Global Human Resource Management
Prepared for class discussion
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Human resource management (HRM) - the activities an organization carries
out to utilize its human resources effectively
These activities include
determining human resource strategy
staffing
performance evaluation
management development
compensation
labor relations
Firms need to ensure that there is a fit between their human resources
practices and strategy
HRM can help the firm reduce the costs of value creation and add value by
better serving customer needs
more complex in an international business
differences between countries in labor markets, culture, legal
systems, economic systems, etc.
HRM must also determine when to use expatriate managers
citizens of one country working abroad
who should be sent on foreign assignments
how they should be compensated
how they should be trained
how they should be reoriented when they return home
Staffing policy is concerned with the selection of employees who have the
skills required to perform a particular job
can be a tool for developing an promoting the firm’s corporate culture
the organization’s norms and value system
a strong corporate culture can help the firm implement its strategy
Three main approaches to staffing policy:
1. The ethnocentric approach - fill key management positions with parent-
country nationals
2. The polycentric approach - recruit host-country nationals to manage
subsidiaries in their own country, and parent-country nationals for
positions at headquarters
3. The geocentric approach - seek the best people, regardless of nationality,
for key jobs
Why Choose an Ethnocentric Staffing Policy?
Firms that pursue an ethnocentric policy believe that
there is a lack of qualified individuals in the host country to fill senior
management positions
it is the best way to maintain a unified corporate culture
value can be created by transferring core competencies to a foreign
operation via parent country nationals
it makes sense with an international strategy
But
it limits advancement opportunities for host country nationals
it can lead to "cultural myopia"
Why Choose a Polycentric Staffing Policy?
The polycentric approach
makes sense for firms pursuing a localization strategy
can minimize cultural myopia
may be less expensive to implement than an ethnocentric policy
But
host-country nationals have limited opportunities to gain experience outside
their own country and so cannot progress beyond senior positions in their
own subsidiaries
a gap can form between host-country managers and parent-country
managers
Why Choose a Geocentric Staffing Policy?
The geocentric approach
is consistent with building a strong unifying culture and informal
management network
makes sense for firms pursuing a global or transnational strategy
enables the firm to make the best use of its human resources
builds a cadre of international executives who feel at home working in a
number of different cultures
But
can be limited by immigration laws
is costly to implement
Which Staffing Policy Is Best?
What Is Expatriate Failure?
Firms using an ethnocentric or geocentric staffing strategy will have expatriate
managers
Expatriate failure is the premature return of an expatriate manager to the home
country
each expatriate failure can cost between $40,000 and $1 million
between 16% and 40% of all American expatriates in developed countries fail
and almost 70% of Americans assigned to developing countries fail
The main reasons for U.S. expatriate failure are
the inability of an expatriate's spouse to adapt
the manager’s inability to adjust
other family-related reasons
the manager’s personal or emotional maturity
the manager’s inability to cope with larger overseas responsibilities
The reason for European expatriate failure is
the inability of the manager’s spouse to adjust
The main reasons for Japanese expatriate failure are
the inability to cope with larger overseas responsibility
difficulties with the new environment
personal or emotional problems
a lack of technical competence
the inability of spouse to adjust
How Can Firms Reduce Expatriate Failure?
Firms can reduce expatriate failure through improved selection procedures
Four dimensions that predict expatriate success are
1. Self-orientation - the expatriate's self-esteem, self-confidence, and mental
well-being
2. Others-orientation - the ability to interact effectively with host-country
nationals
3. Perceptual ability - the ability to understand why people of other countries
behave the way they do
4. Cultural toughness – the ability to adjust to the posting
Why Is a Global Mindset Important?
A global mindset may be the fundamental attribute of a global manager
cognitive complexity
cosmopolitan outlook
A global mindset is often acquired early in life from
a family that is bicultural
living in foreign countries
learning foreign languages as a regular part of family life
What Is Training and Management Development?
After selecting a manager for a position, training and development programs
should be implemented
Training focuses upon preparing the manager for a specific job
Management development is concerned with developing the skills of the
manager over time
gives the manager a skill set and reinforces organizational culture
Historically, most firms focus more on training than on management
development
Why Is Training Important for Expatriate Managers?
Training can reduce expatriate failure
Cultural training - fosters an appreciation for the host country's culture
Language training - an exclusive reliance on English diminishes an
expatriate's ability to interact with host country nationals
Practical training - helps the expatriate and expatriate’s family ease into
day-to-day life in the host country
But, studies show that only about 30% of managers sent on one- to five-
year expatriate assignments received training before their departure
What Happens When Expatriates Return Home?
Training and development should include preparing and developing expatriate
managers for reentry into their home country organization
need good programs for
re-integrating expatriates back into work life within their home-country
organization
utilizing the knowledge they acquired while abroad
Why Is Management Development Important to Firm strategy?
Management development programs increase the overall skill levels of
managers through
ongoing management education
rotations of managers through jobs within the firm to give them varied
experiences
Management development can be a strategic tool to build a strong unifying
culture and informal management network
support both transnational and global strategy
How Should Expatriates Be Evaluated?
Evaluating expatriates can be especially complex
typically, both host-nation managers and home-office managers evaluate the
performance of expatriate managers
But, both types of managers are subject to unintentional bias
home-country managers tend to rely on hard data when evaluating
expatriates
host-country managers can be biased towards their own frame of reference
How Can Performance Appraisal Bias Be Reduced?
To reduce bias in performance appraisal
more weight should be given to an on-site manager's appraisal than
to an off-site manager's appraisal
a former expatriate who has served in the same location should be
involved in the process
Home-office managers should be consulted before an on-site
manager completes a formal termination evaluation
What Are the Key Issues in Compensating Expatriates?
Two key issues on compensation
1. How to adjust compensation to reflect differences in economic
circumstances and compensation practices
2. How to pay expatriate managers
Question: Should pay be equalized across countries?
Many firms have recently moved toward a compensation structure that is
based on global standards
especially important in firms with a geocentric staffing policy
But, most firms still set pay according to the prevailing standards in each
country
How Should Expatriates Be Paid?
Most firms use the balance sheet approach
equalizes purchasing power across countries so employees have
the same living standard in their foreign posting as at home
and adds a financial incentive to take the position
A compensation package has five components
1. Base salary - normally in the same range as the base salary for a
similar position in the home country
can be paid either in the home currency or in the local currency
2. Foreign service premium - extra pay the expatriate receives for
working outside his country of origin
generally offered as an incentive to accept foreign assignments
3. Various allowances - hardship, housing, cost-of-living, education
4. Tax differentials - may have to pay income tax to both the home-country and
host-country governments when no reciprocal tax treaty exists
company usually covers extra tax assessments
5. Benefits – many firms provide the same level of medical and pension benefits
abroad that employees receive at home
Question: Can organized labor limit the choices available to an international
business?
Labor unions can limit a firm's ability to pursue a transnational or global
strategy
HRM needs to foster harmony and minimize conflict between
management and organized labor
Organized labor is concerned that
1. Multinationals can counter union bargaining power by threatening to move
production to another country
2. Multinationals will farm out only low-skilled jobs to foreign plants making it
easier to switch production locations
3. Multinationals will import employment practices and contractual
agreements from their home countries and reduce the influence of unions
Many firms are centralizing labor relations to enhance the bargaining
power of the multinational vis-à-vis organized labor
in the past, labor relations were usually decentralized to individual
subsidiaries
The way in which work is organized within a plant can be a major
source of competitive advantage, so it is important for management to
have a good relationship with labor
What is the link between an international business’s
strategy and its human resource management policies,
particularly with regard to the use of expatriate employees
and their pay scale?
In firms pursuing a localization strategy, a polycentric staffing approach is
most common and there are relatively few expatriates or the associated pay
issues. Expatriates are more common in firms with international strategies,
and when an ethnocentric staffing approach is utilized. In this situation the
pay is often based on home country levels, with adjustments as required for
differing living costs and taxes as outlined by the balance sheet approach.
Firms pursuing global or transnational strategies most often use a geocentric
approach to staffing, where the best individuals (regardless of nationality) are
chosen fill positions in any country. Here the pay issues for expatiates can
become particularly complex, as allowances must be made for home country
norms, host country costs and expectations, and global norms across the
company.
