International Human Resources Strategy Lidija Dzanic Tua Lindholm

International Human Resources Strategy Lidija Dzanic Tua Lindholm Lea Wakolbinger Mirjam Zerjav VK Internationale Unternehmensführung WS 2004/05

Agenda 1. 2. 3. 4. 5. 6. Business strategies Staffing approaches Different types of managers Expatriation vs. inpatriation Case study Conclusion 2

Introduction n Nowadays globalization is more present n Requires globally competent managers n IHRM is becoming more important n IHRM is major determinant of success or failure in international business n Global integration is neccesary in HRM n Core competency – local adaptation 3

Business strategies (1) Domestic n New products or services for the domestic market n Foreign markets and international managerial skills largely irrelevant 4

Business strategies (2) International n Competition increases n Companies expand internationally n Hierarchical structure n Structural and cultural dominance n First home country managers abroad as expatriates 5

Business strategies (3) Multinational n Least-cost and standardized products and services n Worldwide lines of business n Decisions made by people from a wider range of cultures n Values of the headquarter’s national culture dominate n Senior managers need to understand the world business environment 6

Business strategies (4) Transnational n n n Global competition Identical products are distributed worldwide Research and development Firms become less hierarchically structured Transnational human resource strategies are being developed 7

Characteristics of effective IHRM n Transnational scope Geographical context within which all major decision are made n Transnational representation n n Multinational composition of the managers and executives n Transnational process n Firm’s ability to include representatives and ideas from many countries 8

Ethnocentric approach (1) n Parent country nationals (PCNs) take all key positions in a multinational company n In the early stages of internationalization n Reasons for pursuing this policy: n n n Lack of qualified host country nationals (HCNs) Ability of the parent country nationals (PCNs) to coordinate subsidiary Transferring Know-how 9

Ethnocentric approach (2) n Problems that may occur: n n n Adaptation of PCNs to a host country may take a long time Promotion opportunities of local managers are limited PCNs’ lack of sensitivity 10

Polycentric approach (1) n Companies following this staffing policy use HCNs in their subsidiaries and PCNs in corporate headquarters n Advantages: n n n No more language barriers and adjustment problems of expatriates The employment of HCNs is less expensive Morale and career opportunities of local stuff 11

Polycentric approach (2) n Disadvantages: n n Weak links between the independent national units and headquarters Lack of experience of both HCNs & PCNs is a liability in an increasingly competitive international environment 12

Geocentric approach (1) n Best people get key jobs, nationality is not important n Advantages: n n A pool of senior international managers is developed Tendency of national identification of managers with subsidiary units is reduced 13

Geocentric approach (2) n Disadvantages: n n n Immigration laws which require the employment of local nationals are used by many host countries Difficult to implement because of increased training, compensation and relocation costs Longer lead times and more centralized control of the staffing process are required 14

Regional approach n Staffing strategy with emphasis on different regional markets n Factors for staffing decisions: n Need of area expertise n Need of product expertise 15

Managerial mindset n 4 typical mindsets n Closely associated n From the least global to the most global mindset n n Defender Explorer Controller Integrator 16

Defender n n n Internally focused Oriented to the domestic market Satisfied with domestic operations Uninterested in making foreign actions Almost no international element Foreign elements in domestic market are unwanted 17

Explorer n Aware of business opportunities in n n foreign markets Perceives foreign markets as not dangerous Treats international forays with a lot of caution Prefers strategies of exporting and franchising Domestic business is larger than international, is predominant Foreign operations are managed from the head office located in the home country 18

Controller n More externally oriented than the explorer n Dominates in foreign markets with procedures which were successful in domestic market n Understands the nature of cultures n Important: controller’s head office spends time on controlling and less on coordinating n Approval and sanction needed from the head office 19

Integrator n Global perspective n Knowledge and skills n Understands, is aware, is competent n Able to manage differences between people, values and cultures n Coordinates more than controls n Critical function is creating mechanisms for knowledge flow and transferring it from one part of the global system to another 20

Good international manager Ability to develop n n n n Effective local strategies Local government relations Cultural leadership skills Social networking skills Teamwork skills Good understanding of business environment Insightful local social knowledge (Harvey et al. ) 21

Dimensions of IHRM n Knowledge-based view of the firm (Harvey et al. ) n Tangible vs. intangible dimensions of HRM n Development of a common knowledge basis (Grant) 22

Expatriation vs. inpatriation (1) 1) Harvey et al. Decision factors n Value of tacit local knowledge n Cultural and economic distance n Equivocality of subsidiary goals 23

Expatriation vs. inpatriation (2) 2) Torbiörn Decision factors n Openness of economic region n Political instability 24

Low Level of Economic Development High Expatriation vs. inpatriation (3) Low Cultural Distance High Equivocality Social Knowledge Low Social Knowledge High Low Expatriate Inpatriate (P) Expatriate (S) High Expatriate Inpatriate (P) Expatriate (S) Inpatriate Low Expatriate Inpatriate High Inpatriate 25

Advantages of inpatriate use n Effective „boundary spanners“ n Advice with HR practices n Satisfaction with HR strategy in foreign subsidiaries n More acceptance on return (Harvey et al. ) 26

Mergers and acquisitions n Double-staffing strategy n Inpatriates communication n Expatriates coordination (Torbiörn) 27

Expatriation n Overall increasing trend in expatriation (especially UK) n British view IHRM as essential contributor to strategic management n US: more inpatriation due to high expatriate failures (Scullion) 28

Expatriate failure n Direct and indirect costs n Main reasons: n n Inability of spouse to adjust Poor performance (Scullion) 29

Training, selection and repatriation n Selection: not only technical, but also personal skills (Scullion) n Cross-cultural training approach (Mendenhall and Oddou) n Information n Affection n Immersion n Effective repatriation programs (Scullion, Dessler) 30

Case study n 319 000 employees n 170 countries n advanced information technologies: computer systems, software, storage systems, microelectronics 31

n Beginning in 1888 n Incorporated in 1911 n 1300 employees 32

n 1914 Thomas J. Watson n Revenues doubled and business expanded n The base for the strong organizational culture today 33

n Interview n Dr. Haberl, manager of Media Relations 34

n Local workforce n Inpatriates not typical n Expatriation – not mainly knowledge transfer Expatriation at IBM a part of a manager‘s career n No loss of control n 35

n Strong organizational culture „myth of Watson“ n Helpful in the long run n Social tacit knowledge n Explicit knowledge n 36

n Locals are no locals anymore after entering IBM n IBMer n Same rules all over the world 37

n Training opportunities Internal technological structure n Helping institutions n „Buddy-system“ n Other training opportunities n 38

Conclusions n HR strategy must match with corporate strategy n Decision factors that matter in the context of the company’s IHRM strategy should be defined before entering emerging markets 39

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