What are main similarities and differences between domestic and international HRM?

There are two major factors therefore which differentiate domestic HRM from IHRM. First, the complexities of operating in different countries (and therefore in different cultures) and secondly, employing different national categories of workers. This suggests that international HRM is concerned with identifying and understanding how MNCs manage their geographically dispersed workforces in order to leverage their HR resources for both local and global competitive advantage.

Globalization has brought new challenges and increased complexity such as the challenge of managing newer forms of network organization. In recognition of such developments, new requirements of IHRM is to play a key role in achieving a balance between the need for control and coordination of foreign subsidiaries, and the need to adapt to local environments.

International HRM differs from domestic HRM in a number of ways. One difference is that IHRM has to manage the complexities of operating in, and employing people from, different countries and cultures. A major reason for the failure of an international venture is the lack of understanding of the differences between managing employees in the domestic environment and in a foreign one. A management style successful in the domestic environment often fails if applied to a foreign environment without the appropriate modifications.]

There are some commonalities in IHRM and domestic HRM practices, particularly in areas like; HR planning and staffing, recruitment and selection, appraisal and development, rewards, etc the main distinctions, however, lies in the fact that while domestic HRM is involved with employees within only one national boundary, IHRM deals with three national or country categories, i.e.,

the parent country where the firm is actually originated and headquartered;

the host country where the subsidiary is located;

and other countries from where the organization may source the labour, finance or research and development. This is because there are three types of employees in an international organization, i.e.

Parent country nationals (PCNs);

A parent-country national is a person working in a country other than their country of origin. Such a person is also referred to as an expatriate. Long periods of assignment (perhaps 4 –5 years or more) may run the risk of “de facto” employee status in the host country, so that labor laws or the host country apply.

A U.S. parent-country national residing abroad still owes U.S. taxes each year on his or her worldwide income. The US has income tax treaties with over 35 other countries. The IRS and the foreign taxing authorities can exchange information on their citizens living in the other country. Qualifying U.S. citizens and residents working outside the United States are permitted to elect to exclude a portion of their foreign earned income under the Internal Revenue Code (IRC). This section provides a general exclusion limited to a specified amount, another exclusion measured by foreign housing costs, and, for self-employed persons, a foreign housing cost deduction.

To qualify for the foreign earned income and housing cost exclusions, the individual must have foreign earned income, his or her tax home must be in a foreign country, and he or she must meet either of two tests:

The bona fide residence test, which requires the taxpayer to be a bona fide resident of a foreign country or countries for an uninterrupted period that includes a full tax year, or The physical presence test, which requires the individual to be present in a foreign country or countries at least 330 full days during a period of 12 consecutive months. A U.S. citizen may qualify under either the bona fide residence or physical presence test. A U.S. resident alien working abroad can qualify under the physical presence test, and in certain limited cases, tax treaty nondiscrimination rules may permit qualification under the bona fide residence rule.

Jargon aside, IHRM is a set of human capital activities performed by (usually) separate departments to attract, develop, and maintain human capital, i.e., employees, at companies operating in multiple jurisdictions.

The international dimension is a determining factor in defining and understanding IHRM. By having a foothold abroad, you as a global employer are, or will be, engaged in one or more HRM practices beyond your own domestic or home base of operation.

Three dimensions are shown to characterize IHRM:

• Acquiring, allocating, and utilizing human resources at an international (as opposed to a domestic) scale
• Reconciling differences — cultural, economic, political, etc. — between a common three-category set of countries usually involved in IHRM: home (where a company's home operations or headquarters are located), host (where one or more subsidiaries or representations of an international company are), and third (where a global company source human power) countries
• Three employee-category classifications — employee-citizens of the home country, employee-citizens of the host country, and employee-citizens of a third country or countries

IHRM practice has grown largely because of business globalization in recent years, where companies primarily located and operating in one home market constantly seek growth opportunities abroad.

Domestic vs. international human resource management

An essential contrast between international and domestic human resource management is whether HRM is performed domestically or globally. This is a broad distinction, but more is needed to determine how domestic and international HRM work.

The difference between domestic and international HRM is understood better when you know what set of questions you need to ask in practicing IHRM, including:

• What employment opportunities do workers in your foreign market of operation have?
• What forms are needed, if any, to establish an employment relationship in a given country?
• What laws and regulations govern labor relations, corporate and personal income taxes, social and health insurance, and more?

Moving on to a more granular level, IHRM is made more distinct from domestic HRM by considering crucial factors, including:

• The cultural environment your workers, foreign or expatriates on international assignments, operate in — an unthinkable factor in a domestic context
• The industry or industries your international company operates in, where different domestic human resource structures in other countries force companies to operate according to a global IHRM model, unlike those used at home to compete against local businesses
• The attitudes and capabilities of your senior managers, where knowledgeable and capable senior managers decide whether your company is, or can be, practicing IHRM
• How dependent your company is on your domestic market, where more dependence on international markets defines HRM practices as opposed to more emphasis on domestic markets

Overall, domestic and international HRM can be distinguished based on the following:

• The range of activities involved in each (more for IHRM)
• Involvement in the personal lives of employees (more for IHRM, such as in the relocation of expatriates)
• The range of cultural, social, and professional diversities (more for IHRM)
• The range of involved risks in carrying out HRM activities (more for IHRM)
• The impact of external factors influencing HRM practices and activities (more for IHRM)

Why is IHRM more beneficial and complicated than domestic HRM?

The range of activities, environments (cultural, economic, and social), involved risks, and externalities make IHRM more complicated compared to domestic HRM.

If you're a business still operating domestically but planning to expand internationally, IHRM remains more beneficial compared to domestic HRM because:

• When you practice IHRM, even before going international, you're doing a great exercise and getting prepared for your next international move
• When you develop your IHRM practice before or after going international, you're aligned to a global pattern where companies in a more connected world are born global.
• When you adopt IHRM head-on, you give your senior managers an excellent and early lesson in managing employees internationally, so once you're ready to send one or more of your senior managers on an international assignment, they will be prepared to practice hands-on what they have learned.
• When you refine your HRM practices beyond a domestic level, you're getting insights into growing your local business in ways you may not be able to do only domestically.
• When you experience firsthand IHRM complications, you enhance your learning curve as an employer to optimize your HRM processes and practices and develop your own unique HRM practice to outperform your competition further.
• When you adopt and practice IHRM, you have an exercise in understanding different markets — economically, culturally, and socially — only to maximize your business relationships with local partners and collaborators.

As opposed to domestic HRM, the merits and complications of IHRM are too obvious not to notice. Internationalizing any aspect of your business, including human resources, may not be your next move to expand your business. Instead, internationalization has come to be a given in the current global business ecosystem where being born global or international is a norm.

Getting everything right about HRM

The complexities of expanding internationally are almost endless.

As an international business, you're required by law or under pressure from your constituencies (employees, partners, government entities, etc.) to comply with various laws and regulations in one or more markets. Managing human capital at an international scale is not different.

In contrast to domestic HRM, IHRM involves a broader range of factors to consider and risks you need to account for to stay compliant in your chosen markets of operation and grow and maximize your output.

The similarities and differences between domestic and international HRM should be understood in a broader context of business excellence. By performing basic HR functions domestically or globally, you're stepping up your organizational capabilities to grow and establish a more enduring and favorable international presence.

Expanding internationally is not easy, and this includes managing your human capital. So, having an established employer of record such as Skuad will help you manage your domestic or international human resources more efficiently and cost-effectively and compliantly.

Skuad’s global employment and payroll platform enables organizations to compliantly hire, onboard, pay, manage HR administration and ensure compliance with local employment laws.

Book a demo with Skuad today, and we will gladly answer your domestic and international HRM questions and beyond.

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