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INTERNATIONAL
BUSINESSProfessor H. Michael Boyd, Ph.D.
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Chapter 18
Global Human Resource Management
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Human Resource Management (HRM)
The activities an organization carries outto use its human resources effectively
Major tasks of HRM is to determine a firm’s policies for: HR strategy
staffing
management training and development performance evaluation
compensation
labor relations
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Strategic Role of International HRM
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Strategic Role of International HRMEnsures that HRM policies are congruent with the firm’s:
strategy (core competencies, local responsiveness) structure and processes (formal and informal)
incentives and controls system (formal and informal)
corporate culture (norms and value system)
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Strategic Role of International HRM
HRM is more complex in an international businessthan 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
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Staffing Policy
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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
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Ethnocentric Approach
All key management positions filledby parent-country nationals
Compatible with an international strategy
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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, highturnover
Can lead to “cultural myopia”, the firm’s failure tounderstand host-country cultural differences
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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
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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 operationsand isolate headquarter staff from foreign subsidiaries
May result in a “federation” of independent national units
with nominal links to headquarters
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Geocentric Approach
Seek best people, regardless of nationality
Compatible with both global and transnationalstrategies
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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 informalmanagement network
Disadvantages
National immigration policies may limit implementation Expensive to implement due to training and relocation
Compensation structure can be a problem
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Comparison of Staffing Approaches
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Expatriate Managers
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Expatriate Managers
Citizens of one country working
in another country
Inpatriates
Expatriates who are citizens of a foreign countryworking in the home country of their
multinational firm
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Expatriate Failure
Premature return of the expatriate manager
to his/her home country
Due to the lack of or failure of the firm’s selection and
training policies for expatriate managers
Results in an expatriate’s resignation or premature
return from a foreign posting
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Expatriate Failure Rates
16-40% of US expatriates return home early from
developed nations
70% of US expatriates return home early fromdeveloping nations
High expatriate failure rates is a universal problem
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Costs of Expatriate Failure
Estimate is 3 times the expatriate’s salary plus the cost
of relocation (impacted by exchange rates and location)
at an average cost of $250,000-$1million per failure
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Expatriate Failure Rates
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Reasons for Expatriate FailureUS Firms
Inability of spouse to adjust (top reason)
Manager’s inability to adjust
Other family problems
Manager’s 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)
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Reasons for Expatriate FailureInability 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
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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
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Four Attributes that Predict Success
Self-Orientation
Strengthen expats high self-esteem, self-confidence and mentalwell-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
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Global Mind Set
Fundamental attribute of a global managerthat 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
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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
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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 one’s capacity to make sense of the environment
People can’t 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
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Training and Management Development
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Training and Management Development
After selecting the expatriate, it is critical to train anddevelop the individual while building a unified
corporate culture
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Training and Management Development
Development
Long-term effort to develop a manager’s 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
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Training for Expatriate Managers
Cultural
Seeks to foster an appreciation of the host-country’s culture(include spouse and family)
Language
Improves expatriate’s effectiveness and rapport with local
employees Improves expatriate’s ability to relate to foreign culture
Fosters a better image of the firm
Practical
Helps expatriate and family adjust to the daily life of thehost country
Uses expatriate community as and informative andsupportive network
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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
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Repatriation Problems
Study of repatriated employees found that: 60-70% didn’t 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
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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
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Performance Appraisal
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Performance Appraisal
A firm’s performance appraisal system is an important
element of its control system and help implement the
firm’s strategy and attain a competitive advantage
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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
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Guidelines for Performance Appraisal
More weight should be given to an on-site manager’sappraisal than an off-site manager as they are able toevaluate the soft variables of performance
Expatriate who worked in same location should assisthome-office manager with evaluation
If foreign on-site managers prepare an evaluation,home-office manager should be consulted before thecompletion of a formal termination evaluation
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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 firm’s strategy
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National Differences in Compensation
Substantial differences exist in the compensation of executives atthe same level in various countries
Should the firm pay executives in different countries accordingto the prevailing standards in each country …..or should equalize
pay on a global basis?
A major issue for firms with a geocentric staffing policy andtransnational strategy building a cadre of international
managers
Over the past 10 years, many firms have moved toward acompensation structure based upon consistent global standardswith all employees being evaluated by the same grading system
and having access to the same bonus pay and benefits structure
i
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Expatriate PayBalance Sheet Approach
Most common approach to expatriate pay
Attempts to provide expatriate with similar standardof living as at home plus financial incentives
Equalizes purchasing power across countries to ensure
all expatriates have same standard of living in theirforeign posting as at home
Provides financial incentives to offset qualitative
differences between assignment locations
B l Sh A h
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Balance Sheet Approach
Fig 18.2
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Components of Expatriate Pay
Base Salary
Same range as a similar position in the home country
Paid in either home or local currency
Foreign Service Premium
Extra pay for work outside their home country
Allowances
Hardship, housing, cost-of-living and education allowances
Taxation Firm pays expatriate’s income tax in the host country
Benefits
Level of medical and pension benefits same as home
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International Labor Relations
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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
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Concerns of Organized Labor
Multinational’s 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 contractualagreements from multinational’s home country
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Strategy of Organized Labor
Try to establish international labor organizations
Lobby for national legislation to restrict MNE’s
Lobby United Nations to achieve international
regulations on MNE’s
A h t L b R l ti
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Approaches to Labor Relations
Each firm’s 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 withunion
role of labor costs and work rules as a competitive advantage
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