INTERNATIONAL BUSINESS

Professor H. Michael Boyd, Ph.D.

Chapter 18 Global Human Resource Management

Human Resource Management (HRM)

The activities an organization carries out to use its human resources effectively Major tasks of HRM is to determine a firms policies for: HR strategy staffing management training and development performance evaluation compensation labor relations

Strategic Role of International HRM

Strategic Role of International HRM

Ensures that HRM policies are congruent with the firms: strategy (core competencies, local responsiveness) structure and processes (formal and informal) incentives and controls system (formal and informal) corporate culture (norms and value system)

Strategic Role of International HRM

HRM is more complex in an international business than in a domestic business due to the profound differences in: labor markets culture legal systems economic systems etc., etc. Plays a critical role in implementing strategy which impacts the performance and profitability of a firm

Staffing Policy

Staffing Policy
Selecting individuals with requisite skills to do a particular job

Tool for developing and promoting corporate culture norms and value system strong corporate culture can help a firm implement its strategy Types of Staffing Policy Ethnocentric Approach Polycentric Approach Geocentric Approach

Ethnocentric Approach
All key management positions filled by parent-country nationals

Compatible with an international strategy

Ethnocentric Approach
Rationale

Belief that there is a lack of qualified managers in host country Best way to maintain a unified corporate culture Helps transfer core competencies via expatriates

Problems

Limits advancement opportunities for host-country nationals which produces resentment, low productivity, high turnover Can lead to cultural myopia, the firms failure to understand host-country cultural differences

Polycentric Approach
Host-country nationals manage subsidiaries while parent company nationals hold key headquarter positions

In response to the weakness of an ethnocentric approach Compatible with a localization strategy

Polycentric Approach
Advantages

Alleviates cultural myopia Less expensive to implement and reduces costs

Disadvantages

Limits opportunity for host-country managers to gain experience outside their own country Can create gap between home-and host-country operations and isolate headquarter staff from foreign subsidiaries May result in a federation of independent national units with nominal links to headquarters

Geocentric Approach
Seek best people, regardless of nationality

Compatible with both global and transnational strategies

Geocentric Approach
Advantages Enables the firm to make best use of its human resources Equips executives to work in a number of cultures Facilitates transfer of core competencies Reduces cultural myopia and enhances local responsiveness Helps build strong unifying culture and informal management network Disadvantages National immigration policies may limit implementation Expensive to implement due to training and relocation Compensation structure can be a problem

Comparison of Staffing Approaches

Expatriate Managers

Expatriate Managers
Citizens of one country working in another country

Inpatriates Expatriates who are citizens of a foreign country working in the home country of their multinational firm

Expatriate Failure
Premature return of the expatriate manager to his/her home country

Due to the lack of or failure of the firms selection and training policies for expatriate managers Results in an expatriates resignation or premature return from a foreign posting

Expatriate Failure Rates

16-40% of US expatriates return home early from developed nations 70% of US expatriates return home early from developing nations High expatriate failure rates is a universal problem

Costs of Expatriate Failure

Estimate is 3 times the expatriates salary plus the cost of relocation (impacted by exchange rates and location) at an average cost of $250,000-$1million per failure

Expatriate Failure Rates

Reasons for Expatriate Failure

US Firms Inability of spouse to adjust (top reason) Managers inability to adjust Other family problems Managers personal or emotional immaturity Inability to cope with larger overseas responsibilities

Japanese Firms Inability to cope with larger overseas responsibilities Difficulties with the new environment Personal or emotional problems Lack of technical competence Inability of spouse to adjust (top reason)
European Firms Inability of spouse to adjust (usually the only reason)

Reasons for Expatriate Failure

Inability for the Spouse to Adjust

Failure is related to:

spouse lacks network of family and friends

while partner has network of work colleagues

immigration restrictions limiting the spouse to work frustration of spouse over giving up career

a growing and significant problem

Expatriate Selection

Domestic performance does not necessarily equate to overseas performance potential Reduce failure rates by improving selection procedures

Employees need to be selected not solely on technical expertise but also on cross-cultural fluency

Four Attributes that Predict Success

Self-Orientation Strengthen expats high self-esteem, self-confidence and mental well-being Others-Orientation Enhance expats ability to interact with host-country nationals (relationship building, willingness to use host language) Perceptual Ability Expats ability to empathize and understand why people in host-country behave the way they do Cultural Toughness How well an expatriate adjusts to a particular posting tends to be related to the country of assignment

Global Mind Set

Fundamental attribute of a global manager that is characterized by cognitive complexity and an cosmopolitan outlook

Ability to deal with high levels of: complexity Ambiguity Often developed in early life from a family that is bicultural and lives abroad

Culture Shock

When you take the expatriate assignment, expect: that things will be different the unexpected will occur there will be good times there will be bad times you will suffer from culture shock

Culture Shock
Feeling of distress and a level of discomfort with living and working in a foreign culture

Results from information overload and a breakdown in ones capacity to make sense of the environment People cant use past experiences to interpret and respond to cues which creates anxiety Resulting in a wide array of symptoms from chronic depression, insomnia, headaches or frustration

Training and Management Development

Training and Management Development

After selecting the expatriate, it is critical to train and develop the individual while building a unified corporate culture

Training and Management Development

Development Long-term effort to develop a managers skills over their career with the firm Achieved with numerous foreign postings

Training Giving an expatriate (and family) the required skills for success in foreign assignment
Historically, firms emphasized training but now starting to emphasize development

Training for Expatriate Managers

Cultural

Seeks to foster an appreciation of the host-countrys culture (include spouse and family) Improves expatriates effectiveness and rapport with local employees Improves expatriates ability to relate to foreign culture Fosters a better image of the firm Helps expatriate and family adjust to the daily life of the host country Uses expatriate community as and informative and supportive network

Language

Practical

Repatriation of Expatriates

Often overlooked but a critically important issue Should be considered the final link in an integrated process that connects:

effective expatriate selection and training completion of the expatriate assignment reintegration of the expatriate into their national organization

Successful repatriation contributes to the transfer of knowledge and skills throughout the firm

Repatriation Problems

Study of repatriated employees found that:

60-70% didnt know what their position would be when they return home 60% said their firm was vague about repatriation and future career progression 77% took lower-level jobs in their firm 15% left their firm within one year 40% left their firm within 3 years

Management Development Programs

Programs designed to increase overall skill levels through a mix of management education and assignment rotations

Provides varied experience for managers Improves management productivity and quality Builds unified corporate culture Strengthens informal management network Socializes managers into norms and values system

Fosters esprit de corps Strengthens identification with company

Frequently used for transnational strategy

Performance Appraisal

Performance Appraisal

A firms performance appraisal system is an important element of its control system and help implement the firms strategy and attain a competitive advantage

Performance Appraisal Problems

Unintentional Bias

Objective evaluation of expatriates is difficult Host-nation managers may be biased by their cultural frame of reference Home-country managers may be biased by distance and their lack of experience working abroad Expatriate managers believe that headquarters unfairly evaluates them and does not value their skills and experience Many expatriates feel a foreign posting does not benefit their career

Guidelines for Performance Appraisal

More weight should be given to an on-site managers appraisal than an off-site manager as they are able to evaluate the soft variables of performance Expatriate who worked in same location should assist home-office manager with evaluation If foreign on-site managers prepare an evaluation, home-office manager should be consulted before the completion of a formal termination evaluation

Compensation

Two Key Issues How to adjust compensation to reflect national differences in economic circumstances and compensation practices

How should expatriate managers be paid

At the prevailing level or equalize pay on a global basis? Does fair mean not having to be equal?

Whatever compensation system is used, it is important to reward managers for taking actions that are consistent with the firms strategy

National Differences in Compensation

Substantial differences exist in the compensation of executives at the same level in various countries Should the firm pay executives in different countries according to the prevailing standards in each country ..or should equalize pay on a global basis? A major issue for firms with a geocentric staffing policy and transnational strategy building a cadre of international managers Over the past 10 years, many firms have moved toward a compensation structure based upon consistent global standards with all employees being evaluated by the same grading system and having access to the same bonus pay and benefits structure

Expatriate Pay
Balance Sheet Approach

Most common approach to expatriate pay Attempts to provide expatriate with similar standard of living as at home plus financial incentives Equalizes purchasing power across countries to ensure all expatriates have same standard of living in their foreign posting as at home Provides financial incentives to offset qualitative differences between assignment locations

Balance Sheet Approach

Fig 18.2

Components of Expatriate Pay

Base Salary

Same range as a similar position in the home country Paid in either home or local currency Extra pay for work outside their home country Hardship, housing, cost-of-living and education allowances

Foreign Service Premium

Allowances

Taxation

Firm pays expatriates income tax in the host country

Level of medical and pension benefits same as home

Benefits

International Labor Relations

International Labor Relations

Key Strategic Issue The degree to which organized labor can limit the choices of an international business to:

integrate and consolidate its global operations realize experience curve and location economies pursue transnational or global standardization strategies

Key HRM Function Foster harmony and minimize conflict between the firm and organized labor

Concerns of Organized Labor

Multinationals can counter union bargaining power with threats to move production to another country International firms will keep highly skilled tasks in its home country and farm out only low-skilled tasks to foreign plants Easy to switch locations if economic conditions warrant Bargaining power of organized labor is reduced Firms attempt to import employment practices and contractual agreements from multinationals home country

Strategy of Organized Labor

Try to establish international labor organizations Lobby for national legislation to restrict MNEs Lobby United Nations to achieve international regulations on MNEs

Approaches to Labor Relations

Each firms approach to international labor relations differ a lot

Historically Decentralized to foreign subsidiaries due to different labor laws, union power and nature of collective bargaining in each country
Currently Trend of greater centralization due to attempts to: rationalize global operations control labor costs and increase bargaining power with union role of labor costs and work rules as a competitive advantage