Global Human Resource Management Chapter 18 Global Human Resource Management

Learning Objectives Discuss the strategic role of HRM Examine HRM major functions Staffing policy Training and development Performance appraisal Compensation policy Labor relations Identify issues and problems in staffing and managing expatriates IBUS 330 Dr. Nini Yang

The Strategic Role of International Human Resource Management To insure that HRM policies are congruent with and in support of the firm’s strategy, structure and controls. IBUS 330 Dr. Nini Yang

Strategy, Structure and Control Systems International Strategy Structure Multi-domestic International Global Transnational & Controls Centralization of operating decision Decentralized Core competency Some Mixed centralized centralized centralized and decentralized Rest decentralized Informal matrix Horizontal differentiation Worldwide area Worldwide Worldwide Informal structure product division product division matrix Need for coordination Low Moderate High Very high Integrating mechanisms None Few Many Very many Performance Ambiguity Low Moderate High Very high Need for cultural controls Low Moderate High Very high Table 18.1 IBUS 330 Dr. Nini Yang

Staffing Policy Staffing policy: Types of staffing policy: Selecting individuals with requisite skills to do a particular job. Also as tools for developing and promoting corporate culture. Types of staffing policy: Ethnocentric. Polycentric. Geocentric. IBUS 330 Dr. Nini Yang

Types of Staffing Policy Geocentric Ethnocentric Polycentric Seek best people, regardless of nationality Key management positions filled by parent-country nationals Host-country nationals manage subsidiaries, parent company nationals hold key Headquarter positions IBUS 330 Dr. Nini Yang

Comparison of Staffing Approaches Staffing Strategic myopia Approach Appropriateness Advantages Disadvantages Ethnocentric International Polycentric Multi-domestic Geocentric Global and Overcomes lack of Produces resentment in host nation Unified culture Can lead to cultural Helps transfer core competencies myopia Isolates headquarters implement subsidiaries efficiently policies may limit implementation Helps build strong culture and informal management network Expensive qualified managers in host country Higher cost Alleviates cultural Limits career mobility Inexpensive to from foreign Uses human resources National immigration Transnational Table 18.2 IBUS 330 Dr. Nini Yang

The Expatriate Problem Citizens of the firm’s home country working in another country Expatriate failure: Premature return of the expatriate manager to his/her home country Cost of failure is high: Estimate at three times of an expatriate’s annual salary plus the cost of relocation (impacted by currency exchange rates and assignment location) $250,000-1million IBUS 330 Dr. Nini Yang

Expatriate Failure Rates Recall Rate Percent Percent of Companies US Multinationals 20 - 40% 7% 10 - 20% 69 < 10 24 European Multinationals 11 - 15% 3% 6 - 10 38 <5 59 Japanese Multinationals 11 - 19% 14% 6 - 10 10 <5 76 Table 18.3 IBUS 330 Dr. Nini Yang

Reason for Expatriate Failure U.S. 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 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 European Multinationals: Inability of spouse to adjust. IBUS 330 Dr. Nini Yang

Expatriate Selection Self-orientation: Others-orientation: An executive’s domestic performance does not necessarily equate to his/her overseas performance. 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 Mendenhall & Oddou’s Predictors of success IBUS 330 Dr. Nini Yang

Training and Management Development Obtain skills for a particular (foreign) posting. Development: Develop manager’s skills over his/her career in the Firm. IBUS 330 Dr. Nini Yang

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 IBUS 330 Dr. Nini Yang

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 percent 10 20 30 40 50 60 70 IBUS 330 Dr. Nini Yang

Management and Development Strategy Programs designed to increase overall skill through a 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 networks Strengthen identification with company IBUS 330 Dr. Nini Yang

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. IBUS 330 Dr. Nini Yang

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. IBUS 330 Dr. Nini Yang

Compensation Two issues: How to adjust compensation to reflect national differences in economic circumstances and compensation practices. How expatriate managers should be paid. IBUS 330 Dr. Nini Yang

National Differences in Compensation Country CEO HR Director Accountant Mfg. Employee Japan $545,233 $235,536 $59, 107 $51, 994 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 Table 18.4 IBUS 330 Dr. Nini Yang

Geocentric/Transnational Compensation Issues Ethnocentric How much home-country expatriates should be paid Polycentric Pay can and should be country-specific Geocentric/Transnational May have to pay its international cadre of managers the same IBUS 330 Dr. Nini Yang

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. IBUS 330 Dr. Nini Yang

A Typical Balance Sheet Reserve Goods and Services Housing 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 Company Figure 18.1 IBUS 330 Dr. Nini Yang

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. IBUS 330 Dr. Nini Yang

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. IBUS 330 Dr. Nini Yang

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. IBUS 330 Dr. Nini Yang

Multinationals’ Approach to Labor Relations Decentralize: labor laws, union power and nature of collective bargaining vary from country to country Now a trend toward centralization: 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 IBUS 330 Dr. Nini Yang

Implication for Effective IHR Human Resource Management practices vary across borders. Both home-country and host-country economic, social, cultural, political, and legal factors influence and constrain HR functions. Corporate strategies guide and determine how HR works in an organization. Global experience and good knowledge of IHR can enhance one’s career as a successful manager whether one works at the home-country headquarters or overseas. IBUS 330 Dr. Nini Yang