Global Human Resource Management International Business Oded Shenkar and Yadong Luo Chapter 17 Global Human Resource Management Chapter 17: Global Human Resource Management

Do You Know? Some basic stages that Multinational Enterprises go through to staff themselves? What the reasons are for assigning an expatriate to foreign branches and/or subsidiaries? That the rate of success for expatriates is tied to their abilities, openness, and training? What some of the basic parts of expatriate compensation are? How working for subsidiary versus working for an international joint venture differs for the expatriate? Chapter 17: Global Human Resource Management

BP Amoco BP Amoco, originally British Petroleum, acquired Standard Oil of Ohio between 1976 and 1987. After that, it acquired Atlantic Richfield. With the acquisitions, it established BP-Amoco as a world power in oil development, exploration, refining, and distribution. In order to give itself sufficient expertise in world affairs, the company undertook the mission of internationalizing the Board of Directors, based in London. To date, the Board consists of 10 non-Brits, and 14 Brits. Chapter 17: Global Human Resource Management

International Human Resources (IHRM) International Human Resources Management is the procurement, allocation, utilization, and motivation of human resources in the international arena. With quality and conflict among the top issues for international managers, firms deal with multiculturalism, dispersion, international taxation, relocation, and foreign culture orientation in selecting and developing expatriate managers. Chapter 17: Global Human Resource Management

Strategic IHRM Strategic IHRM is defined as “human resources, management issues, functions and policies and practices that result from the strategic activities of the Multinational Enterprise and in impact it has on the international concerns and goals of that organization. Chapter 17: Global Human Resource Management

Strategic IHRM Strategic IHRM has three main orientations: The Adaptive System – that seeks to imitate local HRM practices The Exportive System – that seeks to replicate the HRM system of the home country in host country, affiliates, partners, and subsidiaries The Integrative System – that seeks to emphasize global integration while permitting some local variation Chapter 17: Global Human Resource Management

Strategic IHRM Exhibit 17-1: Model of strategic international human resource management (SIHRM) Chapter 17: Global Human Resource Management

Staffing the MNE Staffing the Multinational Enterprise is a difficult endeavor. Firms must deal with gaining a global orientation in the Board of Directors, the rank and file of the company, and deal with a number of country specific issues. Chapter 17: Global Human Resource Management

Staffing the MNE: The Board Firms seeking a global orientation frequently start with the Board. By doing this, they gain needed international insight into markets, customer demands, and country specific business issues. Firms typically start with nationals who have international experience, and then move on to foreign nationals. Representation is an important issue as firms seek true expertise in the international market. Chapter 17: Global Human Resource Management

Staffing the MNE: Rank Terms PCN – Parent Company Nationals HCN – Host Country National TCN – Third Country National Chapter 17: Global Human Resource Management

Staffing the MNE: The Ranks Staffing the Multinational Enterprise’s employees is also a difficult endeavor. Firms go through stages where they use: Ethnocentric Staffing – PCNs almost exclusively Polycentric Staffing – HCN in key positions Regiocentric Staffing – Regional basis Geocentric Staffing – TCN, HCN, PCN equal status Chapter 17: Global Human Resource Management

Staffing the MNE: The Ranks Exhibit 17-3: Hourly compensation costs in U.S. dollars for production workers in manufacturing, 2001 Chapter 17: Global Human Resource Management

Staffing the MNE: Issues Adjustment Of/To Corporate Policies Variations In Employment Markets And Labor Policies HCN Adjusting To Higher Productivity Requirements Finding Skilled HCN Very High Turnover Chapter 17: Global Human Resource Management

The Expatriate Workforce The Expatriate Workforce is small in comparison with total Multinational Enterprise employment, less than 1% of total employment. The numbers are growing as more companies are pursuing global objectives. Chapter 17: Global Human Resource Management

The Expatriate Workforce: Terms Traditional Expatriate, older and experienced, selected for experience and knowledge International Cadre, individuals who move from one assignment to another Permanent Expatriate, employees who are permanently assigned to overseas locations Young Expatriate, needs experience, is sent for rotating assignments Temporary Expatriate, goes on short assignments …/… Chapter 17: Global Human Resource Management

The Expatriate Workforce: Terms Expatriate Trainee, placed abroad for management experience as part of Multinational Enterprise initiation Virtual Expatriate, the expatriate who takes on foreign assignments while staying in the home office Chapter 17: Global Human Resource Management

The Expatriate Workforce: Pro There are advantages to using expatriates. Frequently, locals are not ready to take the responsibility. Expatriates contribute essential knowledge and corporate history. Expatriates serve as a mechanism for performance control, and transmit corporate culture and goals. Chapter 17: Global Human Resource Management

The Expatriate Workforce: Con There are disadvantages to using expatriates. There is a disincentive to the local workforce whose promotion is blocked and who earn poor wages. Expatriates can rob a company of skill development, insight development, and initiative of locals. Expatriates also have a high risk of failure. Chapter 17: Global Human Resource Management

Expatriate Failure Failure is frequent. It occurs when the assignee returns prematurely or when performance does not meet expectations. Rates range from 15% to 80%. The highest failure rate is for United States nationals. Chapter 17: Global Human Resource Management

Failure Costs The costs for failure are substantial, ranging from $55,000 to $150,000 per failure in direct costs. The real cost if higher as it includes cost of selection and replacement, training, preparation, moving, lost revenue, lost reputation, lost opportunity, and lost future value. Chapter 17: Global Human Resource Management

Failure Reasons The reasons for failure are legion. They include spouse unhappiness, inability to adjust, immaturity, inability to cope with responsibility, stress, lack of technical competence. Lack of motivation is also a problem. Dual career families are frequently hurt in the expatriate assignment. Chapter 17: Global Human Resource Management

Expatriate Selection A firm needs to select on: Feedback Seeking Behavior Feedback Using Behavior Adventure Seeking Behavior Seek Learning Open To Criticism Flexibility Cultural Sensitivity Business Knowledge Courage Motivational Ability Integrity Insight Commitment Risk Taking Chapter 17: Global Human Resource Management

Expatriate Selection Successful expatriates need three sets of skills: Personal Skills, stress orientation, reinforcement needs, substitution, physical mobility, technical competence, dealing with alienation, isolation, realistic expectations People Skills, relational abilities, willingness to communicate, non-verbal communication, respect for others, empathy Perception Skills, flexible attribution, open mindedness, and judgment suspension processes Chapter 17: Global Human Resource Management

Expatriate Selection You could also look for realistic expectations, open-mindedness, respect for others’ beliefs, trust in people, tolerance, locus of control, flexibility, patience, social adaptability, initiative, risk-taking, sense of humor, and spouse support Chapter 17: Global Human Resource Management

Expatriate Preparation Preparation is essential to expatriate success. The U-curve theory states that expatriates go through four stages of adjustment: the honeymoon, culture shock, adjustment, and mastery. Effective preparation can speed the expatriate through the stages. Chapter 17: Global Human Resource Management

Expatriate Training Training for expatriates has several stages: Practical Information - on living conditions in host country Area Studies – information of the macro environment Cultural Awareness Information Chapter 17: Global Human Resource Management

Expatriate Compensation Research suggests that the compensation package should reduce expenses while enhancing commitment to the employer, job satisfaction, and willingness to relocate internationally. Chapter 17: Global Human Resource Management

Expatriate Compensation Typical for expatriate compensation: Salary, with deferment options Benefits, like insurances to cover health and other risks Housing, which can be very expensive. Service Allowances And Premiums, including education allowances, home leave, relocation, transportation, automobiles, security, inconveniences Tax Equalization, to compensate when host country tax policies hurt the expatriate Chapter 17: Global Human Resource Management

Expatriate Compensation Exhibit 17-7: Adoption of U.S.-style compensation by foreign firms in the United States Chapter 17: Global Human Resource Management

HRM Problems in Foreign Affiliates Staff Friction Blocked Promotion Exile Syndrome Split Loyalties Compensation Gaps Blocked Communication Limited Delegation Screening Of Information Unfamiliarity Chapter 17: Global Human Resource Management

Repatriation Repatriation represents a major adjustment for the expatriate. Many firms do not provide a guarantee of reassignment prior to departure, and most don’t know what their next assignment will be. Those reassigned frequently feel their employer does not make effective use of their foreign experience. Most firms do not provide spouse career counseling or other forms of family repatriation assistance. Many expatriates leave within 1 year of repatriation Chapter 17: Global Human Resource Management

Preparing for an Assignment in a Foreign Affiliate Exhibit 17-9: Management education requirements in two types of foreign affiliates Chapter 17: Global Human Resource Management