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Griffin and Pustay Third Edition

INTERNATIONAL

BUSINESS
Chapter 20

A MANAGERIAL PERSPECTIVE

Prentice Prentice Hall ©Hall 2002 ©International 2002 International Business Business 3e 3e

International Human Resource Management and Labor Relations

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Chapter Objectives
After studying this chapter you should be able to:

• Describe the nature of human resource management in international business. • Detail how firms recruit and select managers for international assignments. • Explain how international businesses train and develop expatriate managers. • Discuss how international firms conduct performance appraisals and determine compensation for their expatriate managers.
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• Describe labor relations in international business.Chapter Objectives (cont.) After studying this chapter you should be able to: • Analyze retention and turnover issues in international business. 3 Prentice Hall © 2002 International Business 3e . • Explain basic human resource issues involving nonmanagerial employees.

• When Toyota was opening its first wholly owned U. manufacturing plant.700 production and 300 office jobs. the thousands of applicants still under consideration were invited to take part in over fourteen hours of testing.000 applications for 2. plant in Kentucky. it received over 100.Training for the World • When an international business opens a new office. or other facility in a foreign country. • After weeding out those that simply weren’t qualified.S. 4 Prentice Hall © 2002 International Business 3e . one of its most important tasks is staffing that new facility with managers and operating employees.

Toyota has spent over $13. Prentice Hall © 2002 International Business 3e 5 .Training for the World (cont. • The third level of testing involved performing mock production line jobs on a simulated conveyor belt.) • Those that passed the first level of tests were invited back to participate in an organizational simulation.000 on testing and evaluating an individual. Only one in twenty made it through this test and was invited back for an interview. • By the time the selection process is completed and a person is hired.

6 Prentice Hall © 2002 International Business 3e . developing. and maintaining the effective work force necessary to achieve a firm’s objectives.Human Resource Management Human resource management (HRM) is the set of activities directed at attracting.

• The international firm must also determine where various employees should come from—the home country. the host country. 7 Prentice Hall © 2002 International Business 3e . or third countries.The Nature of Human Resource Management • International HR managers face challenges beyond those confronting their counterparts in purely domestic companies. • Particularly troublesome problems develop when conflicts arise between the culture and laws of the home country and those of the host country.

HR managers must provide cross-cultural training for corporate executives chosen for overseas assignments. • Because working conditions and the cost of living may vary dramatically by country. 8 Prentice Hall © 2002 International Business 3e .The Nature of Human Resource Management (cont. international HR managers often must tailor compensation systems to meet the needs of the host country’s labor market.) • International businesses also face more complex training and development challenges. For example.

training.International Managerial Staffing Needs • The staffing issues confronting international human resource managers can be divided into two broad categories: – Recruiting. and retaining nonmanagerial employees 9 Prentice Hall © 2002 International Business 3e . training. and retaining managerial and executive employees – Recruiting.

10 Prentice Hall © 2002 International Business 3e . Conversely. • The global area form facilitates delegating responsibility to managers of the firm’s foreign subsidiaries. the international division form favors centralizing decision making at corporate headquarters.Centralization versus Decentralization of Control • An international business’s HRM needs are also affected by whether the firm wants decision making to be centralized at corporate headquarters or delegated to operating subsidiaries. • Firms that view themselves as multidomestic rather than multinational are likely to favor decentralization of decision making.

Firms can hire from three groups: – Parent-country nationals – Host-country nationals – Third-country nationals 11 Prentice Hall © 2002 International Business 3e .Staffing Philosophy • The extent of the firm’s internationalization and its degree of centralization or decentralization affects (and is affected by) its philosophy regarding the nationality of its international managers.

Although they can be trained to overcome these knowledge gaps. • Because PCNs typically share a common culture and educational background with corporate headquarters staff. they facilitate communication and coordination with corporate headquarters. social structure. • However. such training is expensive and is not a perfect substitute for having been born and raised in the host country. PCNs typically lack knowledge of the host country’s laws.Parent-Country Nationals (PCNs) • Use of PCNs in an MNC’s foreign operations provides many advantages to the firm. 12 Prentice Hall © 2002 International Business 3e . culture. and political processes. economic conditions.

HCNs may be unfamiliar with the firm’s business and cultural practices. 13 Prentice Hall © 2002 International Business 3e . supplemental wages paid for foreign service. culture.Host-Country Nationals (HCNs) • HCNs are commonly used by international businesses to fill middle-level and lower-level jobs. and economic conditions – The firm avoids expenses associated with expatriate managers. but they also often appear in managerial and professional positions. • Using HCNs offers two primary advantages: – HCNs already understand the local laws. and private schooling for children • However. such as relocation costs.

14 Prentice Hall © 2002 International Business 3e . • In the past. TCNs were likely to be used when they had special expertise that was not available to the firm through any other channel. they are consciously being employed by some firms to promote a global outlook throughout their operations. Today.Third-Country Nationals (TCNs) • TCNs are most likely to be used in upperlevel and/or technical positions.

Recruitment of Managers • Recruitment of Experienced Managers – A common source of recruits is within the firm itself – An international business may also attempt to identify prospective managers who work for other firms • Recruitment of Younger Managers – It is uncommon for large MNCs to hire recent college graduates for immediate foreign assignments – Particularly attractive are graduates with foreign language skills or travel experience 15 Prentice Hall © 2002 International Business 3e .

The most promising candidates share the following characteristics: – Managerial competence – Appropriate training – Adaptability to new situations 16 Prentice Hall © 2002 International Business 3e .Selection of Managers • After the pool of prospective managers has been identified. HR managers must decide which persons from that pool are the best qualified for the assignment.

17 Prentice Hall © 2002 International Business 3e .Expatriate Failure Expatriate failure is the early return of an expatriate manager to his/her home country because of an inability to perform the overseas assignment.

Culture Shock Working in and coping with a foreign culture can lead to culture shock. a psychological phenomenon that may lead to feelings of fear. 18 Prentice Hall © 2002 International Business 3e . irritability. and disorientation. helplessness.

Successful Overseas Assignment • Recent research indicates that the likelihood of a manager being successful at an overseas assignment increases if the manager: – Can freely choose whether to accept or reject the assignment – Has been given a realistic preview of the new job – Has a mentor back home who will guard his/her interests and provide support during the assignment – Sees a clear link between the expatriate assignment and his/her long-term career path 19 Prentice Hall © 2002 International Business 3e .

20 Prentice Hall © 2002 International Business 3e .Training and Development • Training is instruction directed at enhancing specific job-related skills and abilities. • Development is general education concerned with preparing managers for new assignments and/or higher-level positions.

market share growth. profit margin. the firm may consider sales. • In assessing a manager’s actual performance.Performance Appraisal and Compensation • Another important part of international HRM consists of conducting performance appraisals and determining compensation and benefits. or any other measures or indicators it deems important. • Performance appraisal is the process of assessing how effectively a person is performing his/her job. • Circumstances will dictate how frequently performance appraisals occur. 21 Prentice Hall © 2002 International Business 3e .

lifestyle norms. standards of living. 22 Prentice Hall © 2002 International Business 3e . Most international businesses find it necessary to provide these managers with differential compensation to make up for dramatic differences in currency valuation. and so on.Performance Appraisal and Compensation (cont.) • A more complex set of compensation issues applies to expatriate managers. • Many international businesses also find they must set up a tax-equalization system. A tax-equalization system is a means of ensuring that the expatriate’s after-tax income in the host country is similar to what the person’s after-tax income would be in the home country.

• People choose to leave a firm for any number of reasons—for example. or receipt of a better offer to work elsewhere.Retention and Turnover • Retention is the extent to which a firm is able to retain valued employees. 23 Prentice Hall © 2002 International Business 3e . essentially the opposite. dissatisfaction with their current pay or promotion opportunities. • A firm may have to provide special inducements or incentives to its most valuable international managers. is the rate at which people leave the firm. They may receive higher salaries or be given a greater say in choosing their assignments. • Turnover.

such as blue-collar production workers and white-collar office workers. nonmanagerial employees. are typically HCNs. • Training and Development – HR managers must also assess the training and development needs of the host country’s work force in order to help the individuals perform their jobs more effectively.Human Resource Issues for Nonmanagerial Employees • Recruitment and Selection – In international firms’ foreign operations. 24 Prentice Hall © 2002 International Business 3e .

25 Prentice Hall © 2002 International Business 3e . • Membership in U. • In some countries. labor relations are often handled as a separate organizational function. apart from human resource management. union membership is very high and continues to grow.Labor Relations • Because of their complexity and importance. labor unions has been steadily declining in recent years and today constitutes less than fifteen percent of the country’s total work force.S. Over half the world’s work force outside the United States belongs to labor unions.

Collective Bargaining Collective bargaining is the process used to make agreements between management and labor unions. 26 Prentice Hall © 2002 International Business 3e .

other countries. much of the influence of labor unions arises from the premise of industrial democracy—the belief that workers should have a voice in how businesses are run. • The German model represents the most extreme level of industrial democracy. including Sweden. • The approach taken in Germany is called codetermination and provides for cooperation between management and labor in running the business. the Netherlands. Prentice Hall © 2002 International Business 3e 27 .Union Influence and Codetermination • In Europe. and France take similar approaches in requiring some form of labor representation in running businesses. Denmark. However. Norway Luxembourg.

Some firms choose to recruit experienced managers for foreign assignments.Chapter Review • Human resource management is the set of activities directed at attracting. and maintaining the effective work force necessary to achieve a firm’s objectives. developing. 28 Prentice Hall © 2002 International Business 3e . and more likely inexperienced. while others hire younger. • International human resource needs are partially dictated by a firm’s degree of internationalization. • Recruitment and selection are important elements of international human resource management. managers.

) • Training and development are also important aspects of international human resource management. 29 Prentice Hall © 2002 International Business 3e .Chapter Review (cont. • Labor relations pose an especially complex task for human resource managers and are often handled by a special department. • A firm also must assess the performance of its international managers and determine their compensation. • Given the high cost of training and development of expatriates. firms need to focus special attention on managing retention and turnover.