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GLOBAL HUMAN RESOURCES

STRATEGY
Roger Herod, Senior Vice President, ORC Worldwide

West is proud to announce the man resource issues were still re- ❚ Gaining acceptance as a busi-
publication of the 2006-2007 edi- garded as a separate specialist ness partner
tion of the International Human function in many companies. Al-
❚ Establishing new operations
Resources Guide, with a new au- most 10 years later, the rapid pace
thor, Roger Herod, and many of business globalization has ❚ Involvement in mergers and
new revised chapters and contrib- blurred the distinctions between acquisitions
utors. This article is derived from domestic and international human
❚ Recruiting for key positions
the introductory chapter of the resources to such an extent that
new edition. For more informa- large numbers of human resource ❚ Developing compensation
tion or to purchase the Guide, professionals without any prior and benefits strategies
please visit the West store at ht- international experience have
❚ Establishing and maintaining
tp://west.thomson.com, or call found themselves confronted
global ethical standards
us at 1-800-344-5009. with unexpected challenges, such
as establishing and supporting Gaining Acceptance as a
INTRODUCTION “offshore” manufacturing opera- Business Partner

When the “International Human tions and call centers. Under- As so much of international hu-
Resources Guide” was first pub- standing the critical and unique man resource management in-
lished in 1997, international hu- issues involved in managing the volves new business development
human resource issues of global activities, a thorough understand-
ROGER HEROD, SPHR, is a Senior operations is becoming an essen- ing of the company’s business
Vice President of ORC, based in its Chi- tial requirement for the career de- strategies, competitive challenges,
cago office. He is responsible for ORC’s velopment of all ambitious human and products and services is essen-
worldwide expatriate consulting services resource professionals. tial. Without this knowledge, hu-
and carries out a wide range of global
projects for major multinational clients both man resource managers will never
in the U.S. and Europe. He has held se- CRITICAL STRATEGIC GLOBAL gain the credibility to be a key
nior-level international human resources HUMAN RESOURCES business partner and will be rele-
positions since 1974 and has worked ex- CHALLENGES gated to the role of an administra-
tensively in the United States, Europe, This chapter will focus on a number tor trying to implement organiza-
Latin America, and the Far East. He is a
of the most critical and often “im- tion and staffing decisions that they
graduate of Manchester University in the
U.K. and is a Chartered Fellow of the mediate” challenges faced by human have had no part in making.
U.K. Institute of Personnel Management resource professionals involved in Proactivity is the key. It means
and Development. supporting international operations: orchestrating invitations to partici-

© 2007 Thomson/West. This publication was created to provide you with accurate and authoritative information concerning the
subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular ju-
INTERNATIONAL HR JOURNAL risdiction. Thomson/West are not engaged in rendering legal or other professional advice, and this publication is not a substitute
for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or
other professional. For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Dan-
WINTER 2007 vers, MA 01923, USA (978) 750-8400; fax (978) 646-8600 or West's Copyright Services at 610 Opperman Drive, Eagan, MN
55123, fax (651)687-7551. Please outline the specific material involved, the number of copies you wish to distribute and the pur-
24 pose or format of the use.
GLOBAL HUMAN RESOURCES STRATEGY

pate in international business plan- the Philippines, and the former line managers all too often agree to
ning meetings and then being seen Soviet Union republics. provide compensation arrange-
as an active contributor. It means Establishing a comprehensive ments, benefits, and perquisites de-
volunteering to take responsibility staffing plan for the new operation manded by candidates who claim
for developing resource plans and is the critical first step: that all other major companies do
solutions to staffing problems. It likewise. These types of ad hoc
means becoming seen as a solution ❚ What is the timeline for es- initial deals set precedents that can
finder rather than an obstacle to tablishing the new opera- create problems for years to come.
progress. Dealing with the conse- tion? Payroll arrangements can be espe-
quences of poor staffing decisions ❚ What are the short and long cially problematic. Paying local
is one of the most depressing and term staffing requirements employees offshore because the
frustrating aspects of international and the timeframe? company has not yet established a
human resource management, es- local payroll is fraught with tax and
pecially with the realization that a ❚ What level of expertise and legal risks. Temporary solutions
more proactive involvement on skills are required? can be found in almost all coun-
the part of human resources could ❚ Which positions will need to tries—for example, by arranging to
well have avoided the problem. be filled immediately? have local employees paid through
The challenge is not an easy an accounting firm or one of the
❚ What is the availability of specialized international payroll
one. Business development execu- suitable local candidates?
tives frequently prefer to appoint agencies.1
their own candidates to manage ❚ Which positions will require Involvement in International
international projects and opera- expatriates and short term as- Mergers and Acquisitions
tions. Human resource managers signees either for manage- International mergers and acquisi-
are often excluded from interna- ment control purposes or to tions are high-risk situations. A
tional merger and acquisitions un- provide the necessary techni- 2000 KPMG study showed that:
til the deal has been concluded and cal and professional support?
❚ Only 17% of international
then left to try to resolve a myriad Recruitment of qualified local staff M&As created substantial fi-
of cultural, organizational, and frequently necessitates being able nancial returns
policy issues after the event. How- to identify reliable recruitment
ever, once human resource man- agencies, which can be particularly ❚ 53% of M&As actually de-
agers have been able to prove that challenging in lesser developed stroyed shareholder value
their contribution to the interna- countries. As a result, being able to ❚ 47% of all senior managers
tional business development pro- network and share market intelli- leave within the first year and
cess is equally valuable to those of gence with other multinationals 72% leave within three years,
finance and marketing executives, operating in the same countries is if no coordinated retention
their “place at the table” is gener- one of the essential job require- efforts are made
ally assured. ments of international human re-
source managers. ❚ “Failure rates are typically
Establishing New Operations higher in cross-border trans-
The timeframe for establishing
actions, where cultural dif-
Even relatively small companies new country operations is invari-
ferences are sometimes an in-
are now looking globally, ably short. Local recruitment ef-
surmountable obstacle to
whether to source raw materials, forts often are started before hu-
overcome.”
market their products, or find man resource policies and systems
cheaper methods of manufactur- have been finalized. Payroll ar- It is now widely recognized that
ing. Human resource managers rangements, compensation and clashes of management styles and
are finding themselves being benefits programs, terms and con- organization cultures are the
asked to help establish new oper- ditions of employment all have to most common contributors to
ations not only in countries such be put in place before the first local international merger and acquisi-
as China, India, Mexico, and employee is hired. This is when tion failures. It is clearly critical
Brazil, but also in newly emerg- critical errors of judgment are fre- to involve HR managers in the
ing economies such as Vietnam, quently made. Under pressure, due diligence process before the

© 2007 Thomson/West. This publication was created to provide you with accurate and authoritative information concerning the
subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular ju-
INTERNATIONAL HR JOURNAL risdiction. Thomson/West are not engaged in rendering legal or other professional advice, and this publication is not a substitute
for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or
other professional. For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Dan-
WINTER 2007 vers, MA 01923, USA (978) 750-8400; fax (978) 646-8600 or West's Copyright Services at 610 Opperman Drive, Eagan, MN
55123, fax (651)687-7551. Please outline the specific material involved, the number of copies you wish to distribute and the pur-
25 pose or format of the use.
GLOBAL HUMAN RESOURCES STRATEGY

merger and acquisition occurs. salaries and low to medium Tax authorities in most
However, in many cases the ex- incentives that tries to merge countries have become high-
ecutives responsible focus their with or acquire a company ly sophisticated and less will-
attention so heavily on the finan- that pays below-market base ing to turn a blind eye to
cial aspects and potential business salaries but with highly lever- questionable tax avoidance
synergies of the proposed merger aged incentive programs will or tax evasion practices.2
or acquisition that they neglect inevitably face some major
or choose to ignore the equally integration challenges. Recruiting for Key Positions
important human resource issues.
The desire to land the deal at any ❚ Trying to address differences Being asked to recruit candi-
cost can, unfortunately, blind ex- in benefit programs can also dates to fill top executive interna-
ecutives to business realities and prove to be a massive finan- tional positions is a high risk prop-
major potential obstacles. cial undertaking. Any prom- osition for any HR manager. The
Human resource issues that ises or commitments made task of trying to find a well-quali-
need to be addressed during the during the merger and acqui- fied local candidate to fill, for ex-
due diligence process include: sition process can have long ample, a general manager position
term, financially disastrous for an international subsidiary can
❚ Evaluating the management implications. be a daunting one. Depending on
team of the proposed merger the country and the industry, suit-
or acquisition partner in ❚ Highly visible policies such able candidates may turn out to be
terms of experience, skills, as perquisites are usually very few and far between and potential
potential, and cultural fit. sensitive problems to try to candidates may be very reluctant
HR managers can provide resolve. Differences for ex- to change companies. A number of
objective input as to which ample in the types and level years ago, I was asked by my em-
key managers to retain and of company car programs can ployer at that time to recruit an ex-
how to retain them. easily result in ongoing bitter perienced general manager for the
disputes. new operation they were establish-
❚ Identifying potential obsta-
ing in Portugal. After an exhaus-
cles to organization change ❚ Underfunded pension plans
such as union agreements or tive search, we finally realized that
can represent a significant, al-
works council regulations. there were only three local execu-
though easily identifiable, fi-
tives with the level and type of ex-
❚ Identifying any unacceptable nancial liability. This be-
comes a more complex issue perience the position required, all
employment practices. of whom already held similar posi-
however in countries such as
❚ Assessing and comparing pay Germany and Austria, where tions with well-established and
and benefits philosophies and pension plans are typically much larger companies. All three
practices and evaluating the completely unfunded. It is possible candidates told us initially
impact of integrating those also critical to try to identify that they were not interested in
programs. any executive pension changing companies. However,
“promises,” which may one of them at least agreed to have
Assessing the potential compensa- dinner with the search consultant
tion and benefits issues of a pro- come to light only through a
thorough review of individ- and myself. After an excellent, ex-
posed merger or acquisition is one cellent wine and great conversa-
of the most tangible contributions ual employment agreements
and offer letters. tion, as we were all leaving the res-
that HR managers can make to the taurant, the executive quietly
due diligence process. Some of the
❚ Any unusual or potentially mentioned that he was not totally
critical areas that need to be re-
risky compensation arrange- happy with his current employer.
viewed are:
ments such as offshore pay- After several weeks of further ne-
❚ Philosophical differences in ments for local managers or gotiations, he finally agreed to join
compensation strategies that cash allowances that are not us and turned out to be an out-
can send messages about cor- being declared for tax pur- standing general manager. Finding
porate cultures. For example, poses need to be identified the right candidate can require a
a company with high base and evaluated for legal risk. lot of patience and, of course, luck.

© 2007 Thomson/West. This publication was created to provide you with accurate and authoritative information concerning the
subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular ju-
INTERNATIONAL HR JOURNAL risdiction. Thomson/West are not engaged in rendering legal or other professional advice, and this publication is not a substitute
for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or
other professional. For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Dan-
WINTER 2007 vers, MA 01923, USA (978) 750-8400; fax (978) 646-8600 or West's Copyright Services at 610 Opperman Drive, Eagan, MN
55123, fax (651)687-7551. Please outline the specific material involved, the number of copies you wish to distribute and the pur-
26 pose or format of the use.
GLOBAL HUMAN RESOURCES STRATEGY

For the HR manager, the fol- sary, the search firm should be posed changes to compensation
lowing action steps are generally asked to talk not only to individu- and benefits plans on hold until
essential: als that the candidate has worked we had established a global com-
for, but also to former colleagues pensation and benefits philoso-
1. Invest enough time to un-
and subordinates. It can be very phy. After a number of discus-
derstand the nature and
tempting to take short cuts with sions with our key international
scope of the business, key
reference checks in the interest of executives and with corporate
challenges, as well as short
filling a position quickly. This is HR staff, we agreed on the fol-
and long term objectives.
one situation where the saying lowing key principles:
2. Develop a comprehensive “Marry in haste, repent at leisure”
❚ Competitive comparisons
position description, candi- all too often applies.
would be made against other
date profile, and target com-
Developing Compensation and leading consumer goods
pensation level with the se- Benefits Strategies companies in each country.
nior executives to whom the
position will report. A number of years ago, I was hired ❚ Base salary policies would
by a leading consumer goods com- normally be established at the
3. Engage an international pany to head up their international median, or 50th percentile.
search firm that can demon- human resources function. Within
strate extensive experience in the first two weeks, a proposal ❚ Management incentive plans
the country and industry in- from our Canadian company, would be structured to pro-
volved. which was one of our largest sub- vide total compensation
sidiaries, arrived on my desk. The (base salaries plus bonus) at
4. Require the search firm to
proposal contained recommenda- the upper quartile, or 75th
prepare a realistic assessment
tions for some fairly costly en- percentile, provided perfor-
of the potential availability of
hancements to the Canadian pen- mance targets were met or
suitable candidates.
sion plan, which I soon realized exceeded.
Once the search process is un- was already a very generous plan.
❚ Benefit plans would be estab-
derway, the HR manager needs to Months of work and some signifi-
lished not to exceed market
play a proactive ongoing role in cant consulting fees had gone into
median.
the process. It is not enough just to the development of the proposals.
commission a search firm and wait The cover note informed me that These guidelines provided a con-
for them to produce a short list of the CEO of the Canadian compa- sistent blueprint for all our interna-
hopefully suitable candidates. It is ny had already approved the pro- tional operations to follow. They
important to ask the search firm to posal and my approval was needed also gave us the justification to re-
provide regular updates on the re- as quickly as possible. At the same ject the Canadian pension plan
search they have carried out and time, I was in the process of mak- proposal! Subsequently, I was able
the types of potential candidates ing phone calls to our various sub- to use the guidelines to work with
they are targeting to ensure that sidiaries in Europe, Latin America, each of our subsidiaries to help de-
the search is properly on track. It is and Asia-Pacific to introduce my- fine where they stood competitively
also very valuable to get ongoing self and quickly realized that a and what programs potentially need-
feedback from the search firm on number of other “urgent” propos- ed change or improvement. Being
the reaction of individuals they als to improve local compensation able to establish a proactive, con-
have contacted regarding the po- and benefits plans were likely to sultative relationship with our sub-
tential position and the company. start landing on my desk in the sidiaries was certainly more satisfy-
Interviewing candidates is, of near future. The problem was that ing than risking being perceived as
course, a key responsibility for the we did not have any type of overall a bureaucratic obstacle.
HR manager, both in terms of compensation philosophy for our I have used my own personal
evaluating individuals as potential international operations to define experience with one company as
executives as well acting as an am- our competitive strategy. an example. However, compensa-
bassador for the company. After Fortunately, I was able to per- tion and benefits challenges and
the interview process, thorough suade our international president the philosophies and strategies
reference checks are vital. If neces- that we needed to put any pro- needed to address them will clearly

© 2007 Thomson/West. This publication was created to provide you with accurate and authoritative information concerning the
subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular ju-
INTERNATIONAL HR JOURNAL risdiction. Thomson/West are not engaged in rendering legal or other professional advice, and this publication is not a substitute
for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or
other professional. For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Dan-
WINTER 2007 vers, MA 01923, USA (978) 750-8400; fax (978) 646-8600 or West's Copyright Services at 610 Opperman Drive, Eagan, MN
55123, fax (651)687-7551. Please outline the specific material involved, the number of copies you wish to distribute and the pur-
27 pose or format of the use.
GLOBAL HUMAN RESOURCES STRATEGY

vary considerably between compa- As an HR manager, do you turn a ❚ Approval procedures for
nies. Company culture, competi- blind eye to these situations to payments
tive pressures in different industries avoid being categorized by line
❚ Maintenance and retention
and markets, and financial consid- managers as overly conservative
of records
erations are all factors that need to and unwilling to take risks?
be taken into consideration. How- In reality, appropriate business
ever, even at earliest stages of es- SUMMARY
solutions can always be found to
tablishing international operations, address and resolve these types of The rapid and complex pace of glo-
it is important to establish an situations. They do require cre- balization has created immense
agreed compensation philosophy ativity and determination. That is challenges for human resource
and strategy. It is much easier to be why it is important to seek advice managers involved in developing
proactive in this regard than have from your company’s legal and and managing international busi-
to deal with a series of embarrass- tax advisers as soon as a potential nesses. Gaining acceptance as a
ing precedents later. issue arises. It is also one of the business partner is critical for hu-
benefits of developing and main- man resource managers that want
Establishing and Maintaining Glo- taining a network of other HR to make an effective contribution
bal Ethical Standards to the success of their company’s
managers with international ex-
One of the most difficult chal- perience to share ideas with and global business initiatives. In fact,
lenges for HR managers who learn from their experiences with human resource managers have to
have responsibilities for different similar situations. take a leadership role in many of
countries is trying to define glo- these initiatives. Establishing new
If no specific policy dealing offshore operations and call centers,
bally acceptable ethical standards. with business ethics exists, it is cru-
Much has been written on this taking a proactive role in evaluating
cial to develop one and to make the human resource aspects of po-
subject and it is relatively easy to sure it is widely communicated
identify the extremes. Bribing of- tential mergers and acquisitions,
across the organization, including and developing staffing strategies to
ficials, unsafe working conditions, any international operations.
and blatant race or sex discrimina- secure the critical resources needed
These are the types of issues that for new international ventures, are
tion are all examples of indefensi- the policy needs to address:
ble corporate behavior. The real all examples of the type of leader-
ship needed to be an effective hu-
dilemmas come from the “gray” ❚ The need for employees to
areas. For example, how do you man resource executive in this chal-
comply all applicable laws
deal with a situation where local lenging new environment.
and regulations, specifying
executives in a Latin American who to contact internally in ■
subsidiary are receiving part of the event of any question
their compensation through the NOTES
US payroll on the basis that this is ❚ Prohibition on payments to 1. A very comprehensive Human Resources
“normal practice” among multi- public officials Checklist for International Operations
Start-Ups that has been developed by Roy
nationals in that country and es-
❚ Prohibition on political con- Pendergrass, Vice President of ORC’s Dal-
sential to be able to hire and retain las Office, is included as Appendix 1 of this
tributions
top executive talent? What about chapter in the International Human Resources
Guide 2006-2007. For more information or
a situation where your company ❚ Guidelines regarding “facili- to purchase the Guide, please visit the West
has a major new project in say tating payments” store at http://west.thomson.com, or call
Singapore and managers insist that us at 1-800-344-5009.
they must transfer employees to ❚ Authorization procedures for 2. A checklist on “Evaluating the Human Re-
source Aspects of Acquisitions” is included at
start work there whether or not transactions and disposition the end of this chapter as Appendix 2 in the
they have proper work permits? of assets International Human Resources Guide.

© 2007 Thomson/West. This publication was created to provide you with accurate and authoritative information concerning the
subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular ju-
INTERNATIONAL HR JOURNAL risdiction. Thomson/West are not engaged in rendering legal or other professional advice, and this publication is not a substitute
for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or
other professional. For authorization to photocopy, please contact the Copyright Clearance Center at 222 Rosewood Drive, Dan-
WINTER 2007 vers, MA 01923, USA (978) 750-8400; fax (978) 646-8600 or West's Copyright Services at 610 Opperman Drive, Eagan, MN
55123, fax (651)687-7551. Please outline the specific material involved, the number of copies you wish to distribute and the pur-
28 pose or format of the use.