IB cultural differences exam 2

The role of IHRM

A vital component of implementing global strategy is international human resource management (IHRM).

> IHRM is therefore, increasingly being recognized as a major determinant of success or failure in international business

Executives questioned about the major challenges the HR function faces in the global arena.

1)Enhancing global business strategy

2)Aligning HR issues with business strategy

3)Designing and leading change

4)Building global corporate cultures

5)Staffing organizations with global leaders

Strategic Human Resource Management

Increasing recognition is being given to the role of strategic human resource management (SHRM):

Helping the organization develop the necessary capabilities to enact the desired strategy includes the reality that strategic plans are developed in large part based on the resources the firm possesses, including the human resources capabilities.

Why international human resource management is important?

Many MNEs hire more employees at subsidiaries than at their headquarters.

For example, IBM employs 130,000 people for its Indian operations- roughly one-third of its total employees- now exceeding its U.S. workforce.

The IHRM function comprises varied responsibilities involved in managing human resources in global corporations.

For example,

1) recruiting and selecting employees

2) Providing preparation and training

3) Setting up appropriate compensation and performance management programs

Even though companies would like to harmonize their IHRM practices worldwide, several confounding factors exist, such as local government laws and regulations, varying cultural norms and practices, and long-entrenched and accepted business practices in the local area.

Three key factors in IHRM

Strategy, Staffing, Organizational Structure

Ideally, the desired strategy of the firm should dictate the organizational structure and staffing modes considered most effective for implementing that strategy.

In reality, however, there is usually considerable interdependence among those functions. Existing structural constraints often affect strategic decisions; similarly, staffing constraints or unique sets of competencies in management come into play in organizational and, sometimes, strategic decisions.

Staffing for Global Operations

Crown World Mobility revealed several salient trends pertaining to staffing around the globe.

1)Stress about the accompanying partner is becoming increasingly influential.

2)Confusion in terms of measuring mobility return on investment (ROI)

3)The changing demographics with respect to global mobility.

e.g., compensation, well-being

Ethnocentric staffing approach

• The company is at the internationalization stage of strategic expansion

• The company has a centralized structure

• Parent-country nationals (PCNs) = expatriates

• It fills key managerial positions with people from headquarters.

Advantages

• PCNs are familiar with company goals, products, technology, policies, and procedures

• They know how to accomplish things through headquarters.

When to use Ethnocentric Staffing

• When the inadequacy of local managerial skills exists, the companies appoint PCNs

• The company needs to have a high level of close communication and coordination with headquarters

• The subsidiary needs a high level of technical capability.

• There is a concern for loyalty to the company rather than to the host country .

Ethnocentric Disadvantages

• The lack of opportunities or development for local managers decreases their morale and loyalty to the subsidiary.

• The poor adaptation and lack of effectiveness of expatriates in foreign countries

• Not enable the company to take advantage of its worldwide pool of management skills.

• Have the same types of decisions due to the particular personnel selections.

Polycentric staffing approach

Host-country nationals (HCNs) are hired to fill key positions in their own country.

• It is effective when the company is implementing a multinational strategy.

Advantages

• HCNs are naturally familiar with the local culture, language, and ways of doing business.

• They have many contacts in the local.

• HCNs are more likely to be accepted by people both inside and outside the subsidiary.

• They provide role models for other upwardly mobile personnel.

• It is less expensive for a company compared to PCNs

Polycentric Disadvantage

Disadvantages

• It is difficult to coordinate activities and goals between the subsidiary and the parent company

• The managers at the headquarters will not gain the overseas experience necessary for any higher positions.

Global staffing approach

Third-country nationals (TCNs) – the best managers are recruited from within or outside of the company, regardless of nationality.

Advantages

• It provides a greater pool of qualified and willing applicants from which to choose, which, in time, results in further development of a global executive cadre.

• TCNs usually bring more cultural flexibility and adaptability to a situation, especially if they are from a similar cultural background as the host-country coworkers and are accustomed to moving around.

• Employees at subsidiaries perceive them as acceptable compromises between headquarters and local managers; thus, appointing them works to reduce resentment.

• It can be more cost-effective to transfer and pay managers from some countries than from others because their pay scale and benefits packages are lower.

Polycentric Disadvantages

It is difficult to coordinate activities and goals between the subsidiary and the parent company

The managers at the headquarters will not gain the overseas experience necessary for any higher positions.

Global staffing approach

Third-country nationals (TCNs) – the best managers are recruited from within or outside of the company, regardless of nationality.

Advantages

• It provides a greater pool of qualified and willing applicants from which to choose, which, in time, results in further development of a global executive cadre.

• TCNs usually bring more cultural flexibility and adaptability to a situation, especially if they are from a similar cultural background as the host-country coworkers and are accustomed to moving around.

• Employees at subsidiaries perceive them as acceptable compromises between headquarters and local managers; thus, appointing them works to reduce resentment.

• It can be more cost-effective to transfer and pay managers from some countries than from others because their pay scale and benefits packages are lower.

Regiocentric staffing approach

• Recruiting is done on a regional basis, within Latin America, for a position in Chile.

• This staffing approach can produce a specific mix of PCNs, HCNs, and TCNs according to the company's needs or product strategy.

Overall, firms still tend to use expatriates (PCNs) in key positions in host countries with less familiar cultures and less-developed economies.

• This situation arises out of concern about uncertainty and the ability to control the implementation of the corporation’s goals.

• Most MNCs use a greater proportion of PCNs in top management positions, staffing middle and lower management positions with increasing proportions of HCNs (locals) as one moves down the organizational hierarchy.

Transpatriates

What if Professor Lee is sent to SLU Madrid to teach International Business?
She is originally from South Korea but has been hired by SLU (an American higher education in the USA).

Inpatriates

• They are managers with global experience who are transferred to the organization’s headquarters country so that their overseas business and cultural experience and contacts can facilitate interactions among the country’s far-flung operations.

• It is used to provide a linking pin between the company’s headquarters and local host subsidiaries.

• A critical success factor in the use of inpatriates is their ability to develop acceptance and trust among the people in the various locations, making it imperative for the firm to retain them on a long-term basis.

The choice of staffing policy

Several factors to consider

• The company’s strategy – HCNs for localization.

• Host-country regulations

• stage of internationalization

• Who is both suitable and available for the position

Most MNCs tend to start their operations in a particular region by selecting primarily from their own pool of managers.

• With increasing internationalization, they tend to move to predominantly polycentric or regiocentric policy because of

  1) increasing pressure from local governments to hire locals and

  2) the greater costs of expatriate staffing.

Strategic Mode, Organizational Variables, and Staffing Orientation Exhibit 9-4

Aspect of enterprise	Ethnocentric	Polycentric	Regiocentric	Global
Strategic orientation	International	Multidomestic	Regional	Transnational
Perpetuation	Expatriates used for key positions	Locals used  for key positions locally	Regional people used regionally	Best people used anywhere
Evaluation and control	Home standards applied	Determined locally	Determined regionally	Globally integrated
Rewards	High at home; low in subsidiaries	Wide variation	Based on contribution to regional objectives	Based on contribution to local and worldwide objectives

Expatriates are employees assigned to positions in other countries

Although the number of employees sending staff abroad is on the rise, only half actually have policies in place to govern these assignments.

Managing Expatriates: Selection

The same success factors as in the domestic setting + Relative to the specific  circumstances of each international position

Success categories