goal. In this study, the concept of IHRM has been properly demonstrated. However there are certain recommendations for the hotel group which shall help to improve upon employment conditions. Firstly, culture in Austria is contradictory to that of China. This aspect needs to be reflected upon employee development practices in these two countries. Employment contract is an essential entity in both these countries. Performance appraisals in China needs to be based on job acknowledgement rather than providing high compensation. On the other hand, working hours in Austria can be extended but it shall be restricted in China in order to prevent trade union issues. The company is recommended to recruit nationals in China so as to stay in good terms with Chinese government. This would even ensure that cultural domain is well known amongst all team members. Placement of expatriates by the company is a recommended approach in Austria division. Employee productivity can be improved only when basic entities of different countries are being represented by an organization. References ABA., 2013. Austrian labour law. [Online] Available at: [Accessed 9th June 2015]. Ascoli, A., 2008. CMS guide to principal hotels – specific laws in Europe and China. [Online] Available at: [Accessed 9th June 2015]. Briscoe, D., Schuler, R. and Tarique, I., 2012. International human resource management: policies and practices for multinational enterprises. New York: Taylor & Francis. Dowling, P.J., Festing, M. and Engle, A. D., 2008. International human resource management: managing people in a multinational context. New York: Cengage Learning EMEA. European Foundation for the Improvement of Living and Working Conditions., 2012. Employment and industrial relations in the hotels and restaurants sector. [Online] Available at: [Accessed 9th June 2015]. EYGM., 2013. An assessment of the economic contribution of the hospitality sector across 31 countries. Hospitality Sector in Europe. Harzing, A.W. and Pinnington, A., 2014. International human resource management. London: SAGE. People 1st., 2013. Will recruiting younger workers soon become a thing of the past? [Online] Available at: [Accessed 9th June 2015]. Various national contributors., 2012. Employment and industrial relations in the hotels and restaurants sector. European foundation for the improvement in living and working conditions. [Online] Available at: [Accessed 9th June 2015]. Zimmerman, J.M., 2010. China law deskbook: a legal guide for foreign-invested enterprises. New York: American Bar Association. Read More