BBK3363 | International Business Environment by Dr Khairul Anuar

1. BBK3363| International Business Environment by Dr Khairul Anuar L4: Global Human Resource Management

2. Case: Molex • World’s second largest manufacturer of electronic components • 50 manufacturing plants, 21 countries • HRM viewed as most localized of all the functions • Hires experienced, educated foreign nationals in the US for foreign postings • Moves people around the world • In house management development programs

3. Human Resource Management It refers to the activities an organization carries out to use its human resources effectively. These activities include: • Determine firm’s HR strategy • Staffing • Performance Evaluation • Management Development • Compensation • Labour relations

4. Importance of HRM • Related to the strategy of the firm. • Influence on the character, development, quality and productivity of firm’s HR • Helps firms to achieve strategic goal of reducing cost of value creation • Helps firms add value by serving customer needs better.

5. How different is Global HRM? Several key factors make Global HRM different from domestic management: • Different labour markets • Mobility problems: legal, economic, cultural barriers • Different management styles • Varied compensation practices • Labour laws.

6. Key Issues • How to staff key management posts in the Co.? • How to develop managers, who can do business in different countries? • How to compensate people in different nations? • How to evaluate the performance of managers in different countries? • Expatriate managers

7. Strategic Role of Global HRM • Strategy is implemented through organizational architecture. • Right people at right postings. • Effective training to acquire right skill set to help perform jobs effectively. • Behaviour, congruent with the desired organizational culture. • Compensation must create incentives for actions inline with the strategy. • Performance appraisal to measure the behaviour, firm wants to encourage.

8. Key Issues • Staffing Policy • Training and Management Development • Performance Appraisal • Compensation

9. Staffing Policy Staffing policy is concerned with the selection of employees for particular jobs. • Selecting individuals who have the skill to do a particular job. • Tool for developing and promoting the desired corporate culture (norms & value system) of the firm.

10. Types of staffing policies There are three types of staffing policies in IB: • Ethnocentric approach • Polycentric approach • Geocentric approach

11. Ethnocentric approach • All key management positions are filled by parent – country nationals. • One’s own culture is superior • Overlooks important cultural factors • Host country lacks qualified professionals • Maintain a unified corporate culture • Create value by transferring core competencies • Limits advancement opportunities for host country nationals • Leads to resentment, lower productivity, and high turnover in employees. • E.g.: Procter & Gamble, Toyota and Matushita

12. Ethnocentric approach • Advantages: • Overcomes lack of qualified managers in host nation • Unified culture • Helps transfer core competencies (and skills back) • Disadvantages: • Produces resentment in host country • Can lead to cultural myopia

13. Polycentric approach • Decentralized control • Business Units in different countries have autonomy from home office, like a local Co. • No standard forms or procedures • Recruits host country nationals to manage subsidiaries, while parent country nationals occupy key positions at corporate HQ. • Firm is less likely to suffer from cultural myopia. • Less expensive to implement • Host country nationals have limited opportunities to gain experience outside their own countries • Gap due to language barriers, cultural differences may isolate corporate HQ from foreign subsidieries.

14. Polycentric approach • 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

15. Geocentric approach • It seeks the best people for key jobs, throughout the organization, regardless of nationality. • Hybrid of Ethno and Poly • Based on informed knowledge of home and host countries. • Enables firms to make best use of its HR • Helps the firm to build a cadre of international executives, who feel at home working in No. of countries. • Helps building a strong unifying corporate culture and informal management network. • Reduces cultural myopia • Enhance local responsiveness

16. Geocentric approach • 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.

17. Training and Management Development • After selection, the next step is training the manager to do the specific job. • Management development plan (MDP) is a broader concept, it is intended to develop a manager’s skills over her career in the firm, e.g., sending managers on various foreign postings over years to build her cross cultural sensitivity and experience. • To enhance management and leadership skills of executives. • MDP have a strategic purpose, and helps reinforce desired culture of the firm by creating an informal network.

18. Types of training • Cultural training – understanding the culture of host country, enhance effectiveness, familiarization trip before formal transfer. • Language training – manager’s ability to interact, help build rapport and improve manager’s effectiveness. • Practical training – adjust to day to day life in host country, establish a routine, successful adaptation, support network of friends

19. Performance Appraisal • These are the systems used to evaluate the performance of managers against some criteria, that the firm judges to be important for the implementation of strategy and attainment of competitive advantage. • Important elements of control system. • 2 groups evaluate the performance of Expatriates, - Host country managers and home country managers. • Biasness by cultural frame of reference and expectations • Unfair evaluation • Due to proximity, onsite manager should evaluate soft variables of expatriate’s performance. • Consultation of home country manager to balance out.

20. Compensation • National differences in compensation • Payments according to global standards or country specific standards. • Issues in compensation practices: • How compensation should be adjusted to reflect national differences in economic circumstances and practices? • How should the expatriate managers be paid?

21. Expatriate Managers • Expatriates are citizens of one country, who are working in another country. • Inpatriates is a subset of expatriates who are citizens of a foreign country, working in the home country of their multinational employer. (e.g., citizen of India, who moves to U.S to work for Microsoft)

22. Expatriate selection Four dimensions that predict success in a foreign posting: • Self orientation – self esteem, self confidence, mental well being, adapt their interest in food, sports, music and hobbies. • Others orientation – ability to interact with host country’s nationals, relationship development and willingness to communicate by learning local language. • Perceptual ability – to understand the particular behaviour of people in host countries, empathise. • Cultural toughness – relationship between country of assignment and how well an expatriate adjusts

23. Expatriate Pay • Acc. To “Balance Sheet Approach”, it equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting, as the enjoyed at home. • It also provides financial incentives to offset qualitative differences between assignment locations.

24. 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. Reasons for expatriate failure

25. Expatriate Pay - Balance Sheet Approach

26. Components of a typical compensation package • Base Salary – in same range as base salary for similar position in home country. • Foreign Services Premium – extra pay to work outside country of origin. Offered as inducements to accept foreign postings. Compensates for living in an unfamiliar country. • Allowances – • Hardship allowance – difficult location, where basic amenities like health care schools, etc are deficient. • Housing allowance – to afford same quality of housing • Cost of living allowance – maintain std. of living • Education Allowance – expatriate’s children receive same std. of education as in home country • Taxation • Benefits – Medical, pension, etc.