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Multinational BusinessWeek-6 – Lecture Hour

HUMAN RESOURCE MANAGEMENT IN THE MULTINATIONAL BUSINESS

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The strategic role of human resources in multinational business

How sustainable the firm competitiveness without the employees and their knowledge and experience?

Today firm often refer to employee as: “human talent”, “human capital” or “intangible assets”

Managers at Johnson & Johnson appear to recognize that the employees and the knowledge they possess may be their most strategic asset

The features of the product can be easily copied by the competitors but not the skills and experience oh employees

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HRM IN MNEs

Multinational enterprises (MNEs) are major employers of labour Estimates for the early 1990s suggested that MNEs employed some 70 million in host and home countries.

MNEs deals with a wide range of challenges in hiring and managing workers within the distinctive cultural and legal frameworks that govern employee practices around the world

Siemen, the German MNE in 2005 had 460,800 employees in some 190 countries

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HRM IN MNEs

INTERNATIONAL HUMAN RESOURCE MANAGEMENT (IHRM) is defined as the planning, selection, training, employment, and evaluation of employees for international operations.

For IHRM managers, the ultimate challenge is to ensure that the right person is in the right position at the right location with the right pay scale.

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SOURCES OF PERSONNEL TALENT:

There are three basic sources of personnel talent that MNEs can tap for positions,

1. Host country nationals (HCNs)

2. Parent country nationals (PCNs)

3. Third country nationals (TCNs)

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SOURCES OF PERSONNEL TALENT: HCNs

These employees are citizens of the country where the subsidiary or affiliate is located.

Typically, HCNs make up the largest proportion of the employees that the firm hires abroad.

The firm's labour force in manufacturing, assembly, basic service activities, clerical work, and other non-managerial functions largely consists of HCNs.

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SOURCES OF PERSONNEL TALENT: PCNs

Also known as home-country nationals; are employees who reside abroad but are citizens of the country where the MNE is headquartered.

These individuals are typically called EXPATRIATES.

Expatriate are assigned to work and reside in a foreign country for an extended period, usually a year or longer

Expatriates comprise only small percentage of the workforce in MNEs but they form critical functions abroad such as managing a subsidiary

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SOURCES OF PERSONNEL TALENT:TCNs

These are employees who are citizens of countries other than the home or host country.

Most TCNs work in management and are hired because they possess special knowledge or skills.

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SOURCES OF PERSONNEL TALENT

For IHRM managers, the ultimate challenge is to ensure that the right person is in the right position at the right location with the right pay scale.

For e.g. IT, financial services and telecoms sectors in southern part of India are experiencing a shortage of mid and senior level managerial talent.

As a result managers from eastern Europe are being posted to India

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COMPLEXITY OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT

There are some factors that increase the complexity of human resource management in the international context. These factors are:

New HR responsibilities.

The need for a broader, international perspective in compensation policy.

Greater involvement in the employees’ personal lives.

Managing the mix of expatriate versus locals.

Greater risk exposure.

External influences of the government and national culture.

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New HR responsibilities Several activities that are not encountered in domestic market include:

International taxation, international relocation and orientation, administrative services for expatriates, host government relations and language translation services

For e.g. an Australian national posted to Brazil as an expatriate is often subject to taxation by both governments and may incur double taxation.

Therefore there is an issue of tax equalization

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Need for a broader, international perspective in compensation policy

Establishing fair and comparable scale, regardless of nationality, is one of the challenge in a large MNE

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Greater involvement in the employees personal lives

The HR professionals in the MNE are concerned about the welfare of the expatriates and their families for such matters as

housing arrangements,

health care,

schooling of children,

safety and security,

as well as proper compensation in view of higher cost of living in some locations around the world

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Managing the mix of expatriates vs locals

The mix of staff depends upon several factors

1. International experience of the firm

2. Cost of living in the foreign location

3. Availability of qualified local staff

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Greater risk exposure

Greater risk when

1. Employee productivity falls below acceptable level or

2. An expatriate returns prematurely from an international assignment

3. Exposure to political risk and terrorism and may require increased compensation package and security arrangements for the employees and his/her family

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External influence of the government and national culture

1. Excessive or bureaucratic hurdles that host government may impose1. Personnel must be evaluated and compensated in a ways that are consistent with local standards2. The degree to which labour is unionized

2. HR managers have the responsibility to prepare employees and their families to live and work effectively in new cultural environment

1. Employees need to be trained in a ways that account for local standards, cultural norms, and language differences

2. Emphasize the importance of workforce diversity and the need to develop employees with global mind-sets

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Variables that moderate differences between domestic and international HRM

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Key tasks in international HRM

1. International staffing policy

2. Preparation and training of employees

3. International performance appraisal

4. Compensation of employees

5. International labour relations

6. Diversity in the international workforce

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International staffing policy

Activities directed at recruiting, selecting, and placement of employees.

One of the major IHRM challenges facing MNEs is that of selecting qualified people for overseas assignments.

PCNs: take advantage of their specialized knowledge; wants to maintain substantial control over foreign firms; developing local managers

HCNs: host country environment complex and to take advantage of their local connections; to perform downstream value chain activities

TCNs: transfer knowledge and corporate culture from third countries to the host country

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INTERNATIONAL SCREENING CRITERIA

Are those factors used to identify the individuals regarded as most suitable for overseas assignment.

Some MNEs use an extensive list, whereas others rely on only a handful of factors.

A number of screening criteria are commonly used in determining who to send overseas. The criteria focus on both individual and family considerations. Some of these considerations are:

(1) Adaptability, (2) Self-reliance, (3) Technical competence, (4) Health and family status, (5) Motivation and leadership, and (6) Interpersonal skills

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Selection proceduresThe most common selection procedure is the interview. A general consensus is that extensive interviews of candidates and their spouses by senior executives still ultimately provide the best method of selection.

The optimal mix varies by location, industry, stage in the value chain, and availability of qualified personnel. In addition, local laws prescribe the proportion of employees the firm can employ from nonlocal sources.

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Preparation and Training of Employees

Proper preparation and training are crucial for positions in the firm’s international subsidiaries.

Training is the process of modifying employee attitudes and knowledge in ways that increase the likelihood of attaining organisational goals.

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Preparation and Training of Employees

For employees on international assignment, training tends to have three components:

1. Area studies: factual knowledge of the historical, political and economic environment of the host country

2. Practical information: knowledge and skills necessary to function effectively in a country including, housing, health care, education and daily living

3. Cross-cultural awareness: ability to interact effectively and appropriately with people from different language and cultural background

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Preparation and Training of Employees

Training methods vary. In order of increasing rigour, they include:

Videos, lectures, assigned readings, case studies, books, Web-based instruction, critical incidence analysis, simulations, role playing, language training, field experience, and long-term immersion.

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International Performance Appraisal

Provides feedback necessary for employee’s professional development.

Performance appraisal is a formal process of assessing how effectively employees perform their jobs.

Appraisals help a manager identify problem areas where an employee needs to improve and where additional training is warranted.

It is an ongoing process that determines the employee’s compensation and firm’s performance

The following factors makes performance evaluations more complex in international context:

1. Non comparable outcome (arises because of difference in economic, political, legal and cultural variables)

2. Incomplete information

3. Maturity of foreign operations

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Compensation of Employees Compensation packages vary across nations because of differences in legally mandated benefits, tax laws, cost of living, local tradition, and culture.

Employees posted at foreign subsidiaries expect to be compensated at a level that allows them to maintain their usual standard of living, which can add substantially to the cost.

Major business capitals around the world are costly including Tokyo, Paris, London, New York, Seoul and Hongkong

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Compensation of Employees When developing compensation packages for employees working internationally, there are generally four elements for managers to consider:

1. Base remuneration

2. Benefits

3. Allowance

4. Incentives

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Base remuneration or wages

Based on the salary or wages that the employee typically receives in his or her home country.

Expatriate salaries are usually paid in the home currency, the local currency, or some combination of both.

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Compensation of Employees- Benefits

Include health care plans, life insurance, unemployment insurance, and a certain number of paid vacation days.

Benefits vary greatly from country to country to the extent that they may make up a substantial proportion of the total compensation package.

Benefits may also vary in terms of whether they are tax deductible.

Expatriates receive the benefits normally accorded to home country employees.

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Compensation of Employees-Allowance

Allowance is an additional payment that allows the expatriate to maintain a standard of living similar to home.

The allowance is usually used to pay for housing, and sometimes food and clothing.

Additional support may be provided to cover expenses such as relocation and children’s education, as well as business-related entertainment and travel.

Firms also provide hardship allowance to compensate employees who works in countries with civil war, or other conflicts

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Compensation of Employees- Incentives

Given the potential hardships of working abroad, many MNEs also provide incentives to expatriate employees.

The incentive is like a bonus intended to motivate the employee to undertake extraordinary efforts to accomplish company goals abroad, particularly in new foreign markets.

The incentive is typically a one-time, lump-sum payment

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International Labour Relations

Involves the interaction with labour unions and collective bargaining.

Labour relations is the process through which management and workers identify and determine the job relationships that will be in effect at the workplace.

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International Labour Relations

Labour relations is the process through which management and workers identify and determine the job relationships that will be in effect at workplace

Labour unions provides a means for collective bargaining

Collective bargaining: collective negotiations between management and hourly labour and technical staff regarding wages and working conditions

When a firm and labour union negotiate a relationship, they formalize it with a contract

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International Labour Relations

Most countries maintain minimum trade union standards under local law.

Trade union regulations vary substantially, with minimum regulations in Africa and the Indian subcontinent to highly detailed trade union regulations and laws embedded in countries such as Germany and Sweden.

The cost and quality of labour

Workforce reductions

Trends in the international labour

Firm strategy in international labour relations

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Diversity in the International Workforce

The more progressive international businesses include employees from diverse backgrounds who bring a wealth of experience and knowledge to the firms’ problems and opportunities.

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Diversity in the International Workforce

Women in international business

Low representation of senior management positions by women

Many women seek international positions as men, relatively few women are asked to fill expatriate positions:

◦ Senior managers may assume that women do not make suitable leaders abroad or foreign male do not like reporting to female managers

◦ Even obtaining work visa may be problematic for women in some countries such as Saudi Arabia◦ Many women feel uncomfortable to socialize with all male settings◦ In addition some female managers prefer to remain in their home countries to fulfil family obligations

or avoid disrupting their partners career◦ Because female currently occupy relatively few top management positions, there are fewer women

with sufficient experience to be sent abroad for important jobs

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Diversity in the International Workforce

Success strategies for women managers in international business

In many countries, being a female expatriate can be an advantage. Experienced international women executives have learned and regularly take advantage of this fact.

They develop and leverage their strengths as women and as managers.

Women stand out more, and competent women earn much more respect than their male counterpart.

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Questions?