1. 14-1 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Chapter 14 I nternational H uman R esource M anagement

2. 14-2 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Lecture/Chapter Topics The Strategic Role of HRM Staffing Policy Training and Management Development Performance Appraisal Compensation International Labour Relations

3. 14-3 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. The Strategic Role of HRM HRM is more complex in an international business because of differences between countries in labour markets, culture, legal systems, economic systems, and so on. The HRM function must also deal with a host of issues related to expatriate managers (citizens of one country working abroad). Success in international business requires that HRM policies be congruent with the firm’s strategy.

4. 14-4 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. The Strategic Role of HRM The Role of Human Resources in Shaping Organisation Architecture

5. 14-5 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Staffing policy is concerned with the selection of employees who have the skills required to perform a particular job. Types of Staffing Polices –Research has identified three main approaches to staffing policy within international businesses: i.Ethnocentric approach ii.Polycentric approach iii.Geocentric approach

6. 14-6 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Ethnocentric Approach –An ethnocentric approach to staffing policy is one where key management positions in an international business are filled by parent-country nationals. –The policy makes most sense for firms pursuing an international strategy.

7. 14-7 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Ethnocentric Approach (Cont’d) –Firms pursue an ethnocentric staffing policy for three reasons: 1.The firm believes there is a lack of qualified individuals in the host country to fill senior management positions. 2.The firm sees an ethnocentric staffing policy as the best way to maintain a unified corporate culture.

8. 14-8 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Ethnocentric Approach (Cont’d) –Firms pursue an ethnocentric staffing policy for three reasons: (cont’d) 3.The firm believes the best way to create value by transferring core competencies to a foreign operation is to transfer parent-country nationals who have knowledge of that competency to the foreign operation.

9. 14-9 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Ethnocentric Approach (Cont’d) –The ethnocentric staffing policy is now on the wane in most international businesses. –There are two reasons for this: i.An ethnocentric staffing policy limits advancement opportunities for host-country nationals. ii.An ethnocentric policy can lead to ‘cultural myopia’.

10. 14-10 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Polycentric Approach –A polycentric staffing policy is one where host-country nationals are recruited to manage subsidiaries in their own country, while parent-country nationals occupy the key positions at corporate headquarters. –While this approach minimises the dangers of cultural myopia, it also helps create a gap between home- and host-country operations. –The policy is best suited to firms pursuing a localisation strategy.

11. 14-11 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Polycentric Approach (Cont’d) –There are two advantages to the polycentric approach: i.The firm is less likely to suffer from cultural myopia. ii.This staffing approach may be less expensive to implement than an ethnocentric policy.

12. 14-12 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Polycentric Approach (Cont’d) –There are two disadvantages to the polycentric approach: i.Host country nationals have limited opportunities to gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiaries. ii.A gap can form between host-country managers and parent-country managers.

13. 14-13 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Geocentric Approach –A geocentric staffing policy is one where the best people are sought for key jobs throughout the organisation, regardless of nationality. –This approach is consistent with building a strong, unifying culture and an informal management network.

14. 14-14 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Geocentric Approach (Cont’d) –This approach makes sense for firms pursuing either a global or a transnational strategy. –Immigration policies of national governments may limit the ability of a firm to pursue this policy.

15. 14-15 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Geocentric Approach (Cont’d) –The advantages of a geocentric approach to staffing include:  Enabling the firm to make the best use of its human resources  Building a cadre of international executives who feel at home working in a number of different cultures

16. 14-16 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Geocentric Approach (Cont’d) –The disadvantages of the geocentric approach include:  Difficulties with immigration laws  Costs associated with implementing the strategy

17. 14-17 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Comparison of Staffing Approaches

18. 14-18 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Expatriate Managers –With an ethnocentric policy, the expatriates are all home- country nationals (sometimes described as parent- company nationals) who are transferred abroad. –With a geocentric approach, the expatriates need not be home-country nationals; the firm does not base transfer decisions on nationality.

19. 14-19 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy A prominent issue in the international staffing literature is expatriate failure. Expatriate failure is the premature return of an expatriate manager to his or her home country. Expatriate Failure Rates –Expatriate failure represents a failure of the firm’s selection policies to identify individuals who will not thrive abroad.

20. 14-20 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Expatriate Failure Rates (Cont’d) –The consequences include premature return from a foreign posting and high resignation rates, with expatriates leaving their company at about twice the rate of domestic managers. –The average cost per failure to the parent firm can be as high as three times the expatriate’s annual domestic salary plus the cost of relocation.

21. 14-21 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Expatriate Failure Rates (Cont’d) –Studies show the main reasons for expatriate failure for Western firms are:  Inability of an expatriate's spouse to adapt to a foreign culture  Inability of the employee to adjust  Other family-related reasons  The manager’s personal or emotional maturity  Inability to cope with larger overseas responsibilities

22. 14-22 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy For European firms, only one reason was found to consistently explain expatriate failure: –Inability of the manager’s spouse to adjust to a new environment

23. 14-23 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Expatriate Failure Rates

24. 14-24 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy For Japanese firms, the reasons for failure were: –Inability to cope with larger overseas responsibility –Difficulties with the new environment –Personal or emotional problems –A lack of technical competence –Inability of spouse to adjust

25. 14-25 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Expatriate Selection –Expatriate failure rates can be reduced through improved selection procedures. –Mendenhall and Oddou identified four dimensions that predict expatriate success: 1. Self-orientation 2. Others-orientation 3. Perceptual ability 4. Cultural toughness

26. 14-26 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Expatriate Selection (Cont’d) 1.Self-orientation attributes strengthen the expatriate's self- esteem, self-confidence and mental well-being. 2.Others orientation refers to how the attributes of this dimension enhance the expatriate’s ability to interact effectively with host-country nationals.

27. 14-27 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Staffing Policy Expatriate Selection (Cont’d) 3.Perceptual ability refers to the ability to understand why people of other countries behave the way they do. 4.Cultural toughness refers to the fact that the success with which an expatriate adjusts to a particular posting tends to be related to the country of assignment.

28. 14-28 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Training and Management Development Training begins where selection ends and it focuses upon preparing the manager for a specific job. Management development is concerned with developing the skills of the manager over the course of his or her career with the firm.

29. 14-29 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Training and Management Development Training for Expatriate Managers –Cultural training, language training and practical training have all been shown to reduce expatriate failure. –Yet, according to one study only about 30% of managers sent on one- to five-year expatriate assignments received training before their departure.

30. 14-30 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Training and Management Development Training for Expatriate Managers (Cont’d) –Cultural Training  Cultural training seeks to foster an appreciation for the host country's culture. –Language Training  An exclusive reliance on English diminishes an expatriate manager's ability to interact with host country nationals.

31. 14-31 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Training and Management Development Training for Expatriate Managers (Cont’d) –Practical Training  Practical training helps the expatriate manager and his or her family ease themselves into day-to-day life in the host country.

32. 14-32 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Training and Management Development Repatriation of Expatriates –A critically important issue in the training and development of expatriate managers is to prepare them for re-entry into their home country organisation. –The HRM function needs to develop a good program for re- integrating expatriates back into work life within their home country organisation once their foreign assignment is over, and for utilising the knowledge they acquired while abroad.

33. 14-33 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Training and Management Development Management Development and Strategy –Management development programs increase the overall skill levels of managers through a mix of ongoing management education and rotations of managers through jobs within the firm to give them varied experiences.

34. 14-34 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Training and Management Development Management Development and Strategy (Cont’d) –Management development is often used as a strategic tool to build a strong unifying culture and informal management network, both of which are supportive of a transnational and global strategy.

35. 14-35 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Performance Appraisal Performance Appraisal Problems –In most cases, two groups evaluate the performance of expatriate managers — host-nation managers and home- office managers — and both are subject to unintentional bias. –Home-country managers tend to rely on hard data when evaluating expatriates. –Host-country managers can be biased towards their own frame of reference.

36. 14-36 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Performance Appraisal Guidelines for Performance Appraisal –To reduce bias in performance appraisal:  Most expatriates believe more weight should be given to an on-site manager's appraisal than to an off-site manager's appraisal.  A former expatriate who has served in the same location could be involved in the appraisal process to help reduce bias.

37. 14-37 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Performance Appraisal Guidelines for Performance Appraisal –To reduce bias in performance appraisal: (cont’d)  When the policy is for foreign on-site mangers to write performance evaluations, home-office managers should probably be consulted before an on-site manager completes a formal termination evaluation.

38. 14-38 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation National Differences in Compensation –Should firms pay executives in different countries according to the prevailing standards in each country, or should they equalise pay on a global basis?

39. 14-39 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation Expatriate Pay –The most common approach to expatriate pay is the balance sheet approach. –This approach equalises purchasing power across countries so employees can enjoy the same standard in their foreign posting as they enjoyed at home.

40. 14-40 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation The Balance Sheet

41. 14-41 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation The components of the typical expatriate compensation package are: –Base salary –A foreign service premium –Allowances of various types –Tax differentials –Benefits

42. 14-42 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation Base Salary –An expatriate’s base salary is normally in the same range as the base salary for a similar position in the home country. Foreign Service Premium –A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. –It is offered as an inducement to accept foreign postings.

43. 14-43 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation Allowances Four types of allowances are often included in an expatriate’s compensation package: 1.Hardship allowances 2.Housing allowances 3.Cost-of-living allowances 4.Education allowances

44. 14-44 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation Taxation –Unless a host country has a reciprocal tax treaty with the expatriate’s home country, the expatriate may have to pay income tax to both the home-country and host-country governments. –When a reciprocal tax treaty is not in force, the firm typically pays the expatriate’s income tax in the host country.

45. 14-45 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Compensation Benefits –Many firms also ensure that their expatriates receive the same level of medical and pension benefits abroad that they received at home. –This can be costly for the firm, since many benefits that are tax deductible for the firm in the home country (e.g. medical and superannuation benefits) may not be deductible out of the country.

46. 14-46 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. International Labour Relations A key issue in international labour relations is the degree to which organised labour is able to limit the choices available to an international business. A firm's ability to pursue a transnational or global strategy can be significantly constrained by the actions of labour unions.

47. 14-47 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. International Labour Relations Concerns of Organised Labour –A principal concern of organised labour is that the multinational can counter union bargaining power by threatening to move production to another country. –Another concern is that multinationals will try to import and impose unfamiliar labour practices from other countries.

48. 14-48 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. International Labour Relations Strategy of Organised Labour –Organised labour has responded to the increased bargaining power of multinational corporations by:  trying to set up their own international organisations  lobbying for national legislation to restrict multinationals  trying to achieve regulation of multinationals through international organisations such as the United Nations

49. 14-49 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. International Labour Relations Approaches to Labour Relations –Traditionally labour relations has been decentralised to individual subsidiaries within multinationals. –Now there is a trend towards greater centralisation to enhance the bargaining power of the multinational vis-à-vis organised labour. –There is a growing realisation that the way in which work is organised within a plant can be a major source of competitive advantage.

50. 14-50 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang. Summary of Main Themes This chapter focused on human resource management in international businesses. HRM activities include human resource strategy, staffing, performance evaluation, management development, compensation and labour relations. None of these activities is performed in a vacuum; all must be appropriate to the firm’s strategy.