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Chapter 18 Global Human Resource Management

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    1. Chapter 18 Global Human Resource Management

    2. Introduction 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 There are four major tasks of HRM: Staffing policy Management training and development Performance appraisal Compensation policy There are four major tasks of HRM: Staffing policy Management training and development Performance appraisal Compensation policy

    3. Introduction 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 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, and how they should be reoriented when they return home

    4. The Strategic Role Of International HRM Firms need to ensure there is a fit between their human resources practices and strategy In order to carry out a strategy effectively, employees need the right training, an appropriate compensation package, and a good performance appraisal system

    5. The Strategic Role Of International HRM Figure 18.1: The Role of Human Resources in Shaping Organizational Architecture As shown in in this figure, people are the linchpin of a firms organization architecture. For a firm to outperform its rivals in the global marketplace, it must have the right people in the right postings. Those people must be trained appropriately so that they have the skill sets required to perform their jobs effectively, and so that they behave in a manner that is congruent with the desired culture of the firm. Their compensation packages must create incentives for them to take actions that are consistent with the strategy of the firm, and the performance appraisal system the firm uses must measure the behavior that the firm wants to encourage. As indicated in Figure 18.1, the human resource function, through its staffing, training, compensation, and performance appraisal activities, has a critical impact upon the people, culture, incentive, and control system elements of the firms organization architecture (performance appraisal systems are part of the control systems in an enterprise). Thus, human resource professionals have a critically important strategic role. As shown in in this figure, people are the linchpin of a firms organization architecture. For a firm to outperform its rivals in the global marketplace, it must have the right people in the right postings. Those people must be trained appropriately so that they have the skill sets required to perform their jobs effectively, and so that they behave in a manner that is congruent with the desired culture of the firm. Their compensation packages must create incentives for them to take actions that are consistent with the strategy of the firm, and the performance appraisal system the firm uses must measure the behavior that the firm wants to encourage. As indicated in Figure 18.1, the human resource function, through its staffing, training, compensation, and performance appraisal activities, has a critical impact upon the people, culture, incentive, and control system elements of the firms organization architecture (performance appraisal systems are part of the control systems in an enterprise). Thus, human resource professionals have a critically important strategic role.

    6. Staffing Policy A firms staffing policy is concerned with the selection of employees who have the skills required to perform a particular job A staffing policy 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

    7. Types Of Staffing Policy There are three main approaches to staffing policy within international businesses: 1. the ethnocentric approach 2. the polycentric approach 3. the geocentric approach

    8. Types Of Staffing Policy 1. The ethnocentric approach to staffing policy fills key management positions with parent-country nationals It 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

    9. Types Of Staffing Policy The ethnocentric staffing policy is no longer popular with most firms because: it limits advancement opportunities for host country nationals it can lead to "cultural myopia"

    10. Types Of Staffing Policy 2. The polycentric staffing policy recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters It makes sense for firms pursuing a localization strategy The polycentric approach: can minimize cultural myopia may be less expensive to implement than an ethnocentric policy

    11. Types Of Staffing Policy There are two disadvantages to the polycentric approach: host country nationals have limited opportunities to gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiaries. a gap can form between host country managers and parent country managers

    12. Types Of Staffing Policy 3. The geocentric staffing policy seeks the best people, regardless of nationality for key jobs This approach is consistent with building a strong unifying culture and informal management network It makes sense for firms pursuing either a global or transnational strategy Immigration policies of national governments may limit the ability of a firm to pursue this policy

    13. Types Of Staffing Policy The geocentric approach: 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 can be limited by immigration laws is costly to implement

    14. Types Of Staffing Policy Table 18.1: Comparison of Staffing Approaches

    15. Expatriate Managers Expatriate failure is the premature return of an expatriate manager to his or her home country Between 16 and 40 percent of all American expatriates in developed countries fail to complete their assignments, and almost 70 percent of Americans assigned to developing countries return home early Each expatriate failure can cost between $250,000 and $1 million Management Focus: Managing Expatriates at Royal Dutch/Shell Summary This feature examines how Royal Dutch/Shell, a global petroleum company employing over 100,000 people manages its expatriates. The international mobility of its workforce is an important part of Shells overall philosophy. However, in the early 1990s, the company found that it was having an increasingly difficult time recruiting personnel for foreign postings. Suggested Discussion Questions 1. Shells commitment to the success of its foreign assignments is demonstrated by its efforts to uncover expatriate concerns. Discuss the results of Shells survey to its present and past expatriates and families. How do these results compare to the results of other studies exploring expatriate failure? Discussion Points: Shell discovered that there were five key issues that were important to its expatriates. First, the division of families that occurred when children were sent to boarding schools while their parents were on foreign assignments, second, the harm done to a spouses career during the foreign assignment, third, the lack of consideration for a spouse during the expatriate assignment process, fourth, the failure to provide adequate relocation assistance, and fifth, health issues. Students should recognize the similarities between the results of this study and the results of other studies that have found difficulties with the spouse and familys ability to adapt to be a central reason for expatriate failure. 2. Shell has implemented several changes to its expatriate program including providing education assistance to families with children, and establishing a Spouse Employment Center to help locate employment opportunities. In your opinion, will these programs solve Shells problems, or is there still more to be done? Discussion Points: Most students will suggest that Shells programs are a good start to ensuring the success of its expatriate program. They may also note that Shell may well be ahead of the game in even thinking about the situation. Expatriate failure can be very costly for companies, and so taking steps to ensure that expatriates are successful is an important component in a firms international strategy, especially for a company like Shell that relies heavily on expatriates. Another Perspective: To learn more about Shell, go to the companys web site at {http://www.shell.com}.Management Focus: Managing Expatriates at Royal Dutch/Shell Summary This feature examines how Royal Dutch/Shell, a global petroleum company employing over 100,000 people manages its expatriates. The international mobility of its workforce is an important part of Shells overall philosophy. However, in the early 1990s, the company found that it was having an increasingly difficult time recruiting personnel for foreign postings. Suggested Discussion Questions 1. Shells commitment to the success of its foreign assignments is demonstrated by its efforts to uncover expatriate concerns. Discuss the results of Shells survey to its present and past expatriates and families. How do these results compare to the results of other studies exploring expatriate failure? Discussion Points: Shell discovered that there were five key issues that were important to its expatriates. First, the division of families that occurred when children were sent to boarding schools while their parents were on foreign assignments, second, the harm done to a spouses career during the foreign assignment, third, the lack of consideration for a spouse during the expatriate assignment process, fourth, the failure to provide adequate relocation assistance, and fifth, health issues. Students should recognize the similarities between the results of this study and the results of other studies that have found difficulties with the spouse and familys ability to adapt to be a central reason for expatriate failure. 2. Shell has implemented several changes to its expatriate program including providing education assistance to families with children, and establishing a Spouse Employment Center to help locate employment opportunities. In your opinion, will these programs solve Shells problems, or is there still more to be done? Discussion Points: Most students will suggest that Shells programs are a good start to ensuring the success of its expatriate program. They may also note that Shell may well be ahead of the game in even thinking about the situation. Expatriate failure can be very costly for companies, and so taking steps to ensure that expatriates are successful is an important component in a firms international strategy, especially for a company like Shell that relies heavily on expatriates. Another Perspective: To learn more about Shell, go to the companys web site at {http://www.shell.com}.

    16. Expatriate Managers Table 18.2: Expatriate Failure Rates

    17. Expatriate Managers Research shows the main reasons for expatriate failure for U.S. multinationals are: the inability of an expatriate's spouse to adapt the inability of the employee to adjust the managers inability to adjust other family-related reasons the managers personal or emotional maturity the managers inability to cope with larger overseas responsibilities

    18. Expatriate Managers For European firms, only one reason was found to consistently explain expatriate failure: the inability of the managers spouse to adjust to a new environment For Japanese firms, the reasons for 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

    19. Expatriate Managers 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

    20. The Global Mindset A global mindset may be the fundamental attribute of a global manager A global mindset is often acquired early in life from a family that is bicultural, lives in foreign countries, or learns foreign languages as a regular part of family life

    21. Training And Management Development 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 Historically, most firms focus more on training than on management development

    22. Training For Expatriate Managers Cultural training (seeks to foster an appreciation for the host country's culture), language training (an exclusive reliance on English diminishes an expatriate manager's ability to interact with host country nationals), and practical training (helps the expatriate manager and her family ease themselves into day-to-day life in the host country) have all help reduce expatriate failure Yet, according to one study only about 30 percent of managers sent on one- to five-year expatriate assignments received training before their departure

    23. Repatriation Of Expatriates Preparing and developing expatriate managers for reentry into their home country organization is an important part of training and development HRM needs to develop good programs for re-integrating expatriates back into work life within their home country organization once their foreign assignment is over, and for utilizing the knowledge they acquired while abroad Repatriation should be seen as the final link in an integrated, circular process that selects, trains, sends, and brings home expatriate managers. Repatriation should be seen as the final link in an integrated, circular process that selects, trains, sends, and brings home expatriate managers.

    24. Management Development And Strategy Management development programs increase the overall skill levels of managers by: ongoing management education rotations of managers through jobs within the firm to give them varied experiences Management development is often used as a strategic tool to build a strong unifying culture and informal management network, both of which are supportive of a transnational and global strategy Management Focus: Monsanto's Repatriation Program Summary This feature describes Monsantos repatriation program for its expatriate managers. The program is very sophisticated, and is designed to provide a supportive environment for the companys managers who are returning from overseas assignments. The feature describes the details of the repatriation program, which is a model program for the repatriation of expatriate managers. Suggested Discussion Questions 1. How does Monsantos repatriation program provide an incentive for high-potential managers to accept overseas assignments? Discussion Points: One question that managers often have when accepting a foreign assignment is how the assignment will help their career. At Monsanto, foreign assignments are clearly linked to business objectives allowing managers to understand what the assignment means to their future. In addition, managers are explicitly told about their position in the firm once the assignment is over, eliminating questions over how the manager might fit in when the foreign assignment ends. Students will note that these steps will help alleviate some of the stress that may come with accepting a foreign assignment. 2. According to the feature, after they return home, Monsantos expatriate managers are given the opportunity to showcase their experience to their peers, subordinates, and superiors, in special information exchange. Why is this important? What function does this serve in the repatriation process? Discussion Points: Students will probably recognize that Monsantos program allows expatriates to show their stuff to the home country staff. This can help avoid the problem of out of sight, out of mind that can make it difficult for expatriates to fit back into the headquarters. The program also allows home country staff to identify new ways the expatriate might be able to fit into the home country structure. Students will probably also note the program offers home country staff the opportunity to learn from the expatriates experiences. 3. How does Monsantos repatriation program help an expatriate manager adjust his personal life to returning home? Is this an important component of a firms repatriation program? Discussion Points: Studies show that expatriates go through reverse culture shock when they return home. By ensuring that expatriates have a clearly defined role at their job, the adjustment to being home can be easier. Monsanto believes that because personal matters can affect job performance, making an investment in this area benefits the firm. Another Perspective: Explore the companys web site at {http://www.monsanto.com/monsanto/layout/}.Management Focus: Monsanto's Repatriation Program Summary This feature describes Monsantos repatriation program for its expatriate managers. The program is very sophisticated, and is designed to provide a supportive environment for the companys managers who are returning from overseas assignments. The feature describes the details of the repatriation program, which is a model program for the repatriation of expatriate managers. Suggested Discussion Questions 1. How does Monsantos repatriation program provide an incentive for high-potential managers to accept overseas assignments? Discussion Points: One question that managers often have when accepting a foreign assignment is how the assignment will help their career. At Monsanto, foreign assignments are clearly linked to business objectives allowing managers to understand what the assignment means to their future. In addition, managers are explicitly told about their position in the firm once the assignment is over, eliminating questions over how the manager might fit in when the foreign assignment ends. Students will note that these steps will help alleviate some of the stress that may come with accepting a foreign assignment. 2. According to the feature, after they return home, Monsantos expatriate managers are given the opportunity to showcase their experience to their peers, subordinates, and superiors, in special information exchange. Why is this important? What function does this serve in the repatriation process? Discussion Points: Students will probably recognize that Monsantos program allows expatriates to show their stuff to the home country staff. This can help avoid the problem of out of sight, out of mind that can make it difficult for expatriates to fit back into the headquarters. The program also allows home country staff to identify new ways the expatriate might be able to fit into the home country structure. Students will probably also note the program offers home country staff the opportunity to learn from the expatriates experiences. 3. How does Monsantos repatriation program help an expatriate manager adjust his personal life to returning home? Is this an important component of a firms repatriation program? Discussion Points: Studies show that expatriates go through reverse culture shock when they return home. By ensuring that expatriates have a clearly defined role at their job, the adjustment to being home can be easier. Monsanto believes that because personal matters can affect job performance, making an investment in this area benefits the firm. Another Perspective: Explore the companys web site at {http://www.monsanto.com/monsanto/layout/}.

    25. Performance Appraisal Performance appraisal systems are part of the firms control system Evaluating expatriates can be especially complex

    26. Performance Appraisal Problems Typically, both host nation managers and home office managers evaluate the performance of expatriate managers Both types of managers are subject to unintentional bias Home country managers tend to rely on hard data when evaluating expatriates, while host country managers can be biased towards their own frame of reference

    27. Guidelines For Performance Appraisal To reduce bias in performance appraisal: most expatriates believe 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 could be involved in the appraisal process to help reduce bias when foreign on-site mangers write performance evaluations, home office managers should be consulted before an on-site manager completes a formal termination evaluation

    28. Compensation Firms face 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 Two issues are raised in every discussion of compensation practices in an international business. One is how compensation should be adjusted to reflect national differences in economic circumstances and compensation practices. The other issue is how expatriate managers should be paid. From a strategic perspective, the important point is that whatever compensation system is used, it should reward managers for taking actions that are consistent with the strategy of the enterprise. Two issues are raised in every discussion of compensation practices in an international business. One is how compensation should be adjusted to reflect national differences in economic circumstances and compensation practices. The other issue is how expatriate managers should be paid. From a strategic perspective, the important point is that whatever compensation system is used, it should reward managers for taking actions that are consistent with the strategy of the enterprise.

    29. National Differences In Compensation There are substantial differences in executive compensation across countries In the U.S., a top HR executive made an average of $525,923 in the 2005-2006 period, compared to $237,697 in Japan, and just $158,146 in Taiwan Firms have to decide whether to pay executives in different countries according to the prevailing standards in each country, or equalize pay on a global basis The is an especially challenging issue in firms with geocentric staffing policies Many firms have recently moved toward a compensation structure that is based on global standards Management Focus: Global Compensation Practices at McDonalds Summary This feature explores McDonalds efforts to create a compensation and performance appraisal system that takes into account differences between markers, yet is still considered equitable by employees. Suggested Discussion Questions 1. What makes McDonalds new compensation and performance appraisal systems popular with employees? How important was it to include managers in the development of the new systems? Do you see any problems with the new systems? Discussion Points: McDonalds new compensation and performance appraisal systems were developed in conjunction with managers from around the world. Many students will probably agree that this approach gives managers ownership in the new system, and therefore, there will be a greater effort put forth to ensure its success. Because it is a loosely based system designed to allow local managers the chance to customize it to local market conditions, students will probably suggest that it is more likely to succeed than a a more standardized approach. 2. Would a system like the one implemented at McDonalds work in other companies? Discussion Points: There are several advantages to the new system at McDonalds that could probably be replicated in other firms. The new system was developed using input from both headquarters and local managers, it allows headquarters to choose key areas to focus on, yet allows local managers to fine-tune the selection, and it links performance of the region to employee compensation. Most students will probably suggest that a similar type of program could be successful at many types of companies. Another Perspective: To learn more about McDonalds foreign operations, go to the companys web site {http://www.McDonalds.com} and click on the foreign locations. Management Focus: Global Compensation Practices at McDonalds Summary This feature explores McDonalds efforts to create a compensation and performance appraisal system that takes into account differences between markers, yet is still considered equitable by employees. Suggested Discussion Questions 1. What makes McDonalds new compensation and performance appraisal systems popular with employees? How important was it to include managers in the development of the new systems? Do you see any problems with the new systems? Discussion Points: McDonalds new compensation and performance appraisal systems were developed in conjunction with managers from around the world. Many students will probably agree that this approach gives managers ownership in the new system, and therefore, there will be a greater effort put forth to ensure its success. Because it is a loosely based system designed to allow local managers the chance to customize it to local market conditions, students will probably suggest that it is more likely to succeed than a a more standardized approach. 2. Would a system like the one implemented at McDonalds work in other companies? Discussion Points: There are several advantages to the new system at McDonalds that could probably be replicated in other firms. The new system was developed using input from both headquarters and local managers, it allows headquarters to choose key areas to focus on, yet allows local managers to fine-tune the selection, and it links performance of the region to employee compensation. Most students will probably suggest that a similar type of program could be successful at many types of companies. Another Perspective: To learn more about McDonalds foreign operations, go to the companys web site {http://www.McDonalds.com} and click on the foreign locations.

    30. Expatriate Pay Most firms use the balance sheet approach to pay This equalizes purchasing power across countries so employees have the same living standard in their foreign posting as at home An expatriates compensation package is made up of: 1. base salary 2. a foreign service premium 3. various allowances 4. tax differentials 5. benefits Note that home-country outlays for the employee are designated as income taxes, housing expenses, expenditures for goods and services (food, clothing, entertainment, etc.), and reserves (savings, pension contributions, etc.). The balance sheet approach attempts to provide expatriates with the same standard of living in their host countries as they enjoy at home plus a financial inducement (i.e., premium, incentive) for accepting an overseas assignment Note that home-country outlays for the employee are designated as income taxes, housing expenses, expenditures for goods and services (food, clothing, entertainment, etc.), and reserves (savings, pension contributions, etc.). The balance sheet approach attempts to provide expatriates with the same standard of living in their host countries as they enjoy at home plus a financial inducement (i.e., premium, incentive) for accepting an overseas assignment

    31. Expatriate Pay 1. Base Salary An expatriates base salary is normally in the same range as the base salary for a similar position in the home country Base salary can be paid wither in the home currency or in the local currency 2. Foreign Service Premium A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin It is generally offered as an incentive to accept foreign assignments

    32. Expatriate Pay 3. Allowances Expatriate compensation package often include : hardship allowances housing allowances cost-of-living allowances education allowances

    33. Expatriate Pay 4. Taxation The expatriate 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 5. Benefits Many firms provide the same level of medical and pension benefits abroad that they received at home

    34. International Labor Relations The key issue in international labor relations is the degree to which organized labor is able to limit the choices available to an international business A firm's ability to pursue a transnational or global strategy can be significantly constrained by the actions of labor unions HRM needs to foster harmony and minimize conflict between the firm and organized labor

    35. The Concerns Of Organized Labor The bargaining power of unions comes from their ability to threaten to disrupt production by striking or protesting However, organized labor is concerned that: multinationals can counter union bargaining power by threatening to move production to another country multinationals will farm out only low-skilled jobs to foreign plants making it easier to switch production locations multinationals will import employment practices and contractual agreements from their home countries and reduce the influence of unions

    36. The Strategy Of Organized Labor Organized labor has responded to the increased bargaining power of multinational corporations by: trying to set-up their own international organizations lobbying for national legislation to restrict multinationals trying to achieve regulations of multinationals through international organization such as the United Nations However, these efforts have had only limited success

    37. Approaches To Labor Relations In the past, labor relations have usually been decentralized to individual subsidiaries Today, many firms are centralizing labor relations in order to enhance the bargaining power of the multinational vis--vis organized labor Many firms are recognizing that the way in which work is organized within a plant can be a major source of competitive advantage