International Human Resources Strategy

1. International Human Resources Strategy Lidija Dzanic Tua Lindholm Lea Wakolbinger Mirjam Zerjav VK Internationale Unternehmensführung WS 2004/05

2. Agenda • Business strategies • Staffing approaches • Different types of managers • Expatriation vs. inpatriation • Case study • Conclusion

3. Introduction • Nowadays globalization is more present • Requires globally competent managers • IHRM is becoming more important • IHRM is major determinant of success or failure in international business • Global integration is neccesary in HRM • Core competency – local adaptation

4. Business strategies (1) Domestic • New products or services for the domestic market • Foreign markets and international managerial skillslargely irrelevant

5. Business strategies (2) International • Competition increases • Companies expand internationally • Hierarchical structure • Structural and cultural dominance • First home country managers abroad as expatriates

6. Business strategies (3) Multinational • Least-cost and standardized products and services • Worldwide lines of business • Decisions made by people from a wider range of cultures • Values of the headquarter’s national culture dominate • Senior managersneed to understand the world business environment

7. Business strategies (4) Transnational • Global competition • Identical products are distributed worldwide • Research and development • Firms become less hierarchically structured • Transnational human resource strategies are being developed

8. Characteristics of effective IHRM • Transnational scope • Geographical context within which all major decision are made • Transnational representation • Multinational composition of the managers and executives • Transnational process • Firm’s ability to include representatives and ideas from many countries

9. Ethnocentric approach (1) • Parent country nationals (PCNs) take all key positions in a multinational company • In the early stages of internationalization • Reasons for pursuing this policy: • Lack of qualified host country nationals (HCNs) • Ability of theparent country nationals (PCNs) to coordinate subsidiary • TransferringKnow-how

10. Ethnocentric approach (2) • Problems that may occur: • Adaptation of PCNs to a host country may take a long time • Promotion opportunities of local managers are limited • PCNs’ lack ofsensitivity

11. Polycentric approach (1) • Companies following this staffing policy use HCNs in their subsidiaries and PCNs in corporate headquarters • Advantages: • No more language barriers and adjustment problems of expatriates • The employment of HCNs is less expensive • Morale and career opportunities of local stuff

12. Polycentric approach (2) • Disadvantages: • Weak links between the independent national units and headquarters • Lack of experience of both HCNs & PCNs is a liability in an increasingly competitive international environment

13. Geocentric approach (1) • Best people get key jobs, nationality is not important • Advantages: • A pool of senior international managers is developed • Tendency of national identification of managers with subsidiary units is reduced

14. Geocentric approach (2) • Disadvantages: • Immigration laws which require the employment of local nationals are used by many host countries • Difficult to implement because of increased training, compensation and relocation costs • Longer lead times and more centralized control of the staffing process are required

15. Regional approach • Staffing strategy with emphasis on different regional markets • Factors for staffing decisions: • Need of area expertise • Need of product expertise

16. Managerial mindset • 4 typical mindsets • Closely associated • From the least global to the most global mindset • Defender • Explorer • Controller • Integrator

17. Defender • Internally focused • Oriented to the domestic market • Satisfied with domestic operations • Uninterested in making foreign actions • Almost no international element • Foreign elements in domestic market are unwanted

18. Explorer • Aware of business opportunities in foreign markets • Perceives foreign markets as not dangerous • Treats international forays with a lot of caution • Prefers strategies of exporting and franchising • Domestic business is larger than international, is predominant • Foreign operations are managed from the head office located in the home country

19. Controller • More externally oriented thanthe explorer • Dominates in foreign markets with procedures which were successful in domestic market • Understands the nature of cultures • Important: controller’s head office spends time on controlling and less on coordinating • Approval and sanction needed from the head office

20. Integrator • Global perspective • Knowledge and skills • Understands, is aware, is competent • Able to manage differences between people, values and cultures • Coordinates more than controls • Critical function is creating mechanisms for knowledge flow and transferring it from one part of the global system to another

21. Good international manager Ability to develop • Effective local strategies • Local government relations • Cultural leadership skills • Social networking skills • Teamwork skills • Good understanding of business environment • Insightful local social knowledge (Harvey et al.)

22. Dimensions of IHRM • Knowledge-based view of the firm (Harvey et al.) • Tangible vs. intangible dimensions of HRM • Development of a common knowledge basis (Grant)

23. Expatriation vs. inpatriation (1) 1) Harvey et al. Decision factors • Value of tacit local knowledge • Cultural and economic distance • Equivocality of subsidiary goals

24. Expatriation vs. inpatriation (2) 2) Torbiörn Decision factors • Openness of economic region • Political instability

25. Expatriation vs. inpatriation (3) Low Cultural Distance High High Level of Economic Development Low

26. Advantages of inpatriate use • Effective „boundary spanners“ • Advice with HR practices • Satisfaction with HR strategy in foreign subsidiaries • More acceptance on return (Harvey et al.)

27. Mergers and acquisitions • Double-staffing strategy • Inpatriates  communication • Expatriates  coordination (Torbiörn)

28. Expatriation • Overall increasing trend in expatriation (especially UK) • British view IHRM as essential contributor to strategic management • US: more inpatriation due to high expatriate failures (Scullion)

29. Expatriate failure • Direct and indirect costs • Main reasons: • Inability of spouse to adjust • Poor performance (Scullion)

30. Training, selection and repatriation • Selection: not only technical, but also personal skills (Scullion) • Cross-cultural training approach (Mendenhall and Oddou) • Information • Affection • Immersion • Effective repatriation programs (Scullion, Dessler)

31. Case study • 319 000 employees • 170 countries • advanced information technologies: computer systems, software, storage systems, microelectronics

32. Beginning in 1888 • Incorporated in 1911 • 1300 employees

33. 1914 Thomas J. Watson • Revenues doubled and business expanded • The base for the strong organizational culture today

34. Interview • Dr. Haberl, manager of Media Relations

35. Local workforce • Inpatriates not typical • Expatriation–not mainly knowledge transfer • Expatriation at IBM a part of a manager‘s career • No loss of control

36. Strong organizational culture • „myth of Watson“ • Helpful in the long run • Social tacit knowledge • Explicit knowledge

37. Locals are no locals anymore after entering IBM • IBMer • Same rules all over the world

38. Training opportunities • Internal technological structure • Helping institutions • „Buddy-system“ • Other training opportunities

39. Conclusions • HR strategy must match with corporate strategy • Decision factors that matter in the context of the company’s IHRM strategy should be defined before entering emerging markets

40. THE END THANK YOU FOR YOUR ATTENTION