Global Human Resource Management

International Production and Logistics Wrap-up

  • Key strategic consideration: Control and Quality
  • Factors affecting the decision to location international production:
    • Political, social, and cultural issues
    • Technological issues
    • Product issues
  • Make or buy? – the explanations are based on the transaction cost perspective

Topic 10: Global Human Resource Management

Learning Objectives

  • Explain the strategic role of human resource management in international business.
  • Understand the pros and cons of different approaches to staffing policy in international business.
  • Explain why managers fail to thrive in foreign posts.
  • Understand how and why compensation systems might vary across nations.

Human Resource Management

  • Human Resource Management (HRM) refers to the activities an organization carries out to utilize its human resources effectively.
  • Firms need to ensure there is a fit between their human resources practices and strategy.
  • HRM is more complex in an international business because of differences between countries in labor markets and culture.

Major Tasks of HRM

  • Staffing Policy
  • Management Training and Development
  • Performance Appraisal
  • Compensation Policy

Organizational Architecture and Human Resources

  • Human Resources is responsible for:
    • Structure
    • Processes
    • People
    • Incentives & Controls
    • Culture

Staffing Policy

  • A firm's staffing policy is concerned with the selection of employees who have the skills required to perform a particular job.
  • A staffing policy can be a tool for developing and promoting the firm's corporate culture
    • The organization's norms and value system.
  • A strong corporate culture can help the firm implement its strategy.

Types of Staffing Policy

  • There are three main approaches to staffing policy within international businesses:
    • The ethnocentric approach
    • The polycentric approach
    • The geocentric approach

Ethnocentric Staffing Policy

  • The ethnocentric approach to staffing policy fills key management positions with parent country nationals.
  • 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.

Polycentric Staffing Policy

  • The polycentric staffing policy recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters.
  • The polycentric approach:
    • Can minimize cultural myopia.
    • May be less expensive to implement than an ethnocentric policy.

Geocentric Staffing Policy

  • The geocentric staffing policy seeks the best people, regardless of nationality for key jobs.
  • This approach:
    • Is consistent with building a strong unifying culture and informal management network.
    • 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.
    • Firms may be better able to create value from the pursuit of experience curve and location economies and from the multidirectional transfer of core competencies than firms pursuing other staffing policies.

Considerations for Staffing Policies

  • Many countries want foreign subsidiaries to employ their citizens.
  • Immigration laws may limit the ability of a firm to pursue a geocentric policy.
  • It is costly to implement a geocentric policy (training, relocation costs, compensation structure, etc.).

Comparison of Staffing Approaches

  • Ethnocentric
    • Strategic Appropriateness: International
    • Advantages: Overcomes lack of qualified managers in host nation, unifies culture, helps transfer core competencies
    • Disadvantages: Produces resentment in host country, can lead to cultural myopia
  • Polycentric
    • Strategic Appropriateness: Localization
    • Advantages: Alleviates cultural myopia, inexpensive to implement
    • Disadvantages: Limits career mobility, isolates headquarters from foreign subsidiaries
  • Geocentric
    • Strategic Appropriateness: Global standardization and transnational
    • Advantages: Uses human resources efficiently, helps build strong culture and informal management networks
    • Disadvantages: National immigration policies may limit implementation, expensive

Expatriate Managers

  • HRM must 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.

Expatriate Failure

  • Expatriate failure: the pre-mature return of an expatriate manager to the home country.
  • Between 16 and 40% of all American expatriates in developed countries fail to complete their assignments.
  • Almost 70% of Americans assigned to developing countries return home early.

Expatriate Selection

  • Reduce expatriate failure rates by improving selection procedures.
  • An executive's domestic performance does not (necessarily) equate his/her overseas performance potential.
  • Employees need to be selected not solely on technical expertise but also on cross-cultural fluency.

Successful Expatriates

  • Four dimensions that predict expatriate success are:
    • Self-orientation: The expatriate's self-esteem, self-confidence, and mental well-being.
    • Others-orientation: The ability to interact effectively with host-country nationals.
    • Perceptual ability: The ability to understand why people of other countries behave the way they do.
    • Cultural toughness: The ability to adjust to the posting.

Training & 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.
    • Cultural training: seeks to foster an appreciation of the host-country's culture.
    • Language training: can improve expatriate's effectiveness, aids in relating more easily to foreign culture and fosters a better firm image.
    • Practical training: ease into day-to-day life of the host country.

Training and Management Development

  • Management development is concerned with:
    • Developing manager's skills over time 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.

Repatriation of Expatriates

  • Training and development should include preparing and developing expatriate managers for re-entry into their home country organization.
  • HRM needs to develop good programs for re-integrating expatriates back into work life within their home country organization once their foreign assignment is over.
  • Utilizing the knowledge they acquired while abroad.

Performance Appraisal

  • 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.

Guidelines for Performance Appraisal

  • 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.
    • When foreign on-site managers write performance evaluations, home-office managers should be consulted before a formal termination evaluation is completed.

Compensation

  • Firms face two key issues in compensating expatriates:
    • How to adjust compensation to reflect differences in economic circumstances and compensation practices.
    • How to pay expatriate managers.

Expatriate Pay

  • An expatriate's compensation package is usually made up of five components:
    • 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.
    • Foreign service premium - extra pay the expatriate receives for working outside his or her country of origin.
      • Generally offered as an incentive to accept foreign assignments.

The Global Mindset

  • 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