International Human Resources Management

ObjectivesAfter studying this chapter, you should be able to: • Identify the types of organizational forms used for competing internationally. • Explain the economic, political-legal, and cultural factors in different countries that HR managers need to consider. • Explain how domestic and international HRM differ. • Discuss the staffing process for individuals working internationally. • Identify the unique training needs for international assignees and their employees. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Objectives (cont’d)After studying this chapter, you should be able to: • Identify the characteristics of a good international compensation plan. • Reconcile the difficulties of home- and host-country performance appraisals. • Explain how labour relations differ around the world. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Increasing Importance of Global Human Resource Understanding International Mergers and Acquisitions Importance of Global Human Resources Management Foreign Human Resources Global Competition Market Access Opportunities Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

International corporation Domestic firm that uses its existing capabilities to move into overseas markets. Multinational corporation (MNC) Firm with independent business units operating in multiple countries. Global corporation Firm that has integrated worldwide operations through a centralized home office. Transnational corporation Firm that attempts to balance local responsiveness and global scale via a network of specialized operating units. Managing Across Borders Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Top International Companies MARKET VALUE (BILLIONS OF U.S. DOLLARS) 1. General Electric $286.10 2. Microsoft 263.99 3. ExxonMobil 244.93 4. Pfizer 244.89 5. Wal-Mart Stores 232.22 6. Citigroup 210.86 7. Johnson & Johnson 161.36 8. Royal Dutch/Shell Group 158.48 9. BP 153.24 10. AIG 150.97 Figure 15.2 Source: Chester Dawson, “The Global 1000,” Business Week, July 14, 2003, 34. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Top International Companies (cont’d) SALES (BILLIONS OF U.S. DOLLARS) 1. Wal-Mart Stores $244.52 2. ExxonMobil 204.51 3. General Motors 184.21 4. Royal Dutch/Shell 179.43 5. BP 178.72 6. Ford Motor 162.59 7. DaimlerChrysler 156.84 8. Toyota Motor 134.23 9. General Electric 131.70 10. Allianz 126.80 Figure 15.2 Source: Chester Dawson, “The Global 1000,” Business Week, July 14, 2003, 34. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Top International Companies (cont’d) PROFITS (BILLIONS OF U.S. DOLLARS) 1. Citigroup $15.32 2. General Electric 15.13 3. Altria Group 11.10 4. ExxonMobil 11.01 5. Royal Dutch/Shell 9.42 6. Bank of America 9.25 7. Pfizer 9.18 8. Wal-Mart Stores 8.04 9. Toyota Motor 7.90 10. Microsoft 7.83 Figure 15.2 Source: Chester Dawson, “The Global 1000,” Business Week, July 14, 2003, 34. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

How International Companies Affect the World Economy • Their production and distribution extend beyond national boundaries, making it easier to transfer technology. • They have direct investments in many countries, affecting the balance of payments. • They have a political impact that leads to cooperation among countries and to the breaking down of barriers of nationalism. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

How Does the Global Environment Influence Management? • Unified Economies • Closely partnered nations such as the European Union (EU) have developed into strong competitors. • Promotes job growth in trading nations. • Cultural environment • The communication patterns, religion, values and ideologies, education, and social structure of a host country influence how HR is conducted in that country. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Domestic versus International HRM • Issues in international HRM in helping employees adapt to a new and different environment outside their own country: • Relocation • Orientation • Objective • Translation services Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

International Staffing • Expatriates, or Home-country Nationals • Employees from the home country who are on international assignment. • Host-country Nationals • Employees who are natives of the host country. • Third-country Nationals • Employees who are natives of a country other than the home country or the host country. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Hiring Host-Country Nationals • Three main advantages: • Hiring local citizens is generally less costly than relocating expatriates. • Since local governments usually want good jobs for their citizens, foreign employers may be required to hire locally. • Most customers want to do business with companies they perceive to be local versus foreign. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Recruiting Internationally • Work Permit, or Visa • Government document granting a foreign individual the right to seek employment. • Guest Workers • Foreign workers invited to perform needed labour. • Apprenticeships • Vocational training programs in skilled trades. • Transnational Teams • Teams composed of members of multiple nationalities working on projects that span multiple countries. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Selecting Global Managers • Global manager • A manager equipped to run an international business • Skills Categories • Ability to seize strategic opportunities • Ability to manage highly decentralized organizations • Awareness of global issues • Sensitivity to issues of diversity • Competence in interpersonal relations • Skill in building community Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Selecting Global Managers • Begin with self-selection. • Create a candidate pool. • Assess core skills. • Assess augmented skills and attributes. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Highlights in HRM Skills of Expatriate Managers CORE SKILLS AUGMENTED SKILLS Experience Technical skills Decision making Negotiation skills Resourcefulness Strategic thinking Adaptability Delegation skills Cultural sensitivity Change management Team building Maturity Highlights 15.4 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Measured Expatriate Characteristics • Core Skills • Skills that are considered critical to an employee’s success abroad. • Augmented Skills • Skills that are helpful in facilitating the efforts of expatriate managers. • Failure rate • Percentage of expatriates who do not perform satisfactorily. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Comparison of Advantages in Sources of Overseas Managers HOST-COUNTRY HOME-COUNTRY NATIONALS THIRD-COUNTRY NATIONALS (EXPATRIATES) NATIONALS Less costly Talent available within company Broad experiencePreferred by host-country Greater control International outlook governments Intimate knowledge of Company experience Multilingualismenvironment and culture Language facility Mobility Experience provided to corporate executives Figure 15.6 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Causes of Expatriate Assignment Failure • Family adjustment • Lifestyle issues • Work adjustment • Bad selection • Poor performance • Other opportunities arise • Business reasons • Repatriation issues Figure 15.8 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Training and Development • Essential training program content to prepare employees for working internationally: • Language training • Cultural training • Assessing and tracking career development • Managing personal and family life • Repatriation • Culture shock • Perpetual stress experienced by people who settle overseas Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Preparing for an International Assignment To prepare for an international assignment, one should become acquainted with the following aspects of the host country: • Social and business etiquette • History and folklore • Current affairs, including relations between the host country and Canada • Cultural values and priorities • Geography, especially its major cities • Sources of pride and great achievements of the culture • Religion and the role of religion in daily life • Political structure and current players • Practical matters such as currency, transportation, time zones, hours of business • The language Figure 15.9 Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Training Methods • Reviewing available information about the host company: books, magazines, video tapes. • Conversations with host country natives. • Sensitivity training to become familiar with the customs and overcome prejudices. • Temporary assignments to encourage shared learning. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Highlights in HRM Stressors and Coping Responses in the Developmental Stages of Expatriate Executives PRIMARYSTRESSORRESPONSE Expatriate selection Cross-cultural unreadiness. Assignment acceptance Unrealistic evaluation of stressors to come. Hurried time frame. Pre- and post-arrival Ignorance of cultural training differences. Arrival Cultural shock. Stressor reevaluation. Feelings of lack of fit and differential treatment. Novice Cultural blunders or inadequacy of coping responses. Ambiguity owing to inability to decipher meaning of situations. Transitional Rejection of host or parent culture. Mastery Frustration with inability to perform boundary spanning role. Bothered by living with a cultural paradox. Repatriation Disappointment with unfulfilled expectations. Sense of isolation. Loss of autonomy. Highlights 15.5 Source: J. Sanchez, P. Spector, and C. Cooper, “Adapting to a Boundaryless World: A Developmental Expatriate Model,” Academy of Management Executive 14, no. 2 (May 2000): 96–106. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Returning from an Overseas Assignment • Repatriation • The process of an employee transitioning home from an international assignment. • Throw a “welcome home” party. • Offer counseling to ease the transition. • Arrange conferences and presentations to make certain that knowledge and skills acquired away from home are identified and disseminated. • Get feedback from the employee and the family about how well the organization handled the repatriation process. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Compensation • Different countries have different norms for employee compensation. • Financial (money) incentives versus nonfinancial incentives (prestige, independence, and influence) • Individual rewards versus collectivist concerns for internal equity and personal needs • General rule: match the rewards to the values of the local culture—create a pay plan that supports the overall strategic intent of the organization but provides enough flexibility to customize particular policies and programs to meet the needs of employees in specific locations. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Forces Driving Global Pay CULTURAL PREFERENCES Importance of status Role of individual vs. organization vs. government Equality vs. disparity Achievement vs. relationships PERSONAL PREFERENCES Attitudes toward risk Quality of life vs. work Short- vs. long-term Competitiveness vs. solidarity ECONOMIC CONDITIONS Size of economy Types of industries, natural resources Inflation, unemployment Protectionism vs. open market SOCIAL CONSTRAINTS Income tax rates, social costs Laws and regulations Collective bargaining, worker participation Skills, education of workforce Figure 15.11 Source: Steven Gross and Per Wingerup, “Global Pay? Maybe Not Yet!” Compensation and Benefits Review 31, no. 4 (July/August 1999): 25–34. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Compensation of Host-Country Employees • Hourly wages vary dramatically from country to country. • Pay periods are different. • Seniority may be an important factor. • High pay rates can upset local compensation practices. • Bonuses, profit-sharing, benefits and paid leave may be more extensive and legally required. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Hourly Wages in Different Countries* COUNTRY $/HOUR Norway 31.5 5 Germany (former West) 31.25 Switzerland 27.87 Belgium 27.73 Sweden 25.18 United States 21.97 France 21.13 Britain 20.37 Japan 20.09 Australia 20.05 Canada 19.28 Italy 18.35 Spain 14.96 Israel 11.73 Korea 10.28 Portugal 6.23 Taiwan 5.84 Brazil 2.67 Mexico 2.48 China 0.63 Sri Lanka 0.49 *Hourly compensation costs in U.S. dollars for production workers in manufacturing. Figure 15.12 Source: U.S. Department of Labor, Bureau of Labor Statistics, November 2004. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Provide an incentive to leave Canada Allow for maintaining a N.A. standard of living Provide for security in countries that are politically unstable or present personal dangers Include provisions for good healthcare Provide for the education of children Consider foreign taxes the employee is likely to have to pay (in addition to domestic taxes) and help with tax forms and filing Allow for maintaining relationships with family, friends, and business associates. Facilitate reentry home Be in writing Compensation of Expatriate Managers Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Expatriate Compensation Systems • Home-Based Pay • Pay based on an expatriate’s home country’s compensation practices • Balance-Sheet Approach • A compensation system designed to match the purchasing power in a person’s home country • Calculate base pay • Figure cost-of-living allowance (COLA) • Add incentive premiums • Add assistance programs Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Expatriate Compensation Systems (cont’d) • Host-Based Pay • Expatriate pay comparable to that earned by employees in a host country to which the expatriate is assigned • Localization • Adapting pay and other compensation benefits to match that of a particular country • Other Issues • Adequacy of medical care • Personal security • Education Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Performance Appraisal of International Managers • Who Should Appraise Performance? • Home-country evaluations • Host-country evaluations • Adjusting Performance Criteria • Augmenting job duties • Individual learning • Organizational learning • Providing Feedback • Debriefing interview Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

Boosting ROI of Expatriates Major initiatives planned to improve assignment return on investment (ROI): Better candidate selection 32% Career-planning skills 26 Communicating objectives 24 Assignment preparation 20 Monitoring program 17 Cross-cultural training 10 Developing or expanding intranet 7 Communication/recognition 6 Web-based cultural training 5 Mandating destination support 4 Other 17 Business Case Source: Andrea Poe, “Selection Savvy,” HRMagazine 47, no. 4 (April 2002): 77–83. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

International Organizations and Labour Relations • International Differences in Unions • The level at which bargaining takes place (national, industry, or workplace) • The degree of centralization of union-management relations • The scope of bargaining (parties and issues) • The degree to which government intervenes • The degree of unionization and union strength. Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

augmented skills balance-sheet approach codetermination core skills cultural environment culture shock expatriates, or home-country nationals failure rate global corporation global manager guest workers home-based pay host-based pay host country host-country nationals international corporation localization multinational corporation (MNC) repatriation third-country nationals transnational corporation transnational teams work permit, or visa Key Terms Copyright © 2008 by Nelson, a division of Thomson Canada Ltd.

International Human Resources Management