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INTERNATIONAL

BUSINESSProfessor H. Michael Boyd, Ph.D.



Chapter 18

Global Human Resource Management



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



Strategic Role of International HRM



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)



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



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 filledby 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, highturnover

Can lead to “cultural myopia”, the firm’s failure tounderstand host-country cultural differences




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




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



Geocentric Approach

Seek best people, regardless of nationality

Compatible with both global and transnationalstrategies



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



Comparison of Staffing Approaches



Expatriate Managers



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



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



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



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



Expatriate Failure Rates



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)



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



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 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



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



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 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



Training and Management Development




After selecting the expatriate, it is critical to train anddevelop the individual while building a unified

corporate culture




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



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



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% 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



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 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



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 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



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



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



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



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

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



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

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



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



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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