There are different ways for employees to participate in international business— as parent-country, host-country, or third-county nationals—so there are different ways for employers to do business globally, ranging from simply shipping products to customers in other countries to transforming the organization into a truly global one, with operations, employees, and customers in many countries. Most organizations begin by serving customers and clients within a domestic marketplace. Typically, a company’s founder has an idea for serving a local, regional, or national market.
The business must recruit, hire, train, and compensate employees to produce the product, and these people usually come from the business owner’s local labor market. Selection and training focus on employees’ technical abilities and, to some extent, on interpersonal skills. Pay levels reflect local labor conditions. If the product succeeds, the company might expand operations to other domestic locations, and Human Resource Management (HRM) decisions become more complex as the organization draws from a larger labor market and needs systems for training and motivating employees in several locations.
As the employer’s workforce grows, it is also likely to become more diverse. Even in small domestic organizations, a significant share of workers may be immigrants. In this way, even domestic companies are affected by issues related to the global economy. As organizations grow, they often begin to meet demand from customers in other countries. The usual way that a company begins to enter foreign markets is by exporting, or shipping domestically produced items to other countries to be sold there.
Eventually, it may become economically desirable to set up operations in one or more foreign countries. An organization that does so becomes an international organization. The decision to participate in international activities raises a host of HR issues, including the basic question of whether a particular location provides an environment where the organization can successfully acquire and manage human resources.
While international companies build one or a few facilities in another country, multinational companies go overseas on a broader scale. They build facilities in a number of different countries as a way to keep production and distribution costs to a minimum. In general, when organizations become multinationals, they move production facilities from relatively high-cost locations to lower-cost locations. The lower cost locations may have lower average wage rates, or they may reduce distribution costs by being nearer to customers.
The HRM challenges faced by a multinational company are similar to but larger than those of an international organization, because more countries are involved. More than ever, the organization needs to hire managers who can function in a variety of settings, give them necessary training, and provide flexible compensation systems that take into account the different pay rates, tax systems, and costs of living from one country to another.
At the highest level of involvement in the global marketplace are global organizations. These flexible organizations compete by offering top products tailored to segments of the market while keeping costs as low as possible. A global organization locates each facility based on the ability to effectively, efficiently, and flexibly produce a product or service, using cultural differences as an advantage.