Chapter 13 (Part 2)

Global Human
Resource
Management
McGraw-Hill/Irwin

Copyright 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

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

International HRM also deals with issues related to

expatriate managers - citizens of one country
working abroad
who
how
how
how

should be sent on foreign assignments

they should be compensated
they should be trained
they should be reoriented when they return home
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The Strategic Role of

HRM in International
Firms

The Role of Human Resources in Shaping Organizational Architecture

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Staffing Policy
A firms 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 firms
corporate culture - the organizations 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
The most attractive policy is the geocentric approach,
however it is not always easy to implement
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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 , this policy is falling out of favor because

it limits advancement opportunities for host country
nationals
it can lead to "cultural myopia"
18-6

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

The advantages of the polycentric policy are

can minimize cultural myopia
may be less expensive to implement than an ethnocentric
policy

The disadvantages of the polycentric policy are that

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
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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
The advantages of a geocentric approach are that it
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
The disadvantages of geocentric approach include
can be limited by immigration laws
is costly to implement
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Types of Staffing Policy

Comparison of Staffing Approaches

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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
U.S. firms have higher expatriate failure rates than
either European or Japanese firms
each expatriate failure can cost between $250,000
and $1 million
between 16-40% of all American expatriates in
developed countries fail and almost 70% of
Americans assigned to developing countries fail

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The Rate of
Expatriate Failure

Expatriate Failure Rates

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Why do Expatriate
Managers Fail?
The main reasons for U.S. expatriate failure are
the inability of an expatriate's spouse to adapt
the managers inability to adjust
other family-related reasons
the managers personal or emotional maturity
the managers inability to cope with larger overseas
responsibilities
The reason for European expatriate failure is
the inability of the managers 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
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How can Firms Reduce

Expatriate Failure?
Firms can reduce expatriate failure through
improved selection procedures
Mendenhall and Oddou identified four dimensions
that predict expatriate success
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 a
particular posting
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Global Mindset
Some experts believe that a global mindset
(one that is characterized by cognitive
complexity and a cosmopolitan outlook)
is essential to the success of global managers
A global mindset is often acquired early in life
from
a family that is bicultural
living experience in foreign countries
learning foreign languages as a regular part of
family life

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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
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Training 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
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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
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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
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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
home office managers should be consulted
before an on-site manager completes a
formal termination evaluation
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Compensation
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

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National Differences in
Compensation
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
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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
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How should Expatriates be

Paid?
3. Various allowances - hardship, housing, cost-ofliving, 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 expatriates home
country
company usually covers extra tax assessments
when a reciprocal tax treaty is not in force, the
firm typically pays the expatriates income tax in
the host country

5. Benefits many firms provide the same level of

medical and pension benefits abroad that
employees receive at home
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International Labor
Relations
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
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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

18-25

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

18-26

How are MNCs

Responding to Organized
Labor?
Many firms are centralizing labor relations
to enhance the bargaining power of the
multinational vis--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
18-27

End of Lecture

All The Best in Your Final Exam and in Your Future

Life
Our final exam is scheduled:
1. Day/date: 27 December 2012 (Thursday)
2. Time: from 9.00-11.30 morning
3. Venue: at DMS UUM

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