International Human Resource Management (IHRM) and Labor Relations

1. International Human Resource Management (IHRM) and Labor Relations Chapter 20

2. IHRM & Labor Relations: Topic Outline • IHRM • definition, complications, strategic significance • International Managerial Staffing Needs • scope of internationalization • centralization vs decentralization of control • staffing philosophy • Recruitment & Selection • expatriate issues and repatriation • Labor Relations • labor relations around the globe • labor relations and globalization

3. Definition • Human resource management (HRM) is the set of activities directed at attracting, developing, and maintaining the effective workforce necessary to achieve a firm’s objectives. Recruiting and selecting employees, providing training and development, appraising performance, and providing compensation and benefits are all part of HRM.

4. Complications for IHRM compared to HRM • International HR managers face a more complex task than their domestic counterparts because differing cultures, levels of economic development, and legal systems among countries may require companies to adapt their hiring, firing, training, and compensation programs to each country.

5. Complications for IHRM compared to HRM • Firms must decide whether managers will be selected from the home country, from the host country or from third countries. • Training and development in an international firm may be more complex than in a domestic firm. • Compensation systems must be adapted to meet the needs of each country’s labor market.

6. Strategic Significance • The international HRM process involves understanding the strategic context of HRM within the firm’s overall strategy, recruiting and selecting appropriate managerial personnel, providing necessary training and development, assessing performance, providing compensation, and evaluating managerial retention and turnover.

7. International Managerial Staffing Needs • There are two broad categories of staffing needs facing international human resource managers: (1) recruiting, training, and retaining managerial and executive employees; and (2) recruiting, training, and retaining nonmanagerial employees such as blue-collar production workers and white-collar office staff.

8. International Managerial Staffing Needs • For nonmanagerial employees, international firms normally adapt their compensation and performance appraisal systems to local laws, customs, and cultures. The text notes for example, that while U.S. workers appreciate feedback from an appraisal system, German workers are resentful of feedback.

9. International Managerial Staffing Needs • Most firms begin their international expansion with small-scale exporting. Thus, during a firm’s initial foray into foreign markets a home-country citizen, who may or may not have special training in working in foreign markets, usually manages the firm’s international transactions.

10. International Managerial Staffing Needs • Later when the firm establishes an international department, subsidiary managers (usually host country citizens) report to the vice-president of the international division (usually a home country citizen).

11. International Managerial Staffing Needs • As a firm further expands its operations in a global organization, a team of managers with expertise in the firm’s product lines, necessary functional skills, individual country markets, and the firm’s global strategy is usually assembled.

12. International Managerial Staffing Needs • Firms that centralize decision making at headquarters typically favor home-country managers while firms that decentralize decision making to the subsidiary level often employ host country nationals. Since most companies do not fall at one extreme or the other, most companies have a combination of both home and host country managers.

13. International Managerial Staffing Needs • Managers can be hired from three groups: parent country nationals; host country nationals; and third country nationals. Parent country nationals (PCNs) are residents of the international business’s home country who are transferred to one of its foreign operations.

14. International Managerial Staffing Needs • Communications and coordination with corporate headquarters is typically facilitated when PCNs are employed because they normally share a common culture and education background with headquarters’ staff.

15. International Managerial Staffing Needs • PCNs may however, lack knowledge of local laws, culture, economic conditions, social structure, and political processes. Moreover, they may be expensive to relocate and maintain the host country. In addition, because a host country may impose restrictions on the number of employees that can be transferred, a company may not have the freedom to hire whom it wants.

16. International Managerial Staffing Needs • Host country nationals (HCNs) are residents of the host country, and are the most common choice for mid-level and lower-level jobs. Employing HCNs is popular because they are already familiar with local laws, culture, and economic conditions.

17. International Managerial Staffing Needs • Also, HCNs may be cheaper than PCNs because a firm can avoid the costs such as relocation expenses that are associated with PCNs. • However, an HCN may not be familiar with the firm’s corporate culture nor its business practices.

18. International Managerial Staffing Needs • Third country nationals(TCNs) are citizens of neither the firm’s home country nor of the host country. TCNs are most likely to employed in upper-level or technical positions. TCNs and PCNs are collectively known as expatriates (people working and residing in countries other than their native country).

19. International Managerial Staffing Needs • An ethnocentric staffing model may be used to help a firm choose among HCNs, PCNs, and TCNs for various positions. The model indicates that PCNs staff most higher-level positions.

20. International Managerial Staffing Needs • Other firms may follow a polycentric staffing model where, based upon the belief that HCNs know the local market best, the use of HCNs is high. • Finally, firms that want to hire the most qualified person for the job, regardless of the individual’s nationality, follow the geocentric staffing model.

21. Recruitment & Selection • The skills and abilities needed by international managers fall into two general categories: those needed to do the job and those needed to work in a foreign location.

22. Figure 20.2 Necessary Skills and Abilities for Intl Managers

23. Recruitment & Selection • Today, as businesses globalize, the market for executive talent is also globalizing. Top management teams are increasingly diverse in their members. • While most MNCs do not hire new college graduates to take foreign positions immediately, many hire graduates with the intention of sending them abroad in the future.

24. Recruitment & Selection • The selection process in international firms is particularly important because of the high cost of expatriate failure. Expatriate failure is the early return of an expatriate manager to his or her country because of an inability to perform in the overseas assignment. The cost of expatriate failure ranges between $40,000-$250,000.

25. Recruitment & Selection • Expatriate failure rates may be as high as 20-50 percent in many U.S. companies, higher than for either European or Japanese companies.

26. Recruitment & Selection • Managers sent on foreign assignments may experience culture shock, a psychological phenomenon that may lead to feelings of fear, helplessness, irritability, and disorientation. Acculturation typically proceeds through four phases.

27. Because an expatriate suffering from culture shock may be less effective and productive, companies typically take measures to limit its effects such as providing pre-departure language and cultural training.

28. Figure 20.3 Phases in Acculturation

29. Recruitment & Selection • In most cases, expatriates fail to complete their foreign assignments because of an inability of the expatriate manager, or his or her spouse and family, to adapt to the new location.

30. Recruitment & Selection • Firms are now beginning to pay more attention to repatriation--bringing a manager back home after a foreign assignment has been completed. Individuals that successfully adapted to the foreign environment may experience culture shock upon returning to their own country.

31. Recruitment & Selection • Regarding “non-cultural” issues leading to success or failure overseas, managers tend to be more successful in foreign assignments when 5 conditions are met: • 1. they can freely decide whether or not to accept a foreign assignment • 2. they have a realistic understanding of the new job and assignment

32. Recruitment & Selection • 3. they have a realistic expectation of a repatriation assignment • 4. they have a mentor in the parent firm who will look out for their careers • 5. there is a clear link between the foreign assignment and the manager’s long-term career path.

33. Recruitment & Selection • Compensating expatriate managers can be a complex process because factors such as differences in currency valuation, standards of living, lifestyle norms, and so forth must be taken into consideration.

34. Recruitment & Selection • A cost-of-living allowance may be given to managers to offset differences in the cost-of-living in the home and host countries. A hardship premium (also known as a foreign service premium) may be paid to mangers who accept assignments in relatively unattractive locations.

35. Recruitment & Selection • Special benefits packages that may be provided to expatriate managers include housing, education, medical treatment, travel to the home country, and club memberships. The text provides specific examples of how and why firms provide these benefits.

36. Recruitment & Selection • In many cases the total compensation package offered to an expatriate is much more lucrative than the package offered to his or her local counterpart.

37. Recruitment & Selection • The simplest and most useful advice for those considering an overseas assignment is to carefully weigh the “flip side” of all the issues just mentioned, from your perspective. And, to not take anything for granted about how conditions will be when you arrive (doing one’s homework pays).

38. Labor Relations • A country’s laws, culture, social structure, and economic conditions may impact labor relations. The text notes for example that the role of unions varies greatly among countries. In the U.S. membership in unions has been steadily decreasing, but over half the world’s workforce outside the U.S. belong to unions.

39. Labor Relations • Unions in the European countries tend to be aligned with political parties, but in Japan are created and run by the firms themselves. In fact, labor relations in Japan are so cordial that strikes are rare.

40. Labor Relations • The premise of industrial democracy--the belief that workers should have a voice in how businesses are run--is an important influence in labor unions in Europe. In fact, in Germany an approach called codetermination provides for cooperation between management and labor in running a business.

41. Labor Relations • The EU’s implementation of its social charter (or social policy)whereby employment conditions and practices will be standardized throughout the community is addressing issues such as maternity leave, job training, and pension benefits.

42. Labor Relations • Finally, labor unions have had their bargaining power reduced by globalization. However, there is very little coordination between unions in different countries to counter that reduction in bargaining power.

43. IHRM & Labor Relations: Topic Outline • IHRM • definition, complications, strategic significance • International Managerial Staffing Needs • scope of internationalization • centralization vs decentralization of control • staffing philosophy • Recruitment & Selection • expatriate issues and repatriation • Labor Relations • labor relations around the globe • labor relations and globalization