Chapter 3IHRM: Sustaining International Business Operations

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Chapter ObjectivesIssues related to various approaches to staffing foreign operations;Reasons for using international assignments: position filling, management development and organizational development;(cont.)The previous two chapters have concentrated on the global environment and organizational contexts. We now focus on the managing people aspect. The aim is to establish the role of HRM in sustaining international business operations and growth. We will cover the following:

IBUS 618 Dr. Yang

Chapter Objectives (cont.)Various types of international assignments: Standard assignments: Short-term, extended, and longer-term; Non-standard arrangements: Commuter, rotator, contractual, and virtual.The role of expatriates and non-expatriates (international business travellers) in supporting international business activitiesThe role of the corporate HR functions

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Approaches to StaffingFactors affecting approaches to staffingGeneral staffing policy on key positions at headquarters and subsidiariesConstraints placed by host governmentStaff availabilityEthnocentricPolycentricGeocentricRegiocentric

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Ethnocentric Strategic decisions are made at headquarters;Limited subsidiary autonomy;Key positions in domestic and foreign operations are held by headquarters personnel; PCNs manage subsidiaries.

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PolycentricEach subsidiary is a distinct national entity with some decision-making autonomy;HCNs manage subsidiaries who are seldom promoted to HQ positions;PCNs rarely transferred to subsidiary positions.

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GeocentricA 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 development.

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Geocentric Staffing Requirements

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RegiocentricReflects 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.

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Ethnocentric ApproachAdvantages:To ensure new subsidiary complies with overall corporate objectives and policiesHas the required level of competenceAssignments as controlDisadvantages:Limits the promotion opportunities of HCNs, leading to reduced productivity and increased turnover among the HCNsLonger time for PCNs to adapt to host countries, leading to errors and poor decisions being madeHigh costConsiderable income gap, high authority, and increased standard of living may relate to lack of sensitivity

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Polycentric ApproachAdvantages:Employment of HCNs eliminates language barriers, avoids adaptation of PCNs, reduces the need for cultural awareness training programsEmployment of HCNs allows a multinational company to take a lower profile in sensitive political situationsEmployment of HCNs is less expensiveEmployment of HCNs gives continuity to the management of foreign subsidiaries (lower turnover of key managers)

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Polycentric ApproachDisadvantages: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 countryPCN managers have limited opportunities to gain international experienceResource allocation and strategic decision making will be constrained when headquarter is filled only by PCNs who have limited exposure to international assignment

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Geocentric ApproachAdvantages:Ability of the firm to develop an international executive teamOvercomes the federation drawback of the polycentric approachSupport cooperation and resource sharing across unitsDisadvantage:Host government may use immigration controls in order to increase HCNs employmentExpensive to implement due to increased training and relocation costsLarge numbers of PCNs, HCNs, and TCNs need to be sent across bordersReduced independence of subsidiary management

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Regiocentric ApproachAdvantages:Allow interaction between executives transferred to regional headquarters from subsidiaries in the region and PCNs posted to the regional headquartersProvide some sensitivity to local conditionsHelp the firm to move from a purely ethnocentric or polycentric approach to a geocentric approachDisadvantages:Produce federalism at a regional rather than a country basis and constrain the firm from taking a global stanceStaffs career advancement still limited to regional headquarters, not the parent country headquarters

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Parent-Country NationalsAdvantagesOrganizational control and coordination is maintained.Rising stars are given international experience.PCNs may be the best people for the specific job due to special skills and experience.An assurance that the subsidiary will comply with company objectives & policies.DisadvantagesPromotional opportunities of HCNs are limited.Time and performance costs associated with adaptation to the host country.PCNs may impose an inappropriate HQ style.Compensation for PCNs and HCNs may differ.

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Host-Country NationalsAdvantagesLanguage and other barrier eliminatedReduced hiring costsContinuity of managementGovernment policy may require hiring HCNsPossible increased morale because of increased career potentialDisadvantagesHiring of HCNs may encourage a federation of national rather than global unitsHCNs have limited career opportunity outside the subsidiaryControl and coordination of HQ may be impededHiring HCNs limits opportunities for PCNs to gain foreign experience

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Third-Country NationalsAdvantagesSalary and benefit requirements may be lower than for PCNs.TCNs may be better informed than PCNs about host-country environment.DisadvantagesTransfers must consider national animosities.Host government may resent hiring TCNs.TCNs may not want to return to their own countries after assignment.

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Determinants of IHRM Approaches and Activities

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Reasons for International AssignmentsPosition filling, e.g. Skills gap, launch of new endeavor, technology transferManagement developmentTraining and development purposes, assisting in developing common corporate valuesOrganizational developmentNeed for control, transfer of knowledge, competence, procedures and practices

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Types of International AssignmentsShort term: up to 3 monthsTroubleshootingProject supervisionA stopgap until a permanent arrangement is foundExtended: up to 1 yearMay involve similar activities as short-term assignmentsLong termVaries from 1 to 5 yearsThe traditional expatriate assignment

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Non-standard AssignmentsCommuter assignmentsRotational assignmentsContractual assignmentsVirtual assignmentsSome of these arrangements assist in overcoming the high cost of international assignments but are not always effective substitutes for the traditional expatriate assignment.

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Factors Influencing Virtual Assignments

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Roles of an ExpatriateAgent of direct controlAgent of socializationNetwork builderBoundary spannerLanguage nodeTransfer of competence and knowledgeA Simple Management NetworkInformal contacts between managers within a MNE

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The Role of Non-expatriatesPeople who travel internationally yet are not considered expatriates as they do not relocate to another countryRoad warriors, globetrotters, frequent fliersMuch of international business involves visits to foreign locations, e.g. Sales staff attending trade fairsPeriodic visits to foreign operations

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A Glamorous LifeInternational business travelers cite the positives as:Excitement and thrills of conducting business deals in foreign locationsLife style (top hotels, duty-free shopping, business class travel)General exotic nature

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But a High Level of Stress!Home and family issuesFrequent absences Work arrangementsDomestic side of position still has to be attended toTravel logisticswaiting in airports, etc.Health concernsPoor diet, lack of sleep, etc.Host culture issuesLimited cultural training

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Various Roles of Corporate HR

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The Role of the Corporate HR FunctionCan we manage our people like a global product, e.g., the feasibility of:The concept of a global internal labor marketStandardization of work practices and HR activitiesWhat HR matters require central control and what can be decentralized?

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Chapter SummaryLooked at the various approaches to staffing international operations ethnocentric, polycentric, geocentric and regiocentric examining their advantages and disadvantages and factors that may determine the choice of these options.Considered the reasons for using international assignments: position filling, management development and organization development.(cont.)This chapter has expanded on the role of IHRM in sustaining international business operations. We have:

IBUS 618 Dr. Yang

Chapter Summary (cont.)Discussed the various types of international assignments: short, extended and long-term (traditional); and non-standard forms such as commuter, rotational, contractual and virtual assignments.Examined the various roles of the expatriate: as an agent for direct control, as an agent for socialization, as network builders, as boundary spanners and as language nodes. These various roles of the expatriate help to explain why expatriates are utilized and illustrates why international assignments continue to be an important aspect of international business from the organizations perspective. (cont.)

IBUS 618 Dr. Yang

Chapter Summary (cont.)Recognized that non-expatriates are also critical to international business operations. International business travellers present their own challenges, such as the effect of frequent absences on family and home life, the possible negative health effects and other stress factors. The management of such individuals, however, does not appear to fall within the domain of the HR department.Looked at the role of the corporate HR function as the firm grows internationally, building on sections from Chapters 1 and 2.

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