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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
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
firm’s corporate culture
 the organization’s 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
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
 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
 it can lead to "cultural myopia"
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
 a gap can form between host country managers and
parent country managers
 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
 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

Strategic decisions are made at
Limited subsidiary autonomy;
Key positions in domestic and foreign
operations are held by headquarters’
PCNs manage subsidiaries.
Each subsidiary is a distinct national
entity with some decision-making
HCNs manage subsidiaries who are
seldom promoted to HQ positions;
PCNs rarely transferred to subsidiary

 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
Geocentric Staffing Requirements
 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 Limits the promotion opportunities
complies with overall of HCNs, leading to reduced
corporate objectives and productivity and increased
policies turnover among the HCNs
 Has the required level of Longer time for PCNs to adapt to
competence host countries, leading to errors
 Assignments as control and poor decisions being made
High cost
Considerable income gap, high
authority, and increased standard
of living may relate to lack of

Polycentric Approach
Employment of HCNs eliminates language
barriers, avoids adaptation of PCNs, reduces
the need for cultural awareness training
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
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: Disadvantage:
 Ability of the firm to Host government may use
develop an immigration controls in
international executive order to increase HCNs
team employment
 Overcomes the Expensive to implement
federation drawback of due to increased training
the polycentric and relocation costs
approach Large numbers of PCNs,
 Support cooperation HCNs, and TCNs need to
and resource sharing be sent across borders
across units Reduced independence of
subsidiary management
Regiocentric Approach
 Advantages:  Disadvantages:
Allow interaction between Produce federalism at a
executives transferred to regional rather than a
regional headquarters from country basis and
subsidiaries in the region constrain the firm from
and PCNs posted to the taking a global stance
regional headquarters Staff’s career
Provide some sensitivity to advancement still limited
local conditions to regional headquarters,
Help the firm to move from not the parent country
a purely ethnocentric or headquarters
polycentric approach to a
geocentric approach
Parent-Country Nationals
Advantages Disadvantages
 Organizational control and  Promotional opportunities
coordination is maintained. of HCNs are limited.
 Rising stars are given  Time and performance
international experience. costs associated with
 PCNs may be the best adaptation to the host
people for the specific job country.
due to special skills and  PCNs may impose an
experience. inappropriate HQ style.
 An assurance that the  Compensation for PCNs
subsidiary will comply with and HCNs may differ.
company objectives &
Host-Country Nationals
Advantages Disadvantages
 Language and other barrier  Hiring of HCNs may
eliminated encourage a federation of
 Reduced hiring costs national rather than global
 Continuity of management units
 Government policy may  HCNs have limited career
require hiring HCNs opportunity outside the
 Possible increased morale
because of increased career  Control and coordination of
potential HQ may be impeded
 Hiring HCNs limits
opportunities for PCNs to
gain foreign experience
Third-Country Nationals
Advantages Disadvantages
 Salary and benefit  Transfers must consider
requirements may be national animosities.
lower than for PCNs.  Host government may
 TCNs may be better resent hiring TCNs.
informed than PCNs  TCNs may not want to
about host-country return to their own
environment. countries after
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 manager’s inability to adjust
other family-related reasons
the manager’s personal or emotional maturity
the manager’s inability to cope with larger
overseas responsibilities
Why Do Expatriate
Managers Fail?
 The reason for European expatriate failure is
 the inability of the manager’s spouse to adjust
 The main reasons for Japanese expatriate
failure are
 the inability to cope with larger overseas responsibility
 difficulties with the new environment
 personal or emotional problems
 a lack of technical competence
 the inability of spouse to adjust
How Can Firms Reduce
Expatriate Failure?
 Firms can reduce expatriate failure through improved
selection procedures
 Four dimensions that predict expatriate success are
1. Self-orientation - the expatriate's self-esteem, self-
confidence, and mental well-being
2. Others-orientation - the ability to interact effectively with
host-country nationals
3. Perceptual ability - the ability to understand why people
of other countries behave the way they do
4. Cultural toughness – the ability to adjust to the posting
Why Is A
Global Mindset Important?
 A global mindset may be the fundamental
attribute of a global manager
 cognitive complexity
 cosmopolitan outlook
 A global mindset is often acquired early in life
 a family that is bicultural
 living in foreign countries
 learning foreign languages as a regular part of family
What Is Training And
Management Development?
 After selecting a manager for a position, training
and development programs should be
 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
 typically, both host nation managers and home office
managers evaluate the performance of expatriate
 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
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
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
How Should National Differences
In Compensation Be Treated?
Question: Should pay be equalized across
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
 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
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
 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
How Should
Expatriates Be Paid?
3. Various allowances - hardship, housing, cost-
of-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
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
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
2. Multinationals will farm out only low-skilled jobs to
foreign plants making it easier to switch production
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 Power?
 Organized labor 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
3. Trying to achieve regulation of multinationals through
international organizations such as the United
 So far, these efforts have had only limited
How Are MNCs Responding
To Organized Labor?
 Many firms are centralizing labor relations to
enhance the bargaining power of the
multinational vis-à-vis organized labor
 in the past, labor relations were usually decentralized
to individual subsidiaries
 The way in which work is organized within a
plant can be a major source of competitive
advantage so it is important for management to
have a good relationship with labor