Chapter 9

International Human
Resource Management

McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
18-2


What Is Human
Resource Management?
 Human resource management (HRM)
refers to the activities an organization
carries out to utilize its human resources
effectively
 These activities include
 determining the firm's human resource
strategy
 staffing
 performance evaluation
 management development
 compensation
 labor relations
 Firms need to ensure there is a fit
between their human resources practices
and strategy
18-3


What Is The Strategic Role Of HRM
In International Firms?

 HRM can help the firm reduce the costs of

value creation and add value by better
serving customer needs
 more complex in an international business
 differences between countries in labor markets,
culture, legal systems, economic systems, etc.
 HRM must also 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
18-4


What Is The Strategic Role Of HRM
In International Firms?

The Role of Human Resources in Shaping Organizational

Architecture
18-5


What Is A Staffing Policy?

 A firm’s staffing policy is concerned with

the selection of employees who have the
skills required to perform a particular job
 can be a tool for developing an promoting the
firm’s corporate culture - the organization’s
norms and value system
 a strong corporate culture can help the firm
implement its strategy
 There are three main approaches to staffing
policy within international businesses
1. The ethnocentric approach
2. The polycentric approach
3. The geocentric approach
18-6


What Is An Ethnocentric Staffing
Policy?

 The ethnocentric approach to staffing fills key

management positions with parent-country nationals
 makes sense for firms with an international strategy
 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
 But
 it limits advancement opportunities for host country nationals
 it can lead to "cultural myopia"
18-7


What Is A Polycentric
Staffing Policy?
 The polycentric approach recruits host
country nationals to manage subsidiaries in
their own country, and parent country
nationals for positions at headquarters
 makes sense for firms pursuing a localization
strategy
 can minimize cultural myopia
 may be less expensive to implement than an
ethnocentric policy
 But
 host country nationals have limited opportunities to
gain experience outside their own country and so
cannot progress beyond senior positions in their
own subsidiaries
 a gap can form between host country managers
and parent country managers
18-8


What Is A Geocentric
Staffing Policy?

 The geocentric approach seeks the best

people, regardless of nationality for key jobs
 consistent with building a strong unifying culture
and informal management network
 makes sense for firms pursuing a global or
transnational strategy
 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
 But
 can be limited by immigration laws
 is costly to implement
18-9


Which Staffing Policy Is Best?

Comparison of Staffing Approaches

18-10


What Is Expatriate Failure?

 Firms using an ethnocentric or geocentric

staffing strategy will have expatriate managers
 Expatriate failure is the premature return of
an expatriate manager to the home country
 each expatriate failure can cost between $250,000
and $1 million
 between 16 and 40% of all American expatriates in
developed countries fail and almost 70% of
Americans assigned to developing countries fail
18-11


What Is The Rate Of
Expatriate Failure?

Expatriate Failure Rates

18-12


Why Do
Expatriate Managers Fail?

 The main reasons for U.S. expatriate failure are

 the inability of an expatriate's spouse to adapt
 the manager’s inability to adjust
 other family-related reasons
 the manager’s personal or emotional maturity
 the manager’s inability to cope with larger overseas
responsibilities
 The reason for European expatriate failure is
 the inability of the manager’s spouse to adjust
 The main reasons for Japanese expatriate failure are
 the inability to cope with larger overseas responsibility
 difficulties with the new environment
 personal or emotional problems
 a lack of technical competence
 the inability of spouse to adjust
18-13


How Can Firms Reduce Expatriate
Failure?

 Firms can reduce expatriate failure through

improved selection procedures
 Four dimensions that predict expatriate
success are
1. Self-orientation - the expatriate's self-
esteem, self-confidence, and mental well-
being
2. Others-orientation - the ability to interact
effectively with host-country nationals
3. Perceptual ability - the ability to understand
why people of other countries behave the
way they do
4. Cultural toughness – the ability to adjust to
the posting
18-14


Why Is A
Global Mindset Important?

 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
18-15


What Is Training And 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
 Management development is
concerned with developing the skills of
the manager over his or her career
with the firm
 gives the manager a skill set and reinforces
organizational culture
 Historically, most firms focus more on
training than on management
development
18-16


Why Is Training Important For
Expatriate Managers?
 Training can reduce expatriate failure
 Cultural training - fosters an appreciation
for the host country's culture
 Language training - an exclusive reliance
on English diminishes an expatriate's
ability to interact with host country
nationals
 Practical training - helps the expatriate
and her family ease themselves into day-
to-day life in the host country
 But, studies show only about 30% of
managers sent on one- to five-year
expatriate assignments received training
before their departure
18-17


What Happens When Expatriates
Return Home?

 Training and development should include preparing

and developing expatriate managers for reentry into
their home country organization
 need good programs for re-integrating expatriates
back into work life within their home country
organization and for utilizing the knowledge they
acquired while abroad
18-18


Why Is Management
Development Important To
Firm Strategy?
 Management development programs increase
the overall skill levels of managers 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, both of which
are supportive of a transnational and global
strategy
18-19


How Should
Expatriates Be Evaluated?

 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
18-20


How Can Performance Appraisal
Bias Be Reduced?

 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
 home office managers should be consulted before an
on-site manager completes a formal termination
evaluation
18-21


What Are The Key Issues In
Compensating Expatriates?

 Two key issues on compensation

1. How to adjust compensation to reflect
differences in economic circumstances and
compensation practices
2. How to pay expatriate managers
18-22

 How Should National

Differences In
Compensation Be Treated?
 Currently, there are substantial differences in
executive compensation across countries
 a top U.S. executive made an average of $525,923
in the 2005-2006 period, compared to $237,697 in
Japan, and $158,146 in Taiwan
 Question: Should pay be equalized across
countries?
 Many firms have recently moved toward a
compensation structure that is based on global
standards
 especially important in firms with a geocentric
staffing policy
 But, most firms still set pay according to the
prevailing standards in each country
18-23


How Should
Expatriates Be Paid?

 Most firms use the balance sheet approach

- equalizes purchasing power across
countries so employees have the same living
standard in their foreign posting as at home
 A compensation package has five
components
1. 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
2. Foreign service premium - extra pay the
expatriate receives for working outside his
country of origin
 generally offered as an incentive to accept
foreign assignments
18-24


How Should
Expatriates Be Paid?

3. Various allowances - hardship,

housing, cost-of-living, education
4. Tax differentials - may have to pay
income tax to both the home
country and the host-country
governments if the host country
does not have a reciprocal tax treaty
with the expatriate’s home country
 company usually covers extra tax
assessments
5. Benefits – many firms provide the
same level of medical and pension
benefits abroad that employees
receive at home
18-25


Why Are International Labor
Relations Important?

 Question: Can organized labor limit the choices

available to an international business?
 Labor unions can limit a firm's ability to pursue a
transnational or global strategy
 HRM needs to foster harmony and minimize conflict
between management and organized labor
18-26


What Are The Concerns Of
Organized Labor?

 Organized labor is concerned that

1. Multinationals can counter union
bargaining power by threatening to move
production to another country
2. Multinationals will farm out only low-
skilled jobs to foreign plants making it
easier to switch production locations
3. Multinationals will import employment
practices and contractual agreements
from their home countries and reduce
the influence of unions
18-27


How Does Organized Labor
Respond To MNC Power?

 Organized labor has responded to the

increased bargaining power of multinational
corporations by
1. Trying to set-up their own international
organizations
2. Lobbying for national legislation to restrict
multinationals
3. Trying to achieve regulation of multinationals
through international organizations such as the
United Nations
 So far, these efforts have had only limited
success
18-28


How Are MNCs Responding To
Organized Labor?

 Many firms are centralizing labor relations

to enhance the bargaining power of the
multinational vis-à-vis organized labor
 in the past, labor relations were usually
decentralized to individual subsidiaries
 The way in which work is organized within
a plant can be a major source of
competitive advantage so it is important
for management to have a good
relationship with labor