Chapter Eighteen

Global Human Resource Management

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Human Resource Management (HRM)

• Refers to the activities an organization carries out to use its human resources effectively

• Four major tasks of HRM - Staffing policy- Management training and development- Performance appraisal - Compensation policy

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International Human Resource Management

• Strategic role: HRM policies should be congruent with the firm’s strategy and its formal and informal structure and controls

• Task complicated by profound differences between countries in labor markets, culture, legal, and economic systems

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International Human Resource Management

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Staffing Policy

• Staffing policy- Selecting individuals with requisite skills to do a particular

job- Tool for developing and promoting corporate culture

• Types of Staffing Policy- Ethnocentric- Polycentric- Geocentric

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Ethnocentric Policy

• Key management positions filled by parent-country nationals

• Best suited to international businesses• Advantages:

- Overcomes lack of qualified managers in host nation- Unified culture- Helps transfer core competencies

• Disadvantages:- Produces resentment in host country- Can lead to cultural myopia

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Polycentric Policy

• Host-country nationals manage subsidiaries• Parent company nationals hold key headquarter positions• Best suited to multi-domestic businesses• Advantages:

- Alleviates cultural myopia- Inexpensive to implement- Helps transfer core competencies

• Disadvantages:- Limits opportunity to gain experience of host country nationals

outside their own country- Can create gap between home and host country operations

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Geocentric Policy

• Seek best people, regardless of nationality• Best suited to global and trans-national businesses• Advantages:

- Enables the firm to make best use of its human resources- Equips executives to work in a number of cultures- 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

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Comparison of Staffing Approaches

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The Expatriate Problem

• Expatriate: citizens of one country working in another- Expatriate failure: premature return of the expatriate

manager to his/her home country• Cost of failure is high: estimate = 3X the expatriate’s annual

salary plus the cost of relocation (impacted by currency exchange rates and assignment location)

• Inpatriates: expatriates who are citizens of a foreign country working in the home country of their multinational employer

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Reasons for Expatriate Failure

• US multinationals- Inability of spouse to adjust- Manager’s inability to adjust- Other family problems- Manager’s personal or

emotional immaturity- Inability to cope with larger

overseas responsibilities

• European multinationals• Inability of spouse to adjust

• 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

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Expatriate Failure Rate

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Expatriate Selection

• Reduce expatriate failure rates by improving selection procedures

• An executive’s domestic performance does not (necessarily) equate to his/her overseas performance potential

• 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- Possessing high self-esteem, self-confidence and mental

well-being

• Others-Orientation- Ability to develop relationships with host country nationals - Willingness to communicate

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Four Attributes that Predict Success

• Perceptual Ability- The ability to understand why people of other countries

behave the way they do- Being nonjudgmental and flexible in management style

• Cultural Toughness- Relationship between country of assignment and the

expatriate’s adjustment to it

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Training and Management Development

• Training: Obtaining skills for a particular foreign posting

- Cultural training: Seeks to foster an appreciation of the host country’s culture

- Language training: Can improve expatriate’s effectiveness, aids in relating more easily to foreign culture, and fosters a better firm image

- Practical training: Ease into day-to-day life of the host country

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Training and Management Development

• Development: Broader concept involving developing manager’s skills over his or her career with the firm

- Several foreign postings over a number of years- Attend management education programs at regular

intervals

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Repatriation of Expatriates

• A critical issue in the training and development of expatriate managers is preparing them for reentry into their home country

• Repatriation should be seen as the final link in an integrated, circular process that selects, trains, sends, and brings home expatriate managers

• Research shows that there is a problem with the repatriation process

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Repatriation of Expatriates

Didn’t know what position they hold upon return.

Firm vague about return, role and career progression.

Took lower level job.

Leave firm within one year.

Leave firm within three years

10 20 30 40 50 60 70percent

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Management Development and Strategy

• Development programs designed to increase the overall skill levels of managers through:

- Ongoing management education- Rotation of managers through a number of jobs within the

firm to give broad range of experiences

• Used as a strategic tool to build a strong unifying culture and informal management network

• Above techniques support transnational and global strategies

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Performance Appraisal

• Problems:- Unintentional bias

• Host nation biased by cultural frame of reference• Home country biased by distance and lack of

experience working abroad

• Expatriate managers believe that headquarters unfairly evaluate and under-appreciate them

• In a survey of personnel managers in U.S. multinationals, 56% stated foreign assignment either detrimental or immaterial to one’s career

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Guidelines for Performance Appraisal

• More weight should be given to on-site manager’s evaluation as they are able to recognize the soft variables

• 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 completion of formal evaluation

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Compensation

• Two issues:- Pay executives in different countries according to the

standards in each country or equalize pay on a global basis- Method of payment

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Compensation in Various Countries

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Expatriate Pay

• Typically use balance sheet approach- Equalizes purchasing power to maintain same standard of

living across countries - Provides financial incentives to offset qualitative

differences between assignment locations

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Components of Expatriate Pay

• Base Salary- Same range as a similar position in the home country

• Foreign service premium- Extra pay for work outside country of origin

• 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 identical overseas

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The Balance Sheet Approach

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International Labor Relations

• Key Issue- Degree to which organized labor can limit the choices of an

international business

• Aims to foster harmony and minimize conflicts between firms and organized labor

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Concerns of Organized Labor

• Multinational can counter union bargaining power with threats to move production to another country

• Multinational 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

• Attempts to import employment practices and contractual agreements from multinational’s home country

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Strategy of Organized Labor

• Attempts to establish international labor organizations• Lobby for national legislation to restrict multinationals• Attempts to achieve international regulations on

multinationals through such organizations as the United Nations

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Looking Ahead to Chapter 19

• Accounting in the International Business- Country Differences in Accounting Standards- National and International Standards- Multinational Consolidation and Currency Translation- Accounting Aspects of Control Systems