Hiring and paying employees is every company's business.
Typically, Employers hire and pay employees according to local or domestic employment laws, regulations, and practices. This is a historical and conventional way of hiring and paying — as well as managing — employees. In organizational language, managing employees locally or domestically is called domestic human resource management.
Yet hiring and paying employees internationally is an entirely different matter.
In addition to basic common features of hiring and paying employees anywhere (e.g., sourcing, placement, payroll management, compensation, etc.), international employee hiring and payment include such factors as culture, different country laws, economic conditions, and more.
Going international involves, accordingly, changes not only in doing business in a different foreign market but also in managing employees. In organizational language, managing employees internationally is called international human resource management (IHRM).
If you are part of a business with domestic operations but wish to expand internationally or with existing international processes, understanding the differences between domestic and international human resource management is key to your success at home and abroad.
This guide helps you understand what is in for you as an international employer to hire and pay employees domestically and internationally.
Introduction to IHRM
The first step to understanding what IHRM means to your business is to know what IHRM is initially.
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.
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Understanding domestic HRM
Meanwhile, domestic HRM refers to the knowledge, capacities, and practices a given organization has to maximize human capital output locally or domestically by promoting organizational innovation to ultimately outperform the competition.
The domestic or national dimension is what distinguishes domestic HRM, much as internationalization sets IHRM apart.
Whether you're defining domestic or international HRM, both are about attracting, developing, and maintaining human capital (having adequate HRM knowledge, organizational capacities, and best-in-industry practices) to maximize returns on your human capital investments at the domestic or international scale.
Aside from a domestic/international dimension, what further dimensions, if any, distinguish domestic and international HRM?
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)
Common features of domestic HRM and international HRM
Domestic and international HRM share basic and common features in performing HRM activities, including attracting, developing, and maintaining human capital. Moreover, both forms of HRM aim to maximize organizational output by investing in best-in-industry human capital practices.
Whether your HR department or an outsourced service performs HR functions and activities at a domestic or international scale, you're carrying out essential business functions all businesses do to grow, outperform the competition, and build a reputation for excellence.
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.