Fourth Edition

InternationalBusiness

CHAPTER 18

Global Human Resource Management

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Chapter Focus

Look briefly at the strategic role of HRM.Examine HRM’s four major tasks:

Staffing policy.Management training and development.Performance appraisal.Compensation policy.

Tasks are complicated by:Varying compensation policies among countries.Labor laws may prohibit unions in one country and mandate them in another.Equal employment legislation may be pursued in one country and not in another.

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The Strategic Role of International HRM

Insure that HRM policies are congruent with the firm’s strategy, structure and controls.

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Table 18.1

Strategy, Structure and Control Systems

Worldwide area Worldwide Worldwide Informal matrix structure product division product division

centralized and decentralized

International Strategy

Structure Multidomestic International Global Transnational and Controls

Centralization of operating decision

Decentralized Core competency Some centralized Mixed centralized

Horizontal differentiation

Rest decentralized Informal matrix

Need for coordination Low Moderate High Very

highIntegrating mechanisms

None Few Many Very many

Performance Ambiguity

Low Moderate High Very high

Need for cultural controls

Low Moderate High Very high

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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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Types of Staffing Policy

Ethnocentric

Key management positions filled by

parent-country nationals

Polycentric

Host-country nationals manage

subsidiaries, parent company

nationals hold key Headquarter

positions

Geocentric

Seek best people, regardless

of nationality

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Comparison of Staffing Approaches Staffing Strategic

qualified managers in host country

Alleviates cultural Limits career mobilityInexpensive to from foreign

Transnational

Uses human resources National immigration

Table 18.2

myopia

Approach Appropriateness Advantages DisadvantagesEthnocentric International

Polycentric Multidomestic

Geocentric Global and

Overcomes lack of Produces resentment

host nation Unified culture Can lead to cultural

Helps transfer core competencies

myopia Isolates headquarters implement subsidiaries

efficiently policies may limitimplementation

Helps build strong culture and informal management network

Expensive

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The Expatriate Problem

Citizens of one country working in another.Inpatriates: expatriates who are citizens of a foreign country working working in the home country of their multinational employer.

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).

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Expatriate Failure Rates

Recall Rate Percent Percent of CompaniesUS Multinationals20 - 40% 7%

10 - 20% 69< 10 24

European Multinationals11 - 15% 3%

6 - 10 38<5 59

Japanese Multinationals11 - 19% 14%

6 - 10 10<5 76

Table 18.3

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Reason for Expatriate Failure

US MultinationalsInability 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.

Japanese FirmsInability to cope with larger overseas responsibilities.Difficulties with the new environment.Personal or emotional problems.Lack of technical competence.Inability of spouse to adjust.

European Multinationals: Inability of spouse to adjust.

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Mendenhall & OddouPredictors of success:

Expatriate Selection

Self-orientation:Strengthen self-esteem, self-confidence and mental well-being.

Others-orientation:Enhance ability to interact with host-country nationals.

Perceptual ability:The ability to empathize - 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.

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

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Training and Management Development

Training: obtaining skills for a particular

(foreign) posting.

Development: developsmanager’s skills over his/her career in the

Firm.

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Training for Expatriate Managers

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

Language:Can improve expatriate’s effectiveness, relate more easily to culture and fostered a better firm image.

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

1. Culture

2. Language

3. Practical

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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 70 percent

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Management and Development Strategy

Programs designed to increase overall skill through mix of education and assignment rotations.

Provides varied experience.Attempt to improve firm’s management productivity and quality.Particularly true for transnational strategy.

Unifying corporate culture and management networks.Socialize norms and value systems.

Foster esprit de corps.Build informal networksStrengthen identification with company.

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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 evaluates and appreciates them.

Many believe a foreign posting does not benefit their career.

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Guidelines for Performance Appraisal

More weight given to onsite manager’s evaluation.

Expat who worked in same location should assist home-office

manager with evaluation.

If foreign on-site manager preparing evaluation, home-office manager should

be consulted before finalization.

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Compensation

Two issues:How to adjust compensation to reflect national differences in economic circumstances and compensation practices.How expatriate managers should be paid.

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National Differences in Compensation

Table 18.4 CEO HR Director

Accountant Mfg. Employe

e

Argentina $860,704 $326,874 $63, 948 $17, 884

Canada 742,228 188, 070 44,866 36,289

Germany 421,622 189,785 61,375 36,934

Taiwan 179,486 102,491 30,652 11,924

United Kingdom

719,665 268,302 107,839 28,874

United States

1,403,899 306,181 66,377 44,680

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Compensation Issues

EthnocentricHow much home-country expatriates should be paid.

PolycentricPay can and should be country-specific.

Geocentric/TransnationalMay have to pay its international cadre of managers the same.

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Expatriate Pay

Typically use balance sheet approach.Equalizes purchasing power across countries.Provides financial incentives to offset qualitative differences between assignment locations.

Components of a typical expatriate compensation package include:

Base salary.Foreign service premium.Various allowances.Tax differentials.Benefits.

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A Typical Balance Sheet

Reserve Reserve Reserve Reserve

Goods and Services

Goods and Services

Goods and

Services

Goods and

Services

Housing

HousingHousing

Housing

Income Taxes

Income Taxes

Income Taxes

Home and Host-

Country Income Taxes

Premiums and

Incentives

Home-Country Salary

Host-Country Costs

Host-Country Costs Paid

by Company and from

Salary

Home- Country

Equivalent Purchasing

Power

Additional Costs Paid by

CompanyFigure 18.1

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International Labor Relations

Foster harmony and minimize conflict between the firm and organized labor.Key issue: degree to which organized labor can limit the choices of an international business.

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Concerns of Organized Labor

Firms can counter bargaining power by threatening to move production to another country.International business will keep highly skilled tasks in home country and farm out only low-skilled tasks to foreign plants.Importing employment practices and contractual agreements from home country that may diminish union’s influence and power.

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Strategy of International Labor

Try to establish international labor organizations.Lobby legislatures to restrict multinationals.Use United Nations to regulate multinationals.Efforts have not

been successful.

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Multinationals’ Approach to Labor Relations

Decentralize: labor laws, union power and nature of collective bargaining varies from country to country.Now a trend toward Centralize:

Want to rationalize global operations.Need to control labor costs and maximize threat of move to lower cost country.Competitive advantage can come from the way work is organized in a plant. Bargaining with local unions is, therefore, a priority.

Before move, get new union approval for work practices.