International Human Resource Management Chapter 28 International Human Resource Management

Lecture Overview International HRM Difference between IHRM and Domestic HRM Basic steps in IHRM Key Issues in International Labour Relations

International Human Resource Management Globalization has significantly influence HRM practices and policies All HRM functions need international orientation MNC operating internationally need to be more focused to attract, motivate and transfer workforce globally The process of procuring, allocating, motivating, training & development, and compensating and utilizing human resources in international business is called international human resource management IHRM covers six main functions of domestic HRM such as HR planning, recruiting, training and development, performance management, compensation and labour relations The three countries categories of IHRM are country where headquarter is based, country where subsidiary is located, and country from where workforce and finances come

International Human Resource Management The three types of workers in international business are host country, parent country and third country nationals IHRM differs from domestic HRM on following points More HR activities Broader perspective More involvement in employees’ personal lives Greater workforce diversity Change in Emphasis More risk More external influences

International Human Resource Management More HR activities IHRM has boarder scope in deal with employment related issues. For example: International taxation, host country regulations, home country regulations, international orientation of relocating and training of employees, and administrative and compensation issues of expatriates, and language translation services

International Human Resource Management Each HR functions has different scope and issues in IHRM HR Planning Difficulty in implementation of HR policy and procedure in host country Difficulty in aligning business strategy with HR strategy Providing career development opportunities to international managers Hiring Matching person and organizational fit (cultural match) Selection of expatriates Managing expatriates failures Managing repatriation process

International Human Resource Management Training and Development Language training Cultural training Training of expatriates and managers Compensation Deciding compensation of expatriates Deciding compensation of parent, host, and third country nationals Performance Management Implementation of performance evaluation system in host country Physical distance, time difference, and reporting cost Raters to evaluate subsidiary performance

International Human Resource Management Industrial Relations Who should deal industrial relations issues in subsidiary? What is attitude and policy of parent company toward unions in subsidiary? What should be tactics to deal with unions in subsidiary? 2) Need for Broader Perspective In dealing with compensation issues, HR manager in headquarter need to consider different pay systems for parent, host, and third country nationals, paying in different currencies, and change in relative value of currency In deciding fringe benefits, HR managers face difficulty, in most countries providing health insurance is compulsory, whereas definition of dependent varies from country to country, in some countries dependent means multiple spouses, children, parents, grandparents

International Human Resource Management 3) More involvement in employees’ personal lives In IHRM there is more involvement of HR department in dealing with their personal issues for better selection, training, relocation and effective management of global workforce HRM department need to ascertain that managers selected for foreign assignment understand housing, health care, and remuneration package HRM need to have more information about manager family, schooling of their children, emotional and physical health of their spouse and children etc. ‘International Human Resource Services’ section provide services to managers like handling investment, banking, home rental, house arrangements, home visits, and repatriation issues Unlike domestic HRM in International HRM, HR manager needs to understand more about their personal lives and provide support in relocation for foreign assignment even assistance to children left behind

International Human Resource Management 4) Greater Work force Diversity IHRM requires more emphasis on management of global and diversified work force Different work ethics, motivation level, cultural compatibility, managing team work are main issues that IHRM to handle 5) Change in Emphasis Emphasis has changed from idea of repatriation and dependence on third country nationals towards development of local managers As more trained local managers are available, the issue of training and development of local managers come to highlight Designing programs and policies to provide development opportunities to local managers by placing them in headquarter

International Human Resource Management 6) Risk Exposure MNCs operating in different countries need to assess the law and order situation and advise or provide support to their expatriates or third countries employees HR department may also need to have emergency evacuation program for their employees working in highly risk areas Poor selection decision may result into huge loss as in case of expatriate may not perform well and recalled If MNC’s policies and practices are hostile to unions, political party or in violation of host country regulations, company can be asked to win up operations or government may seize physical and financial assets

International Human Resource Management 7) External Influence MNCs operating in host country face more external influence as opposed to local company Federal and local government, political figures, political and social groups exert great pressure on foreign company Subsidiary manager need to know local way of doing business, dealing with different ministries, political parties, and labour unions

International Human Resource Management Growing interest in IHRM There are number of reasons for growing interest in IHRM Thanks to globalization, more and more entry of multinational corporations means greater mobilization of human resources In international business human resources performance is more critical for success The cost of underperformance in international assignment is very high both in financial and image terms The international expansion mainly depend on availability and utilization of competent human resources Finally, implementation of strategies is more crucial than developing, and implementation is dependent upon culture that is developed by HR policies and practices

Managing International HR Activities Organizational Effectiveness HR Planning Recruitment and Selection Training and Development Performance Management Remuneration Repatriation Employee Relations Multicultural Management Adopted from: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 664. 333

Managing International HR Activities HR Planning HR planning in international business is more complex and crucial HRP procedures are difficult to implement in different countries. Cultural differences in view of planning Identification of top management Identification of critical competencies for future managers Providing developmental opportunities Tracking and supporting in pursuing international career path Aligning business strategy with HRP and vice-versa (European and Asian strategy)

Managing International HR Activities Recruitment and Selection Main issue in international hiring is not to select competent employee but candidate who could mix with culture of organization Ethnocentric Approach All key management positions are held by parent country nationals This is good strategy at early stage of new start up/operations in host country Polycentric Approach Subsidiary is headed by host country nationals and parent country nationals are at the top positions in headquarter Some countries have made regulation or exert pressure to hire host country nationals for top position in subsidiary

Managing International HR Activities Geocentric Approach In this staffing approach best people are selected to fill vacant positions irrespective of their nationality Staffing approach Advantages Disadvantages Parent Country Nationals Familiarity with headquarters goals and objectives More organizational control and coordination Competent managers are giving expatriate opportunity Specific skills and experience Difficulty in adjustment: foreign language, different culture and political and socio economic system Cost of training, remuneration and family benefits Host countries nationals feel demotivated when they see no further progress PCN can impose unnecessarily HQ culture and style Family adjustment issues

Managing International HR Activities Staffing approach Advantages Disadvantages Host Country Nationals Familiarity with country’s culture, political system and business practices Low cost of hiring and remuneration Promotional opportunities for locals hence motivated and committed No language barrier Continuity of management Communication problems with home country management Little change of host country nationals to get international assignments and experience Difficulty in inculcating HQ management philosophy, culture, and best practices Third Country Nationals Low salary package as compared to PCN They are truly international managers May be more aware of host country culture, political and economic system, language hence easily and quickly adjust Host country may not like to hire TCN TCNs may not return to their country Host country may be sensitive or have hostile attitude toward TCN Resistance from subsidiary employees Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 667 333

International Human Resource Management Chapter 28 International Human Resource Management

Lecture Overview International HRM Difference between IHRM and Domestic HRM Basic steps/activities in IHRM Key Issues in International Labour Relations

Managing International HR Activities Organizational Effectiveness HR Planning Recruitment and Selection Training and Development Performance Management Remuneration Repatriation Employee Relations Multicultural Management Adopted from: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 664. 333

Managing International HR Activities Factors Influencing PCN and HCN Choice Dimensions Factors Parent Country Characteristics Cultural distance between HQ and subsidiary, size of operation, research intensity Industry Characteristics Financial institution, need for control, need to customize Subsidiary Characteristics Age, acquired or strategic role of subsidiary, performance, ownership Host Country Variables Educational levels, political risk, cost of hiring Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 668 333

Managing International HR Activities Expatriates Expatriates are those employees who work abroad (away from their home country) for a specific time period with a planned return to third country or home country Crises and adjustment Expatriates Assignment life cycle Reassignment abroad Need for expatriates Departure Post arrival training Repatriation and adjustment Selection process Pre assignment training or Crises and failure Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 669 333

Managing International HR Activities Reasons of Expatriate Failure US Firms Japanese Firms Spouse adjustment problem Inability to cope with international responsibilities Inability of managers to adjust Difficulties with environment Other family reasons Personal and emotional problems Personal and emotional maturity of managers Lack of technical competence Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 669 333

Managing International HR Activities Expatriate Adjustment Process Cultural Shock Cycle High Mood Low Months in new culture Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 670 333

Managing International HR Activities Expatriate Selection Decision Individual Technical Ability Cross cultural suitability Family requirements Situation Country-cultural requirements MNC requirements Language Expatriate Selection Decision Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 670 333

Managing International HR Activities Training and Development The common objectives of training and development in MNCs are Bridging cultural gap between subsidiary and HQ Orientation challenges are different in HQ and subsidiary Building united corporate culture Training and development activity IHRM most of the time focus on training of candidate likely to be posted abroad Expatriates are giving training to reduce likelihood of failure in foreign assignment. The main components of training of expatriate are cross cultural, language and practical training, and management development programs

Managing International HR Activities Cross Cultural Training: Expatriate receives pre-departure training on host country culture to make it easy for him/her to adjust to new culture Expatriate often receives training on repatriation to avoid cross cultural shock Merits Demerits More chances of success in foreign assignment May not remove cultural biases Provides comprehensive global perspective Recipient may not take it serious Sense of confidence May not make real difference in business Reduces cultural shock Can not prepare manager to face all real life problem Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 672 333

Managing International HR Activities Performance Management In IHRM performance management tend to focus on evaluation of performance and continuous improvement of individual, subsidiary and corporate performance against pre set targets and objectives Steps in Performance Management of Expatriate Linkage to organizational strategy Setting individual performance goals Identifying variable impacting performance Appraising the performance Providing regular feedback Providing opportunities for development Linking results with rewards Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 674 333

Managing International HR Activities Expatriate’s Compensation The objectives of expatriate compensation Attract employees for international assignment Facilitate the movement Be cost effective Provide consistent relationship between HQ employees and foreign subsidiary Problems with expatriate compensation Gap between pay of parent, host and third country nationals The pay variation considering the expatriate's family Issues relating to entry of expatriate back to parent country

Managing International HR Activities Expatriate’s Compensation MNC Internal environment Goal orientation Capacity to pay Internal workforce composition Subsidiary role MNC external environment Parent nationality Local culture Host and home country government role Industry type Competitor's strategy Staffing Option Compensation strategy Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 6773

Managing International HR Activities Expatriate’s Compensation Base Salary Different meaning from domestic employment Primary component of package of allowances (foreign assignment premium, house allowance, and cost of living allowance) Payment in home country and host country currency Benefits Issues Whether expatriate subscribe to home country benefits (if there is tax exemption) Whether home or host country is responsible for social security benefits Whether the benefits should be according to host or home country requirements Whether home country benefits be available to local citizens

Managing International HR Activities Expatriate’s Compensation Allowances Cost of living allowance, provide same standard of living as expatriate was enjoying in home country Covers expenses like relocation, housing, hardship, and education Spouse assistance (protect or compensate loss in case of spouse lost income due to relocation) Offer support to find spouse job or placement in subsidiary Incentives Incentive is once time lump-sum payment apart from regular salary Tax equalization: MNC based on home country tax obligation withhold or deduct amount from expatriate salary and pay all taxes in host country Tax protection: Employee pays up to the taxes he would pay on remuneration in his home country and entitled to retain extra in case tax deduction is less in foreign assignment

Managing International HR Activities Expatriate’s Compensation Tax Consideration Tax equalization: MNC based on home country tax obligation withhold or deduct amount from expatriate salary and pay all taxes in host country Tax protection: Employee pays taxes he would pay on remuneration in his home country and entitled to retain extra in case tax deduction is less in foreign assignment

Managing International HR Activities Expatriate’s Compensation Tailoring the package Balance sheet approach Equate purchasing power of expatriate in host country with home country Going rate approach Expatriate compensation is linked with host country on going rate Lump-sum method Giving lump-sum amount and expatriate has option to spend in a way he likes Regional approach In which MNC decide compensation system for particular region (Europe, South Asia, Middle east)

Managing International HR Activities Repatriation Bringing expatriate back to home country after completion of assignment or due to other reasons (failure to perform, adjustment problems, family problems) Re-entry shock or reverse culture shock Benefits of returnees Exposure to global culture and local culture Part of global network Understand operations of HQs and subsidiary (overseas operations) Transfer technology, business knowledge back to home country Provide coordination and communication support

Managing International HR Activities Benefits from returnees Exposure to global culture and local culture Part of global network Understand operations of HQs and subsidiary (overseas operations) Transfer technology, business knowledge back to home country Provide coordination and communication support Personal and professional growth (global and broader vision)

Managing International HR Activities Repatriation Process Preparation Physical relocation Repatriation Process Transition Re-adjustment Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 681

Managing International HR Activities Repatriation Challenges of Re-entry Individual Perspective Personal Perspective: Face reverse cultural shock schooling, social network, loss of income, lower social status Professional disappointment: No use of his expertise and skills gained during foreign assignment, less authority, autonomy, and importance Often limited promotion opportunities and career choices means removed from mainstream corporate advancement Organizational Perspective Retaining the expatriate after repatriation

Managing International HR Activities Industrial Relations Who should deal industrial relations issues in subsidiary? What is attitude and policy of parent company toward unions in subsidiary? What should be tactics to deal with unions in subsidiary?

Managing International HR Activities Multiculturalism Culture is customs, beliefs, values and norms that guide behavior and pass from one generation to other Multiculturalism when people from different cultures interact regularly IHR managers should have cross cultural competence Should have strong personal identity, knowledge of different cultures, communicate effectively in language of given culture group Hofstede Cultural dimensions: Power distance, uncertainty avoidance, Individualism, and masculinity

Summary International HRM Difference between IHRM and Domestic HRM Basic steps/activities in IHRM Key Issues in International Labour Relations