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Global Human Resource Management

 Learning Objectives
LO 17-1 Summarize the strategic role of human resource management
in the international business.
LO 17-2 Identify the pros and cons of different approaches to staffing
policy in the international business.
LO 17-3 Recognize how management development and training
programs can increase the value of human capital in the
international business firm.
LO 17-4 Explain how and why performance appraisal systems might vary
across nations.
LO 17-5 Understand how and why compensation systems might vary
across nations.
LO 17-6 Understand how organized labor can influence strategic choices
in international business firms.
 Introduction 1 of 2
Human resource management (HRM)
 The activities an organization carries out to utilize its
human resources effectively
 Determining human resource strategy
 Staffing: Recruiting and selecting
 Training & Management development
 Performance evaluation
 Compensation
 Labor relations
 Introduction 2 of 2
HRM is more complex in an international business
because of differences between countries in labor
markets, culture, legal systems, economic systems,
etc.
 International HRM also deals with issues related to
expatriate managers (citizens of one country working
abroad)
 When to use expatriates
 Who to send on expatriate postings
 How expatriates should be compensated
 How to handle the repatriation of expatriates
 Strategic Role of Global HRM

Strategy is implemented through organization

 People are the linchpin to the firm’s organizational
architecture
 Superior human resource management can be a sustained
source of high productivity and competitive advantage in a
global economy
Success in international business requires that HRM
policies be congruent with the firm’s strategy
 Staffing Policy 2 of 11
Types of Staffing Policies
 The ethnocentric approach: key management positions
are filled by parent-country nationals
 The polycentric approach: host country nationals manage
local subsidiaries and parent country nationals hold
positions at HQ
 The geocentric approach: the best people are sought for
key jobs throughout the organization, regardless of their
nationality
 The most attractive policy is the geocentric approach, however
it is not always easy to implement
 Staffing Policy 3 of 11
Types of Staffing Policies continued
 The Ethnocentric Approach: makes sense for firms with an
international strategy
 Attractive when:
 There is a lack of qualified individuals in the host country to
fill senior management positions
 A unified corporate culture is desired
 The firm wants to transfer knowledge of core competencies
to the foreign operation
 Unattractive because:
 It limits the advancement of host country nationals
 It can lead to cultural myopia
 Staffing Policy 4 of 11
Types of Staffing Policies continued
 The Polycentric Approach: best suited to firms pursuing a
localization strategy
 Minimizes the dangers of cultural myopia, but can create a gap
between home and host country operations
 Attractive because:
 The firm is less likely to suffer from cultural myopia
 It may be less expensive to implement
 Unattractive because:
 Host country nationals do not gain foreign experience and
cannot progress beyond senior positions in their own
subsidiaries
 A gap can form between host country and parent managers
 Staffing Policy 5 of 11
Types of Staffing Policies continued
 The Geocentric Approach: makes sense for firms with
global or transnational strategies
 Consistent with building a strong unifying culture and informal
management network
 Advantages:
 Makes the best use of human resources
 Builds a cadre of international executives who feel at home
working in a number of different cultures
 Disadvantages:
 Difficulties with immigration laws
 Costs associated with implementing the strategy
Table 17.1 Comparison of Staffing Approaches
Staffing Strategic
Approach Appropriateness Advantages Disadvantages

Ethnocentric International Overcomes lack of qualified Produces resentment in

managers in host nation host country

Unifies culture Can lead to cultural myopia

Helps transfer core

competencies

Polycentric Localization Alleviates cultural myopia Limits career mobility

Inexpensive to implement Isolates headquarters from

foreign subsidiaries

Geocentric Global Uses human resources National immigration

standardization and efficiently policies may limit
transnational implementation
Helps build strong culture
and informal management Expensive
networks
 Staffing Policy 6 of 11
Expatriate Managers
 Ethnocentric and geocentric approaches rely on expatriate
managers
 Firms that use expatriates must consider the problem of
expatriate failure: the premature return of an expatriate manager
to the home country
Expatriate Failure Rates
 U.S. firms have higher expatriate failure rates than either
European or Japanese firms
 Research shows that 76% of U.S. MNEs had expatriate failure rates
of 10% or more and 7% had failure rates as high as 20%
 Failure rates may have dropped, but estimates of the cost of
expatriate failure range from $40,000 to $1 million
 Staffing Policy 7 of 11
Expatriate Failure Rates continued
 The main reasons for expatriate failure for U.S. MNEs
 The inability of an expatriate's spouse to adjust
 The inability of the manager to adjust
 Other family problems
 The manager’s personal or emotional maturity
 The inability to cope with larger overseas responsibilities
 Staffing Policy 8 of 11
Expatriate Failure Rates continued
 For European firms, only one reason was found to
consistently explain expatriate failure
 The inability of the manager’s spouse to adjust to a new
environment
 For Japanese firms, the reasons for failure were
 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 a spouse to adjust
 RECRUIT Human Resources

• Recruiting: any activity carried on by the

organization with the primary purpose of
identifying and attracting potential employees.
 Advantages of Internal Sources

1. It generates applicants who are well known to the

organization.
2. These applicants are relatively knowledgeable about the
organization’s vacancies, which minimizes the possibility of
unrealistic job expectations.
3. Filling vacancies through internal recruiting is generally
cheaper and faster than looking outside the organization.
Recruitment Sources: External Sources

Direct applicants

Referrals
Advertisement in newspaper/
magazines
Electronic recruiting

Public employment agencies

Private employment agencies

Colleges and universities

 Selection

The process of choosing from among available applicants the

individuals who are most likely to successfully perform a job

Steps in the Selection Process
Selection Criteria for International Assignments

Making an effective selection decision for an overseas

assignment can prove to be a major problem.

Usually, this decision is based on international selection

criteria, or factors used to choose international managers.

When considering general criteria, typically both technical

and human criteria are considered.
 Adaptability to Cultural Change

Overseas managers must be able to adapt to change—they also need a

degree of cultural toughness.
• Organizations examine a number of characteristics to determine
whether an individual is sufficiently adaptable.
• Examples include work experience, previous overseas travel,
knowledge of foreign languages, and recent immigration or heritage.
• Those best able to deal had developed coping strategies
characterized by socio-cultural and psychological adjustments.

Most organizations
Greater contact with host nationals helps with
require their
cross-cultural adjustment when the person also
overseas managers
possesses the personality trait of openness.
have good physical
• Sociability was directly related to effective and emotional
adjustment. health.
 Age, Experience, and Education

Most MNCs strive for a balance between age and experience.

• There is evidence that younger managers are more eager for
international assignments.
• Although, young people often are the least developed in management
experience and technical skills; lacking real-world experience.
• To gain the desired balance, many firms send both young and
seasoned personnel to the same overseas post.

Many companies consider an academic degree, preferably a graduate

degree, to be of critical importance to an international executive.
• However, universal agreement regarding the ideal type of degree is
nonexistent.
 Language Training

The ability to speak the language of the country in which a manager is

doing business can be extremely valuable.
• One recognized weakness of many MNCs is that they do not give
sufficient attention to the importance of language training.
Traditionally, U.S. managers have done very poorly in the language
area.
• In recent years, expatriates have made an effort to improve
conversational skills.
• In 2015, 63 percent of employees on an international assignment
ultimately learned the local language.
• Sixty-seven percent made an attempt in developed countries, while
only 51 percent of those in developing nations made an attempt.
 Motivation for a Foreign Assignment

Although individuals being sent overseas should have a desire to work

abroad, this usually is not sufficient motivation.
• Candidate must believe in the importance of the job and even have
something of an element of idealism or a sense of mission.
Some experts believe that a desire for adventure or a pioneering spirit
is an acceptable reason for wanting to go overseas.
• Other motivators include the desire to increase one’s chances for
promotion and the opportunity to improve one’s economic status.

Technologies have
And while many may romanticize the expatriate
allowed companies
life, it is clear the travel mystique continues to
to globalize in ways
motivate professionals to desire and seek an
unimaginable in
assignment abroad.
earlier times.
 Spouses and Dependents or Work-Family Issues

If the family is not happy, the manager often performs poorly and may
either be terminated or simply decide to leave the organization.
• Some firms interview both the spouse and the manager before
deciding whether to approve the assignment.
• One popular approach in appraising the family’s suitability for an
overseas assignment is called adaptability screening.
• Unmarried employees are more willing to accept expat assignments.
• Married couples without children are probably the most willing.
• Prior international experience appears associated with willingness.
• Individuals most committed to their careers and to their
organizations are prone to be more willing to work as expatriates.
• Employee and spouse perceptions of organizational support for
expatriates are critical to employee willingness to work overseas.
 Other Considerations

The ability to influence people to act in a particular way—leadership—is

another important criterion in selecting managers for an assignment.
• Many firms look for specific characteristics, such as maturity,
emotional stability, the ability to communicate well, independence,
initiative, creativity, and good health.
Applicants can take steps to prepare themselves for assignments.
• Focus on self-evaluation and general awareness.
• Concentration on activities to be completed before selection.
• The third phase consists of activities to be completed after being
selected for an overseas assignment.
• Attending training sessions, conferring with colleagues, speaking
with expats about the assigned country, or visiting the host country.
 Training & Management Development
• Training focuses upon preparing the manager for a
specific job
• Management development focuses on developing
the skills of the manager over career with the firm
• Traditionally, training has been considered more
important than management development, however
this mindset is beginning to shift
 Training & Management Development
Management Development and Strategy
 Management development programs increase the skill
levels of managers
• Management education
• The rotation of managers through jobs

 Management development is often used as a strategic tool

to build a strong unifying culture and informal
management network
• Both support transnational and global strategies
 Training for Expatriate Managers
Cultural training: seeks to foster an appreciation for the host
country's culture
Language training: improves the effectiveness of managers
and helps them better relate to the foreign country
Practical training: helps the expatriate manager and family
ease into day-to-day life of the host country
 Cross-Cultural
Training
Level 1
• Focuses on the impact of cultural differences and on raising
trainees’ awareness of such differences and their impact on
business outcomes
Level 2
• Aims to get participants to understand how attitudes form
and influence behavior
Level 3
• Provides factual knowledge about the target country
Level 4
• Provides skill building in areas like language and adjustment
and adaptation skills
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 Performance analysis

Supervisor, peer, self-performance reviews

Job-related performance data
Observation by supervisors or other specialists
Interviews with the employee or his or her
supervisor
Tests of things like job knowledge, skills,
and attendance
Attitude surveys
 TOTAL REWARDS

Compen
-sation

Growth Benefits
Total
Rewards

Recog- Work/ life

nition
 Compensation 1 of 5
Two key issues
1. Adjusting compensation to reflect national differences in
economic circumstances and compensation practices
2. How expatriate managers should be paid
 Compensation 2 of 5
National Differences in Compensation
 Firms using a geocentric policy that want to develop an
international cadre of managers must pay executives the
same salary regardless of their country of origin
 If a firm does not equalize pay, it could create resentment
among foreign nationals
 A recent Mercer Management Consulting survey showed
that some 85% of companies in the survey have a global
compensation strategy in place
 Compensation 3 of 5
Expatriate Pay
 The most common approach to expatriate pay is the
balance sheet approach
 Equalizes purchasing power across countries so employees can
have the same standard of living in the foreign country as they do
at home
 Typical compensation packages include
 Base salary
 A foreign service premium
 Allowances of various types
 Benefits
 Tax differentials
 Compensation 4 of 5
Expatriate Pay continued
 Base Salary: normally in the same range as the base salary
for a similar position in the home country
 Foreign Service Premium: extra pay the expatriate
receives for working outside his country of origin
• Offered as an inducement to accept foreign postings
 Allowances:
• Hardship allowances
• Housing allowances
• Cost-of-living allowances
• Education allowances
 Compensation 5 of 5
Expatriate Pay continued
 Benefits: many expatriates receive the same level of
medical and pension benefits abroad that they received
at home
 Taxation: the expatriate may have to pay income tax to
both the home country and the host-country
governments unless a host country has a reciprocal tax
treaty with the expatriate’s home country
• When a reciprocal tax treaty is not in force, the firm typically
pays the expatriate’s income tax in the host country