Human Resources Management or HRM forms the cornerstone of corporate strategy, as it is concerned with managing a company’s human resources (workforce). An organization can materialize its long-term goals only through proper management and cooperation among employees.
The job of an HRM is hence quite complex. It requires in-depth understanding, such as the scope of work and how it should function in a domestic and a global setting. In fact, HRM can be broadly classified into two types based on location – domestic HRM and international HRM.
This blog will answer questions like:
- What is IHRM?
- What is Domestic HRM?
- What are the differences between domestic HRM and international HRM?
- How do different HRMs function to reconcile employee expectations with the company objectives?
So, if you wish to know the answers to these questions, keep reading!
IHRM: An Introduction
As companies expand across regions and countries, their human capital becomes diversified. With that, the responsibilities of the international HRM (IHRM) have also increased manifold. The primary responsibility of an IHRM is to ensure that employees can cooperate in the workplace despite their cultural differences and work towards the common company goals.
Unlike domestic HRM that is mainly concerned with local/national compliance, IHRM largely focuses on monitoring international taxation laws, employment protocols, language proficiencies, work visas & permits, etc., for a global workforce. This is one of the crucial differences between global vs. local HRM.
Understanding Domestic HRM
Domestic HRM or Domestic Human Resources Management focuses on managing employees in one country. Essentially, the influence of external factors is relatively low here.
Domestic HRM’s primary role is to select the most eligible persons for different company profiles. This ensures that employees are qualified and skilled enough to create value for the company. Hence, domestic HRM must know how to leverage individual talents and skills in which domain. They must also continually motivate employees to upskill and do better.
Domestic Vs. International Human Resource Management
While the recruiting operations of domestic HRM and international HRM are very similar, the crucial difference lies in their scope of work concerning a particular region. IHRM has to manage employees across countries, while DHRM only manages employees of a single country.
Since IHRM employs people from multiple countries, they have to deal with the complexities of operating across diverse cultures. Naturally, their working style is considerably different from that of a DHRM. IHRM cannot adopt the management norms of a DHRM as they must consider numerous factors like cultural differences, time zones, country laws, industry regulations, etc. Hence, its management style must be appropriately adjusted to suit the global setting. It must adapt to the region-specific surroundings and maintain the balance of quality output from the subsidiary countries while also coordinating them smoothly.
The operational network’s structure of an IHRM is based on the three-nation model. There is a hierarchy of primarily three countries regarding the dispersal of management – parent, host, and subsidiary countries. Hence, an IHRM has to manage three tiers of employees – Parent Country Nationals or PCN, Host Country Nationals or HCN, and Third Country Nationals (TCN).
Here is a detailed description of each:
PCN: A parent country of a company is where the firm’s headquarters are based. An employee working in the firm’s office in a country that is not their country of origin is a Parent Country National.
Also known as expatriates, these employees might have to stay in the foreign country for projects or assignments for a long time, approximately 4-5 years. In such cases of prolonged stay, the downside is that employees might be considered “de-facto” workers in that country, meaning that its labor laws will apply to them.
HCN: The host country has the subsidiary organization of the main firm. Employees of the firm who are citizens of and work in the host country are called Host Country Nationals.
TCN: Sometimes, the company may get their labor force, finance, or research inputs from countries other than the parent or the host countries. Such countries are known as third countries. Often employees are recruited from these countries by a government or a government-summoned private contractor.
Thanks to rapid globalization, companies have had to take on new responsibilities. This indicates that the differences between global vs. local HRM practices have also evolved.
We have listed the fundamental difference between domestic and international human resource management in the table below:
Common Features of Domestic HRM and International HRM
The major functions of domestic HRM and international HRM are almost the same. These include business planning, recruiting employees, managing their performances, and overseeing training, development, appraisal, and compensation.
The environmental factors also influence domestic and international HRM functions, although to different degrees. The HRM, irrespective of whether they are functioning in a national or cross-country setting, must be mindful of the location’s political, legal, and economic atmosphere and how these affect the market.
Moreover, both HRMs must regularly intervene in the administrative proceedings to ensure that the employees stay motivated and productive. This is done to encourage employee retention and upskilling throughout all company levels.
Why is IHRM More Beneficial and Complicated Than Domestic HRM?
- IHRM is more complex due to the wide range of activities it has to address for managing a diverse work pool. Hence, the company must widen its outlook to handle international issues effectively. For instance, issues like basic pay scale, compensations, perks, and incentives become more complicated for the IHRM – they must consider exchange rates and currency systems of different countries where the employees work.
- The diverse nationalities of the employees in multinational firms imply that the IHRM has to handle the responsibility of addressing HR issues across countries. Consequently, they must allocate DHRM for each geography for better employee management.
- A significant difference between global HRM and domestic HRM is that the latter does not need to consider nation-specific regulations while overseeing employees. They only need to create and implement HR programs for employees of one country.
- International Human Resources Management has to get more involved in employees’ personal lives leading departments in other countries. Since cross-culture mobility is involved, they must ensure that employees can assess their compensation deal’s terms and conditions, such as the tax rate.
Unlock your global hiring potential and reach new horizons with Multiplier
Plus, for family relocations, IHRM must ensure that an employee’s family is well- rehabilitated in a new setting. Contrarily, Domestic HRM only has to secure insurance coverage for the employee’s family and provide adequate transport for a domestic transfer.
- The risk factors in IHRM are much higher than those in DHRM. Due to rising international terrorism, companies must be very selective in sending their employees to new locations on international assignments. The IHRM is bound to ensure the safety and health of the employees on duty.
- Financial expenses are a huge issue for IHRM since global projects have massive direct and indirect costs. One minor mistake can cause huge monetary loss. For instance, an employee coming back from an international posting way ahead of their tenure’s completion can cause significant financial loss to the company. This also tarnishes the company’s image before the client.
- When it comes to the difference between domestic and international human resource management, the external factors at stake are higher for the latter. The IHRM has to consider the government regulations while setting up a new branch in any country. These include practices about employing staff in foreign regions, adhering to specific codes of conduct as mandated by the location, and maintaining cooperation with the local religious organizations.
Let Multiplier be Your HRM Assistant
Since IHRM deals with a greater share of risks in executing their responsibilities, it becomes crucial to avoid mistakes in human resource activities both in the parent country and operating countries. Companies are often overwhelmed with the multifaceted duties of hiring, payroll management, international employee management, etc.
Multiplier can help you address all these challenges. Trusted by leading MNCs, Multiplier can help streamline your hiring process and onboard employees quickly. Thus, to reap the optimal benefits of your global talent, consult Multiplier for easy management of recruitment, payroll, and business expansion operations.
- Transformation in economic policies in the 1990s
- Evolving job requirements
- Demand for multi-skilled resource personnel
- Complex organizational hierarchy
- Organizational viability