management development strategy

2. Chapter Eighteen
Global Human Resource
Management

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Human Resource Management
(HRM)
• Refers to the activities an organization carries out to
use its human resources effectively
• Four major tasks of HRM
- Staffing policy
- Management training and development
- Performance appraisal
- Compensation policy

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International Human Resource
Management
• Strategic role: HRM policies should be congruent with
the firm’s strategy and its formal and informal
structure and controls
• Task complicated by profound differences between
countries in labor markets, culture, legal, and
economic systems

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International Human Resource
Management

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Staffing Policy
• Staffing policy
- Selecting individuals with requisite skills to do a particular
job
- Tool for developing and promoting corporate culture
• Types of Staffing Policy
- Ethnocentric
- Polycentric
- Geocentric

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Ethnocentric Policy
• Key management positions filled by parent-country
nationals
• Best suited to international businesses
• Advantages:
- Overcomes lack of qualified managers in host nation
- Unified culture
- Helps transfer core competencies
• Disadvantages:
- Produces resentment in host country
- Can lead to cultural myopia

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Polycentric Policy
• Host-country nationals manage subsidiaries
• Parent company nationals hold key headquarter positions
• Best suited to multi-domestic businesses
• Advantages:
- Alleviates cultural myopia
- Inexpensive to implement
- Helps transfer core competencies
• Disadvantages:
- Limits opportunity to gain experience of host country nationals
outside their own country
- Can create gap between home and host country operations

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Geocentric Policy
• Seek best people, regardless of nationality
• Best suited to global and trans-national businesses
• Advantages:
- Enables the firm to make best use of its human resources
- Equips executives to work in a number of cultures
- Helps build strong unifying culture and informal
management network
• Disadvantages:
- National immigration policies may limit implementation
- Expensive to implement due to training and relocation
- Compensation structure can be a problem

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Comparison of Staffing
Approaches

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The Expatriate Problem
• Expatriate: citizens of one country working in another
- Expatriate failure: premature return of the expatriate
manager to his/her home country
• Cost of failure is high: estimate = 3X the expatriate’s annual
salary plus the cost of relocation (impacted by currency
exchange rates and assignment location)
• Inpatriates: expatriates who are citizens of a foreign
country working in the home country of their
multinational employer

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Reasons for Expatriate
Failure
• US multinationals
- Inability of spouse to adjust
- Manager’s inability to adjust
- Other family problems
- Manager’s personal or
emotional immaturity
- Inability to cope with larger
overseas responsibilities
• European multinationals
• Inability of spouse to adjust
• Japanese Firms
- Inability to cope with larger
overseas responsibilities
- Difficulties with the new
environment
- Personal or emotional
problems
- Lack of technical
competence
- Inability of spouse to adjust

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Expatriate Failure Rate

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Expatriate Selection
• Reduce expatriate failure rates by improving selection
procedures
• An executive’s domestic performance does not
(necessarily) equate to his/her overseas performance
potential
• Employees need to be selected not solely on technical
expertise, but also on cross-cultural fluency

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Four Attributes that
Predict Success
• Self-Orientation
- Possessing high self-esteem, self-confidence and mental
well-being
• Others-Orientation
- Ability to develop relationships with host country nationals
- Willingness to communicate

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Four Attributes that
Predict Success
• Perceptual Ability
- The ability to understand why people of other countries
behave the way they do
- Being nonjudgmental and flexible in management style
• Cultural Toughness
- Relationship between country of assignment and the
expatriate’s adjustment to it

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Training and Management
Development
• Training: Obtaining skills for a particular foreign
posting
- Cultural training: Seeks to foster an appreciation of the host
country’s culture
- Language training: Can improve expatriate’s effectiveness,
aids in relating more easily to foreign culture, and fosters a
better firm image
- Practical training: Ease into day-to-day life of the host
country

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Training and Management
Development
• Development: Broader concept involving developing
manager’s skills over his or her career with the firm
- Several foreign postings over a number of years
- Attend management education programs at regular
intervals

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Repatriation of Expatriates
• A critical issue in the training and development of
expatriate managers is preparing them for reentry into
their home country
• Repatriation should be seen as the final link in an
integrated, circular process that selects, trains, sends,
and brings home expatriate managers
• Research shows that there is a problem with the
repatriation process

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Repatriation of Expatriates
Didn’t know what position they
hold upon return.
Firm vague about return, role
and career progression.
Took lower level job.
Leave firm within
one year.
Leave firm within
three years
10 20 30 40 50 60 70
percent

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Management Development and
Strategy
• Development programs designed to increase the
overall skill levels of managers through:
- Ongoing management education
- Rotation of managers through a number of jobs within the
firm to give broad range of experiences
• Used as a strategic tool to build a strong unifying
culture and informal management network
• Above techniques support transnational and global
strategies

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Performance Appraisal
• Problems:
- Unintentional bias
• Host nation biased by cultural frame of reference
• Home country biased by distance and lack of
experience working abroad
• Expatriate managers believe that headquarters unfairly
evaluate and under-appreciate them
• In a survey of personnel managers in U.S.
multinationals, 56% stated foreign assignment either
detrimental or immaterial to one’s career

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Guidelines for Performance
Appraisal
• More weight should be given to on-site manager’s
evaluation as they are able to recognize the soft
variables
• Expatriate who worked in same location should assist
home-office manager with evaluation
• If foreign on-site managers prepare an evaluation,
home-office manager should be consulted before
completion of formal evaluation

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Compensation
• Two issues:
- Pay executives in different countries according to the
standards in each country or equalize pay on a global basis
- Method of payment

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Compensation in Various
Countries

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Expatriate Pay
• Typically use balance sheet approach
- Equalizes purchasing power to maintain same standard of
living across countries
- Provides financial incentives to offset qualitative differences
between assignment locations

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Components of Expatriate Pay
• Base Salary
- Same range as a similar position in the home country
• Foreign service premium
- Extra pay for work outside country of origin
• Allowances
- Hardship, housing, cost-of-living, and education
allowances
• Taxation
- Firm pays expatriate’s income tax in the host country
• Benefits
- Level of medical and pension benefits identical
overseas

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The Balance Sheet Approach

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International Labor
Relations
• Key Issue
- Degree to which organized labor can limit the choices of an
international business
• Aims to foster harmony and minimize conflicts
between firms and organized labor

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Concerns of Organized
Labor
• Multinational can counter union bargaining power
with threats to move production to another country
• Multinational will keep highly skilled tasks in its
home country and farm out only low-skilled tasks to
foreign plants
- Easy to switch locations if economic conditions warrant
- Bargaining power of organized labor is reduced
• Attempts to import employment practices and
contractual agreements from multinational’s home
country

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Strategy of Organized
Labor
• Attempts to establish international labor organizations
• Lobby for national legislation to restrict multinationals
• Attempts to achieve international regulations on
multinationals through such organizations as the
United Nations

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Looking Ahead to Chapter 19
• Accounting in the International Business
- Country Differences in Accounting Standards
- National and International Standards
- Multinational Consolidation and Currency Translation
- Accounting Aspects of Control Systems