Chapter 18 Global Human Resource Management Learning Objectives

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 & Controls Multi-domestic International Global Core competency Some centralized Rest decentralized Transnational Centralization of operating decision Decentralized Mixed centralized and decentralized Informal matrix Horizontal differentiation Worldwide area Worldwide structure product division 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 Worldwide product division Informal matrix Table 18. 1 IBUS 330 Dr. Nini Yang

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

Comparison of Staffing Approaches Staffing Approach Strategic Appropriateness Ethnocentric International Polycentric Geocentric Multi-domestic Global and Transnational Advantages Disadvantages Overcomes lack of qualified managers in host nation Unified culture Helps transfer core competencies Produces resentment in host country Alleviates cultural myopia Inexpensive to implement Limits career mobility Isolates headquarters from foreign subsidiaries Uses human resources efficiently National immigration policies may limit implementation Expensive Helps build strong culture and informal management network IBUS 330 Dr. Nini Yang Can lead to cultural myopia Higher cost Table 18. 2

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 -1 million IBUS 330 Dr. Nini Yang

Expatriate Failure Rates Recall Rate Percent of Companies US Multinationals 20 - 40% 10 - 20% < 10 European Multinationals 11 - 15% 6 - 10 <5 Japanese Multinationals 11 - 19% 6 - 10 <5 7% 69 24 3% 38 59 14% 10 76 IBUS 330 Dr. Nini Yang Table 18. 3

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

Training and Management Development Training: 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. IBUS 330 Dr. Nini Yang 1. Culture 2. Language 3. Practical

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 IBUS 330 Dr. Nini Yang 60 70 percent

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

Compensation Issues Ethnocentric Polycentric How much home-country expatriates should be paid Pay can and should be country-specific May have to pay its Geocentric/Transnational 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 Home and Host. Country Income Taxes Housing Goods and Services Housing Goods and Reserve Services Reserve Home. Country Salary Host. Country Costs Figure 18. 1 Income Taxes Additional Costs Paid by Company Premiums and Incentives Housing Income Taxes Goods and Services Housing Goods and Services Reserve Host-Country Costs Paid by Company and from Salary IBUS 330 Dr. Nini Yang Home- Country Equivalent Purchasing Power

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