Global Human Resource Management Chapter Eighteen Global Human Resource Management

Human Resource Management (HRM) Refers to the activities an organization carries out to use its human resources effectively Four major tasks of HRM Staffing policy Management training and development Performance appraisal Compensation policy

International Human Resource Management Strategic role: HRM policies should be congruent with the firm’s strategy and its formal and informal structure and controls Task complicated by profound differences between countries in labor markets, culture, legal, and economic systems

International Human Resource Management As shown in in this figure (which is based on Figure 13.1), people are the linchpin of a firm’s organization architecture. For a firm to outperform its rivals in the global marketplace, it must have the right people in the right postings. Those people must be trained appropriately so that they have the skill sets required to perform their jobs effectively, and so that they behave in a manner that is congruent with the desired culture of the firm. Their compensation packages must create incentives for them to take actions that are consistent with the strategy of the firm, and the performance appraisal system the firm uses must measure the behavior that the firm wants to encourage. As indicated in Figure 18.1, the human resource function, through its staffing, training, compensation, and performance appraisal activities, has a critical impact upon the people, culture, incentive, and control system elements of the firm’s organization architecture (performance appraisal systems are part of the control systems in an enterprise). Thus, human resource professionals have a critically important strategic role. Figure 18.1, p. 620

Staffing Policy Staffing policy Types of 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

Ethnocentric Policy Key management positions filled by parent-country nationals Best suited to international businesses Advantages: Overcomes lack of qualified managers in host nation Unified culture Helps transfer core competencies Disadvantages: Produces resentment in host country Can lead to cultural myopia

Polycentric Policy Host-country nationals manage subsidiaries Parent company nationals hold key headquarter positions Best suited to multi-domestic businesses Advantages: Alleviates cultural myopia Inexpensive to implement Helps transfer core competencies Disadvantages: Limits opportunity to gain experience of host country nationals outside their own country Can create gap between home and host country operations

Geocentric Policy Seek best people, regardless of nationality Best suited to global and trans-national businesses Advantages: Enables the firm to make best use of its human resources Equips executives to work in a number of cultures Helps build strong unifying culture and informal management network Disadvantages: National immigration policies may limit implementation Expensive to implement due to training and relocation Compensation structure can be a problem

Comparison of Staffing Approaches Table 18.1, p. 623

The Expatriate Problem Expatriate: citizens of one country working in another 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) Inpatriates: expatriates who are citizens of a foreign country working in the home country of their multinational employer

Reasons for Expatriate Failure US 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 European multinationals 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

Expatriate Failure Rate Table 18.2, p. 624

Expatriate Selection Reduce expatriate failure rates by improving selection procedures An executive’s domestic performance does not (necessarily) equate to his/her overseas performance potential Employees need to be selected not solely on technical expertise, but also on cross-cultural fluency

Four Attributes that Predict Success Self-Orientation Possessing high self-esteem, self-confidence and mental well-being Others-Orientation Ability to develop relationships with host country nationals Willingness to communicate

Four Attributes that Predict Success Perceptual Ability The ability to understand why people of other countries behave the way they do Being nonjudgmental and flexible in management style Cultural Toughness Relationship between country of assignment and the expatriate’s adjustment to it

Training and Management Development Training: Obtaining skills for a particular foreign posting Cultural training: Seeks to foster an appreciation of the host country’s culture Language training: Can improve expatriate’s effectiveness, aids in relating more easily to foreign culture, and fosters a better firm image Practical training: Ease into day-to-day life of the host country

Training and Management Development Development: Broader concept involving developing manager’s skills over his or her career with the firm Several foreign postings over a number of years Attend management education programs at regular intervals

Repatriation of Expatriates A critical issue in the training and development of expatriate managers is preparing them for reentry into their home country Repatriation should be seen as the final link in an integrated, circular process that selects, trains, sends, and brings home expatriate managers Research shows that there is a problem with the repatriation process

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

Management Development and Strategy Development programs designed to increase the overall skill levels of managers through: Ongoing management education Rotation of managers through a number of jobs within the firm to give broad range of experiences Used as a strategic tool to build a strong unifying culture and informal management network Above techniques support transnational and global strategies

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 evaluate and under-appreciate them In a survey of personnel managers in U.S. multinationals, 56% stated foreign assignment either detrimental or immaterial to one’s career

Guidelines for Performance Appraisal More weight should be given to on-site manager’s evaluation as they are able to recognize the soft variables Expatriate who worked in same location should assist home-office manager with evaluation If foreign on-site managers prepare an evaluation, home-office manager should be consulted before completion of formal evaluation

Compensation Two issues: Pay executives in different countries according to the standards in each country or equalize pay on a global basis Method of payment Two issues are raised in every discussion of compensation practices in an international business. One is how compensation should be adjusted to reflect national differences in economic circumstances and compensation practices. The other issue is how expatriate managers should be paid. From a strategic perspective, the important point is that whatever compensation system is used, it should reward managers for taking actions that are consistent with the strategy of the enterprise.

Compensation in Various Countries Table 18.3, p. 633

Expatriate Pay Typically use balance sheet approach Equalizes purchasing power to maintain same standard of living across countries Provides financial incentives to offset qualitative differences between assignment locations

Components of Expatriate Pay Base Salary Same range as a similar position in the home country Foreign service premium Extra pay for work outside country of origin Allowances Hardship, housing, cost-of-living, and education allowances Taxation Firm pays expatriate’s income tax in the host country Benefits Level of medical and pension benefits identical overseas

The Balance Sheet Approach Figure 18.2 shows a typical balance sheet. Note that home-country outlays for the employee are designated as income taxes, housing expenses, expenditures for goods and services (food, clothing, entertainment, etc.), and reserves (savings, pension contributions, etc.). The balance sheet approach attempts to provide expatriates with the same standard of living in their host countries as they enjoy at home plus a financial inducement (i.e., premium, incentive) for accepting an overseas assignment Figure 18.2, p. 634

International Labor Relations Key Issue Degree to which organized labor can limit the choices of an international business Aims to foster harmony and minimize conflicts between firms and organized labor

Concerns of Organized Labor Multinational can counter union bargaining power with threats to move production to another country Multinational will keep highly skilled tasks in its home country and farm out only low-skilled tasks to foreign plants Easy to switch locations if economic conditions warrant Bargaining power of organized labor is reduced Attempts to import employment practices and contractual agreements from multinational’s home country

Strategy of Organized Labor Attempts to establish international labor organizations Lobby for national legislation to restrict multinationals Attempts to achieve international regulations on multinationals through such organizations as the United Nations

Looking Ahead to Chapter 19 Accounting in the International Business Country Differences in Accounting Standards National and International Standards Multinational Consolidation and Currency Translation Accounting Aspects of Control Systems