“The primary cause of failure in multinational ventures stem from a lack of understanding of the essential differences in managing human resources in foreign environments“ (Desatnick & Bennett 1978).
The world has become more globalized, competitive, dynamic and uncertain than ever before. As more and more firms operate internationally, the search for the elements of global competitive advantage is a prominent theme in the management literature (Dickman & Müller-Camen, 2006: 580). There is a clear need to develop an understanding of how to compete successfully on the global playing field. A major component of this understanding appears to be the field of human resource management and, in particular, the field of international human resource management (IHRM) (Schuler, et al., 1993: 419).
The effective management of human resources in an international context is increasingly seen as a key source of competitive advantage in international business; and the quality of management seems to be even more critical in international than in domestic operations (e.g. Monks, et al., 2001). Due to the importance of the topic, there has been a significant amount of research on IHRM in recent years. Some of the major debates are concerned with the development of models and concepts of strategic international human resource management (SIHRM) (e.g. Schuler & Tariq 2007) and the question whether successful domestic HR strategies can be applied in a global context (e.g. Schuler & Jackson, 2007: 162).
The aim of this essay is to compare domestic human resource management (DHRM) with the concept of IHRM. After briefly defining the key terms, the author with outline both concepts and identify all major similarities and differences. At the end, some final conclusions will be drawn.
DHRM versus IHRM
Human resource management refers to all activities undertaken by an organisation to effectively utilize ist human resources. These activities include, amongst others, HR planning, staffing, performance management, development, compensation and managing employee relations (Torrington, et al., 2008: 7). The trend over the past few years has been to identify the linkage of HRM with organsitaional strategy in order to develop a strategic approach to HRM (SHRM) and to offer an understanding of how single country or domestic human resource management practices can contribute to organisational performance by leveraging people’s capabilities (e.g. Schuler, et al., 1993: 419).
In order to understand which activities change when HRM goes international, we have to define IHRM first. Broadly speaking, the consensus is that IHRM is about the worldwide management of human resources (Brewster, 2002; Brewster & Suutari, 2005). More specifically, according to Schuler and Tarique (2007: 717), “…the field of IHRM is about understanding, researching, applying and revising all human resource activities in their internal and external contexts as they impact the processes of managing human resources in organizations throughout the global environment to enhance the experience of multiple stakeholders.“
In other words, the purpose of IHRM is to enable the multinational enterprise (MNE) to be successful on a global level. Strategic international human resource management (SIHRM) focuses on strategic HRM in MNEs and recognizes the importance of linking HRM with organizational strategies in order to achieve sustainable competitie advantage (Schuler & Tarique, 2007: 718).
Morgan (1986: 44) developed a model that presents IHRM on three dimensions. He argues that IHRM can be defined as the interplay between (1) all human resource activities that are undertaken (such as planning and staffing), (2) the national or country categories involved (e.g. various host countries where subsidiaries are located) and (3) the three categories of employees of an international firm (host-country nationals, parent-country nationals and third-country nationals):
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Figure 1: Nature of IHRM; own illustration after Morgan (1986: 44)
With regard to the similarities between DHRM and IHRM, Aswathappa & Dash (2007: 66) argue that the HR activities that are performed in an international context are very similar to those performed in a domestic context. “The HR manager needs to plan for the human resources, hire the right people in right numbers, train and develop, compensate, maintain and motivate employees, whether his or her domain is domestic or global”.