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Chapter 9 International HRM. Learning Objectives. To appreciate the role of HRM in the international organization, high-lighting links between parent companies and geographically dispersed affiliates
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Chapter 9 International HRM Learning Objectives • To appreciate the role of HRM in the international organization, high-lighting links between parent companies and geographically dispersed affiliates • To understand the impact of diverse cultural and institutional environments on HR policies and practices in differing locations and organizational settings • To identify the ways in which relations between management and employees are evolving in the global context • gain a practical perspective on the issues arising in cross-cultural organizational environments, including teams, networks and cross-border alliances
Aims of the lecture • To appreciate the strategic role of International HRM (IHRM) in differing international contexts • To evaluate the influence of national environmental factors on HR policies and practices • To identify the mechanisms designed to further relations between managers and employees in differing countries • To appreciate the ways in which cross-cultural management skills are cultivated and utilized in international business • To critically examine the IHRM implications of corporate mergers and acquisitions
Strategic IHRM • HRMhas become more strategy-oriented than traditional personnel management. • Corporate strategy may emanate from the centre, but the roles of national environments and diverse stakeholders now impact on HRM. • IHRM has evolved as the management of people in diverse locations has grown in importance for MNEs. • IHRM takes in three elements: • corporate strategy, • environmental factors and • policies & practices.
Elements of international human resource management
Home-country insti-tutions and culture • Host-country insti-tutions and culture • Global competitive strategy • Fit between corporate and HRM strategy • Inter-nationalization strategy • Center-subsidiary relations • Industry characteris-tics • Competitive environment International Human Resources Management Corporatestrategic issues Environmental factors IHRM policies andpractices • Planning • Staffing • Compensation • Employer/employee relations • Appraisal • Training and development
International orientation of the MNE • HR strategy flows from the firm’s internationalization strategy and its competitive strategy. • The parent firm and the foreign subsidiary each have distinct capabilities, but who determines how they are directed? • The ethnocentric firm is highly centralized; little local adaptation. • The polycentric firm is decentralized, with locally adaptive policies and informal ties between the HQ and subsidiaries. • The geocentric firm combines global corporate strategy with local communication and responsiveness.
Polycentricorganization Decentralizedstructure Independently managed subsidiaries Systems reflect local conditions Little control fromthe center Geocentricorganization Interdependence betweencenter and subsidiaries Globally integratedbut locally responsive Local systems integrated with center Collaboration betweencenter and subsidiary Ethnocentricorganization Centralizedstructure Strategy determinedat the center Little adaptationto local conditions Systems determinedby the center
National culture and IHRM Hofstede’s cultural dimensions theory is used to compare national cultures. • Countries with large power-distance – centralized and hierarchical; sub-ordinates have little authority. • Countries with small power distance – more open channels of communication; greater attention to employees as individuals. • Emerging MNEs – mainly from countries of large power distance, with dominant owners and weak roles of shareholders and other stakeholders
National institutional environment • National institutional environment – public institutions, legal framework, judicial system and political system. • Developed countries – tend to have more highly developed institutions, including social protections, employee rights and trade union rights. • Developing countries – tend towards weak employee involvement, poor working conditions, little legal protection for employees, limited rights to organize. • MNEs from developing and transitional economies generally reflect their weak national institutional frameworks.
International Labour Organisation The International Labour Organisation Web site is a large, rich site which provides up-to-date and comprehensive information on national labour laws from a great number of countries. It provides a useful introduction to international labour standards and human rights information. Go to resources and then ILO databases The key ones are described below: ILOLEX (International Labour Standards). NATLEX (Information on national laws, labour, social security, and related human right issues). LABORSTA (labour statistics). Further References International Employment Relations Resources Online International Human Resource Management
Organizational culture Organizational environment Cultural dimensions Language(s) Religion(s) Social structures National culture Legal framework Political system Employment regulation Labor law Institutional environment Parent company Subsidiary(equity based) Types of outward expansion Investing company Affiliate company(non-equity based) Joint venture investor Local partner Corporate values Communications Formalities Behavioral norms Hierarchies Centralized or DecentralizedCorporate governance
IHRM policies and practices • HR planning – overall process of devising a co-ordinated system incorporating all HR functions. • Staffing policies and processes • Parent-country nationals (PCNs) – Expatriates sent to foreign subsidiary to oversee processes (typical of ethnocentric firm) • Host-country nationals (HCNs) – Recruited for operations, and also for supervisory roles (used in polycentric firms) • Third-country nationals (TCNs) – Person from neither home or host country, but with cross-cultural skills and global outlook (typical of the geocentric firm)
StaffingCriteria, number of staff, business unit, location • RecruitmentCentralized or local processes, competencies needed • SelectionTechniques, structured and unstructured interviews • Compensation packagesLocal variations • Training and developmentLocal needs • AppraisalAdjustments for cultural differences • Competitive environment • Corporate strategy • National environmental factors • Home-country institutional environment InternationalHR planning
Compensation • Reward package = Monetary and non-monetary rewards • Monetary rewards • Matter most to employees? In Europe and America, probably yes, but varies with cultural environment. • Performance-related pay – Links financial reward directly to performance of specific tasks or targets; not universally applicable. • Flexibility and adapting to employee’s needs is of growing concern in IHRM. • Work-life balance – Employers allow flexibility to staff in arranging work duties and personal life.
Training and development • Building competencies and skills of individual employees • Must fit with the organization’s strategy and the individual employee’s personal development. • Socialization – Becoming familiar with the organization’s culture and way of doing things. • HR development policies • Parent company HR strategy is determinant – can tend towards global integration or local responsiveness. • Skills in the workforce are a source of competitive advantage, and its opposite – skills shortage – can hold back expansion.
Case Study 9.1: Look good and feel good with l’Oréal (page 335) • In what ways are l’Oréal’s staffing and recruitment policies linked to its IHR strategy? L’Oréal’s IHR strategy is based on international outlook and cross-cultural competencies. It recruits staff internationally, and is keen to attract people who wish to work in different countries. The company takes the view that moving to new countries and taking on new roles is essential to career development.
Case Study 9.1: Look good and feel good with l’Oréal (page 335) 2. How are L’Oréal’s IHR policies reflective of its corporate goals? L’Oréal’s corporate goals focus on its wide portfolio of brands, which are sold in a wide range of markets. The brands include consumer brands, luxury brands and specialist brands, as well as Body Shop, with its emphasis on fair trade policies. Its IHR policies reflect the diversity in its brands and also the diversity in its markets.
Case Study 9.1: Look good and feel good with l’Oréal (page 335) • Describe L’Oréal’s training and development policies. How does it underpin the company’s emphasis on multicultural teams? L’Oréal views training and development as directed towards taking on new challenges and acquiring new skills, which are linked to a new country, new role or new brand. Managers are moved every 3-4 years to a new location. The result is that in any location, there are people from diverse backgrounds, in terms of culture, job skills, professional experience and experience of different brands. This makes for highly diverse multicultural teams. The company sees this approach as an asset, as such teams generate more ideas than would emerge in a less diverse organization.
Case Study 9.1: Look good and feel good with l’Oréal (page 335) • How is l’Oréal’s global strategy evolving, and how will this affect its IHR policies? L’Oréal is now focusing more on emerging markets, which have greater scope for growth than the mature markets of Western Europe and North America. Looking at Figure 2, note that in 2006, these were quite small compared to its established markets. R&D is concen-trated in France, and it is possible that, as emerging markets become more significant, R&D activities might be shifted. In general, it is likely that more emphasis on emerging markets will lead to more staff recruitment in emerging countries. Asia is a relatively small market, but this market has scope for considerable growth, and designing distinctive products for Asian consumers is a possibility. The reward system would probably have to be adapted for Asian staff, along with the training and development policies.
Employee relations • Employee relations – practices which involve managers and employees in workplace communications and decision-making • May be direct or through intermediary bodies, such as unions • Employee empowerment – policy of devolving decision-making and responsibility to employees • Works councils – representative bodies in the workplace which give employees rights to information & consultation • Recall the principle of co-determination in corporate governance, which operates in many European countries. • Cultural and institutional environment influences the extent and effectiveness of all these mechanisms.
Industrial relations • Historically reflect organizations seeking workers’ rights during periods of industrialization; often confrontational • Independent trade union – organization of workers independent of the employer or other control body, which seeks better terms and conditions for members. • Trade unions have seen declining membership in many developedcountries, especially in manufacturing industries. • In many developing countries, independent trade unions are banned or restricted. • Strikes and other types of industrial action are controlled by national law.
The transnational manager • The transnational manager understands and adapts to differing cultures, often moving among several of the firm’s foreign locations. • The requirements – a blend of knowledge, skills and abilities: • Knowledge of relevant foreign language • Understanding of foreign business practices • Ability to adapt to differing cultural environments • Inter-personal skills • Training and cultural acclimatization improve the likelihood of success in the international assignment.
Cross-cultural teams • Teamworking may be internal to the company or involve partner firms. • The benefits of cross-cultural teams: • Participants gain understanding of different perspectives and ways of doing things, building cross-cultural competencies. • Diversity is a creative spur, generating more ideas. • Cross-cultural teams reflect the firm’s differing locations. • Teamworking among culturally diverse people involves reaching a consensus on purpose, roles and methods of decision-making.
IHRM in international alliances • The international joint venture typically involves firms from different countries, each parent firm influencing the new firm. • Organizational and individual relations determine goals, processes and performance: • The two parent firms • Relations between: The new firm and the environment • Each parent and the new firm • Staffing and HR development between the two parents and the new firm help to create the management skills needed in these co-operative ventures.
Acquisitions and IHRM • Cross-border mergers and acquisitions now encompass companies from both developed and developing countries • Can involve privatization of a state-owned organization, or a state-controlled company taking over a privately-owned firm • Issues which arise: • Whether the targeted firm will have to slim down operations, and how • How to reconcile differing corporate cultures and HR policies • Degrees of integration are possible from independence to full integration.
Figure 9.8: Foreign acquisitions by emerging market companies Source: Financial Times, 29 November 2006
How Swedish MNCs select their expatriates: three case studies University essay from Luleå tekniska universitet/Industriell ekonomi och samhällsvetenskap/Industrial marketing and e-commerce Author: Moa Streling; [2008] Keywords: Expatriates; Expatriate selection process; Expatriate selection criteria; IHRM; Abstract: International human resource management is an important component of MNCs' global strategies and due to the complexity of managing international operations it is important to have the right people at the right place and at the right time. The purpose of this study is to gain a better understanding of how Swedish MNCs select their expatriate managers. With a qualitative and descriptive approach three case studies were conducted, looking at three Swedish MNCs by using in-depth telephone interviews. When looking at the motives for sending managers abroad as expatriates it was found that Swedish MNCs generally have the objective to develop the organizations abroad and implement informal control. Furthermore, it is common among Swedish MNCs to invest in expatriates if they believe that it can provide future advantages. Considering the expatriate selection process it was found that an informal expatriate selection generally is applied, where clearly defined characteristics of the selection process are hard to find. Finally, when looking at criteria for expatriate selection it was found that Swedish MNCs believe that the technical ability and the expatriate candidates' previous experience are important criteria for expatriate selection. CLICK HERE TO DOWNLOAD THE WHOLE ESSAY. (in PDF format)
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Conclusions • Meeting the challenge of managing people in diverse cultural environments is the focus of strategic IHRM. • Designing HR policy and practices in the MNE involves balancing corporate goals and strategy with local responsiveness and environmental sensitivities. • Evolving mechanisms for employee voice and involvement recognize the need to balance corporate and individual needs. • Cross-cultural competencies contribute to managing foreign subsidiaries and benefiting from local capabilities. • IHRM is crucial to the success of cross-border alliances and acquisitions.
