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chapter 18international human resource management and labor relations

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Chapter main elements

• the Strategic Role of International HRM

• Staffing Policy

• Training and mgt development

• Performance appraisal

• Compensation

• International labor relations

The strategic role of HRM

• Research says that profitability requires a strong fit between HR practices and strategy.

• Look at figure 19.1 you find that people are in the center. The culture and the incentive systems are very much related.

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The strategic role of HRM

• Competitive advantage can be obtained through people.

• People need to be selected developed and trained, and retained. This is the strategic role of the HRM and to align this with the enterprise strategy.

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The strategic role of HRM

• How do we align strategy with HRM?

• Localization strategy must be aligned with quality HRM strategy.

• Global strategy – experience curve and location economies.

• Transnational strategy- requires different alignment.

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The strategic role of HRM

• Transnational strategy requires strong corporate culture and informal mgt network for transmitting information and knowledge within the org.

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Staffing policy

• Some times called recruitment policy: the selection of employees for a particular job.

• But staffing policy can also manage the corporate culture- norms and value system. Strong corporate culture can help implement the strategy of the firm.

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Staffing policy

• At GE candidates are accepted according to their behavioural styles, beliefs, and value system that are consistent with GE.

• Some researchers find that you can bring ordinary people but the smart thing is in managing them to get an extraordinary outcomes.

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Types of staffing policy

1- the ethnocentric approach: home country nationals.

Why

1- lack of qualified individuals at host country.

2- a way to keep a unified corporate culture

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Types of staffing policy

• 3- transferring core competencies to a foreign operation which requires transferring parent country nationals. Example, transferring Mkt competencies. Tacit knowledge cannot be transferred.

• Some countries like the expatriates for their know-how and think that they could me more professional than locals

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Types of staffing policy

• 2- the polycentric approach- requires host country nationals to be recruited to manage subsidiaries.

This approach is less expensive and avoids cultural misunderstandings.

More adaptive and responsive to local needs and culture.

Drawback: the gap between home and host country

managers in language and competencies.

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Types of staffing policy

• Drawback of Polycentric approach: the gap between home and host country managers in language and competencies.

• This approach is good for a localization strategy. Not any other strategy.

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Types of staffing policy

• The third approach: Geocentric: seeks the best people for key jobs throughout the organization regardless of nationality. See the opening case. Good for global standardisation and transnational strategies.

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Types of staffing policy

• Geocentric seems to be most attractive strategy.

• Tata Group US and UK managers.

• Sony in 2005 hired Howard Stringer a former president of CBS.

• One study: 24% of the top 100-250 managers in US companies are from outside US

• European companies: 40% from outside Europe.

• Can you apply this approach here in KSA.

• Which approach is available. You can add this in your project. See table 18.1

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Types of staffing policy

• Look at expatriate failure rates in Figure 18.2

• Fail to adjust, family, weather, culture....etc.

• Is it a selection failure?

• Cost of return expatriates is high.

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Types of staffing policy

To solve the above problem:

Be extra careful in selection.

Four dimensions to predict success in foreign posting.

1. Self-orientation- adjust the self

2. Others-orientation- adjust with others- social dimension.

3. Perceptual ability- understand that others are different.

4. Cultural toughness – related to the toughness of the posting and the posting is culture-related. Working conditions in India are different than Canada for example.

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Types of staffing policy

• Do you have a global mindset?

If so this means you can adjust.

Open to the world?

In the selection stage, we have to test managers ability to have this global mind set. Selecting people just based on their technical expertise is not adequate.

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Second Training and Mgt development

• Training for expatriate managers

1.Cultural training

2.Language training

3.Practical training

Repatriation- prepare for re-entry into their home-country org.

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Second Training and Mgt development

• Mgt development and strategy.

• Very important for the transnational strategy and the need for local responsiveness.

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Performance Appraisals

• You need to be very careful in evaluating expatriates performance

Don't ask employees for help in India!

It will affect your evaluation.

Bias is a big problem

Performance evaluation must be objective with clear guidelines and criteria.

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Compensation

• National differences

• Expatriate pay

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International labour relations

• Organized labour

• The strategy

• Approaches to labour relations

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Chapter Objectives 2

• Discuss how international firms conduct performance appraisals and determine compensation for their expatriate managers

• Analyze retention and turnover issues in international business

• Explain basic human resource issues involving nonmanagerial employees

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Human Resource Management

• HRM is the set of activities directed at attracting, developing, and maintaining the effective workforce necessary to achieve a firm’s objectives.

• This chapter deals with HRM activities as they primarily apply to managers in the company with international operations.

•

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IHRM process 2

• HRM is more difficult for the international company than for domestic companies.

• Differences in cultural, legal, economic, ..etc are responsible for that.

• These forces may force companies to customize its hrm. practices.

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Strategic Significance of HRM

• Research indicates that there is positive relationship between HRM processes and performance.

• HRM strategy should be designed in a way that promotes overall corporate strategy and business strategies.

• For instance, if the company is using a cost leadership strategy it may shift production to a low-cost labor country.

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Figure 20.1 The International Human Resource Management Process

HRM’s Strategic Content

Recruitment and Selection

Training and Development

Performance Appraisal

Compensation and Benefits

Labor Relations

Contribution to Organizational Effectiveness

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International Staffing Needs

• Staffing is related to the process by which the company assigns the most appropriate candidate.

• Strategic and developmental issues are more important for managerial employees whereas cultural and legal conditions may be of greater importance for nonmanagerial workers.

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International Staffing Needs

Managerial/Executiveemployees

Nonmanagerial employees

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Scope of Internationalization

• Type of the organization structure depends on level of international involvement.

• For instance, the company is likely to have an export department at the beginning. The manager is likely to be a citizen of the home country.

• As the firm grows it is likely to have an international division. Then global organization.

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Scope of Internationalization

Export department

Global organization

International division

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Centralization versus Decentralization of Control

• Firms can use centralized or decentralized approach

• Centralized firms

– Favor home country managers

– Most common amongst international division form

• Decentralized firms

– Favor host country managers

– Most common amongst multidomestic firms

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Staffing Philosophy

Parent country nationals

(PCN)

Third countryNationals

(TNC)

Host countryNationals

(HCN)

PCNs

• Are residents of the international business’s home country who are transferred to one of its foreign operations.

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Advantage of the PNCs

• Communications and coordination with corporate headquarters is typically facilitated when PCNs are employed because they normally share a common culture and education background with headquarters’ staff.

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Disadvantage of PCNs

• PCNs may, however, lack knowledge of local laws, culture, economic conditions, social structure, and political processes. Moreover, they may be expensive to relocate and maintain in the host country. In addition, because a host country may impose restrictions on the number of employees that can be transferred, a company may not have the freedom to hire whom it wants.

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HCNs

• Host country nationals (HCNs) are residents of the host country, and are the most common choice for mid-level and lower-level jobs. But they also appear in managerial and professional positions.

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Advantage of HCNs

• Employing HCNs is popular because they are already familiar with local laws, culture, and economic conditions.

• HCNs may be cheaper than PCNs because a firm can avoid the costs such as relocation expenses that are associated with PCNs.

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Disadvantage of HCNs

• because an HCN may not be familiar with the firm’s corporate culture nor its business practices, a company could lose out on opportunities.

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TCNs

• Third country nationals (TCNs) are citizens of neither the firm’s home country nor of the host country.

• TCNs are most likely to be employed in upper-level or technical positions.

• TCNs and PCNs are collectively known as expatriates (people working and residing in countries other than their native country).

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Strategies for Staffing

• Ethnocentric staffing model : It fills all key management positions with home-country nationals.

• Polycentric staffing model: HCNs are used upon the belief that HCNs know the local market best.

• Geocentric staffing model: firms that want to hire the most qualified person for the job, regardless of the individual’s nationality.

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Recruitment and Selection

• The firm must define the business skills necessary to do the job.

• Skills can be divided into two types: those needed to do the job and those needed to work in a foreign market.

• The technical skill is an example of the first and adaptation is an example of the second.

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Figure 20.2 Necessary Skills and Abilities for International Managers

Skills and AbilitiesNecessary to Do

the Job

•Technical•Functional•Managerial

Skills and AbilitiesNecessary to Work

in a Foreign Location

•Adaptability•Location-specific skills

•Personal characteristics

Improved Chances of Succeeding inan International Job Assignment

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Recruitment of Managers

• Once skills are determined a pool of qualified applicants should be developed to select from.

• Companies may recruit those who have previous experience in the firm or somewhere else.

• Or the company may recruit new college graduates and prepare them for overseas assignments.

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Recruitment of Managers

ExperiencedManagers

Experienced managers can be recruited from within the firm

itself or from other firms.

Younger Managers

Hiring graduates with the intention of sending them abroad in the future.

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Selection

• Once the pool is developed we must decide which persons from the pool are qualified.

• Most promising candidates tend to have/be

• Managerial competence, Appropriate training, Adaptive.

• Appropriate training(education,knowledge..etc)

• Adaptability of new situations

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Selection 2

• Selection is important because failure is costly.

• Expatriate failure is the early return of the expatriate mangers to the home country.

• Expatriate failure is caused by:

• Inability of the manager or the spouse to adjust to the new life.

• Lack of motivation and interest in the foreign assignment.

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Expatriation and Repatriation issues

• Expatriates may experience a culture shock.

• It is the frustration that results when having to learn and cope with a vast array of cultural cues and expectations.

• When the manager is brought back home after a foreign assignment is completed(repatriation) he might experience a reverse culture shock.

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Figure 20.3 Phases in Acculturation

Honeymoon

Disillusionment

Adaptation

Biculturalism

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Honeymoon Phase

• New culture seems exotic and stimulating

• Excitement of working in new environment makes employee overestimate ease of adjusting

• Lasts for first few days or months

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Disillusionment Phase

• Differences between new and old environments are blown out of proportion

• Challenges of everyday living

• Many stay stuck in this phase

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Adaptation Phase

• Employee begins to understand patterns of new culture

• Gains language competence

• Adjusts to everyday living

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Biculturalism

• Anxiety has ended

• Employee gains confidence in ability to function productively in new culture

• Repatriation may be difficult

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Overseas Success

• Likelihood of managers being successful at overseas assignment increases if the managers– Can freely choose whether to accept or reject the

assignment

– Have been given a realistic preview of the job and assignment

– Have been given a realistic expectation of what their repatriation assignment will be

– Have a mentor back home who will guard their interests and provide support

– See a clear link between the expatriate assignment and their long-term career path

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Compensation• To be competitive firms should provide

prevailing compensation packages for their managers.

• The packages usually include salary and non-salary items.

• Factors that determine compensation include:

• Supply and demand forces.

• Standard of living

• Occupational stutas

• Regulations and taxes

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Compensation 2• MNCs find it necessary to provide expatriate

managers with compensation that makes up the differences in currency valuation, standard of living..etc.

• This adjustment is important when a manager is transferred from low-cost country or location to high-cost location.

• In addition to the base salary other allowances or components of the compensation package are included(next slide).

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Compensation Packages

Cost-of-living allowancemay be given to managers to offset differences

in the cost of living in the home and host countries.

Hardship premiummay be paid to mangers that accept assignments

in relatively unattractive locations.

Tax equalization systemmeans of ensuring that the expatriate’s after-tax

income in the host country is similar to what the person’s after-tax income would be in the home country.