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Global Human

Resource Management

Human resource management (HRM) - the


activities an organization carries out to utilize its
human resources effectively
These activities include
determining human resource strategy
staffing
performance evaluation
management development
compensation
labor relations

Firms need to ensure there is a fit between their


human resources practices and strategy

Strategic Role Of HRM


HRM can help the firm reduce the costs of
value creation and add value by better
serving customer needs
more complex in an international business
differences between countries in labor
markets, culture, legal systems, economic
systems, etc.

Strategic Role Of HRM In


International Firms
HRM must also determine when to use
expatriate managers
citizens of one country working abroad
who should be sent on foreign
assignments
how they should be compensated
how they should be trained
how they should be reoriented when they
return home

Staffing Policy
Staffing policy is concerned with the
selection of employees who have the
skills required to perform a particular job
can be a tool for developing an promoting the
firms corporate culture
the organizations norms and value system
a strong corporate culture can help the firm
implement its strategy

Staffing Policy
Three main approaches to staffing policy
1. The ethnocentric approach - fill key
management positions with parent-country
nationals
2. The polycentric approach recruit host country
nationals to manage subsidiaries in their own
country, and parent country nationals for
positions at headquarters
3. The geocentric approach seek the best people,
regardless of nationality for key jobs

Ethnocentric Staffing
Policy
Firms that pursue an ethnocentric policy believe that
there is a lack of qualified individuals in the host
country to fill senior management positions
it is the best way to maintain a unified corporate
culture
value can be created by transferring core
competencies to a foreign operation via parent
country nationals
it makes sense with an international strategy
But
it limits advancement opportunities for host country
nationals
it can lead to "cultural myopia"

Polycentric
Staffing Policy
The polycentric approach
makes sense for firms pursuing a localization strategy
can minimize cultural myopia
may be less expensive to implement than an
ethnocentric policy

But
host country nationals have limited opportunities to
gain experience outside their own country and so
cannot progress beyond senior positions in their own
subsidiaries
a gap can form between host country managers and
parent country managers

Geocentric
Staffing
The geocentric approach
is consistent with building a strong unifying culture
and informal management network
makes sense for firms pursuing a global or
transnational strategy
enables the firm to make the best use of its human
resources
builds a cadre of international executives who feel at
home working in a number of different cultures

But
can be limited by immigration laws
is costly to implement

Comparison of Staffing Approaches

Approaches to Staffing
Factors affecting approaches to staffing
General staffing policy on key positions at
headquarters and subsidiaries
Constraints placed by host government
Staff availability
Ethnocentric
Polycentric
Geocentric
Regiocentric
I

Ethnocentric
Strategic decisions are made at
headquarters;
Limited subsidiary autonomy;
Key positions in domestic and foreign
operations are held by headquarters
personnel;
PCNs manage subsidiaries.

Polycentric
Each subsidiary is a distinct national
entity with some decision-making
autonomy;
HCNs manage subsidiaries who are
seldom promoted to HQ positions;
PCNs rarely transferred to subsidiary
positions.
I

Geocentric
A global approach - worldwide integration;
View that each part of the organization
makes a unique contribution;
Nationality is ignored in favor of ability:
Best person for the job;
Color of passport does not matter when it
comes to rewards, promotion and
development.

Geocentric Staffing Requirements

Regiocentric
Reflects a regional strategy and structure;
Regional autonomy in decision making;
Staff move within the designated region,
rather than globally;
Staff transfers between regions are rare.

Ethnocentric Approach
Advantages:

Disadvantages:

To ensure new subsidiary


complies with overall
corporate objectives and
policies
Has the required level of
competence
Assignments as control

Limits the promotion opportunities


of HCNs, leading to reduced
productivity and increased
turnover among the HCNs
Longer time for PCNs to adapt to
host countries, leading to errors
and poor decisions being made
High cost
Considerable income gap, high
authority, and increased standard
of living may relate to lack of
sensitivity

Polycentric Approach
Advantages:
Employment of HCNs eliminates language
barriers, avoids adaptation of PCNs, reduces
the need for cultural awareness training
programs
Employment of HCNs allows a multinational
company to take a lower profile in sensitive
political situations
Employment of HCNs is less expensive
Employment of HCNs gives continuity to the
management of foreign subsidiaries (lower
turnover of key managers)

Polycentric Approach
Disadvantages:
Difficult to bridge the gap between HCN
subsidiary managers and PCN managers at
headquarters ( language barriers, conflicting
national loyalties, cultural differences)
HCN managers have limited opportunities to
gain experience outside their own country
PCN managers have limited opportunities to
gain international experience
Resource allocation and strategic decision
making will be constrained when headquarter
is filled only by PCNs who have limited
exposure to international assignment

Geocentric Approach
Advantages:
Ability of the firm to
develop an
international executive
team
Overcomes the
federation drawback of
the polycentric
approach
Support cooperation
and resource sharing
across units

Disadvantage:
Host government may use
immigration controls in
order to increase HCNs
employment
Expensive to implement
due to increased training
and relocation costs
Large numbers of PCNs,
HCNs, and TCNs need to
be sent across borders
Reduced independence of
subsidiary management

Regiocentric Approach
Advantages:
Allow interaction between
executives transferred to
regional headquarters from
subsidiaries in the region
and PCNs posted to the
regional headquarters
Provide some sensitivity to
local conditions
Help the firm to move from
a purely ethnocentric or
polycentric approach to a
geocentric approach

Disadvantages:
Produce federalism at a
regional rather than a
country basis and
constrain the firm from
taking a global stance
Staffs career
advancement still limited
to regional
headquarters, not the
parent country
headquarters

Parent-Country Nationals
Advantages
Advantages

Organizational
Organizationalcontrol
controland
and
coordination
coordinationisismaintained.
maintained.
Rising
Risingstars
starsare
aregiven
given
international
internationalexperience.
experience.
PCNs
PCNsmay
maybe
bethe
thebest
best
people
peoplefor
forthe
thespecific
specificjob
job
due
dueto
tospecial
specialskills
skillsand
and
experience.
experience.
An
Anassurance
assurancethat
thatthe
the
subsidiary
subsidiarywill
willcomply
complywith
with
company
companyobjectives
objectives&&
policies.
policies.

Disadvantages
Disadvantages

Promotional
Promotionalopportunities
opportunities
of
ofHCNs
HCNsare
arelimited.
limited.
Time
Timeand
andperformance
performance
costs
costsassociated
associatedwith
with
adaptation
to
the
host
adaptation to the host
country.
country.
PCNs
PCNsmay
mayimpose
imposean
an
inappropriate
inappropriateHQ
HQstyle.
style.
Compensation
Compensationfor
forPCNs
PCNs
and
andHCNs
HCNsmay
maydiffer.
differ.

Host-Country Nationals
Advantages
Advantages

Disadvantages
Disadvantages

Language
Languageand
andother
otherbarrier
barrier
eliminated
eliminated
Reduced
Reducedhiring
hiringcosts
costs
Continuity
Continuityof
ofmanagement
management
Government
Governmentpolicy
policymay
may
require
requirehiring
hiringHCNs
HCNs
Possible
Possibleincreased
increasedmorale
morale
because
becauseof
ofincreased
increased
career
careerpotential
potential

Hiring
Hiringof
ofHCNs
HCNsmay
may
encourage
encourageaafederation
federationof
of
national
nationalrather
ratherthan
thanglobal
global
units
units
HCNs
HCNshave
havelimited
limitedcareer
career
opportunity
opportunityoutside
outsidethe
the
subsidiary
subsidiary
Control
Controland
andcoordination
coordinationof
of
HQ
HQmay
maybe
beimpeded
impeded
Hiring
HiringHCNs
HCNslimits
limits
opportunities
opportunitiesfor
forPCNs
PCNsto
to
gain
gainforeign
foreignexperience
experience

Third-Country Nationals
Advantages
Advantages

Disadvantages
Disadvantages

Salary
Salaryand
andbenefit
benefit
requirements
requirementsmay
maybe
be
lower
lower than
thanfor
for PCNs.
PCNs.

TCNs
TCNsmay
maybe
bebetter
better
informed
informedthan
thanPCNs
PCNs
about
abouthost-country
host-country
environment.
environment.

Transfers
Transfers must
must consider
consider
national
nationalanimosities.
animosities.

Host
Hostgovernment
government may
may
resent
resent hiring
hiringTCNs.
TCNs.

TCNs
TCNsmay
maynot
notwant
wantto
to
return
return to
totheir
theirown
own
countries
countriesafter
after
assignment.
assignment.

Determinants of IHRM Approaches


and Activities

Expatriate Failure
Firms using an ethnocentric or geocentric
staffing strategy will have expatriate managers
Expatriate failure is the premature return of an
expatriate manager to the home country
each expatriate failure can cost between $40,000 and
$1 million
between 16 and 40% of all American expatriates in
developed countries fail and almost 70% of
Americans assigned to developing countries fail

What Is The Rate Of


Expatriate Failure?
Expatriate Failure Rates

Why Do Expatriate
Managers Fail?
The main reasons for U.S. expatriate
failure are
the inability of an expatriate's spouse to adapt
the managers inability to adjust
other family-related reasons
the managers personal or emotional maturity
the managers inability to cope with larger
overseas responsibilities

Why Do Expatriate
Managers Fail?
The reason for European expatriate failure is
the inability of the managers spouse to adjust

The main reasons for Japanese expatriate


failure are
the inability to cope with larger overseas responsibility
difficulties with the new environment
personal or emotional problems
a lack of technical competence
the inability of spouse to adjust

How Can Firms Reduce


Expatriate Failure?
Firms can reduce expatriate failure through improved
selection procedures
Four dimensions that predict expatriate success are
1. Self-orientation - the expatriate's self-esteem, selfconfidence, and mental well-being
2. Others-orientation - the ability to interact effectively with
host-country nationals
3. Perceptual ability - the ability to understand why people
of other countries behave the way they do
4. Cultural toughness the ability to adjust to the posting

Why Is A
Global Mindset
Important?
A global mindset
may be the fundamental
attribute of a global manager
cognitive complexity
cosmopolitan outlook

A global mindset is often acquired early in life


from
a family that is bicultural
living in foreign countries
learning foreign languages as a regular part of family
life

What Is Training And


Management
Development?
After selecting
a manager for a position, training
and development programs should be
implemented
Training focuses upon preparing the manager
for a specific job
Management development is concerned with
developing the skills of the manager over time
gives the manager a skill set and reinforces
organizational culture

Historically, most firms focus more on training


than on management development

Why Is Training Important


For Expatriate Managers?
Training can reduce expatriate failure
Cultural training - fosters an appreciation for the host
country's culture
Language training - an exclusive reliance on English
diminishes an expatriate's ability to interact with host
country nationals
Practical training - helps the expatriate and her family
ease themselves into day-to-day life in the host country
But, studies show only about 30% of managers sent on
one- to five-year expatriate assignments received
training before their departure

What Happens When


Expatriates Return Home?
Training and development should include
preparing and developing expatriate
managers for reentry into their home
country organization
need good programs for
re-integrating expatriates back into work life within
their home country organization
utilizing the knowledge they acquired while abroad

Why Is Management
Development Important To Firm
Strategy?

Management development programs increase


the overall skill levels of managers through

ongoing management education


rotations of managers through jobs within the firm to
give them varied experiences

Management development can be a strategic


tool to build a strong unifying culture and
informal management network
support both transnational and global strategy

How Should
Expatriates Be Evaluated?
Evaluating expatriates can be especially complex
typically, both host nation managers and home office
managers evaluate the performance of expatriate
managers

But, both types of managers are subject to


unintentional bias
home country managers tend to rely on hard data
when evaluating expatriates
host country managers can be biased towards their
own frame of reference

How Can Performance


Appraisal Bias Be
Reduced?
To reduce bias in performance appraisal
more weight should be given to an on-site
manager's appraisal than to an off-site
manager's appraisal
a former expatriate who has served in the same
location should be involved in the process
home office managers should be consulted
before an on-site manager completes a formal
termination evaluation

What Are The Key Issues In


Compensating Expatriates?
Two key issues on compensation
1. How to adjust compensation to reflect
differences in economic circumstances
and compensation practices
2. How to pay expatriate managers

How Should National


Differences In
Compensation
Be
Treated?

Currently, there are substantial differences


in executive compensation across
countries
Research shows
a top U.S. executive made an average of
$525,923 in the 2005-2006 period, compared
to $278,697 in Japan, and $158,146 in Taiwan

How Should National


Differences In
Compensation
Be
Treated?

Question: Should pay be equalized across


countries?
Many firms have recently moved toward a
compensation structure that is based on
global standards
especially important in firms with a geocentric
staffing policy

But, most firms still set pay according to


the prevailing standards in each country

How Should
Expatriates Be Paid?
Most firms use the balance sheet
approach
equalizes purchasing power across countries
so employees have the same living standard
in their foreign posting as at home
and adds a financial incentive to take the
position

How Should
Expatriates Be Paid?
A compensation package has five components
1. Base salary - normally in the same range as the
base salary for a similar position in the home
country
can be paid either in the home currency or in the
local currency

2. Foreign service premium - extra pay the


expatriate receives for working outside his
country of origin
generally offered as an incentive to accept foreign
assignments

How Should
Expatriates Be Paid?
3. Various allowances - hardship, housing, costof-living, education
4. Tax differentials - may have to pay income tax
to both the home country and the host-country
governments no reciprocal tax treaty exists
company usually covers extra tax assessments

5. Benefits many firms provide the same level


of medical and pension benefits abroad that
employees receive at home

Why Are International


Labor Relations
Important?
Question: Can organized labor limit the
choices available to an international
business?
Labor unions can limit a firm's ability to
pursue a transnational or global strategy
HRM needs to foster harmony and minimize
conflict between management and organized
labor

What Are The Concerns


Of Organized Labor?
Organized labor is concerned that
1. Multinationals can counter union bargaining power
by threatening to move production to another
country
2. Multinationals will farm out only low-skilled jobs to
foreign plants making it easier to switch production
locations
3. Multinationals will import employment practices and
contractual agreements from their home countries
and reduce the influence of unions

How Does Organized


Labor Respond To MNC
Organized labor Power?
has responded to the increased
bargaining power of multinational corporations by
1. Trying to set-up their own international organizations
2. Lobbying for national legislation to restrict
multinationals
3. Trying to achieve regulation of multinationals through
international organizations such as the United Nations

So far, these efforts have had only limited


success

How Are MNCs


Responding
Tofirms
Organized
Labor?
Many
are centralizing labor relations to
enhance the bargaining power of the
multinational vis--vis organized labor
in the past, labor relations were usually decentralized
to individual subsidiaries

The way in which work is organized within a


plant can be a major source of competitive
advantage so it is important for management to
have a good relationship with labor