14-1 copyright 2007 mcgraw-hill australia pty ltd ppts t/a global business today 1e by hill. slides...

14-1 Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.

Chapter 14

International Human

Resource Management


Lecture/Chapter Topics

• The Strategic Role of HRM

• Staffing Policy

• Training and Management Development

• Performance Appraisal

• Compensation

• International Labour Relations


The Strategic Role of HRM

• HRM is more complex in an international business because of differences between countries in labour markets, culture, legal systems, economic systems, and so on.

• The HRM function must also deal with a host of issues related to expatriate managers (citizens of one country working abroad).

• Success in international business requires that HRM policies be congruent with the firm’s strategy.


The Strategic Role of HRM• The Role of Human Resources in Shaping

Organisation Architecture


Staffing Policy

• Staffing policy is concerned with the selection of employees who have the skills required to perform a particular job.

• Types of Staffing Polices– Research has identified three main approaches to staffing

policy within international businesses:i. Ethnocentric approach

ii. Polycentric approach

iii. Geocentric approach


Staffing Policy

• Ethnocentric Approach

– An ethnocentric approach to staffing policy is

one where key management positions in an

international business are filled by parent-country

nationals.

– The policy makes most sense for firms pursuing

an international strategy.


Staffing Policy

• Ethnocentric Approach (Cont’d)– Firms pursue an ethnocentric staffing policy for

three reasons: 1. The firm believes there is a lack of qualified

individuals in the host country to fill senior management positions.

2. The firm sees an ethnocentric staffing policy as the best way to maintain a unified corporate culture.


Staffing Policy

• Ethnocentric Approach (Cont’d)– Firms pursue an ethnocentric staffing policy for

three reasons: (cont’d)3. The firm believes the best way to create value by

transferring core competencies to a foreign operation is to transfer parent-country nationals who have knowledge of that competency to the foreign operation.


Staffing Policy

• Ethnocentric Approach (Cont’d)– The ethnocentric staffing policy is now on the

wane in most international businesses.– There are two reasons for this:

i. An ethnocentric staffing policy limits advancement opportunities for host-country nationals.

ii. An ethnocentric policy can lead to ‘cultural myopia’.


Staffing Policy• Polycentric Approach

– A polycentric staffing policy is one where host-country nationals are recruited to manage subsidiaries in their own country, while parent-country nationals occupy the key positions at corporate headquarters.

– While this approach minimises the dangers of cultural myopia, it also helps create a gap between home- and host-country operations.

– The policy is best suited to firms pursuing a localisation strategy.


Staffing Policy• Polycentric Approach (Cont’d)

– There are two advantages to the polycentric approach:i. The firm is less likely to suffer from cultural myopia.

ii. This staffing approach may be less expensive to implement than an ethnocentric policy.


Staffing Policy

• Polycentric Approach (Cont’d)– There are two disadvantages to the polycentric

approach: i. Host country nationals have limited opportunities to

gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiaries.

ii. A gap can form between host-country managers and parent-country managers.


Staffing Policy

• Geocentric Approach – A geocentric staffing policy is one where the

best people are sought for key jobs throughout the organisation, regardless of nationality.

– This approach is consistent with building a strong, unifying culture and an informal management network.


Staffing Policy• Geocentric Approach (Cont’d)

– This approach makes sense for firms pursuing either a global or a transnational strategy.

– Immigration policies of national governments may limit the ability of a firm to pursue this policy.



– The advantages of a geocentric approach to

staffing include: Enabling the firm to make the best use of its human

resources

Building a cadre of international executives who feel at

home working in a number of different cultures



– The disadvantages of the geocentric approach include: Difficulties with immigration laws Costs associated with implementing the strategy


Staffing Policy

• Comparison of Staffing Approaches


Staffing Policy• Expatriate Managers

– With an ethnocentric policy, the expatriates are all home-country nationals (sometimes described as parent-company nationals) who are transferred abroad.

– With a geocentric approach, the expatriates need not be home-country nationals; the firm does not base transfer decisions on nationality.


Staffing Policy• A prominent issue in the international staffing

literature is expatriate failure.• Expatriate failure is the premature return of an

expatriate manager to his or her home country.• Expatriate Failure Rates

– Expatriate failure represents a failure of the firm’s selection policies to identify individuals who will not thrive abroad.


Staffing Policy• Expatriate Failure Rates (Cont’d)

– The consequences include premature return from a foreign posting and high resignation rates, with expatriates leaving their company at about twice the rate of domestic managers.

– The average cost per failure to the parent firm can be as high as three times the expatriate’s annual domestic salary plus the cost of relocation.


Staffing Policy• Expatriate Failure Rates (Cont’d)

– Studies show the main reasons for expatriate failure for Western firms are:

Inability of an expatriate's spouse to adapt to a foreign culture

Inability of the employee to adjust Other family-related reasons The manager’s personal or emotional maturity Inability to cope with larger overseas responsibilities


Staffing Policy• For European firms, only one reason was found to

consistently explain expatriate failure: – Inability of the manager’s spouse to adjust to a new

environment


Staffing Policy• Expatriate Failure Rates


Staffing Policy

• For Japanese firms, the reasons for failure were:– Inability to cope with larger overseas responsibility– Difficulties with the new environment– Personal or emotional problems– A lack of technical competence– Inability of spouse to adjust


Staffing Policy

• Expatriate Selection– Expatriate failure rates can be reduced through improved

selection procedures. – Mendenhall and Oddou identified four dimensions that

predict expatriate success: 1. Self-orientation

2. Others-orientation

3. Perceptual ability

4. Cultural toughness


Staffing Policy

• Expatriate Selection (Cont’d)1. Self-orientation attributes strengthen the expatriate's self-

esteem, self-confidence and mental well-being.

2. Others orientation refers to how the attributes of this dimension enhance the expatriate’s ability to interact effectively with host-country nationals.


Staffing Policy• Expatriate Selection (Cont’d)

3. Perceptual ability refers to the ability to understand why people of other countries behave the way they do.

4. Cultural toughness refers to the fact that the success with which an expatriate adjusts to a particular posting tends to be related to the country of assignment.


Training and Management Development

• Training begins where selection ends and it focuses upon preparing the manager for a specific job.

• Management development is concerned with developing the skills of the manager over the course of his or her career with the firm.



• Training for Expatriate Managers – Cultural training, language training and practical training

have all been shown to reduce expatriate failure.– Yet, according to one study only about 30% of managers

sent on one- to five-year expatriate assignments received training before their departure.



• Training for Expatriate Managers (Cont’d)– Cultural Training

Cultural training seeks to foster an appreciation for the host country's culture.

– Language Training An exclusive reliance on English diminishes an expatriate

manager's ability to interact with host country nationals.



• Training for Expatriate Managers (Cont’d)– Practical Training

Practical training helps the expatriate manager and his or

her family ease themselves into day-to-day life in the host

country.



• Repatriation of Expatriates – A critically important issue in the training and development

of expatriate managers is to prepare them for re-entry into their home country organisation.

– The HRM function needs to develop a good program for re-integrating expatriates back into work life within their home country organisation once their foreign assignment is over, and for utilising the knowledge they acquired while abroad.



• Management Development and Strategy – Management development programs increase the overall

skill levels of managers through a mix of ongoing

management education and rotations of managers

through jobs within the firm to give them varied

experiences.



• Management Development and Strategy (Cont’d)

– Management development is often used as a strategic

tool to build a strong unifying culture and informal

management network, both of which are supportive of a

transnational and global strategy.


Performance Appraisal

• Performance Appraisal Problems– In most cases, two groups evaluate the performance of

expatriate managers — host-nation managers and home-office managers — and both 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.


Performance Appraisal• Guidelines for Performance Appraisal

– To reduce bias in performance appraisal: Most expatriates believe 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

could be involved in the appraisal process to help reduce

bias.


Performance Appraisal• Guidelines for Performance Appraisal

– To reduce bias in performance appraisal: (cont’d) When the policy is for foreign on-site mangers to write

performance evaluations, home-office managers should

probably be consulted before an on-site manager

completes a formal termination evaluation.


Compensation

• National Differences in Compensation

– Should firms pay executives in different countries

according to the prevailing standards in each country, or

should they equalise pay on a global basis?


Compensation

• Expatriate Pay – The most common approach to expatriate pay is the

balance sheet approach.

– This approach equalises purchasing power across

countries so employees can enjoy the same standard in

their foreign posting as they enjoyed at home.


Compensation• The Balance Sheet


Compensation

• The components of the typical expatriate

compensation package are: – Base salary

– A foreign service premium

– Allowances of various types

– Tax differentials

– Benefits


Compensation

• Base Salary– An expatriate’s base salary is normally in the same range

as the base salary for a similar position in the home country.

• Foreign Service Premium– A foreign service premium is extra pay the expatriate

receives for working outside his or her country of origin.– It is offered as an inducement to accept foreign postings.


Compensation

• Allowances• Four types of allowances are often included in an

expatriate’s compensation package: 1. Hardship allowances

2. Housing allowances

3. Cost-of-living allowances

4. Education allowances


Compensation

• Taxation– Unless a host country has a reciprocal tax treaty with the

expatriate’s home country, the expatriate may have to pay income tax to both the home-country and host-country governments.

– When a reciprocal tax treaty is not in force, the firm typically pays the expatriate’s income tax in the host country.


Compensation• Benefits

– Many firms also ensure that their expatriates receive the same level of medical and pension benefits abroad that they received at home.

– This can be costly for the firm, since many benefits that are tax deductible for the firm in the home country (e.g. medical and superannuation benefits) may not be deductible out of the country.


International Labour Relations

• A key issue in international labour relations is the degree to which organised labour is able to limit the choices available to an international business.

• A firm's ability to pursue a transnational or global strategy can be significantly constrained by the actions of labour unions.



• Concerns of Organised Labour– A principal concern of organised labour is that the

multinational can counter union bargaining power by

threatening to move production to another country.

– Another concern is that multinationals will try to import and

impose unfamiliar labour practices from other countries.



• Strategy of Organised Labour– Organised labour has responded to the increased

bargaining power of multinational corporations by: trying to set up their own international organisations lobbying for national legislation to restrict multinationals trying to achieve regulation of multinationals through

international organisations such as the United Nations



• Approaches to Labour Relations– Traditionally labour relations has been decentralised to

individual subsidiaries within multinationals.– Now there is a trend towards greater centralisation to

enhance the bargaining power of the multinational vis-à-vis organised labour.

– There is a growing realisation that the way in which work is organised within a plant can be a major source of competitive advantage.


Summary of Main Themes

• This chapter focused on human resource management in international businesses.

• HRM activities include human resource strategy, staffing, performance evaluation, management development,

compensation and labour relations.• None of these activities is performed in a vacuum; all must

be appropriate to the firm’s strategy.

14-1 copyright 2007 mcgraw-hill australia pty ltd ppts t/a global business today 1e by hill. slides...

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