SINGAPORE INSTITUTE OF

MANAGEMENT

DIPLOMA IN INTERNATIONAL BUSINESS (DIB)

INTERNATIONAL HUMAN RESOURCE

MANAGEMENT
Study Guide

Version 1.0
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT
STUDY GUIDE

Content

This module investigates the practice of international HR management in multinational

organizations. It gives participants an opportunity to explore the international dimensions of
the core aspects of human resource management including the linkages of international
business strategy and structure, international transfers and staffing, total remuneration
perspectives, international compensation trends, industrial relations, and the training,
development and performance of international staff. Additionally, the applications of
systems such as information and decision-making that support knowledge management at
personal, group and corporate levels are examined.

Module Aims

The aims of this module are to:

1. To explore the development of human resource management policies, theories and

practices in a global context and the specific human resource management concerns of
multinational organizations.

2. To study and compare how various managers approach and attend to the domestic and
international activities of the human resource management function and reflect on
their ramifications to successful performance management and organizational
learning.

Learning Outcomes

On completion of this module, a participant will be able to:

1. Show a detailed knowledge and understanding of:

i) Strategies and stages international involvement.

ii) Approaches and models of international human resource management.
iii) Ethnocentric, polycentric, regiocentric and geocentric staffing.
iv) Global human resource development and repatriation.
v) Methods of global compensation and performance management.

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vi) Issues of industrial and employee relations in multinational organizations.
vii) Challenges of expatriate assignments.

2. Demonstrate module specific skills with respect to:

i) Understanding of the transnational, local and socioeconomic contexts or environment

influencing the choice of human resource management initiatives.
ii) Applying a cultural sensitivity and innate empathy in people management.
iii) Applying evidence-based approaches to managing expatriates and other global
workforce.
iv) Applying a comparative approach to human resource management and national
management systems.

3. Show cognitive skills with respect to:

i) Reflecting on the complex nature of initiatives in international human resource

management.
ii) Discussing on the logic and idiosyncrasies of the various practices of human resource
management in various countries and organizations of the world.
iii) Debate on issues of convergence and divergence in human resource management
practices.
iv) Understanding the relationship of knowledge management and international human
resource management.

4. Demonstrate transferable skills in:

i) Analytical reasoning and thinking “out of the box”.

ii) Communication.
iii) Human resource management in the international context.
iv) Problem formulation and decision making.
v) Working with others.

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Delivery of Module and Lesson Plan

Learning Outcomes Prescribed

At the completion of this topic, participants Text,
S/N. Topic
will be able to: Readings
and/or
Activities

1. Introduction to 1. Outline a model of international Dowling,

International human resource management. Festing and
Human 2. Outline the differences between Engle
Resource domestic and international human Chapter 1
Management resource management.
(IHRM) 3. Discuss the various approaches to
IHRM and reflect on the strategic
view of HRM.
4. Introduce how IHRM is a platform for
experiential and authentic learning.

2. The 1. Discuss the stages a firm typically Dowling,

Organizational goes through as it grows Festing and
Context internationally. Engle
2. Discuss structural responses to Chapter 3
international growth.
3. Explain the control and coordination
mechanisms, including cultural
control.
4. Discuss how country of origin
influences a firm’s approach to
organizational structure.

3. Cross-Border 1. Discuss the formation process of Dowling,

Alliances and cross-border mergers, acquisitions and Festing and
SMEs international joint ventures. Engle
2. Outline the development phases of an Chapter 4
M & A and the respective HR
implications.
3. Outline the development phases of an
IJV and the respective HR
implications.
4. Discuss the challenges for HRM in
international SMEs.

4. International 1. Discuss the approaches to staffing Dowling,

Staffing foreign operations. Festing and
2. Discuss the reasons for using Engle

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 international assignments: position Chapter 5
filling, management development and
organizational development.
3. Outline the various types of
international assignments: short term,
extended and longer term; and non-
standard arrangements: commuter,
rotator, contractual and virtual.
4. Examine the concept on return on
investment of international
assignments.

5. International 1. Discuss issues in staff selection. Dowling,

Recruitment and 2. Discuss the issue of expatriate failure. Festing and
Selection 3. Discuss the factors moderating intent Engle
to stay or leave the international Chapter 5
assignment.
4. Examine the selection criteria for
international assignments.
5. Discuss the issue of dual career
couples as a barrier to staff mobility.
6. Reflect on the likelihood for female
expatriates to be different.

6. International 1. Discuss the role of training in Dowling,

Training, supporting expatriate adjustment and Festing and
Learning and on-assignment performance. Engle
Development 2. Discuss the challenges faced by Chapter 7
training expatriate managers.
3. Outline the components of effective
pre-departure training programmes
such as cultural awareness,
preliminary visits and language skills.
4. Examine the developmental aspect
and applicability action learning in
international assignments.

7. International 1. Outline the key components of an Dowling,

Compensation international compensation system. Festing and
2. Discuss the main differences in the Engle
Going Rate and Balance Sheet Chapter 8
Approaches to international
compensation.
3. Outline the differences in salary
compensation of parent-country
nationals and third-country nationals.
4. Discuss the issue of balancing global
and local, occupational and functional

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 perspectives in a compensation
decision making scenario.

8. Re-entry and 1. Identify and explain the process of Dowling,

Career Issues re-entry for expatriate employees. Festing and
2. Analyze the various company Engle
strategies and policies that are used to Chapter 7
manage the repatriation process.
3. Discuss the methods of designing
effective repatriation programmes,
including the use of mentors and
available forms of technology.

9. IHRM in the 1. Explain the importance of HRM Dowling,

Host Country standardization and localization in Festing and
Context MNCs. Engle
2. Discuss how the role of a subsidiary Chapters 3
affects its ability to transfer ideas and and 9
work practics to other parts of the
global network.
3. Explain the typical HRM problems of
offshoring organizations.

10. International 1. Discuss the key issues in international Dowling,

Industrial industrial relations and the policies Festing and
Relations and practices of multinationals. Engle
2. Examine the potential constraints that Chapter 9
trade unions may have on
multinationals.
3. Outline key characteristics of MNCs
that give trade unions a cause of
concern.
4. Outline recent trends and issues in the
global workforce context.

11. Performance 1. Address aspects of multinational Dowling,

Management performance management at the Festing and
global and local level. Engle
2. Examine the major factors associated Chapter 6
with the appraisal of expatriate
managerial performance.
3. Discuss performance of non-
expatriates and those on non-standard
assignments.

12. IHRM Trends 1. Identify trends in mode of operation Dowling,

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 and IHRM. Festing and
2. Identify the key issues for managers Engle
dealing with work-life issues in the Chapter 10
global context.
3. Explain the likely cultural barriers in
developing the learning organization
concept in countries that do not have
Anglo-Saxon origins.
4. Explain how knowledge management
systems may be employed across
cultures.

Teaching and Learning Methods

Participants will learn through a combination of lectures and practical activities.

Participants will be expected to learn independently by carrying out reading and
directed study beyond that available within taught classes.

Indicative Readings

Textbooks required Dowling, P. Festing, M. & Engle, A.D. (2017) International

human resource management, 7th Edition, London:
Cengage Learning.
ISBN-978-1-4737-1902-6.

Supplementary Harzing, A-W. & Pinnington A. H., eds. (2011).

reading International human resource management. London: Sage.
ISBN: 978-1-84787-293-7.

Online Journals Use of online databases like EBSCO and references to:
Asia Pacific Journal of Human Resources and International
Journal of Human Resource Management.

Assessment/coursework

All assessments must comply with the SIM Rules and Regulations. To satisfy module
requirements, students must:
1) Satisfactorily complete and present on due dates their completed assignment. A penalty
of 20% of the total marks will be imposed for late submission. A submission later than
1 calendar day past deadline will receive a zero mark.
2) Complete all assignments in a satisfactory manner.
3) Reference all their work and observe SIM’s policy on plagiarism. Students found guilty

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 of plagiarism will be dealt with severely.
4) Adopt either the Harvard or APA (American Psychological Association) Referencing
Styles.

Specific for this module are the following requirements:

Element Description % of Assessment

1. Continuous Assessment 1 - 40%
(Common Test)

2. Continuous Assessment 2 - 40%

(Group Assignment)

3. MCQ On-line Quiz 20%

Total 100%

Note: The contents of this guide is based on the text International Human Resource Management by
P J. Dowling, M Festing & A D. Engle, 7th edition, 2017, Cengage Learning and the related
publishers content. This guide is to be used in conjunction with the above textbook.

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 Lesson Plan Schedule
Week Topic Remarks
1.
Introduction to International Human
Resource Management (IHRM)
2.
The Organizational Context
3.
Cross-Border Alliances and SMEs
4.
International Staffing
5.
International Recruitment and Selection
6.
International Training, Learning and
Development
7.
International Compensation
8. CA1 –Common Test
Review of topics for Common Test 4 Nov 2019
9.
Re-entry and Career Issues
10. CA2 Due
Review of topics for MCQ 10 Nov 2019
11. CA 3
IHRM in the Host Country Context 11 Nov to 15 Nov
12.
International Industrial Relations
13
Performance Management
14
IHRM Trends

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Topic 1: Introduction to International Human
Resource Management

Learning Outcomes

1. Outline a model of International Human Resource Management

2. Outline the differences between and domestic and international human resource
management
3. Discuss the various approaches to IHRM and reflect on the strategic view of HRM
4. Introduce how IHRM is a platform for experiential and authentic learning.

Topic Outline
The purpose of this topic is to provide an overview of the emerging field of international
HRM. This is achieved by:
 Defining key terms in IHRM and consider a model of to explain the concept.
 Outlining the differences between domestic and international human resource
management by looking at six factors (more HR activities; the need for a broader
perspective; more involvement in employees’ personal lives; changes in emphasis
based on variances in the workforce mix of expatriates and locals; risk exposure;
and more external influences) and detailing a model which summarizes the
variables that moderate these differences.
 Presenting the complexity of IHRM, the increasing potential for challenges to
existing IHRM practices and current models, and developing an increasing
awareness of the wide number of choices within IHRM practices due to increased
transparency and the faster and more detailed diffusion of these practices across
organizational units and firms.

Introduction

The complexity involved in operating in different countries and employing different

national categories of employees is a key variable in differentiating between domestic and
international HRM, rather than any major differences between the HR activities
performed. We also discuss four other variables that moderate differences between
domestic and international HRM: the cultural environment; the industry (or industries)
with which the multinational is primarily involved; the extent to which a multinational
relies on its home country’s domestic market; and the attitudes of senior management.
These five variables are shown in the figure provided below. Finally, we discuss a
strategic HRM model applied in multinational context.

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A Model of International Human Resource Management (IHRM)

Definition of IHRM
“Activities undertaken by an organization to effectively utilize its human resources in a
multi-country context.”

The activities undertaken include at least: human resource planning, staffing (recruitment,
selection and placement), performance management, training and development,
compensation and benefits, and industrial relations.

Morgan P, presents a three dimensional model of International Human Resource

Management:

1. The broad human resource activities of procurement, allocation and utilization

(the six activities listed in the previous paragraph would fit into this).
2. The national or country categories involved in International HRM activities:
- The host-country where a subsidiary may be located
- The parent-country where the firm is headquartered and
- Other countries that they may be a source of labour finance and other
inputs
3. The three categories of employees of an international firm:
- Host-country nationals (HCNs);
- The parent-country nationals (PCNs);
- The third-country nationals (TCNs).

For example, an US multinational IBM employs Singapore citizens (HCNs) in its Singapore
operations, often sends US citizens (PCNs) to Asia-Pacific countries on assignment and may
send some Singapore employees to its China operations (as TCNs).

Morgan defines IHRM as the interplay among three dimensions of human resource activities,
type of employees and countries of operations. The IHRM activities may involve similar
activities like domestic HRM, but the domestic HRM is involved with employees within one
national boundary.

Stahl, Bjorkaman and Morris (2012), broadly define IHRM as a field that “cover all the
issues related to managing the global workforce and its contributions to firm outcomes.’’

What is an expatriate?

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Expatriate is an employee who is working and temporarily residing in a foreign country.
They are called as ‘international assignees’ by many firms. While it is clear PCNs are
expatriates, it should be remembered that TCNs are also expatriates.

International assignments create expatriates

Source: International Human Resource Management, 6th edition, Dowling, Festing and Engle, p 4.

Difference between Domestic and International HRM

The ‘complexity’ of operating in different countries and employing different nationals
categories of workers is the key variable that differentiates domestic and international HRM.
Dowling attributes the complexity of IHRM to the following six factors:

1. More HR activities
2. The need for a broader perspective
3. More involvement in employees’ personal lives
4. Changes in emphasis as the workforce mix of expatriates and locals varies
5. Risk exposure
6. Broader external influences

The above six factors are explained in detail below:

More HR activities
To operate internationally, HR must engage in activities not necessary in a domestic
environment. For example, international relocation and orientation – provide pre-departure
training, travel and immigration details, housing, medical, etc.

The need for broader perspective

International HR managers must deal with the problems and issues facing more than one
national group of employees and design and administer HR programs for PCN, HCN and
TCN employees.

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More involvement in employees’ personal lives
A greater degree of involvement in employees’ personal lives is necessary for the selection,
training and effective management of PCN and TCN employees. The HR manager needs to
ensure that the expatriate employee understands housing arrangements, health care,
compensation packages, etc. for the assignment.

Changes in emphasis as the workforce mix of PCNs and HCNs varies

As foreign operations mature, the HR activities have to change. For example, as the need for
PCNs and TCNs decline, more trained local staff become available, resources previously
allocated to areas such as taxation, relocation and orientation are transferred to areas such as
local staff selection, training and management development.

Risk exposure
Human and financial implications of failure are severe more than in domestic business. The
direct and indirect cost of failures is very high when compared to such failures in a domestic
environment.

Broader external influences

The type of government, the state of economy and the accepted business practices and
procedures of the host countries affect HRM activities.

Variables that moderate differences between domestic and international

HR practices.

A model of all 5 variables that moderate the differences between domestic and
international HRM

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(Source: Dowling, Festing and Engle, 2013, International Human Resource Management, Cengage Learning,
page 9).

The five variables that act as “moderators” (diminishing or accentuating the differences
between domestic and international HRM) are: complexity, the cultural environment,
industry type, extent of reliance of the multinational on its home country domestic market,
and the attitudes of senior management to international operations.
Changes that are required to internationalize the HR function have more to do with mindsets
than with behaviours.

Extent of reliance of the MNC on its home-country domestic market

An often ignored factor that influences the behaviour of MNCs and the resultant HR practices
is the extent of reliance of the MNC on its home-country domestic market.

Attitudes of senior management to international operations

If the senior management does not have a strong international orientation, the importance of
international operations may be under emphasised or even ignored in terms of corporate goals
and objectives.

Various Approaches to IHRM and the Strategic View of HRM

It is a formidable task to develop a universal management model that is applicable in all

contexts. Practices, norms and concepts of each show some cultural specificity and often the
contextual and institutional factors vary from one another (Harzing and Pinnington, 2011).

Institutional Theory

Norm and expectations share by members of a society or a particular industry influence how
organization should be structured and the kinds of managerial behavior that are considered
legitimate (Meyer and Rowan, 1977). International organizations as social entities are
affected by domestic, regional and global forces. They tend to seek approval for their
behavior in a socially constructed environment (Jackson and Schuler, 1995), constituted by a
range of institutional forces including local government, social networks (Child, 1994) and
regional economic policy (Tse et al. 1997).

Approaches to IHRM
Five main models of IHRM are compared and contrasted in the following paragraphs.

1. Matching Model

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Developed by Tichy and colleagues (1982), highlights the resource aspect of HRM and lays
emphasis on a ‘tight fit’ between organizational strategy, organizational structure and HRM
system. (See IHRM, Figure 5.1, page 157, Harzing and Pinington, 2011).

While applying this model an organization is concerned with establishing a performance

system that facilitates tight control over individual activities in order to achieve the goal of
attaining a competitive advantage (Guest, 1995).

Limitations

This model holds the classical view of strategy formulation and assumes that designing a
strategy and implementing it are separate set of activities and that HR policies and practices
can simply be matched to business strategies at the formulation stage.

Also, it fails to account for the complexities within and between the concepts of strategy and
HRM and overlooks the difficulties inherent to obtaining a reciprocal relationship between
strategy and HRM. Besides, the model does not take into consideration the human aspect of
HRM and fails to account for the significant variation in power, politics and culture.

2. Harvard Model
The Harvard model was developed by Beer et al in 1984. It has more soft characteristics and
pays more attention to the ‘human’ aspect of HRM by laying emphasis on employer-
employee relationship. This model highlights the interests of the various stakeholders in an
organization and links their interests with the objectives of management. People are
considered as the most important single asset of the organization and stresses on the aspects
of employee’s needs and social well-being.

Contributions
A broad classification of the content of HRM and the range of outcomes at the individual,
organizational and societal levels is provided by this model, (Poole, 1990) and also fosters a
holistic thinking about the various sources of skills supply and draws attention to the skill as
an important concept of HRM (Hendy Pettigrew, 1990).

Limitations
This model fails to explain the complex relationship between strategic management and
HRM (Guest, 1991). Also, it just outlines a range of HRM policy choices but does not
recommend specific approaches.

3. Contextual Model
Proposed by Hendy and Pettigrew (1990), the model contends that the existence of a number
of linkages between the external environmental context (socio-economic, technological,
political-legal and competitive) and internal organizational context (culture, structure,
leadership, technology and business output) form the content of HRM. Organizations may

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follow different pathways to achieve positive results and there may not be a straight forward
flow from business strategy to HRM.

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Contribution
The model suggests that changes in HRM practices can be conceived as a response to
business strategy and the scope of HRM function to respond effectively depends on the
contextual factors.

Limitation
A potential problem is that, HR policies and practices become a dependant variable of the
analysis, and outcomes such as organizational performance become an independent variable
(Guest, 1991). Also, the different interests of management and employees can influence the
interactive process (Pincell and Ahlstrand, 1994).

4. 5 P Model

Schuler (1992) proposes a 5 P Model which combines various HR activities with the strategic
needs of the organization. The 5 HR activities are: philosophy, policies, programs, practices
and processes. (See IHRM, Figure 5.4, page 163, Harzing and Pinington, 2011).

Contributions
When compared to the earlier models that treated HR activities separately, this 5P model
shows the inter-relatedness of activities. Also, the model accounts for influence of both
external and internal characteristics on the strategic business needs of an organization.

Limitations
The model is over-prescriptive and very hypothetical, that is, difficult to implement in
practice (Budhwar and Debrah, 2001).

5. European Model
Considering a need for a model of HRM that could account for country differences, Brewster
(1993, 1995), proposes a ‘European Model’ of HRM whose basic assumption is that,
European organizations operating within restricted economy are constrained (a) at the
international and national level by the national culture and legislation, (b) at the
organizational level by patterns of ownership, and (c) at HRM level by trade union
involvement and consultative arrangements. (See IHRM, Figure 5.5, page 165, Harzing and
Pinington, 2011).

Contributions
The European Model moves beyond countries’ borders and enables analysis of HRM at a
broader geographical and continental level (Budhwar and Debrah, 2001).

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Limitations
Considerable variety exists across countries in the single European Model and even within
clusters of similar countries (e.g.) Scandinavian and German clusters have more labour
regulations when compared to Ireland or UK.

Strategic View of HRM

The motivation of Strategic Human Resource Management (SHRM) which grew in 1980s
was to demonstrate that HRM was essential to strategic thinking and practice.

Human Resource Strategies

The concept of strategic human resource management (SHRM) is the result of researchers’
keenness to show the importance of human resource practices for organisational performance.

Delery, (1998, Human Resource Management Review, Fall 98, Vol. 8 issue 3, P289, 21 p)
states that, "there is a growing body of research showing that the methods used by an
organisation to manage its human resources can have a substantial impact on many
organisationally relevant outcomes. Human resource management (HRM) practices have
been linked with turnover (Arthur 1994), productivity (Ichniowski, Shaw & Prennushi 1997;
MacDuffie 1995), financial returns (Delery & Doty 1996), survival (Welbourne & Andrews
1996), and firm value (Huselid 1995).

Delaney and Huselid (1996) state that researchers still do not know "how HRM practices
affect organisational outcomes, whether some practices have stronger effects than others, and
whether complementarities or synergies among such practices can further enhance
organisational performance".

The universalistic approach

The universalistic perspective aka "best practices approach", claims that some HR practices
or always better than others and that all organisations should adopt these best practices. The
popular advocates of this approach include, Huselid, Pfeffer, Osterman, etc. Huselid’s 1995
research, one of the best-known studies in this area found evidence for 13 HR practices to
have a positive impact on organisational performance.

The underlying argument of the Universalists is this that the relationship between a given
independent variable (HR practices) and a dependent variable (organisational performance) is
universal across all organisations.

The contingency approach

The contingency theorists argue that, one solution does not fit all. They disagree with the
Universalists claim that adopting some HR practices would result in superior performance

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across all organisations. They propose that in order to be effective and organisation’s HR
policies must be consistent with other aspects of the organisation. The alignment of HR
practices to the business strategy is called "external fit" or "vertical fit". This is also called as
'best-fit’ approach.

The popular theorists and researchers in this school of thought include Schuler and Jackson,
1987; Dyer, 1984; Mahoney and Desktop, 1986; Gratton et al., 1999.

Some of the main criticisms against this model include the overreliance on the classical
rational-planning approach to strategy making, and the resulting lack of sophistication in its
description of generic competitive strategies, besides its rejection of societal and national
cultural influences on HR strategy.

The configurational approach

The configurationalists differ from the Universalists and the Contingency theorists as they
take a holistic view and take a Systems approach to HRM. They suggest typologies of ideal
types of HR systems and argue how the pattern of multiple independent variables (HR
practices) is related to a dependent variable (corporate strategy) rather than with how
individual independent variables are related to the dependent variable. The configurational
approach is complex, where it recognises the need for organisations to achieve both vertical
and horizontal fit through the HR practices, in order to achieve competitive advantage and
therefore be deemed strategic.

The resource-based view of SHRM

It focuses on the relationship between a firm's internal resources, its profitability and the
ability to stay competitive through its strategy formulation. The theorists suggest conditions
under which human resources become scarce, valuable, organisation-specific, difficult-to-
imitate resource, that this, key 'strategic assets'.

The resource-based view recognises the importance of HR function as a key 'strategic' player
in developing sustainable competitive advantage and an organisation's human resources
(employees) as key assets in developing and maintaining that competitive advantage.

A Framework Strategic HRM in Multinational Enterprises

De Cieri and Dowling (2006) building on Schuler et al’s (1993) work provide a framework
for SHRM in MNCs. This includes the influence of external factors (industry characteristics,
global, regional, and national characteristics and inter-organizational networks and alliances)
and internal areas (such as MNC structure, MNC strategy, corporate governance,
headquarters’ international orientation and organizational culture) on SHRM and MNC
concerns and goals (such as efficiency, flexibility, competitiveness and balance of global
integration and local responsiveness).

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Source: International Human Resource Management, 6th edition, Dowling, Festing and Engle, p 15.

IHRM a platform for experiential and authentic learning.

MNCs have increased in number and influence, hence, the role of IHRM in those companies
has grown in significance. The success and failure of international business in attributed to
the effective management of human resources internationally (Scullion (1995).

IHRM is human resource management issues, functions, and policies and practices that result
from strategic activities of MNCs and that impact on international concerns and goals of
those enterprises’ (Schuler et al. 1993).

International assignments are an important mechanism for developing international expertise.

Individuals by gaining hands-on international experience are able to get exposed to the
realities of the foreign environment and are able to progress in their career while the MNC is
able to develop a pool of experienced staff for future international assignments

International assignment is a management development tool that aims to provide employees

with opportunities to enhance their abilities by exposing them to a range of jobs, tasks and
challenges. International experience is often an essential requirement for further career
advancement especially for the younger employees.

While expatriates gain individual management development, international assignment often is

the ’training ground’ for the international cadre, i.e. a group of high potential employees who
have been selected for specialized management training to enable the MNC to continue to
expand its international operations.

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Thus the above discussions would make it clear as to the importance of IHRM in providing a
platform for authentic and experiential learning in managing human resources in an
international context.

Discussion Questions
1. What are the main similarities and differences between domestic and international
HRM?

2. Define these terms: “International HRM”, “PCN”, “HCN”, and “TCN”

3. Discuss two HR activities in which a multinational firm must engage, which

would not be required in a domestic environment.

4. Why is a greater degree of involvement in employees’ personal lives inevitable in

many international HRM activities?

5. Discuss at least two of the variables that moderate differences between domestic
and international HR practices.

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Topic 2: The Organizational Context

Learning Outcomes

1. Discuss the stages a firm typically goes through as it grows internationally

2. Discuss structural responses to international growth
3. Explain the control and coordination mechanisms including cultural control
4. Discuss how country of origin influences a firm’s approach to organizational structure

Topic outline
The purpose of this topic is to identify the HR implications of the various options and
responses that international growth places on the firm. The focus is on:

The general topic of balancing the standardization and localization of MNC operations, and
how this balancing act runs throughout all human resource planning, processes, activities, and
systems.

The organizational context in which IHRM activities take place. Different structural
arrangements are identified as the firm moves along the path to multinational status—from
the export department through more complex variations such as matrix, heterarchy,
transnational, and networked structures.

Control and coordination aspects. Formal and informal mechanisms are outlined, with an
emphasis on control through personal networks and relationships and corporate culture, thus
drawing out HRM implications.

How international growth affects the firm’s approach to HRM. Firms vary from one to
another as they go through the stages of international development, and they react in different
ways to the circumstances they encounter in various foreign markets.

Through the approach taken in this topic, we are able to demonstrate that there is an
interconnection between IHRM approaches and activities and the organizational context, and
that HR managers have a crucial role to play in this respect.

This topic deals with the internal responses on organization attempts to deal with global
environment challenges. The various factors that influence on organization’s international
growth places demands on the senior manager.

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Management Demands of International Growth

Source: IHRM,
Dowling, Festing
and Engle, 2013.
Cengage Learning,
page 47

The elements
cited in the diagram above are not independent of each other, for example the extent of
geographical dispersion affects a firm’s size, creating a pressure upon control mechanism,
which in turn, will influence structural change. Similarly the size of a firm will affect the flow
and volume of information which may reinforce a central response such as what function,
system and process to centralize and what to decentralize.

The management responses to these influences on HRM shall be discussed in the following
part

Stages of Internationalization

MNCs evolve from a domestic to a truly global organization through a long and somewhat
torturous process with many diverse steps.

Source: IHRM, Dowling, Festing and Engle, 2013. Cengage Learning, page 57

Some organizations go through the various steps rapidly while others evolve slowly over
many years.
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Export
Export is the initial stage for manufacturing firms entering international operations. However,
service companies (e.g., law firms) many not be able to easily export the services and may be
forced to open a branch office or enter into a joint venture.

As export sales increase firms may establish an export department where a designated export
manager at the home-office be responsible for controlling the export operation.

Sales subsidiary
As the firms develop its business in the foreign markets, its agents and distributors are
replaced by direct sales through sales subsidiaries or branch offices in these foreign markets.
The export manager will be given the same authority as other functional managers, where
exporting is still controlled at the HQ.

Organizations taking an ethnocentric approach will appoint sales staff to these subsidiaries
from the HQ (PCN). However, if it considers country-specific factors like knowledge of
foreign markets, language, sensitivity to host-country needs, etc., it may staff the subsidiary
with host-country nationals (HCNs).

If it decides to use PCNs, it will result in expatriate management issues and activities where
HR manager at HQ will be actively involved.

International division
Firm deciding to produce overseas or open a service facility there, may establish its own
foreign production facilities or enter into a joint venture with a local firm.

With increase in international activities, the firm foreign subsidiaries are structured to mirror
the domestic organization. The subsidiary managers report to the international division at
HQ. The subsidiary HR managers will report to the HR manager at HQ regarding staffing and
other important HR issues.

At this stage of internationalization the firm would want to maintain control of the newly
established subsidiary and would place PCN in all key positions. HR will predominantly be
concerned with expatriate arrangements with some monitoring of the HR function formally
through the head of the international division at HQ.

Global product/area-division
Firms move from the foreign production stage to a phase of growth through production or
service standardization and diversification. The international operations become
overstretched making effective communication and efficiency of operations difficult.

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Tensions are likely to emerge between the HQ (parent company) and its subsidiaries due to
national responsiveness at subsidiary unit and global integration imperatives at the parent
head quarters.

The structural response could be either global product division structure or on global area
division structure (See, Figure 3.8A and 3.8B at page 61 of the prescribed text).

In the process of accommodating subsidiary concerns through decentralization, the MNC

strives to adapt its HRM activities to each host country’s requirements. As MNC grows, the
trend towards global perspective accelerates; it increasingly confronts the ‘think global, act
local’ paradox.

Global matrix structure

In a matrix structure, an MNC attempts to integrate operations in more than one dimension.
(See Figure 3.9 at page 62 of the prescribed text). The Product division and geographical
division share joint authority. The success of this form has met with mixed results. Barlett
and Ghosal argue that in an international context, the matrix structure has proven to be
unmanageable. Ronen (1986).

Mixed Structure
Dowling’s (1988) survey reveals that more than one third of respondents’ indicated that they
had mixed forms and only eighteen percent had product or matrix structure. An example
would be Motorola, where product groups had worldwide responsibility for their product
lines. As they compete in Japan, an international group has been introduced to help
coordinate the product lines.

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Beyond Matrix
In a large mature MNC, the information, people and resource floors are multidirectional:
from HQ to subsidiary; from subsidiary to subsidiary; and between subsidiaries, resulting in a
complex network of inter-related activities and relationships. Three types of organizational
structures are identified – the heterarchy, the transnational and the network firm.

The Heterarchy
Hedlund (1986), a Swedish researcher notes that a MNC may have a number of different
kinds of centers, besides the traditionally referred ‘headquarters’. He has depicted the concept
of the heterarchical MNC, which is a model of a highly integrated corporation, utilizing
geographically dispersed external and internal competences. The heterarchical assumes the
authoritarian hierarchies function well in a stable business environment, but not so well in a
dynamic context typical of the contemporary world. This concept is a governance concept
that incorporates some of the best features of organizational concepts between hierarchy and
anarchy.
(See figure 3.10 at page 65 of the prescribed text)

The transnational
MNC operates as decentralized federations of units able to sense and respond to diverse
international need and opportunities; and has the ability to manage across national
boundaries, retaining local flexibility while achieving global integration (Barlett and Ghosal).

MNC as a Network
Networks are regarded as sets of connected exchange relationships between actors controlling
activities (Forsgren and Johanson, 1992). An overall characteristic of networks is that they
contain clusters of actors which are neither coordinated by administrative orders nor by price
mechanisms, but by trust, cooperation and loyalty (Frances et al., 1991).

The role of HR function in structural forms

Little research has been done into how the HR function develops in response to the structural
changes as a result of international growth. An exception is a study done by Scullion and
Starkey in 30 UK firms where they found three distinct groups:

- centralized HR companies
- decentralized HR companies
- transition companies

The varied roles of corporate HR within these three groups impacted upon the way in
which training and performance appraisals were handled and the ability of corporate HR
to plan for staff movements throughout the worldwide operations.

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Strategies for Global Control
Structure results in hierarchies, functional prescribed job descriptions, selection criteria,
training standards and compensable factors. HR activities act to implement existing structural
systems of control.

Informal Control Process

Control through Personal Networks

Transnational and networked organizations emphasize the need to foster knowledge
generation and diffusion through lateral communication via a network of working
relationships. As network relationships are built and maintained through personal contacts,
organizations require processes and forums to help staff develop such personal relationships
that can be used for organizational purposes.

Control through Corporate Culture

Corporate culture refers to a process of socializing people so that they come to share a
common set of values and beliefs that then shape their behaviors and perspectives. It is
usually described as a ‘way of doing things’ in an organization.

Cultural control is regarded as an effective informal control mechanism. Alvesson and Berg
regard HRM activities as important means of establishing corporate culture identity and help
reinforce company value systems.

Discussion Questions

1. What are the stages a firm typically goes through as it grows internationally, and how
does each stage affect the HR function?

2. What are the specific HRM challenges in a networked firm?

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Topic 3: Cross Border Alliances and SMEs

Learning Outcomes
1. Discuss formation process of cross-border mergers, acquisitions and international
joint ventures.

2. Outline the development phases of an Merger and Acquisition (M&A) and the
respective HR implications.

3. Outline the development phases of an International Joint Venture (IJV) and respective
HR implications.

4. Discuss the challenges for HRM in international Small and Medium Enterprises
(SMEs).

Topic outline
This topic focuses on cross-border alliances with special focus on equity-based alliances,
namely, Mergers and Acquisitions, International Joint Ventures. Also, issues relating to
globalizing SMEs and the attendant IHRM responses will be dealt with.

Cross-border alliances are basically cooperative agreements between two or more firms from
different national backgrounds, which are intended to benefit all partners.

These alliances pose specific challenges to IHRM and often these are crucial to the success of
the international operations.

Cross-Border Mergers and Acquisitions

A merger is the result of an agreement between two companies to join their operations
together. Often, the partners are equals. E.g. Daimler-Chrysler merger.

An acquisition on the other hand, occurs when one company buys another company with the
interest of controlling the operations of the combined operations (Schuler, Jackson and Luo,
2004). E.g. Mittal acquisition of Arcelor Steel.

Our focus for discussions will be solely on HR and its role in employee relations.

M&A Phases and HR implications

Mergers and acquisitions undergo a series of phases. Usually the following four steps are
observed:

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 1. A pre M&A phase including screening of alternative partners on an analysis of their
strengths and weaknesses.
2. A due diligence phase which focuses more in depth on analyzing the potential
benefits of the merger.
3. Integration Planning Phase is based on the results of the due diligence phase planning
for the new company is carried out.
4. Implementation phase is when plans are put into action.

See Figure 4.4, page 88. Dowling, Festing and Engle Sr.

A number of research studies have indicated that HR department become increasingly

involved in the phases of M&A integration as the processes evolves.

Cranefield Studies on International Human Resource Management (CRANET) shows that the
following HRM measures have an important effect on the success of mergers and
acquisitions:

- Increasing involvement of HRM in the strategic decision making process of the firm

- Formalisation of HR practices

- Support of the creation of organizational capabilities through training and

development activities

- Development of line managers and internal labour markets

Note: Read DaimlerChrysler case study at page 85 of the prescribed text book to understand the
various stages of M&A and the HR measures that were taken.

Strategic HRM and the role of HR function in M&As

Aguilera and Dencker (2004) suggest that organizations should match their M&A strategy
with their HR strategy while relying on three conceptual tools namely, resources (tangible
and intangible assets); processes and values. Ulrich (1997) states that HR function can take
the role of strategic partner (i.e. management of strategic human resources), and
administrative expert (i.e. management of the firms infrastructure), an employee champion
(i.e. management of employee contribution), or a change agent (i.e. management of
transformation and change).

Rees and Edwards (2009) state M&As provide an excellent basis to reconsider HR strategy of
a company and to place the HR function in an important position as a key actor responsible
for intercultural integration and consideration of legal environment of the various labour
markets.

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International Equity Joint Ventures

Shenkar and Zeira (1987) define IJV as “a separate legal entity representing the partial
holdings of two or more parent firms, in which the headquarters of at least one is located
outside the country of operation of the joint venture. The entity is subject to the control of its
parent firms, each of which is economically and legally independent of each other.”

IJVs can have two or more parent companies and an increasing number of IJV partners leads
to complexity overall, including international HR function and practices (Schuler and
Tarique, 2007).

Figure 4.5 (page 91 of the prescribed text) illustrates the level of complexity that an IJV
represents for the HR function. One of the challenges, similar to that of M&A is that partners
with different institutional, cultural and national background come together and must balance
their interests.

IJV development stages and RM implications

Schuler (2001) identifies four stages of IJV development:

The formation, in which the partnership between the parent companies is the centre of
interest, the development and implementation of the joint venture itself and the advancement
of the activities.

It is important to note that HRM is involved in each of the IJV development stages (Budhwar,
Varma, Katou and Narayan, 2009), which is not independent from each other. Schuler’s
model shows that compatibility between the IJV partners is most important when it comes to
mutual learning opportunities between the parent companies and the joint venture.

At the various stages of IJV formation HR managers may play different roles in order to meet
the challenges of interaction between the parent company and IJV. Cultural differences do
matter in collaboration, decision making and loyalty in the joint venture. (Read IHRM in
Action Case 4.2 at page 94 of the prescribed text)

International SMEs

SMEs play a very important role in the world economy. In the European Economic Area
(EEA) and Switzerland there are more than 16 million enterprises of which only less than 1
percent are large enterprises. Two third of all jobs in this region are in SMEs.

In the Asia Pacific region about 90 per cent of enterprises are SMEs generating around 60 to
80 percent of GDP with 32 to 48 per cent employment (UNECE, 2007).

In USA more than 80 per cent of total employment is with organizations with less than 20
employees (OECD).

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In countries such as Singapore, Korea, South Africa and in the European Union,
internationalization of SMEs is promoted by the respective government policies.

IHRM in SMEs

Recruitment and compensation practices are applicable to SMEs as well; however, the
management of people in these organisations differs from practices and strategies of large
enterprises.

Internationalization process theory suggests that specific features of owner or founder of

SMEs have an impact on the internationalization process of this particular enterprise (Matlay
and Retcher, 2000).

Recruitment, selection and retention

SMEs have more difficulty in hiring international manages e compared to large enterprises. It
is argued that many less-qualified employees are employed by SMEs as these people were
not able to meet the recruitment and selection criteria of large firms and were forced to work
for SMEs as their second choice. Since the SMEs are not able to recruit qualified and
competent international managers they are not successful in the international markets.
Research studies indicate that selection criteria of SMEs often include a general fit with the
small firm or technical capabilities rather than requirements that refer to a future position
with international responsibility. SMEs who are planning for internationalization should
rethink their selection criteria and define a set of international competencies (Dusseldorf:
DGFP, 2007) and in order to retain key employees, SMEs should consider improving training
opportunities or career path of their key employees besides providing attractive financial
benefits.

Human Resource Development

Learning processes are of great importance in a dynamic and volatile global business
environment. Training and development activities tend to be short-term oriented and are
usually not designed to meet the long term strategic needs of the small firms. The approach
taken by SMEs to learning is normally informal using local networks and socialization.
Another problem is that training is considered as an ‘unaffordable luxury’ in SMEs,
especially in training of expatriates (MacMahon and Murphy, 1999).

HR department resources and outsourcing

Financial and human capital resources are often too scarce for SMEs which act as major
barriers to their internationalization efforts. This in part explains the reason for lack of
sophisticated management strategies and the non-appointment of HR specialists for cost
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reasons in SMEs. The small HR group focus mainly on administrative tasks and most
important decisions are taken by the founder/owner of the firm (Kuhlmann). Professional
Employer Organizations (PEOs) could provide professional HR services to SMEs under a
contractual agreement. Another alternative approach found in the German automobile
industry is in the cooperation between SMES and large organizations, where the later
supports small suppliers in the areas of expatriate management, market information, and in
dealing with governmental institutions.

Discussion Questions
1. Describe the formation process of cross-border mergers, acquisitions, and
international joint ventures. What are the major differences?

2. Describe the development phases of an M&A and the respective HR implications.

3. Outline the development phases of an IJV and the respective HR implications

4. What are the barriers to internationalization for SMEs?

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Topic 4: International Staffing

Lesson Outcomes
1. Discuss the approaches to staffing foreign operations

2. Discuss the reasons for using international assignments: position filling, management
development and organizational development

3. Outline the various types of international assignments: short term, extended and
longer term; and non-standard arrangements: commuter, rotator, contractual and
virtual

Topic outline
This topic examines the various approaches taken to staffing international operations and the
allocation of human resources to the firm's varied international operations to ensure effective
strategic outcomes.

The following issues are discussed:

 The various approaches to staffing international operations — ethnocentric,

polycentric, geocentric, and regiocentric and discuss their advantages and
disadvantages.

 Primary reasons for using international assignments include position filling,

management development, and organization development.

 Various types of international assignments can be distinguished, namely short,

extended, and long-term (traditional), as well as nonstandard forms such as commuter,
rotational, contractual, virtual, and self-initiated assignments.

Approaches to staffing and issues involved

There are four approaches to managing and staffing international subsidiaries, namely,
ethnocentric, polycentric, geocentric and regiocentric.

Ethnocentric

In ethnocentric organizations, strategic decisions are made at the headquarters and

subsidiaries hardly have any autonomy. The key positions both at HQ and foreign operations

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are held by mangers from HQ, the subsidiaries are managed by staff from home country
(PCN). The reasons for such an approach are:

- A perceived lack of qualified HCNs.

- The need to maintain good communication, coordination and control links with HQ.

However, an ethnocentric policy has many disadvantages.

Polycentric

In this approach MNCs treat each subsidiary as a distinct national entity with some decision
making autonomy. Subsidiaries are usually managed by local nationals (HCNs).

Geocentric

Here, an NMC takes a global approach to its operations, recognizing that each part (HQ and
subsidiaries) makes a unique contribution with its unique competence. This results in a
worldwide integrated business where nationality is less important than ability.

Regiocentric

A similar strategy like geocentric approach in utilizing a wider pool of managers but in a
limited way. Staff may move outside their home country but only within a particular
geographic region. Regional managers may not be promoted to HQ positions but enjoy a
degree of regional autonomy in decision making (Heenan and Perlmutter, 1979).

Students Note: Read the advantages and disadvantages of PCNs, TCNs and HCNs listed in
Table 5.1 at page 114 of the prescribed text.

Contingencies in staffing choices

The internal and external contingencies facing an internationalizing firm are:

Context specificities - differing cultural values between HQ and host country; institutional
environment like legal environment and education system; availability of staff on the local
labour market; and the type of industry the firm operates.

Firm specific variables - MNC structure and strategy, international experience, corporate
governance and organizational culture which describe the MNC as a whole (Vance and Paik,
2006).

Local unit specificities – establishment method of the subsidiary, i.e. whether it is a

Greenfield investment, a merger, an acquisition or a shared partnership; the strategic role of
the subsidiary and its strategic importance for the MNC; the need for control; and the locus of
decision making can influence the staffing decisions.

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IHRM practices – selection, training and development, compensation, and career
management play an important role in the development of effective policies required to
sustain a preferred staffing approach.

The above four groups of contingencies including their interdependencies systematically

influence staffing practices.

Reasons for using international assignments (Harzing and Pinnington, 2011).

There are difficulties surrounding international assignments but then why do MNCs persist in
using expatriates. Certainly there are decreases and increases in the number of staff moved
internationally.

Edstrom and Galbraith (1977) have identified three important organizational motives to
theoretically explain why international transfer of managers occurs.

Fill positions – this concerns the transfer of technical and managerial knowledge. This motive
is quite important for developing countries where qualified local talent may not be available,
but specific knowledge transfer might be necessary to MNC subsidiaries in developing
countries. Here, expatriates will be seen as key torch bearers of tacit knowledge.

Management development – the transfer gives the manager international experience and
develops him/her for future important task in subsidiaries or with the parent company. Such
transfer could be carried out even if qualified HCNs were available in the host country.

Organization development – this motive consists of two elements: socialization of both

expatriate and local manager into the corporate culture and the creation of verbal information
network that provides link between subsidiaries and HQ.

Pausenberger (1987), however, indicates that all three functions of international transfer can
in fact lead to organization development defined as the increase of the company’s potential to
succeed and compete in the international market. The ultimate goal of international transfer is
to make sure that various organizational units strive towards common organizational goals.
Edstrom and Galbraith (1977) have argued that these three motives for international transfers
are not mutually exclusive. The point for organizations to realize is the fact expatriation is a
strategic tool to achieve specific organizational goals and needs to be used as such.

Types of international assignments

The various types of international assignment could be classified as follows:

Short- term – up to three months, usually for troubleshooting, project supervision or as a
stopgap measure until a permanent arrangement is made.

Extended – up to one year, may involve similar activities as that of short-terms assignments.

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Long-term – varies from one to five years, involves a clearly defined role in a subsidiary
(also referred to as traditional expatriate assignment).

The term definitions of short-term and long-term assignments vary and depend on
organizational choices.

Commuter assignments – special arrangements where an employee commutes from the

home country on a weekly or bi-weekly basis to the place of work in another country.

Rotational assignments – employees commute from the home country to a place of work in
another country for a short, set period followed by a break in the home country.

Contractual assignments – used in situations where employees with specific skills vital to
an international operation are assigned for a limited duration of 6 to 12 months.

Virtual assignments – where the employee does not relocate to a host location but manages
from home-base, various international responsibilities for a part of the organization in another
country.

Self-initiated assignments – while standard expatriate assignments are initiated by the

organization, self-initiated assignments are initiated by the individual who are highly
interested in an international challenge, have adequate language skills, an international
mindset and are quite entrepreneurial.

Discussions Questions
1. Outline the main characteristics of the four approaches to international staffing.

2. Which factors determine the choice of staffing approach? Would a MNE choose the
same staffing approach worldwide? Place your arguments in the context of the model,
outlining determinants of staffing choices.

3. What are the reasons for using international assignments?

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Topic 5: International Recruitment and Selection

Lesson outcomes
1. Discuss issues in staff selection

2. Discuss the issue of expatriate failure

3. Discuss the factors moderating intent to stay or leave the international assignment

4. Examine the selection criteria for international assignments

5. Discuss the issue of dual career couples as a barrier to staff mobility

6. Reflect on the likelihood for female expatriates to be different

Topic Outline
This topic focuses on the various factors that affect the success and failure of the recruitment
and selection of staff for international assignments.

Students also learn about recruitment and selection issues, focusing on:

- Selection criteria and procedures for international assignments

- Gender in international HRM: dual careers and the female expatriate.

Issues in Staff Selection

Recruitment is an activity in the hiring process where organizations search for and obtain
potential job candidates in sufficient numbers and quality so that it can select the best people
to fill the position it has.

Selection is the second phase in the hiring process involving gathering of information about
the candidates for the purposes of evaluating and deciding who should be employed in a
particular position. Both recruitment and selection processes are important and should be
carried out effectively in order to hire the right person for the right job.

The major differences between domestic and international staffing are: the predisposition of
firms with regard to who should hold the key positions in headquarters and subsidiaries (i.e.,
ethnocentric, polycentric, regiocentric and geocentric staffing orientations) and the other; the
constraints imposed by the host country governments (i.e. immigration rules with regard to
work visas/permits and the most common requirement is to provide reasons as to why a local

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national should not be employed for the position instead of hiring a foreigner) which can
severely hamper the MNCs ability to hire the right candidate.

Scullion and Collings (2006) note that most of the expatriates are recruited internally rather
than externally. Recruiting internal hires for expatriate positions reduces the risk of a poor
selection decision as the candidate is well known to the organization when compared to an
external hire whose performance, attitude and behavior is not known that clearly.

Expatriate failure and success

Three questions related to expatriate failure, i.e. its definition, the magnitude of the
phenomenon, and the costs associated with failure need to be addressed.

Definition

Expatriate failure has been defined as the premature return of an expatriate (that is, a return
home before the period of assignment is completed). The failure characterizes a selection
error often combined by ineffective expatriate management policies and excludes expatriate
premature return due to ineffectiveness, maladjustment at the host country or voluntary exit
by the manager due to personal reasons.

Magnitude of the phenomenon

In the Brookfield report 2010, it is reported that firms indicated that 6 per cent of expatriate
assignments were regarded as failures. The survey also reported that expatriate turnover was
about 17 per cent during international assignment, 28 per cent within the first year of
repatriation, 23 per cent between first and second year and 22 per cent after two years.
Tungs’s study (1981, 1982) identified expatriate failure rates and a higher percentage of

Costs of expatriate failure

There both direct and indirect costs associated with expatriate failure. Direct costs include
airfare related to the relocation expenses, salary and expatriate training. The amount would
vary depending on the position held by the expatriate, country of destination, exchanges rates
prevalent at that time, and whether the failed manage is replaced by suitable another.

Indirect costs are harder to quantify in monetary terms but could prove to be very expensive
for the MNC and include loss of market share, difficulties with host government officials,
demands from local subsidiaries to replace the expatriate with HCN, declining morale and
productivity of the local staff.

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Reasons for expatriate failure

Tung (1982) research that analysed the reasons for expatriate failure found differences
according to the country of origin of the MNC. Important personal factors were inability to
adapt either by the manager or the spouse, other family problems, the maturity of the
manager and problems coping with higher responsibilities inherent in the position.

Brookfield’s (2010) study found spouse/partner dissatisfaction, the inability to adapt, other
family concerns and candidate selection as important reasons for failure. IHRM plays an
important role in creating successful assignments, especially career and talent management
(before, during and after) as the single most important factor in retaining employees after the
assignment.

Selection Criteria

Developing appropriate selection criteria has become a critical IHRM issue. While
developing selection criteria, organizations should take into account both individual factors
and specifics of the situation concerned. Look at Figure 5.3 at page 129 of the prescribed
textbook.

Technical ability

Technical and managerial skills are an essential criterion. Since expatriates are internal
recruits, personnel evaluation records and feedback from the past and current superiors would
help in selecting the right candidate for the foreign assignment.

Cross-cultural suitability

The cultural environment in which the expatriate operates is an important factor in

determining successful performance, hence, intercultural competence as well as the ability to
adapt to the foreign culture are important factors in selection.

Soft skills

Caligiuri, Tarique and Jacobs (2009), state that soft skills are important success factors of
international managers and need to be considered in addition to technical knowledge and
skills.

Intercultural competence

Besides, technical ability and managerial skills, expatriates require cross-cultural abilities that
help the person to effectively function in a new foreign environment and to guarantee the
functioning of culturally diverse teams (Llyod and Haertel, 2010). Gertsen (1990) refers to
this as intercultural competence, which is defined as ‘the ability to function effectively in
another culture’.

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Cultural intelligence, ‘a specific form of intelligence focused on capabilities to grasp, reason
and behave effectively in situations grasped by cultural diversity’ (Ang et al, 2007) is a
concept closely related to intercultural competence is to be considered while selecting
expatriates for international assignments.

The ability to adjust to a foreign culture

This is most often cited factor for expatriate failures. The antecedents of cross-cultural
adjustments include, individual aspects (e.g. sex or goal orientation), work related factors
(e.g. role clarity, decision autonomy), organizational aspects (e.g. company support), non-
work related factors (e.g. family issues). While selecting candidates for overseas assignments,
this factor should be taken into account.

Family requirements

The family is a very important influence on the success of an international assignment

particularly the spouse. Spouse often carries a heavy burden on arriving at the foreign
destination, the responsibility for settling the family into its new home, leaving behind a
career, friends and other social support networks. Besides, spouse, there are other family
considerations like children’s education, care of aged and or invalid parents.

Country/Cultural requirements
The host country legislative framework relating to the grant of visa/work permit for PCN,
TCN including permission for the accompanying spouse to work in the host country are some
of the reasons for the candidates to reject the offer of international assignment.

MNC requirements
Selection decisions are influenced by the specific situation of the MNC. Example, the
selection authority may consider the ratio of expatriates to local staff while making the
selection decision, however, in a particular country the MNC may require to appoint more
PCN and TCN than would normally be the case.

Language
Language skills could be critically important for some expatriate positions, where the ability
to speak the local language is linked to cross-cultural ability and in turn to the expatriate’s
performance. MNCs having a common corporate language may not face major problems in
this area.

Dual Career Couples

The dual career couple from among the available pool of candidates for international
assignment is a constraint that hinders the recruitment and selection process. The rise in dual
career couples along with aging population and family-related situations, make more people
immobile.

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 Brookfield Global Relocation Trend Survey 2010 finds that the most important reason for
turning down international assignments was family concerns.

The other solutions to the challenge of dual career couple include the following:

Inter-firm networking – here the MNC attempts to place the accompanying spouse or partner
in suitable job with another multinational – sometimes in a reciprocal arrangement.

Job-hunting assistance – here the MNC provides spouse/partner assistance with employment
search in the host country.

Intra-firm employment – A logical but a difficult solution where the MNC sends the couple
to the same foreign subsidiary, perhaps the same department.

On-assignment career support – Example, Motorola’s Dual-Career Policy provides for

lump-sum payment for educational expenses, professional association fees, seminar
attendance, language training to upgrade work-related skills and employment agency fees.
Besides these, other forms of on-assignment assistance include help in establishing contacts
and paying for lost income by the accompanying spouse.

How different are female expatriates?

The typical expatriate is still tends to be male. Brookfield 2010 survey find only 17 per cent
of expatriates were female. The reasons usually attributed as to why so few female
expatriates: they are unwilling to relocate, have attitudinal problems, preconception that men
in some cultures (such as Asian countries) do not like reporting to female managers,
particularly foreign women, therefore women should not be posted overseas, do not have
strong empirical support in research.

Stroh, Varma and Valyt-Durbin (2000) research found that US and Canadian women are
interested in and likely to accept international assignments.

The female expatriates initial performance was found to be affected by host country prejudice
regarding the role of women in certain countries, however, the longer they were on such
assignments, the less they perceived that prejudice was a barrier to their effectiveness.
Caligiuri and Tung (I999) in their study of female and male expatriates of US-based MNC
found that females can perform equally well as their male counterparts.

Fischlmayr (2002,) in her study of Austrian female expatriates found that the attitudes of HR
directors as a major barrier to the selection of female expatriates. Some women regarded their
age as a factor in terms of others’ perceptions and expectations about their beaviour.

Mayrhofer and Scullion (2002), in their study of male and female expatriates in the German
clothing industry found women were sent to a diverse range of countries. Overall, there were
few differences in the experiences of both gender groups. More female managers in lower
positions were posted on long term assignments involving various forms of non-standard

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assignments. However, the study finds that women were less represented in senior
management positions and the researchers conclude that barriers still exists in terms of senior
female expatriate positions.

Napier and Taylor (2002) found in their study that gaining credibility with local client was a
major issue facing women expatriates. Accommodating to cultural differences, maintaining a
social life and a need for appropriate interpersonal skills were important factors in coping
with work demands. Networks were also important in both business and social contexts.

The common theme that emerges across the various studies on female expatriates is that
assignment location, level of organization support, spouse/partner satisfaction and inter-
cultural experiences are important in terms of performance.

Study the Table 5.6 at page 140 of the prescribed text to learn the strategies developed by
Insch, McIntyre and Napier (2008) for breaking the glass ceiling before, during and after an
international assignment.

Discussion Questions
1.Should multinationals be concerned about expatriate failure? If so, why?

2.What are the most important factors involved in the selection decision?

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Topic 6: Training, Learning and Development

Learning Outcomes
1. Discuss the role of training in supporting expatriate adjustment and on-assignment
performance

2. Discuss the challenges faced by training expatriate managers

3. Outline the components of effective pre-departure training programmes such as

cultural awareness, preliminary visits and language skills

4. Examine the developmental aspect and applicability action learning in international

assignments

Topic Outline
Training aims to improve employees’ current work skills and behaviour, whereas
development aims to increase abilities in relation to some future position or job. In this topic,
students learn how the international assignment is a vehicle for both training and
development, as reflected in the reasons why international assignments continue to play a
strategic role in international business operations (see Topic 4, International Staffing). The
role of training in preparing and supporting personnel on international assignments is also
considered. The following issues are examined:

- The role of training in supporting expatriate adjustment and on-assignment

performance.

- Components of effective pre-departure training programs such as cultural awareness,

preliminary visits, and language skills. Relocation assistance and training for trainers
are also addressed.

- The effectiveness of pre-departure training.

- The developmental aspect of international assignments.

- Training and developing international management teams.

- Trends in international training and development.

Also, training and development aspects relating to short-term assignments, nonstandard

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assignments, and international business travellers are addressed.

Introduction

Training and Development activities help an MNC build its human capital. More MNCs are
establishing their own universities which highlight the importance of training and
development. Examples of such MNCs include, Motorola, Oracle, McDonald’s, and Disney.
The international assignment is itself an important training and development tool for MNCs.

Training aims to improve employees’ current work skills and behavior, whereas
Development aims to increase abilities in relation to some future positions or jobs.

The role of expatriate training

The role of expatriate training is crucial to the achievement of international organisation’s
strategic objectives. Moreover in view of the expensive nature of expatriate assignments, it is
in the interest of MNCs to ensure adequate training is given to expatriates and their families
to minimize the risk of failure (Harzing and Pinnington, 2011).

The broad role of expatriate training can be illustrated as follows:

- Expatriates are trainers – the knowledge, skills and experience of the current
expatriates could be used to train the future expatriates as well as the staff at the
foreign subsidiary.
- Expatriates show how systems and procedures work, ensure adoption, and monitor
performance of HCNs
- International assignments are a form of job rotation to gain a broader perspective –
management development, and to assist in developing a pool of capable global
operators.

The available literature on expatriate training shows that MNCs focus mainly on pre-
departure training that are mainly concerned with developing cultural awareness. Many US
MNCs are reluctant to provide even the basic level of pre-departure training.

The potential benefits of cultural awareness training are widely acknowledged; however, such
training was either downgraded or not offered by a large number of US MNCs (Black and
Mendenhall, 1990). A survey of European firms done in 1997 found that only 13 per cent of
responding firms always provided expatriates with access to cultural awareness courses,
though a further 47 per cent provided briefings for culturally ‘challenging’ postings.

Of late, MNCs appear to be more positive about provision of training, perhaps due to the
increase in number of pre-departure training providers in the market. Also, the increasing
recognition of the interaction between expatriate performance and family adjustment, makes

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MNCs to extend pre-departure training programmes to include spouse/partner and children
(Brookfield report 2011 and Mercer HR 2010 International Assignments Survey).

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Challenges in training expatriate managers
Some of the key challenges are:

1. When to train the expatriate - before leaving or after he is in the foreign country.
2. Amount and type of training - how many weeks or months of training, just reading
materials or more role playing.
3. Should the training be extended to family?
4. How much can the expatriate relate to the foreign culture?
5. Interest for the language and the ability to learn quickly
6. Expatriates willingness to learn and to act upon the new learning

Components of pre-departure training

The essential components of an expatriate training programme are: cultural awareness

training, preliminary visits, language instruction, assistance with day to day matters and
security briefings.

Cultural awareness programmes

*Cross cultural training facilitates the expatriate’s cross-cultural adjustment in the host
country and helps minimize problems in this area. It helps employees to become effective in
their jobs within the host country as quickly as possible (McFarlin and Sweeney, 2006).

The components of cultural awareness programmes vary according to country of assignment,

duration, purpose of transfer and provider of such programmes.

Training methods would emphasize an information-giving approach (example, area cultural

briefings, lectures, movies or books), an affective approach (example, role playing, cultural
assimilator training, case studies, etc.) or an immersion approach (example, assessment
centre, field experiences, simulations, sensitivity training, etc).

Preliminary visits

Preliminary visit to a host country could be a useful technique in orienting international

employees. A well-planned visit for the employee and spouse to the country of posting
provides a preview that allows them to assess their suitability for and interest in the
assignment, besides introducing the expatriate to the business context in the host country and
helping encourage more informed pre-departure preparation.

Language training

Language training is seemingly a desirable component of pre-departure training programme,

however, it is consistently ranked below cultural awareness training.

Host country language skills

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The ability to speak a foreign language can improve the expatriate’s effectiveness and
negotiating ability, as well as improve the adjustment of family members. The degree of
fluency required would depend on the position of the expatriate, the amount of interaction
required with external stakeholders like government officials, client, etc as well as the host
country employees.

Knowledge of the corporate language

MNCs tend to adopt a common company language (most of the time deliberately) to
facilitate reporting and other control mechanisms. English becomes the common language
within these MNCs, given its place in international business. This aids expatriates becoming
language nodes, performing as communication conduits between subsidiary and HQ, due
their ability to speak the corporate language besides giving added power to their position in
the subsidiary.

Staff development through international assignments

International assignments are an important mechanism for developing international expertise.
The expected outcomes are:

Management development – individuals by gaining international experience are able to

progress in their career while the MNC is able to develop a pool of experienced staff for
future international assignments.

Organizational development – MNCs are able to accumulate a wealth of knowledge, skills

and abilities to draw upon for its future growth. Expatriates are agents of direct control and
socialization and are able to assist in the transfer of knowledge and competence.

Individual development

International assignments is likened to job rotation, a management development tool that

aims to provide employees with opportunities to enhance their abilities by exposing them to a
range of jobs, tasks and challenges.

Developing international teams

International assignment often is the ’training ground’ for a group of high potential
employees who have been selected for specialized management training to enable the MNC
to continue to expand its international operations. International teams can be formed from
those who have had international experience, though the international assignment itself may
be an assignment to an international team or to form an international team.

The effectiveness of international assignments aiding in both management development and

organizational development depends on the individuals concerned and the type of
multinational and contextual factors. The MNC needs to provide the resources and support
for those working in international teams such as R & D projects.

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Discussion Questions
1. Summarize the key challenges faced in training expatriate managers.

2. Assume you are the HR Director for an SME that has begun to use international
assignments. You are considering using an external consulting firm to provide pre-
departure training for employees, as you do not have the resources to provide this in-
house. What components will you need covered? How will you measure the
effectiveness of the pre-departure training program provided by this external
consultant?

3. How does an international assignment assist in developing a “cadre” of international

operators? Why is it necessary to have such a cadre?

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Topic 7: International Compensation

Learning Outcomes

1. Outline the key components of an international compensation system

2. Discuss the main differences in the Going Rate and Balance Sheet Approaches to
international compensation
3. Outline the differences in salary compensation of parent-country nationals and third-
country nationals
4. Discuss the issue of balancing global and local, occupational and functional perspectives in a
compensation decision-making scenario

Topic outline

In this topic we examine the complexities that arise when firms move from compensation at
the domestic level to compensation in an international context. To demonstrate this
complexity, the following discussions would:

- Detail the key components of an international compensation program.

- Outline the two main approaches to international compensation (the going rate and the
balance sheet) — and explain components as well as their advantages and
disadvantages.

- Outline special problem areas such as taxation, obtaining valid international living
costs data, and the problems of managing TCN compensation.

- Present global pay model that highlights the complexity and yet familiarity of pay
practices in the global context.

- Posit that a strategic yet sensitive balance can only be achieved by creating and
maintaining professional networks comprised of home office and local affiliate HR
practitioners, outsourcing selected activities through specialist consultants, and close
cooperation with local and regional governments and other key local institutions.

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Introduction

Compensation is increasingly seen as a mechanism to develop and reinforce a global

corporate culture, a primary source of control, explicitly linking performance outcomes with
associated costs and corporate governance in an international context.

Now, there are more choices of novel and unrecognized pay practices as a result of greater
transparency of pay practices around the globe, changes in corporate reporting regulations,
increase in number of international assignments as well as impact of information technology,
especially the World Wide Web.

Designing a pay system in an MNC is particularly complex and difficult. A set of situational
factors like nationality of the individual, their family situation (number and ages of children,
work situation of the spouse), floating exchange rates, differences in living cost, taxation and
inflation rates, the need to reconcile home and laws and regulations for compensation and
benefits, and problems of geographically imposed communication and control, must be taken
into account when designing the compensation package of an expatriate.

Key components of an expatriates compensation programme

The international compensation is complex primarily due to the MNC’s need to cater to the
three categories of employees, namely, PCNs, TCNs, and HCNs.

Base salary

The base salary is the foundation block for international compensation whether he or she is a
PCN or TCN. For an expatriate, this is a primary component of a package of allowances such
as foreign service premiums, cost-of-living allowance, housing allowance, etc.

Foreign service inducement and hardship premium

PCNs often receive a premium as an inducement to accept a foreign assignment as well as a
hardship premium to compensate for the challenging locations. Foreign service inducements
are usually paid in the form of a percentage of base salary but in some cases it could also be
offered as a lump sum and depend on the location, tax liabilities and length of assignment.

Allowances

Cost of living allowances (COLA)

This is a payment to compensate for differences in expenditure between the home country
and foreign country for example transportation costs, furniture and appliances, medical,
domestic help, automobile maintenance, etc. Family size is the predominant method of
determining COLA payments with increments provided for each child.

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Housing allowance

The amount of housing allowance is determined by the family size and the position the
expatriate is holding in the host country. The alternatives to this payment include company
accommodation, a fixed housing-allowance for each job level with the expatriate topping up
according to personal preferences, or assessment of a portion of income out of which actual
housing costs are paid.

Home leave allowance

Expatriates travel expenses including family members for one or more trips back to home
country each year will be covered by the MNC.

Education allowance

Education allowance for children of expatriates is integral part of an international

compensation policy. This allowance normally covers items like tuition fees, application and
enrolment fees, books and supplies, meals, transportation, excursions, extra-curricular
activities, parent association fees, school uniform, wherever applicable room and board.

Relocation allowance

Relocation allowance is usually paid to cover the cost of moving, shipping and storage
charges; temporary living expense; subsidies regarding appliance or car purchases.

Spouse assistance

Many MNCs are now offering spouse assistance to help guard against or offset income lost
by an expatriate’s spouse as a result of relocating to the foreign country. Payments are
normally capped at some level but the amount varies according to the location where the
expatriate is posted.

Benefits
Expatriate benefits include health care, pension plans/social security, insurance, child
allowances, profit sharing/stock option plans.

Pension plans are difficult to deal with country-to-country as national practices differ
considerably. Most PCNs usually remain under home-country benefit plan, with the
exception of medical benefits.

Approaches to International Compensation

The two main approaches, namely, the Going Rate Approach and the Balance Sheet
Approach will be discussed in this section.

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The Going Rate Approach

In this approach, the base salary for international transfer is linked to the salary structure in
the host country. The MNCs gather information through local compensation surveys and take
a decision whether HCN, expatriates from same nationality or expatriates from all
nationalities will be the reference point for benchmarking.

For knowing the advantages as well as disadvantages of the Going Rate Approach, see Table
8.2 at page 222 of the prescribed text.

The Balance Sheet Approach

The main objective of this approach is to ‘keep the expatriate whole’, that is maintaining
relativity to PCN colleagues and compensating for the costs of an international assignment
through maintenance of home-country living standard plus a financial inducement to make
the package attractive. In this approach the base salary of an expatriate is linked to the salary
structure of the home country. The four major categories of expenditure incurred by
expatriates that are built in the Balance Sheet Approach are:
1. Goods and services – home-country expenditure for items like food, personal care,
clothing, house-hold furnishings, recreation, transportation and medical care.
2. Housing – major costs associated with housing in the host country
3. Income taxes – parent-country and host-country income taxes
4. Reserve – contributions to savings, payments for benefits, pension contributions,
investments, education expenses, social security, taxes, etc.

To know the advantages and disadvantages of the Balance Sheet Approach, read Table 8.5 at
page 224 of the prescribed textbook. Problems arise when international staff are paid
different amount for performing the same (very similar) duties in the same location,
according to their different home-base salary.

Differences in compensation between Parent Country Nationals (PCNs and

Third Country Nationals (TCNs)

One of the resultant effects of the Balance Sheet Approach is to make differentiation between
expatriate employees of different nationalities because of the use of nationality to determine
the relevant home-country basic salary. In effect, this is a differentiation between PCNs and
TCNs.

TCNs are likely to have a great deal of international experience because they often move
from country to country either working within the same MNC or with several MNCs
headquartered in a country other than their own. MNCs need to match their compensation
policies to their staffing policies and the HR philosophy of the organization in general.

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Balancing Global and local, occupational and functional perspectives in
compensation decisions
Global pay issues seem to operate at three distinct vertical levels: the basic level of cultural
values and assumptions; the intermediate level of pay strategy, practices and system design;
and the surface (artifact) level of pay administration and form.

Competing forces for local adaptation (ethnocentric strategy) and global standardization
(polycentric strategy) are likely to be an important issue.

Increasingly, we may combine pay packages across the vertical levels of analysis shown in
Figure below and pay for a combination of job, group, national or corporate purposes.

These composite pay systems are more complex, but they are also more flexible and
responsive to diverse employee demands and changing global business conditions.

Complexity, challenges and choices in global pay.

Source: P J Dowling, M Festing and A D Engle Sr; International Human Resource Management, 6 th
Edition, 2013, Cengage Learning, p. 233

Discussion Questions
1. Describe the main differences in the going rate and balance sheet approaches to

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 international compensation.

2. What are the key differences in salary compensation for PCNs and TCNs? Do these
differences matter?

3. Explain how balancing the interests of global and local, occupational and functional
perspectives might play out in a compensation decision scenario.

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Topic 8: Re-entry and Career Issues

Lesson Outcomes
1. Identify and explain the process of re-entry for expatriate employees

2. Analyze the various company strategies and policies that are used to manage the
repatriation process

3. Discuss the methods of designing effective repatriation programmes, including the

use of mentors and available forms of technology

Topic Outline
The topic deals with what could be called the post-assignment stage and its wider impact on
the careers of employees who have been on an international assignment. Re-entry raises
issues for both the expatriate and the MNC, some of which may be connected to events that
occur during the international assignment. The following areas are dealt with:

- The process of re-entry or repatriation.

- Job-related issues

- Social factors, including family factors that affect re-entry and work adjustment

- MNC responses to repatriate concerns

- Staff availability and career issues

- Designing a repatriation program.

- Return on investment and knowledge transfer

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Introduction

Expatriation process also includes repatriation (re-entry) process: the activity of bringing the
expatriate back to the home country.

The repatriates face re-entry shock or reverse culture shock. This topic focuses on the key
factors associated with re-entry including how repatriation process is handled by the
individual and the receiving work unit as well as family adjustment.

The Repatriation Process

Usually, on completion of the international assignment, the expatriate is brought back home,
though not all assignments end with a transfer home.

The repatriation process covers three phases. First phase is before the global assignment; the
MNC may assign home sponsors or mentors for keeping the expatriate in touch with the
changing conditions in the home country. The ongoing communications will be both formal
and informal.

The second phase is during the assignment, ‘home leave,’ work-related information
exchanges, sponsor communication and systematic pre-return orientation process can all
facilitate realistic expectation and ease the return.

The third phase starts on the expatriates returning home where a series of immediately
practical and more long term activities combine in a restricted time frame.

On a broader scale, the repatriate must reconnect with the local social network of the MNC
and personal and career dynamics may have to be adjusted in a new and potentially
unpredictable ways.

Managing Repatriation Process

It is in the interest of the international organization that the process of repatriation is handled
carefully so that it could maximize the benefits of international assignments and create a large
internal labour market.

Staff availability

The way repatriation process is handled has an impact on staff availability for current and
future needs. Re-entry position signals to other managers the importance given to
international experience. MNCs support the notion of protean and boundaryless careers
when they do not guarantee repatriates positions upon re-entry. In some cases MNCs choose
to select international itinerants, that is, professional managers who over their careers are
employed for their ability, in at least two business organizations that are not related to each
other, in at least two different countries (Banal and Harry, 2006).

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Return on investment (ROI)

Expatriates are costly, especially if they are from first world economies. MNCs try to localize
positions through employment of HCNs wherever possible, but not all positions should be
localized. Also, there is an increasing trend among MNCs to pay local-plus compensation for
PCNs and TCNs to reduce costs (P. Stanley, 2009). MNCs are also attempting to use short-
term or non-standard assignment to replace traditional expatriate assignment. Cost
containment is the driver here along with staff mobility.

Assigning a monetary value on the benefits of international assignment is also a challenge as

intangibles like knowledge and skills transfer, management development and relationship
network building are not clearly visible often implicit and person-bound. It is difficult to
measure intellectual, social and human capital gains (Welch, Steen and Tahvanainen, 2009).
ROI analysis also focuses on the international assignment period and can be an exercise to
justify cost reduction measures (e.g. replacing PCNs/TCNs with HCNs) rather than
considering gain that accrue to the organization through repatriated staff.

The Brookfield survey 2011 highlights the difficulties encountered by organizations in

measuring the ROI:

 Not being sure of how to measure ROI (50 per cent respondents)
 Lack of importance of ROI to organizational goals (16 per cent)
 No time to measure (14 per cent)

Knowledge transfer

There is a growing need felt by managers across the globe for cross-fertilization of ideas and
practices that assist in developing and maintaining competitive advantage. International
assignment is an important method of achieving this objective.

Taking into account the roles played by expatriates along with their cost, MNCs would
attempt to retain key staff in order to extract and build upon their international experience.

Fink et al. (2005) study of Austrian expatriates provides some answers to what knowledge
and skills are acquired through an international assignment:

- Market specific knowledge

- Personal skills
- Job-related management skills
- Network knowledge
- General management capacity.

The above range of knowledge and skills include both implicit and explicit knowledge. The
first four are useful to the parent organization and the last is useful to the individual. Fink et
al. conclude that repatriate knowledge may be useful in enhancing an organization’s
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competitiveness but acknowledge difficulties in capitalizing on it, particularly if expatriates
exit before such knowledge has been transferred.

Designing a Repatriation Program

There is no quick and simple solution to prepare the repatriate and family for re-entry.
Mismatch in employee expectation about the future could be addressed as a part of re-entry
training before return, and discussed during re-entry counseling sessions between the
organization in the home country and the repatriate.

Topics covered by a repatriation program.

Source: P J Dowling, M Festing and A D Engle Sr; International Human Resource Management, 6 th
Edition, 2013, Cengage Learning, pp. 205

Caligiuri and Lazarova, 2001 recommend a number of proactive strategies to deal with the
professional, financial and emotional issues faced by repatriates and their families:

- Managing expectations via pre-departure briefings

- Multiple career planning sessions focusing on career objectives and performance
indicators
- Written repatriate agreements
- Mentoring programs
- Extended home visits
- Reorientation programs on changes in policies and organization
- Personalized reorientation by MNC to repatriate and his/her family to deal with
emotionally charged issues (e.g. issues of social readjustment, schools, etc.)
- Personalized financial and tax advice
- Providing for some sort of adjustment period
- Visible and concrete expressions of the repatriate’s value to the firm

Discussion Questions
1. What factors contribute to re-entry shock?

2. “Placing value on the international assignment assists repatriate retention”. Discuss

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this statement.

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Topic 9: IHRM in the Host Country Context

Learning Outcomes
1. Explain the importance of HRM standardization and localization in MNCs

2. Discuss how the role of a subsidiary affects its ability to transfer ideas and work
practices to other parts of the global network

3. Explain the typical HRM problems of offshoring countries

Topic outline
The purpose of this chapter has been to identify the HR implications of the various options
and responses that international growth places on the firm. This topic focuses on:

- The general issue of balancing the standardization and localization of MNC

operations, and how this balancing act runs throughout all human resource planning,
processes, activities, and systems.

- The role of a subsidiary in relation to the rest of the organization and what is expected
of it in terms of its contribution to the efficiency of the whole MNC.
- The HR implications of offshoring strategies especially in relation to India and China

Should HRM practices be standardized or localized?

Controlling cross border operations of an MNC centers around what processes, routines,
procedures and practices can be and should be transferred abroad and to what degree these
require country-specific adaptation if any to be effectively implemented at the local level.
The role of people is critical while transferring systems and know-how. People, a resource
that is highly culture bound, involves high level of complexity due to the diverse cultural
environment in which the MNC operates.

Expatriates, usually responsible for overseeing the successful implementation of the HR

practices, however, at some point in time MNCs replace them with local staff and expect
them to implement these practices as planned. The underlying belief with such an approach is
that appropriate employee behaviours will be instilled in the local workforce through training
programmes and hiring practices and the MNC way of operating has been accepted by local
staff in the intended manner. Here, the MNC corporate culture will operate as a subtle,
informal control mechanism that replaces direct supervision.

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However, successfully implementing the corporate norms and behavior depends on the
receptivity of and acceptance by the local workforce, the effectiveness of expatriate manager
as agents of socialization and whether cost considerations have led to the move to appoint
local staff for the purpose prematurely. The aim of global standardization of HRM practices
is to achieve consistency, transparency and alignment of a geographically dispersed
workforce around common principles and objectives. On the other hand the aim of
localization is to respect the local cultural values, tradition, legislations and other constraints
such as government policies and or education system regarding HRM and employment
practices. The challenge for MNC is therefore to create a system that operates effectively in
multiple countries by exploiting local differences and interdependencies and at the same time
sustaining global consistency.

Balancing the standardization and localization of HR management in MNCs

Source: Source: Dowling, Festing and Engle , 2013, International Human Resource Management, 6 th
edition, Cengage Learning, p 49.

Factors driving standardization

MNCs with a long international history and extensive cross border operations:

- pursues a multinational or transnational corporate strategy

- supported by a corresponding organizational structure
- reinforced by shared worldwide corporate culture

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Factors driving localization

The cultural environment

National culture is a moderating variable in IHRM. Sufficient evidence exists that culture has
a great impact on work and HRM practices. Sparrow and Triandis provide evidence as to how
culture influences reward systems and behavior of employees.

The institutional environment

The institutional perspective suggests that institutional pressures may be powerful influence
on HR practices. The characteristics of a country’s educational system or the industrial
relations system impacts HRM practices.Another example is the scope and type of labour
legislations like equal opportunity laws, minimum wages act, industrial relations laws impact
the HR practices and procedures.

Students note: Read the research studies of As-Saber, Dowling and Liesch; Khilji; and
Liberman and Torbiorn to understand the impact of institutional and cultural factors on HR
practices.

The country-of-origin effect implies MNCs are shaped by institutions existing in that country
of origin and that they attempt to introduce this parent-country based HRM practices in their
foreign subsidiaries. The host-country effect refers to which HRM practices are impacted by
the host-country context. At the headquarters. HRM practices are influenced by home-
country environment, called home-country effect. The home-country effect is the basis for the
above described country-of-origin effect.

Subsidiary role
The subsidiary role specifies the position of a particular unit in relation to the rest of the
organization and defines what is expected of it in terms of contribution to the efficiency of
the whole MNC. There are different roles a subsidiary can undertake.

The typology of subsidiary roles by Gupta and Govindarajan (1991).

Anne-Will Harzing and Niels Noorderhaven (2006) explain the typologies as follows:

Gupta and Govindarajan (1991) see the MNC as a network of transactions that comprise
capital flows, product flows and knowledge flows. They argue that of these three, knowledge
flows are particularly important given that the proportion of global and transnational MNCs
in which knowledge flows are considered to be particularly important, is rising and that
relatively little is still known about the management of knowledge flows either in the
domestic or an international context.

Combining the two dimensions of knowledge flow namely, the magnitude of transactions
(the extent to which subsidiaries engage in knowledge transfer) and the directionality of
transfer (whether subsidiaries are receiver or provider of knowledge); they define four

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generic subsidiary roles: Global Innovator (high outflow, low inflow), Integrated Player (high
outflow and high inflow), Implementer (low out flow, high inflow), Local innovator (low
outflow, low inflow).

The Global innovator (GI) subsidiary is a fountainhead of knowledge for other units.
Integrated Players (IP) also engage in knowledge transfer to other organizational units but at
the same time are at the receiving end of knowledge from other units. Subsidiaries with
Implementer (IM) role do not typically engage in extensive knowledge creation and hence
provide little knowledge to other organizational units. They are heavily dependant on
knowledge flows from either HQ or other subsidiaries though. Local Innovators (LI) are self-
standing subsidiaries who do engage in knowledge creation but do not transfer this
knowledge to other organizational units, nor receive knowledge from them.

Their research results show an increasing differentiation between subsidiaries as well as an

increase in relative importance of both knowledge and product flows between subsidiaries
suggesting that MNCs are getting closer to the ideal type of the transnational company.

The ‘sticky’ nature of knowledge is one reason why some firms adopt an export-oriented
approach to IHRM rather than an integrative management system (Harzing and
Noorderhaven, 2006). Increasing the mobility of managers across the HQ and different
subsidiaries is one way to break the barrier to knowledge transfer.

Managing Human Resources in Offshoring Countries

‘Offshoring’ more often, is used as a sub-category of outsourcing, which can be defined as an
act of transferring some of a company’s recurring interval activities and decision rights to
outside providers as set in a contract. The discussions below will focus on two most
important countries namely, India and China.

Offshoring and HRM in India

The Business processing Outsourcing industry in India is a flourishing business and India has
developed the relevant competencies for rapid growth in this area. The foreign investors
especially the Western MNCs perceive the technological infrastructure and the qualifications
of people in India as benefits for doing business here. Every year, approximately, 3.1 million
graduates enter the workforce and about 20 per cent speak English (I. Hunter, 2006). The
salaries of Indian graduates are much lower than their Western counterparts. To cash on this
cost advantage, US MNCs such as IBM, HP and EDS have outsourced software development
to Indian software companies. Others like GE have set up their own call centres over here.

There are problems with Indian BPOs and many of them are HRM related. The annual
turnover rate is very high leading to shortage of manpower especially in the middle
management category. The shortage of skilled manpower and the high demand for people in
the BPO industry has lead to increase in salaries between 10 to 20 per cent. The cost
advantage which initially was a crucial factor for foreign MNC to outsource their services to
India is now in danger. The other problems are worker dissatisfaction and conflicts caused by

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job stress as well as reported sexual and racial abuse. All these factors could contribute to a
decrease in productivity and this, to further financial losses (Budhwar, Luthar and Bhatnagar,
2006). These findings are further confirmed by the study conducted by Mehta et al (2006)
confirms these findings and conclude that HRM issues are perceived as a major weakness in
BPO firms. This signifies a major challenge to the HRM of BPO firms in India. Sparrow and
Budhwar (1997) report that the HRM policies and practices in Indian companies are still very
much influenced by the caste system, social relationships and politics.

These issues have led to a HRM system that is characterized by informalities and less
rationality (Saini and Budhwar). This might contradict the attempt by MNCs for a global
standardization of HRM policies and practices. HRM issues to be addressed in the future are:
attrition rates, the prevention of psychological and job-stress related problems, more
flexibility in the workplace, and the creation of a more interesting work environment to help
build long-term relationships with well qualified employees (Budhwar, Luthar and
Bhatnagar, 2006). Employee retention is possible only through meeting the needs of
employees through appropriate HRM measures.

Offshoring and HRM in China

China the fastest growing economy in the world is well-known for its inexpensive
manufacturing, although costs in this sector is said to be rising. The salaries in China are
lower than in India, however, the number of graduates China produces every year is only half
that of India besides the percentage of English speaking graduates are also much lower
(Budhwar, Luthar and Bhatnagar, 2006). Chinese educational system does not encourage
students to take initiative and deliver creative solutions which are a major requirement for
MNCs. As a result, Chinese economy suffers from skills shortage like India especially for
jobs that require both technical as well as management skills set (PriceWaterhouse Coopers,
2006). There is a high turnover rate and the salaries for highly skilled employees are on the
rise (international Herald Tribune, April 20, 2005). Reported problems or barriers to working
with local partners not only include difficulties of staff recruitment and retention, but also
problems in cross-cultural communication, poor working practices in supplier firms and
corrupt staff behavior (Wilkinson, Eberhardt, McLaren and Millington, 2005).

Western MNCs who are planning offshore activities to China, they need to be aware of the
role played by network connections (called guanxi in Chinese), that is, dyadic personal
relationships between people, that are contingent upon asymmetry, reciprocity and necessity.
MNCs find the need to invest in training employees in China but face the problem of
poaching by competitors. Employees tend to change jobs frequently in pursuit of higher
wages and not in an effort to develop their skills (C. J. Zhu, 1997).

Companies operating in China are trying to reduce the attrition rates by offering additional
benefits and staff development programs. A fair working environment coupled with good
management practices are emerging as the essential tools for retaining staff besides above-
market rate compensation.

Cooke (2004) highlights the key features that describe the current state of HRM in China:

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  There is no systematic approach for linking HRM with business strategy
 Despite a surplus of labour, many companies face recruiting and retention problems
 There is no systematic link between performance management, reward and long-term
motivation
 There is lack in coherence and continuity of enterprise training.

Research evidence suggests that resource-rich firms with foreign ownership seem to take a
comprehensive approach to HRM which includes formal education as a selection mechanism
selecting the educational elite and continuing to develop them through extensive training
programs.

Emerging issues in offshoring

A possible role for HRM

CIPD (2011) survey identified the following roles for HRM:

 Consultation with unions/employee representatives

 Manpower planning, considering the scope of employee redeployment
 Contributing to the internal communication strategy
 Identifying training needs
 Designing new jobs which stem from offshoring operations
 Highlighting potential risks, such as implications of employment regulation both in
home country and in foreign locations

Skills shortages and resulting consequences in a broader regional context:

Skills shortages are a major problem in offshoring countries of India and China.

Coping with skills shortages: The role of returning HCNs.

Ex-Host Country Nationals (EHCNs), (people who originate from these countries, have
studied abroad and return to their home countries) are a good source of supply for much
needed competencies and skills to enable these countries to endure in the global economy
when they are facing shortage of local talent. Reintegration of EHCNs into their country of
origin is an important problem HR managers may have to deal with as EHCNs expect to be
treated in similar ways as expatriates.

Discussion Questions
1. What are the issues of standardization and localization in general for MNEs, and how
do they particularly manifest themselves in IHRM activities?

2. Compare the industrial development qualities of India and China from a global HR
director's perspective.

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Topic 10: International Industrial Relations

Lesson Outcomes
1. Discuss the key issues in international industrial relations and policies and practices of
multinationals.

2. Examine the potential constraints that trade unions may have on multinationals.

3. Outline key characteristics of MNCs that give trade unions a cause of concern.

4. Outline global trends and issues in the global workforce context.

Topic outline
This topic covers a range of institutional issues that confront MNCs in the global
environment in which they conduct their business. In terms of international industrial
relations, the discussion surrounding the formation of regional economic zones such as the
European Union and the Asia-Pacific Economic Cooperation (APEC) supports the conclusion
that transnational collective bargaining has yet to be attained by trade unions.

It is argued that trade unions should opt for less ambitious strategies in dealing with
multinationals, such as: (1) strengthening national union involvement in plant-based and
company-based bargaining, (2) supporting research on the vulnerability of selective
multinationals, and (3) consolidating the activities of company-based ITSs. Despite setbacks,
especially with the regional economic integration issues discussed in this topic, it is likely
that trade unions and the ILO will pursue these strategies and continue to lobby, where
possible, for the regulation of multinationals via the European Commission and the United
Nations.

Introduction
The term industrial relations used in a traditional context, refers to the broad field of study
that looks at wider issues of work and employment. The difficulty in comparing industrial
relations systems and behavior across national boundaries has to be understood while dealing
with this topic. The concept changes considerably when translated from one context to
another. For example, the term ‘collective bargaining’ is understood differently in USA when
compared to Germany or Sweden. Also, the objectives of collective bargaining are different
across national boundaries. The other issue is that an industrial relations system in a country
needs to be understood from a historical perspective.

Schregle (1981) has observed that ‘a comparative study of industrial relations shows that
industrial relations phenomena are a very faithful expression of the society in which they
operate, of its characteristic features and of the power relationships between different interest

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groups’. The historical differences in the industrial relations of each country could be clearly
observed in the structure of trade unions that exist in them. These differences in union
structures have a major impact on the collective bargaining process.

MNCs are now come to realize the fact that industrial relations policies must be flexible
enough to adapt to local requirements.

Key Issues in International Industrial Relations

The focus will be on industrial relations strategies MNCs adopt, especially the orientation of
MNCs to organized labour.

Industrial relations policies and practices of MNCs

The differences in political, economic and legal systems result in differing industrial relations
systems across countries, hence, MNCs delegate the management of industrial relations to
their foreign subsidiaries. However, this policy of decentralization doesn’t keep the HQ away
from coordinating the industrial relations strategy. We could generally see the corporate HQ
gets involved in or overseeing the labour agreements due the effect it would have on the
international plans of the organization. Also, MNCs get involved in monitoring labour
performance across its units in different countries to enable it make decisions relating to unit
location, capital investment and rationalization of production capacity.

There are a number of differences in MNCs approach to industrial relations and the extent of
MNCs involvement in industrial relations of a particular unit in a country depends on several
factors:

The degree of inter-subsidiary production integration

Hamill, (1984) study reveals that the degree of integration the most important factor leading
to centralization of industrial relations function within the organization. Industrial relations
throughout the system become of direct importance to corporate HQ when a subsidiary in one
country relies on another foreign subsidiary as a source of components or as a user of its
output (Robock and Simmonds, 1989). Hence, a coordinated industrial relations policy is one
of the key factors in a successful global production strategy (Hefler, 1981). Example Ford
Motor Company’s employee involvement across all its operations.

Nationality of ownership of the subsidiary

Research evidence points to the fact that there are differences between European and US
firms in terms of HQ involvement in industrial relations. US firms tend to exercise greater
centralized control over industrial relations through formal management control and close
reporting system (especially in the area of financial controls) than do British or European
organizations.

International human resource management approach

MNCs adopt various international human resource management approaches and these have
implications for international industrial relations. An ethnocentric approach is more likely to

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result in various forms of industrial relations conflict. On the other hand organizations
adopting a geocentric approach will create a greater influence on host-country industrial
relations system.

MNC prior experience in industrial relations

European organizations tend to deal with industrial relations at industry usually through
employer associations rather than at organization level. We could see the opposite in US
firms where firm-based industrial relations policies tend to be the norm.

Subsidiary characteristics
The following subsidiary characteristics are relevant to centralization of industrial relations:

 Subsidiaries that are formed through acquisition of well established home-grown

organizations tend to be given much more autonomy over industrial relations than
Greenfield sites set up by an MNC.
 Greater intervention would be expected when the subsidiary is of key strategic
importance to the organization and when it is young.
 Where the parent firm is a significant source of operating or investment funds for the
subsidiary, there will be increased corporate involvement in industrial relations and
human resource management.
 Poor subsidiary performance is normally accompanied by increased corporate
involvement in industrial relations.

Characteristics of the home product market

If the domestic sales are large when compared to overseas operations, it is more likely that
the overseas operations will be regarded as n extension of domestic operations as in the case
with many US firms, and this is not the case with European firms whose international
operations represent the major part of their business . Lack of a large home market is a strong
incentive to adapt to host-country institutions and norms.

Management attitude towards unions

Management attitudes or ideology concerning unions is another important factor that
influences the degree of involvement of HQ in industrial relations. Union avoidance appears
to be deeply rooted in the value system of most of the American managers.

Another key factor is the industrial disputes. Hamill (1984) finds in his study that foreign-
owned MNC subsidiaries in Britain experience larger and longer strikes when compared to
local firms and suggests that this difference indicates that foreign-owned firms may be under
less financial pressure to settle a strike quickly than local firms – possible because they can
switch production out of the country.

The above factors clearly indicate that MNCs adopt different labour relations strategies
depending on the environmental factors peculiar to each firm.

Constraints Trade Unions may have on MNCs

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Trade unions may limit the strategic choices of MNCs in 3 ways:

1. Influencing wage levels to the extent that cost structures may become uncompetitive
2. Constraining the ability of MNCs to vary employment levels at will
3. Hindering or preventing global integration of the operations of MNCs

Influencing wage levels

Labour costs play an important role in determining cost competitiveness in most industries,
and hence, the influence of unions on wage levels is important. MNCs that are unable to
manage the labour costs will have to narrow their strategic choices.

Constraining the ability of MNCs to vary employment levels at will

MNCs operating in Western Europe, Japan and Australia face serious problem than wage
levels due to their inability to vary employment levels at will. Legislations in many countries
prevent firm’s ability to carry out plant closures, redundancy or lay off unless they are able to
prove that structural conditions make these employment losses unavoidable.

Trade unions could influence this process in two ways: by lobbying their own national
governments to introduce redundancy laws and by encouraging regulation of MNCs by
international bodies like OECD.

Hindering or preventing global integration of the operations of MNCs

Some MNCs in recognition of these constraints make a deliberate decision not to integrate
and rationalize their operations towards increasing the efficiency in order to avoid industrial
and political problems.

Key characteristics of MNCs that are a source of concern for trade unions

Kennedy (1980) has identified seven characteristics of MNCs as the source of trade union
concern about multinationals.
1. Formidable financial resources. Union bargaining power may be threatened or
weakened b the broader financial resource of an MNC.
2. Alternative sources of supply. Explicit ‘dual sourcing’ policy and temporary
switching of production to reduce the vulnerability of the MNC to an industrial
action or a strike by the national union.
3. The ability to move production facilities to other countries. A major concern for
employees and trade unions is job security that could be threatened if an MNC seeks
to produce goods in another country that could have, or previously has, been
manufactured domestically.
4. A remote locus of authority. While MNCs report decentralization and local
responsiveness to HRM and industrial relations, trade unions have reported that the
MNC decision making structure is not transparent and the division of authority
obscured (Mahnkopf and Altvater, 1995).

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 5. Production facilities in many industries. Many MNCs operate multiple product
lines across a range of industries (Vernon, 1997).
6. Superior knowledge and expertise in industrial relations.
7. The capacity to stage an ‘investment strike’, whereby the MNC refuses to invest
any additional funds in a plant, making the plant become obsolete and economically
non-competitive.

Trade unions have also reported that they have difficulty in accessing decision makers
located outside the host country and obtaining financial information.

The response of labour unions to MNCs has been threefold:

1. To lobby for international trade secretariats (ITSs). ITSs function as loose

confederations to provide worldwide links for the national unions in a particular trade
or industry and facilitate exchange of information. The ultimate aim of each ITS is to
achieve transnational bargaining with each of the MNC in its industry.

2. Lobbying for restrictive national legislation. Trade unions at the political level have
for many years lobbied for restrictive national legislation in the USA and Europe.
Their motivation to pursue this is based on the desire to prevent export of jobs via
multinational investment policies.

3. Regulation of MNCs by international organizations. Trade unions have attempted

to exert influence over multinationals via international organizations like ILO,
UNCTAD, OECD, and ETUC and have succeeded to some extent. For example
International Labour Organization (ILO) has identified a number of workplace related
principles that all nations should respect and adhere to: freedom of association; the
right to organize and collectively bargain, abolition of forced labour and non-
discrimination in employment.

Trends and Issues in Global Workforce Context*

Organizations are operating in an increasingly fast-changing environment and one area where
this change is expected to accelerate further is the employee workforce. Three major factors
will shape the nature of work over the next decade: 1. demographics, 2. technology, and 3.
social trends. Two regions that continue to show an increase in the working age populations
are Asia and the US; with 271 million from Asia Pacific alone. Technology has led to the rise
of the "knowledge worker" which demands a higher level of cognitive skills from people.
Many countries now understand the benefit of outsourcing. Work-life balance is now key to
what employees are prepared to "give" to an organization.

1. Demographics

By 2010, of the 400 million new entrants in the labour market, only five percent will come
from western, industrialized countries. Two regions that continue to show an increase in the
working age populations are Asia and the US; with 271 million from Asia Pacific alone (50

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percent of which will be in India and China). For most organizations, future growth markets
are also in these regions.

Since both the demand (markets for their products) and supply (skills needed to deliver this)
will come from the emerging markets, it makes business sense for organizations to source its
people from there. The impact of this change can already be seen in retail banks, or
companies like Microsoft and IBM, whose international operations are getting more
dominant than their traditional markets. HR's challenge is to tap into this different source of
labour supply and manage a culturally diverse workforce.

2. Technology
Technology has led to the rise of the "knowledge worker" which demands a higher level of
cognitive skills from people. As communication costs fall, there's been increased mobility
leading to outsourcing gaining popularity.

The common misconception about outsourcing is that it's cost driven. However, the drivers
for each separate industry can be very different. The enticement to companies of a worker
who earns UK£2 against someone in the UK, who can cost ten times that amount is obvious.
My experience at Citigroup in 1988, however, showed that what started as "cheap labour" of
software engineers moved up the value chain very rapidly, resulting in development of
complex financial product software in India - all over a period of five years.

Similarly, while working for Lucent Technologies in the late 90s, the decision by Bell Labs
to set up its R&D centres in India was prompted by the high quality of scientific skills
available.

HP's role in facilitating outsourcing

Many countries now understand the benefit of outsourcing. HR professionals can play a key
role in helping management have a strategic understanding of the issues involved (actual
availability of talent versus statistics, attraction and retention efforts needed costs and so on).
A call center in India, for example, typically puts applicants through a rigorous seven-stage
screening with a 90 percent acceptance rate, while a similar one in the US has a two-stage
process with an average acceptance rate of 50 percent.

Another facet of outsourcing is the effort HR must make when jobs in the home countries are
affected. At AXA, this process was a success, with union support, training programs and
generous severance packages.

3. Social trends

Work-life balance is now key to what employees are prepared to "give" to an organization.
Other influential factors are organizational "values," corporate social responsibility and
leadership based on integrity, not just hierarchy. The challenge for HR is to recognize the
changing nature of the employee-employer relationship - and move away from the traditional

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job structure, to one which facilitates a different hiring strategy, flexible work patterns,
compensation structures and career planning.

Designing flexible HR processes suited to local environments is going to be increasingly

important. A rapidly changing workforce is going to need HR professionals who have lived
and worked internationally and who can create a competitive organization with strong
consistent values across diverse cultures.

* Adapted from: Vaishampayan D, Strategic HR Review, Sept/Oct 2006

Discussion Questions
1. Why is it important to understand the historical origins of national industrial relations
systems?

2. In what ways can trade unions constrain the strategic choices of multinationals?

3. Identify four characteristics of MNEs that give trade unions cause for concern.

4. How have trade unions responded to MNEs? Have these responses been successful?

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Topic 11: Performance Management

Learning Outcomes
1. Address aspects of multinational performance management at the global and local
level

2. Examine the major factors associated with the appraisal of expatriate managerial
performance

3. Discuss performance of non-expatriates and those on non-standard assignments

Topic outline

Technical competence is a necessary but insufficient condition for successful international

performance. Cross-cultural interpersonal skills, sensitivity to foreign norms and values, and
ease of adaptation to unfamiliar environments are just a few of the managerial characteristics
most multinationals seek when selecting international managers. The added challenge is the
effective management and appraisal of performance across all of the MNC’s operations. In
this topic we explore:

- Multinational performance aspects: whole (global) versus part (subsidiary), non-

comparable data, the volatility of the global environment, the effect of distance, and
the level of maturity. Performance management as a control mechanism is briefly
discussed.

- Factors associated with expatriate performance: the compensation package, task and
role, level of headquarters support, host-environment factors, and cultural adjustment.

- The performance management of non-expatriates and those on nonstandard

assignments. We use the virtual assignment as an illustration of some of the aspects
that need to be considered in these non-traditional assignment types.

Broadening out the discussion to the multinational level, and addressing performance
management and appraisal concerns related to non-expatriates and those on nonstandard
assignments, has been useful in reminding us that there are many dimensions to international
business operations that need to be considered when designing an effective performance
management system in the multinational context.

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Multinational Performance Management at the Global and Local Level

An MNC makes strategic choices based on economic and political imperatives.

Perspectives, issues, actions & consequences in MNC performance management

Source: International Human Resource Management, 6E, Dowling, Festing and Engle Sr.

As indicated in the figure above, MNC has specific expectations for each of its foreign
subsidiaries, cooperative ventures and other forms of operation modes, in terms of market
performance and contribution to total profits and competitiveness. While measuring
performance against these expectations, MNC should recognize the various constraints that
may affect goal attainment. Some of the constraints are discussed below:

Whole versus part

The importance of integration and control often places the MNC in the position where it
decided that the good of the whole (i.e. entire MNC) is more important than one subsidiary’s
short-term profitability.

Non-comparable data
Frequently the data obtained from subsidiaries may be neither easily interpretable nor
reliable. For example, import tariffs can distort pricing schedules and such factors can make
an objective appraisal of a subsidiary performance problematic.

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Volatility in the global business environment
Volatility and turbulence in the global environment can impact on the performance of a
subsidiary. Such occurrences may require that long term goals be flexible in order to respond
to potential market contingencies. Major events in the last three decades like, collapse of the
communist rule in the former Soviet Union, adoption of the Euro (€) as the single currency
by most of the European countries, Chinese market reforms, the Severe Acute Respiratory
Syndrome, bird flu, Gulf Wars, high profile corporate collapses like Enron and WorldCom,
Indian Ocean Tsunami disaster, government cutbacks and austerity measures as a result of the
global financial crisis, Arab Spring political disturbances, have had profound implications for
the global and local strategies of multinationals.

Separation by time and distance

Judgements concerning the alignment between the MNC and local subsidiary activities are
complicated further by physical distances involved, time-zone differences, the frequency of
contact between corporate HQ office staff and subsidiary management and the cost of the
reporting system (Pucik, 1985).

MNCs are now increasingly using web-based HRIS platforms in response to the separation of
time, distance and culture.

Variable levels of maturity across markets: the need for relevant comparative data
Pucik (1985) observes, that without the supporting infrastructure of the parent, market
development in foreign subsidiaries is generally slower and more difficult to achieve than at
home, where established brands can support new products and new business areas can be
cross subsidized by other divisions. This leads to more time take to achieve results than is
necessary in a domestic market, and this fact must be take into account in the performance
management process. Moreover, variations in customs and work practices between the parent
country and the foreign subsidiary need to be considered.

The above points make it clear that a number of significant constraints that must be taken into
account when considering foreign subsidiary performance.

Performance Management of International Employees

International assignments vary in terms of duration and scope of physical relocation required.
While managing the performance of staff working across the various units in the MNC, it is
important to consider all these factors in relation to the nature of the international assignment.
Some of the performance management issues associated with both expatriates and non-
expatriates will be discussed in the following sections.

Performance Management of Expatriates

While determining expatriates performance, it is essential to consider the impact of the

following variables and their interrelationships:

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  The compensation package
 The task – the assignment task variables and the role of expatriate
 Headquarters’ support
 The environment in which the performance occurs – the subsidiary or foreign facility
 Cultural adjustment – of the individual and the accompanying family members

These 5 variables will form the basis upon which the nature of the international assignment,
how performance is managed, the criteria for assessment and the other elements that
comprise an effective performance management system will be investigated.

Compensation package

The issues surrounding compensation has been dealt with in detail in topic 7, however, it is
important to recognize the importance of compensation and reward in the performance
equation. An expatriate’s important motives for accepting the international assignment are
perceived financial benefits and the potential for career progression. If these expectations are
not met, the expatriate’s performance is likely to decrease.

Task
Hay (1974) identifies four tasks of expatriates:

The chief executive officer, or subsidiary manager, who overseas and directs the entire
foreign operations

The structure reproducer carries the assignment of building or reproducing in a foreign

subsidiary a structure similar to that which he or she knows from another part of the
company. Examples include; building a financial reporting system, establishing a production
plant or a marketing framework.

The trouble shooter is the individual who is sent to a foreign subsidiary to analyse and solve
a particular problem

The operative is he individual whose assignment is to perform functional job tasks in an

existing operational structure, in generally lower level, supervisory positions.

Caligiuri, identifies four basic types of assignments:

Technical assignments – short-term knowledge transfer activities

Developmental assignments – focusing on in-country performance and acquisition of local

or regional understanding by the assignee

Strategic assignments – high profile activities that focus on developing a balanced global
perspective

Functional assignments – are more stable assignments with local employees that involve the
two-way transfer of existing processes and practices. Assessing performance of tasks of

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technical or functional nature involve a limited number of sources and focus on more
concrete output criteria (e.g. projects completed, contracts signed, etc.). However, assessing
performance in developmental and strategic assignments, generally complex in nature, are
likely to involve a wider variety of local and global participants and perspectives.

Along with the tasks, the MNC determines the role that accompanies each task position. The
difficulty faced by the expatriate is that the role is defined in one country but performed in
another. The role expectations of the corporate HQ could be in disagreement with the role
expectations of the host-country stakeholders (e.g. subsidiary employees, host-government
officials, customers, suppliers, etc.) thereby causing role conflict. The PCN may choose to
ignore the role communication of host-country stakeholders if they consider that performance
appraisal is determined by how his/her role behavior conforms to HR’s expectations. The fact
is that, the expatriate’s career is with the parent firm and not the host-subsidiary.

Headquarters’’ support – The process of adjustment to the foreign location typically

produces, to varying degrees, a range of emotional and psychological reactions to unfamiliar
situations encountered over the period of stay in the host country. The level of support
provided to the individual and the family is an important performance variable.

Host environment – Gregersen, Hite and Black (1996) state, the international context – with
its differing societal, legal, economic, technical and physical demands – can be a major
determinant of expatriate performance. Therefore, expatriate performance should be placed
within its international as well as its organizational context.

The nature of operation to which the expatriate is assigned is also important. It may be
relatively easier to perform in a wholly owned subsidiary when compared to in a joint venture
with a state owned enterprise in the foreign country. Conflicting goals between the parent
company and the joint venture partner are common that makes an expatriate’s job very
difficult. Similarly, an expatriate posted to a new facility in a foreign country, especially in an
emerging market will face a different set of challenges and problems to an expatriate manager
who is posted to an established business.

Cultural adjustment
The process of cultural adjustment is a critical determinant of an expatriate’s job
performance. The major cause for an expatriate’s failure is due to the problems in adjusting to
the new environment. Adjustment to a foreign environment is multifaceted and individuals
differ in terms of their reactions and coping behaviours. Hence, it may be difficult to
determine the relevance of adjustment to the new environment when assessing expatriate’s
work performance.

The five factors, compensation, task, headquarters’ support, host environment and cultural
adjustment are not mutually exclusive, but interact with one another in a significant way that
has implications for assessment of international employees’ performance.

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Performance management of non-expatriates and those on non-standard assignments
Non-expatriates (i.e. the international business traveler, or ‘frequent flyer’) are described as
employees whose work involved international travel but who are not considered international
assignees because they do not relocate to another country. Performance management issues
also impact another group of employees: commuters, a non-standard assignment where the
person does not completely relocate but commutes between their home country and their
office in another country.

Some of the performance management challenges related to the above categories of

employees are:

 How to determine performance criteria and goals related to the effective conduct of
non-standard assignments, especially virtual assignees. Agreement on performance
criteria is an important component of performance management process. Monitoring
and evaluating a physically and geographically dispersed group of employees, the
virtual assignees, is really a challenging task.

 A good understanding of the performance criteria is generally takes place through

employee involvement and participation. Work performed through non-standard
assignments and international travel is still conducted across cultural and national
boundaries and hence subject to cultural differences in norms about acceptable or
preferred levels of participation.

 Isolating the international dimensions of job performance might not be straight

forward as in traditional expatriate assignments as it depends on the level of difficulty
inherent in the performance criteria set and how individual performance level are
determined.

 The performance appraisal process will be challenged by measures like outstanding

performance, under performance or failure in non-expatriate and non-standard
assignments.

 Performance feedback for assignees will be relevant only if it reflects the international
context in which it is performed. Those lasting concerns of who conducts the
appraisal, how and on what performance data, is likely to be intensified when it
involves increasing numbers of others outside Head Office with whom the assignee is
working.

 One of the main objectives of performance feedback is that it provides opportunities

to improve performance by identifying performance gaps that might be eliminated
with training and development. Cross-cultural awareness and competence training
will still be needed for non-expatriates.

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  The important aspects of individual performance are employee expectations about
rewards for performance, elements of their working conditions and motivation. The
challenges in IHRM are to determine what to reward when dealing with non-
expatriates assignments, and the way compensation for each type of international
assignment fits with the MNCs global compensation strategy.

 The impact of non-standard assignments on host country national co-workers should

also be considered – especially the impact of international business travelers and
commuters who ‘drop in’ and ‘drop out’.

Discussion Questions

1. Discuss the major factors associated with appraising expatriate managerial

performance.
2. In what ways would the role of a manager working in a nonstandard international
assignment arrangement differ from that of a typical expatriate manager?

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Topic 12: International Human Resource
Management Trends

Lesson Outcomes
1. Identify trends in mode of operation and IHRM.
2. Identify the key issues for managers dealing with work-life issues in the global
context.
3. Explain the likely cultural barriers in developing the learning organization concept in
countries that do not have Anglo-Saxon origins.
4. Explain how knowledge management systems may be employed across cultures.

Topic Outline

This topic examine the trends in modes of operation of international business, especially
deputing employees on short-term assignments to fulfill a specific task rather than making
them relocate to a foreign location on a long-term basis mainly due to cost and efficiency
reasons. The implications for HRM on this changing trend of business operation are explored.
The other important area that is being examined is the challenges managers face in dealing
with work-life issues in an international context with focus on the classic research of Di Ceiri
and Bardoel, (2008).

Trends in Modes of Operation and IHRM

There is a need to broaden the scope of IHRM beyond subsidiary operations. Subsidiary
operations is certainly a significant part of IHRM, however, for many MNCs managing and
staffing subsidiary units is only one aspect of international business operations, though the
weighting given to subsidiary management will vary significantly according to the nature of
international activities and the size of internationalizing organization. The fact that external
parties are involved in contractual modes, joint ventures and strategic alliances imposes
management and HR constraints that are usually not present in wholly owned operations.
While HR implications of international joint ventures have received considerable attention in
the literature, there remains a need for studies that consider the HR implications of
contractual modes where the firm is operating at arm’s length. Training for instance, is often
part of contractual mode, playing a key role in the transfer of technology and systems,
inculcation of company culture and acting as a screening process. Consequently, staff may be
primarily involved in short-term assignments to deliver training in foreign locations, rather
than as traditional expatriates.

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Key Issues for managers dealing with work-life issues in the global context
Excerpts from the classic research of Di Ceiri and Bardoel, (2008):

Abstract:
Balancing demands for global co-ordination with the need for responsiveness to local
conditions presents challenges in many areas of international business. Managing work-life
issues is emerging as a substantial concern for HR managers in many multinational
corporations (MNCs). While work-life management issues are recognized as important
strategic matters, it is well recognized that tensions exist between the parties involved in
implementation of work-life policies and practices. Our study of 13 MNCs utilizes interviews
with 28 HR managers, including both corporate HQ and local perspectives, to explore the
management of work-life issues. In our paper, we applied a tension-centered approach to
understand work-life management. We identified the responsibilities and strategies for work-
life management in MNCs. Our research shows that there are numerous emerging challenges
for researchers and practitioners related to global work-life management.

Resolving Tensions
We identified 11 categories of synergistic strategies, techniques or MNC features that
managers are using to resolve tensions, although this is not a conclusive list. These include
strategies that require attention and support at global HQ, such as development of clear
policies and expectations, resourcing for work-life initiatives and HQ respect for local
knowledge. Our participants recognized that work-life management should be integrated with
other HR practices in the IHRM system. There are also several strategies to be led by the HR
function, such as communication, awareness and support and gathering information,
measurement and feedback on work-life initiatives. There are numerous ways in which our
participants sought to resolve tensions with line managers, including engagement in decision
making, building HR competencies, and providing training, education and advice (for all
levels of managers, employees and colleagues). Participants also offered suggestions for all
employees, such as developing rapport with one’s manager, and respecting and accepting
diversity in the workplace.

An Emerging Issue: Work-Life in Asia

Human Resource Management (HRM) and Diversity and Inclusion managers working for
MNCs and based in China and other parts of Southeast Asia (e.g. Singapore, Malaysia, and
Indonesia) increasingly have to deal with the concept of work-life management where the
push often emanates from a western based head office to how this actually translates in an
Asian workplace context.

The difficulties of attracting and retaining talent are particularly evident in dynamic
economies, such as in China and Southeast Asia (Howard, Liu, Wellins. & Williams, 2007;
Russell, 2008; Sankaran, 2008). Particular themes/issues that emerged as important in the

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Asian context were: Asian culture and work-life; the war for talent; the need for local
responsiveness; flexible work arrangements; equity; gender and care issues, and overall
diversity management. Implications for Global Work-Life Management Practice

Overall, our analysis of global work-life management demonstrates that there needs to be a
stronger understanding of the tensions between various drivers, and the possible
responsibilities to resolve tensions and manage work-life in MNCs.

There are several global responsibilities for work-life management. For senior executives,
responsibilities include endorsement of work-life initiatives and provision of adequate
resourcing (Enns & McFarlin, 2005). The corporate HQ HR professionals will have global
responsibility for formulating global policy, yet also need to be responsive to local concerns
(Novicevic & Harvey, 2001). Conversely, implementation relies to a large extent on the
engagement, knowledge and competencies of local HR. We anticipate that global work-life
management raises several challenges, particularly for MNCs seeking to operate in
developing and growing markets, such as the large emerging markets of Brazil,

Russia, India and China. First, recruiting and selecting candidates for local HR positions can
be difficult, as many employers report difficulty in recruiting people with HR experience and
knowledge in emerging markets. A second challenge is to develop talent in the HR function;
HR professionals in dynamic markets such as China require competencies such as
communication and networking skills, to build strong relationships with line managers; as
well as a strong understanding of the IHRM system. Resolving the global-local tensions
within the HR function depends to some extent on the ability to develop a shared view of the
IHRM system and to build synergies across levels of the HR function (Bowen & Ostroff,
2004). Building these competencies will help to build the credibility of HR managers with
senior and line managers (Enns & McFarlin, 2005; Farndale, 2005). A third challenge is that
HR professionals need to form networks in the HRM community outside their own
organization. Knowledge sharing amongst the HRM community can be an important
mechanism for designing and managing improvements in HRM policies and practices; for
example, in China, the importance of networks or guanxi has been widely recognized.
Finally, HR practitioners must address the challenge of working with line managers and
employees to build their competencies; training programs, and the provision of advice,
support and resources are examples of the ways in which work-life initiatives can become
embedded in an MNC.

Excerpts from: Helen De Ceiri and Anne Bardoel, ‘TENSIONS FOR HR: WHO TAKES
RESPONSIBILITY FOR WORK-LIFE MANAGEMENT IN MULTINATIONAL
CORPORATIONS?’ Final Report to SHRM Foundation, June 2008.

Cultural barriers in organizational learning

One of the most important sources of competitive advantage is organizational abilities and
knowledge. The cooperation or coalition between companies is considered as a mechanism of

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organizational learning and is an effective means of transmitting knowledge between
companies and to favour the generation of new ones. One of the factors that is highly relevant
in the generation and/or transmission of knowledge, especially in international cooperation is
organizational culture.

Organizational learning is defined by Swieringa and Wierdsma (1992) as ‘a collective

process that supposes the change of organizational behavior.’ It is related to the processing
and acquisition of knowledge and the improvement of results. This generated knowledge is
widely shared by the members of the organization beyond the limits of space, time and
hierarchy, and survives the replacement of individuals.

Organizational culture influences the process of organizational learning in a significant

manner as it determines the frame of reference in which the learning takes place, and the
different variables that affect culture can influence it in a different way.

Organizational culture is a set of values, beliefs, attitudes and aspirations common to all
members in the company. When two or more companies work together, it is highly probable
that this cultural diversity will become evident. Cultural differences increase the difficulties
in the interactions between organizations and in MNCs between HQ and the subsidiary.
Schein states that many of the difficulties in organizational learning are related to
organizational culture.

The differences between national cultures of organizations (HQ and subsidiary) and
employees, that are projected in the unequal attitudes regarding work, in different languages,
or in the different communication systems, affect negatively the joint work, and logically,
their own processes of organizational learning and the generation of knowledge. Also,
differences in size of the partner organization, structures and ways of work make
organizational learning very difficult. However, when there is a high level of trust between
the partner organizations or between the employees of different cultures, the negativity is
reduced.

Hofstede (1980) states, the cultural dimensions of employees (power distance, individualism
versus collectivism, masculinity versus femininity, uncertainty avoidance) influence
organization’s culture. Organizational learning and knowledge creation embraces the sense of
value integrity based on organization’s culture; it could be assumed that the creation of
organizational knowledge is also influenced by employees’ cultural dimensions.

MNCs have to pay attention to leadership and cultural imperatives. At a strategic level, the
important requirement is for learning to become a specific goal of the organization coupled
with a clear vision as where does the company wants to go and what it wants to become. This
vision should be necessarily shared by all members of the organization and employees have
to buy-in to this company’s vision. It is not possible for any organization to become a
learning organization unless it creates an environment of a culture of excellence which
encourages learning and does not attribute blame to individuals who make mistakes.

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Schien (1996) is of the view that organizational learning efforts will continue to fail if
organizations do not attempt to learn effectively by recognizing and confronting the
implications of various occupational and group cultures. The various levels of employees in
the organization from top to the lowest level must discover that they use different languages
to make different assumptions about what is important and should also learn to treat the other
cultures are valid and normal in order to succeed in the organizational learning efforts.

Culture and Knowledge Management

De Long and Liam Fahey (2000) identify four ways by which culture influences the behavior
central to knowledge creation, sharing and use. First culture including sub-cultures shape
assumptions about what knowledge is and which knowledge is worth managing. Second,
culture defines the relationship between individual and organizational knowledge,
determining who is in control of a specific knowledge, who must share and who can hoard it.
Third, culture creates the social context for social interaction that determines how knowledge
will be used in a particular situation. Fourth, culture shapes the processes by which the new
knowledge is created, legitimated and distributed in organizations. These four ways help
managers in taking specific actions to assess the various aspects of culture most likely to
influence knowledge-related behaviours. This diagnosis is very much essential in developing
strategy and specific interventions to align the firm’s culture in support of more effective
ways of developing knowledge management systems and knowledge use.

Discussion Questions
1. Discuss the major problems managers face in dealing with work-life issues in the global
context.

2. Discuss the ways in which culture influences knowledge creation, sharing and use in
MNCs.

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Readings and References:

Beardwell and Claydon (2010) Human Resource Management – A Contemporary Approach,

Prentice Hall: Financial Times – Chapters 1 and 2, pages 2-77.

Bratton and Gold (2007) Human Resource Management - Theory and Practice, Palgrave:
Macmillan – Chapter 2, pages 39-71.

Dowling, Festing and Engle, (2013) International Human Resource Management, 6 th edition,
Cengage..

Harzing A-w and Pinington A. H., eds. (2011). International Human Resource Management, Sage.

Mabey, Salaman, Storey (1998) Strategic Human Resource Management - A Reader, Sage
Publications – Chapter 7, pages 104-127.

Marchington and Wilkinson (2012), Human Resource Management At Work, Chartered

Institute of Personnel and Development, UK – Chapter1, pages 3-26 and Chapter 3, pages 54-
78 and Chapter 4, pages 79-107.

Journal Articles:

David W. De Long and Liam Fahey, (2000), ‘Diagnosing cultural barriers to knowledge
management,’ Academy of Management Executive, 2000. Vol. 14, No. 4, pp-113-127,

Delery and Doty (1996) Modes of Theorising Strategic Human Resource Management: Test
of Universalistic, Contingency, and Configurational Performance Predictions, Academy of
Management Journal, 1996, Vol. 39, No. 4, 802-835.

Helen De Ceiri and Anne Bardoel , ‘Tensions for HR: Who takes responsibility for work-life
management in Multinational Corporations? Final Report to SHRM Foundation June 2008.

Sonia Dasi Rodriguez; Martinez Perez, Juan Francisco; Manuela Pardo del Val, (2003), ‘An
empirical study about the effect of cultural problematic on organizational learning in
alliances,’ The Learning Organization; 2003; 10, 2/3; pg. 138,

Vaishampayan Devyani (2006), Responding to the changing workforce, Strategic HR

Review, Vol 5., Issue 6, p3.

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