Learn about the key differences between domestic and international HRM.
In an organization, if the HRM is concerned only with the interests of domestic employees, it can be termed as domestic HRM or simply HRM.
On the other hand, if the HRM takes care of interests of global employees along with domestic employees, it is termed as International Human Resources Management (IHRM).
It emerges that international HRM practices have to be different from those of domestic HRM. It is characterized by more and varied HR activities, need for broader perspective, more involvement in employees’ personal lives, high emphasis on change in employee mix, high risk exposure, and more external influences.
Learn about the Difference between Domestic and International HRM
Difference between Domestic and International HRM
It emerges that international HRM practices have to be different from those of domestic HRM. It is characterized by more and varied HR activities, need for broader perspective, more involvement in employees’ personal lives, high emphasis on change in employee mix, high risk exposure, and more external influences. Let us go through the discussion of these characteristics and identify how international HRM differs from domestic HRM.
1. More and Varied HR Activities:
As compared to domestic HRM, in international HRM, there are more and varied HR activities. In international HRM, the volume of the same HR activities which are relevant for domestic HRM too increases because these activities have to be performed in a different context.
For example, when employee is chosen for an international assignment, he needs additional training which would enable him to adjust in the new environment. This training will be in addition to training meant for skill development for performing the job effectively. There are many HR activities in which this type of situation emerges.
This will be taken up while going through the discussion of international HR activities. Variety in HR activities exists in international HRM because many activities are undertaken which are performed in international HRM only, for example, managing visa and completing various formalities which are necessary for an employee to perform job in an overseas location. There are several such activities.
2. Need for Broader Perspective:
As compared to domestic HRM, international HRM requires much wider perspective in respect of almost all HR activities. It implies that HR managers have to consider a variety of factors in making decisions on any issue of international HRM. Many of these factors are not relevant in the case of domestic HRM.
For example, while fixing international compensation packages, HR managers have to take into account the cost of living of different international locations to bring some kind of parity among employees working at different locations. Similarly, fringe benefits have to be provided to suit conditions of different locations. There are many such activities which require much broader perspective.
3. More Involvement in Employees’ Personal Lives:
As compared to domestic HRM, HR managers are required to have more involvement in employees’ personal lives in the case international HRM. This higher level of involvement is required to ensure that the employees are suitably placed in an international location with which they are not well familiar. This lack of familiarity may be on a number of factors like housing, health care practices, meeting of legal requirements of host country, etc.
In many cases, the number of such factors may be quite large. In order to take care of such factors, many organizations prefer to have a special unit in their HR department, known as ‘International Human Resource Service’. The basic logic behind creation of such a unit is to provide specialized service which is relevant only in the case of international HRM.
4. High Emphasis on Change in Employee Mix:
In international HRM, high emphasis is placed on change in employee mix particularly in terms of nationality of employees. Very often, it happens that when an organization establishes a business in a foreign country, it recruits more number of employees from the country of its origin.
However, in order to have a favourable image in the country of its operations, it recruits and develops local (host country) personnel. As a result, over the period of time, the proportion of local employees becomes sizeable. This strategy is adopted by most of the multinationals. This process is taken on gradual basis.
5. High Risk Exposure:
There is high risk exposure in international HRM as compared to domestic HRM. The risk involved may be of different types (political, regulatory, etc.) in an international business. However, HR-related risk may be in the form of lack of suitable HR practices meeting local requirements, social-cultural risk in the form of non-acceptance of parent country nationals as employees, etc.
Such risk may have serious consequences in many cases like social boycott of parent country nationals, kidnapping of employees or harassing them in other forms, and in extreme case, takeover of the business by the local government on the plea of not meeting local HR-related conditions. Therefore, HR managers have to be careful in making decisions on issues of international HRM.
6. More External Influences:
A maxim of managing a business is- farther away a business goes, more influences it has to face. This is true for international HRM too. As compared to domestic HRM, international HRM activities are influenced by a variety of external factors. HR managers are required to deal with a new set of socio-cultural milieu, political and legal system, etc.
Not only they have to change their mind set to work in this new set but they have to train the employees to adjust with the new set. In fact, effectiveness of HR depends to a very great extent on the degree of such an adjustment.
Difference between Domestic and International HRM – Explained!
In an organization, if the HRM is concerned only with the interests of domestic employees, it can be termed as domestic HRM or simply HRM. On the other hand, if the HRM takes care of interests of global employees along with domestic employees, it is termed as International Human Resources Management (IHRM).
All the domestic HRM practices, such as recruitment, selection, training, development, appraisal, and compensation, are equally applicable to IHRM. The basic difference lies in the application of HRM practices in both IHRM and domestic HRM. The focus of IHRM is on employees posted on international assignments/projects at various international locations.
The difference between IHRM and HRM is as follows:
i. IHRM addresses a wide range of activities as compared to domestic HRM. For example, IHRM deals with activities related to international taxation, foreign currencies, exchange rates coordination, and international orientation of employees, whereas such activities are irrelevant from the perspective of HRM.
ii. IHRM is concerned with the employees who work with organizations spread in more than one nation, whereas domestic HRM is concerned with employees working in organizations, which operate in a single nation.
iii. IHRM needs greater involvement of HR manager in the personal lives of employees staying abroad. The HR manager of a Multinational Corporation (MNC) must ensure that an employee posted abroad has understood all the major aspects of working environment in foreign country, compensation package, and other relevant details regarding taxation and transportation.
In addition, the HR manager needs to support their families in adjusting to a different and new culture through cross-cultural training. On the other hand, in domestic HRM, the involvement of HR manager is very limited. The managers may only be concerned with providing insurance programs or transport facilities to the employee.
iv. IHRM aims to provide more exposure to employees as an international assignment offers varied learning opportunities as compared to a local assignment that is the area of concern for domestic HRM. However, IHRM also involves high risk and cost.
v. IHRM has to deal with more external factors as compared to domestic HRM. For example, in IHRM, the HR managers may have to deal with ministers, political figures, and government regulations of the foreign countries. However, in domestic HRM, the HR managers normally do not face such types of issues and problems.
There has been an increase in the importance of IHRM due to the following reasons:
i. Availability of Quality Workforce – Refers to the fact that the success of a global business depends on the quality of workforce and how it is effectively managed and utilized.
ii. Minimizing Failures – Refers to reducing employee incompetence. If there is a failure on the part of the employee in international assignment, it results in heavy costs, such as relocation costs and reputation of the organization.
iii. Globalization – Refers to increasing the number of global organizations. As more and more organizations are entering in the global market, it has become necessary that strategies related to IHRM should be implemented properly.
iv. Effective Management – Refers to improving the management style and practices in an organization to enhance the performance of employees that are new to the international assignments. Therefore, the performance of employees on international assignments needs careful supervision.
v. Gaining Competitive Advantage – Refers to achieving an edge over rivals by using a key skill, strategy, or plan. An organization gains competitive advantage in the foreign countries, if an efficient IHRM system is in place.
Difference Between Domestic and International HRM – 6 Points of Difference
1. IHRM operates beyond national borders while domestic HRM operates within the borders.
2. Domestic HRM is concerned with managing employees belonging to one nation and IHRM is concerned with managing employees belonging to many nations (home country, host country and third country employees).
3. IHRM is subject to more stringent international rules & regulations as opposed to domestic HRM.
4. Domestic HRM is concerned with managing limited number of HRM activities at national level and IHRM is concerned with managing additional activities such as expatriate management.
5. Domestic HRM is less complicated due to less influence from the external environment. IHRM is very complicated as it is affected by external factors such as cultural distance and institutional factors.
6. IHRM is much more complex, involves more risk, and comparatively challenging than domestic HRM.
Domestic HRM Practices:
1. Domestic HRM is the process of procuring, allocating and effectively utilizing the human resources in local countries so as to gain competitive advantage in local or national market.
2. It is concerned with planning, recruitment, selection, training, motivation, and performance appraisal, promotions/transfer and career development of human resource in the home country.
3. In simple words, it involves HRM practices to manage the human resource in domestic country.
International HRM Practices:
1. The last few decades have seen vast changes in ways of doing business. Globalization has led to a lot of companies having presence in multiple locations around the globe. These multinationals (MNCs) seek to adopt the business practices of their host countries while retaining the culture of their parent countries.
2. International HRM involves management of human resource (i.e. organization’s employees) in three countries i.e. the parent country where company is actually originated; the host country where branch of the parent country is located; and other countries from where the organization may source labor, finance or research and development.
3. HR managers need to integrate HR policies and practices across a number of subsidiaries spread in several countries. At the same time, they also have to make these policies and practices sufficiently flexible to allow for differences in different countries.
4. MNCs are also required to adapt to legal, economic and administrative policies in host countries. Since MNCs mostly employ people from host countries, fulfilling requirements of these employees require adoption of different HR approach.
5. MNCs also have to deal with the emigration formalities of employees who relocate from the parent country to the new country.
Difference between Domestic and International HRM
The issue in international HRM is to analyze what type of international HR strategy should be adopted so that it meets the requirements of global business strategy of a firm. In the case of domestic business, HR strategy should be adopted in accordance with the requirements of a firm’s business strategy.
Same is the case with a global firm. However, global business strategy differs from domestic business strategy and, consequently, HR strategy. Therefore, in order to analyze global business strategy international HR strategy linkage, let us go through global business strategy and international HR strategy.
IHRM requires a much broader perspective, encompasses a greater scope of activities and is subject to much greater challenges than is domestic HRM. IHRM is more complex than domestic HRM. The scope of domestic HRM is relatively narrow as compared to IHRM, which takes care of wide range of HRM activities and includes international taxation, foreign currencies, foreign locations, and the like.
Again, while HR issues relate to employees belonging to single nationality, IHRM issues relate to employees belonging to more than one nationality, thus requiring setting up different HRM systems for different locations. Then, domestic HRM has to deal with limited external factors, while IHRM has to manage several external factors like government regulations of foreign country about staffing practices.
A striking difference between the domestic HRM and IHRM is that while the former has limited involvement of the HR manager in the personal life of employees, IHRM requires greater involvement in the personal life of employees such as helping in the admission of children in schools and supporting the family in adjusting to a foreign culture through cross-cultural training.
Besides, in domestic HRM, there is limited risk, whereas in international assignments, there is heightened exposure to risks such as health and safety of the employee and his/her family, terrorism, and human and financial consequences of mistakes committed in IHRM. Thus, a management style effective in the domestic environment may not be a success if applied in a foreign environment unless it is suitably modified.
Difference between Domestic and International HRM
With liberalization we are moving towards globalisation. Due to globalisation the companies are facing stiff competition in international markets. The multinational companies have entered in markets of different countries for business purpose. The scope of international business is wider than the local or national business. The international business of the companies is affected by rapidly changing business environment.
A lot of challenges are faced by MNCs. To carry-out business effectively the HRM has to design strategies to meet the objectives of corporate business. This called strategic HRM. There is no difference in SHRM and international HRM. In international HRM for smooth functioning strategies are prepared and implemented according to the international markets. The same thing is done by SHRM also.
The experts have coined the two different concepts but in nature both are same. So there should not be any confusion in the minds of readers in understanding these two new modern management concepts.
It is not easy to provide a precise definition of international human resource management What an HR manager does in a multinational corporation varies from firm-to-firm. It also depends on whether the manager is located in the MNC’s headquarters or on site in a foreign subsidiary. Broadly defined IHRM is the process of procuring, allocating and effectively, utilizing corporation.
The primary strategic objective of human resource management in MNC is to balance, “the needs of autonomy, coordination and control for the purpose of global competitiveness, flexibility, and learning…” Although some argue that IHRM is not unlike HRM in domestic settings, others point out that there are significant differences.
Specially, IHRM requires a much broader perspective, encompasses a greater scope of activities, and is subject to much greater risks than in domestic HRM.
When compared with domestic HRM, IHRM requires a much border perspective on even the most common HR activities. This is particularly so for HR managers operate from the MNC’s headquarters location. For example, when dealing with pay issues, the HQ based HR manager must coordinate pay systems in different countries with different currencies that may change in relative value to one another over time.
An American expatriate in Tokyo who receives a salary of $1, 00,000 may receive another over time. In general, the scope of IHRM activities is much larger than the scope of domestic HRM activities. For HQ based managers, the most obvious contrast is that they must coordinate the procurement, allocation and use of employees in more than one country.
For on-site managers there are many complications that arise from this greater scope. It is not unusual for subsidiary HR managers to be involved in arranging housing, health care, transportation, education and recreational activities for expatriates and local staff.
In general, IHRM activities are influenced by a greater number of external forces than are domestic HRM activities. The HQ based manager may have to set equal employment opportunities, policies that meet the legal requirements of both the home country and a number of host countries.
Because of the visibility that MNCs tend to have in foreign countries, subsidiary HR managers may have to deal with government ministers, other political figures, and a greater variety of social and economic interest groups than would normally be encountered in purely domestic HRM. There are certainly major risks associated with HRM in domestic situation.
Unfair hiring practices may result in a firm being charged with violation of laws and subjected to financial penalties. The failure to establish constructive relationships with domestic unions can lead to strikes and other forms of labour actions. However, international HR managers face the same risks, as well as some additional ones which are unique and more threatening.
A final risk is that of expropriation or seizure of the MNC’s assets in a foreign country. If HR policies auto genies host country unions or important political groups, the MNC may be asked to level the country, have its assets seized or find the local government taking majority control of its operation. Again this is not the sort of risk that most domestic HR managers face.
Differences between Domestic and International HRM – 8 Key Differences
The practice of HRM in the international context is different from its domestic counterpart in the following number of ways:
1. International HRM is responsible for a greater number of functions and activities such as the selection, training and management of international assignees. Domestic HRM deals with such functions only in the domestic context.
2. International HRM has to address issues like international taxation, foreign country employment laws, international orientation of the employees, etc. These issues are not applicable to domestic HRM.
3. HR managers working in an international environment have to deal with a highly diverse workforce as people belonging to various countries and multiple cultures work in the same office. Domestic HR managers deal with a less diverse workforce.
4. International HR managers have to get closely involved in the employees’ personal life when posting them to foreign locations. Issues like relocation of the employee’s family, ability of the employee to adjust to new environment, cost of relocation, etc. have to be dealt with. Problems regarding relocation of families are less severe in case of domestic HRM.
5. International HRM functions are impacted by foreign cultures and laws. Only the parent nation’s culture and laws have to be considered in case of domestic HRM.
6. There are more risks involved in international HRM as compared to domestic HRM. These risks include health and safety of employees, protection of intellectual property rights, threats of terrorism, etc.
7. Compensation planning is more complicated in International HRM as compared to domestic HRM because a variety of allowances and adjustments have to be taken into account while fixing remuneration of international employees.
8. Training in International HRM includes aspects of pre-departure and post-departure cultural training, imparting knowledge of international taxation, currency fluctuations, diversity management, etc. which are not a part of domestic HR training.