Global HRM Functions and Issues in Managing Expatriates

1. Chapter 18 Global Human Resource Management

2. Learning Objectives • Discuss the strategic role of HRM • Examine HRM major functions • Staffing policy • Training and development • Performance appraisal • Compensation policy • Labor relations • Identify issues and problems in staffing and managing expatriates IBUS 330 Dr. Nini Yang

3. The Strategic Role of International Human Resource Management • To insure that HRM policies are congruent with and in support of the firm’s strategy, structure and controls. IBUS 330 Dr. Nini Yang

4. Strategy, Structure and Control Systems International Strategy StructureMulti-domestic International Global Transnational& Controls Centralization of operating decision Decentralized Core competency Some Mixed centralized centralized centralized and decentralized Rest decentralized Informal matrix Horizontal differentiation Worldwide area Worldwide Worldwide Informal structure product division product division matrix Need for coordination Low Moderate High Very high Integrating mechanisms None Few Many Very many Performance Ambiguity Low Moderate High Very high Need for cultural controls Low Moderate High Very high Table 18.1 IBUS 330 Dr. Nini Yang

5. Staffing Policy • Staffing policy: • Selecting individuals with requisite skills to do a particular job. • Also as tools for developing and promoting corporate culture. • Types of staffing policy: • Ethnocentric. • Polycentric. • Geocentric. IBUS 330 Dr. Nini Yang

6. Types of Staffing Policy Geocentric Ethnocentric Polycentric Seek best people, regardless of nationality Key management positions filled by parent-country nationals Host-country nationals manage subsidiaries, parent company nationals hold key Headquarter positions IBUS 330 Dr. Nini Yang

7. Approach Appropriateness Advantages Disadvantages Overcomes lack of Produces resentment Ethnocentric International in host nation Unified culture Can lead to cultural myopia Helps transfer core competencies Polycentric Multi-domestic myopia Isolates headquarters implement subsidiaries Geocentric Global and efficiently policies may limit implementation Helps build strong culture and informal management network Expensive Comparison of Staffing Approaches Staffing Strategic qualified managers in host country Higher cost Alleviates cultural Limits career mobility Inexpensive to from foreign Uses human resources National immigration Transnational Table 18.2 IBUS 330 Dr. Nini Yang

8. The Expatriate Problem • Citizens of the firm’s home country working in another country • Expatriate failure: • Premature return of the expatriate manager to his/her home country • Cost of failure is high: • Estimate at three times of an expatriate’s annual salary plus the cost of relocation (impacted by currency exchange rates and assignment location) • $250,000-1million IBUS 330 Dr. Nini Yang

9. Expatriate Failure Rates Recall Rate Percent Percent of Companies US Multinationals 20 - 40% 7% 10 - 20% 69 < 10 24 European Multinationals 11 - 15% 3% 6 - 10 38 <5 59 Japanese Multinationals 11 - 19% 14% 6 - 10 10 <5 76 Table 18.3 IBUS 330 Dr. Nini Yang

10. U.S. 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 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 Reason for Expatriate Failure European Multinationals: Inability of spouse to adjust. IBUS 330 Dr. Nini Yang

11. Expatriate Selection An executive’s domestic performance does not necessarily equate to his/her overseas performance. • Self-orientation: • Strengthen self-esteem, self-confidence and mental well-being • Others-orientation: • Enhance ability to interact with host country nationals • Perceptual ability: • The ability to empathize - understand why people in host-country behave the way theydo • Cultural toughness: • How well an expatriate adjusts to a particular posting tends to be related to the countryof assignment Mendenhall & Oddou’s Predictors of success IBUS 330 Dr. Nini Yang

12. Training and Management Development Training: Obtain skills for a particular (foreign) posting. Development: Develop manager’s skills over his/her career in the Firm. IBUS 330 Dr. Nini Yang

13. 1. Culture 2. Language 3. Practical Training for Expatriate Managers • Cultural: Seeks to foster an appreciation of the host-country’s culture. • Language: Can improve expatriate’s effectiveness, relate more easily to culture and fostered a better firm image. • Practical: Ease into day-to-day lifeof the host country. IBUS 330 Dr. Nini Yang

14. 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 percent 10 20 30 40 50 60 70 IBUS 330 Dr. Nini Yang

15. Management and Development Strategy • Programs designed to increase overall skill through a mix of education and assignment rotations • Provides varied experience • Attempt to improve firm’s management productivity and quality • Particularly true for transnational strategy • Unifying corporate culture and management networks • Socialize norms and value systems • Foster esprit de corps • Build informal networks • Strengthen identification with company IBUS 330 Dr. Nini Yang

16. 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 evaluates and appreciates them. • Many believe a foreign posting does not benefit their career. IBUS 330 Dr. Nini Yang

17. Guidelines for Performance Appraisal More weight given to onsite manager’s evaluation. Expat who worked in same location should assist home-office manager with evaluation. If foreign on-site manager preparing evaluation, home-office manager should be consulted before finalization. IBUS 330 Dr. Nini Yang

18. Compensation • Two issues: • How to adjust compensation to reflect national differences in economic circumstances and compensation practices. • How expatriate managers should be paid. IBUS 330 Dr. Nini Yang

19. National Differences in Compensation Table 18.4 IBUS 330 Dr. Nini Yang

20. Compensation Issues IBUS 330 Dr. Nini Yang

21. Expatriate Pay • Typically use balance sheet approach. • Equalizes purchasing power across countries. • Provides financial incentives to offset qualitative differences between assignment locations. • Components of a typical expatriate compensation package include: • Base salary. • Foreign service premium. • Various allowances. • Tax differentials. • Benefits. IBUS 330 Dr. Nini Yang

22. Home and Host-Country Income Taxes Income Taxes Premiums and Incentives Housing Income Taxes Income Taxes Housing Goods and Services Housing Housing Goods and Services Goods and Services Goods and Services Reserve Reserve Reserve Reserve Home-Country Salary Host-Country Costs Host-Country Costs Paid by Company and from Salary Home- Country Equivalent Purchasing Power A Typical Balance Sheet Additional Costs Paid by Company Figure 18.1 IBUS 330 Dr. Nini Yang

23. International Labor Relations • Foster harmony and minimize conflict between the firm and organized labor. • Key issue: • Degree to which organized labor can limit the choices of an international business. IBUS 330 Dr. Nini Yang

24. Concerns of Organized Labor • Firms can counter bargaining power by threatening to move production to another country. • International business will keep highly skilled tasks in home country and farm out only low-skilled tasks to foreign plants. • Importing employment practices and contractual agreements from home country that may diminish union’s influence and power. IBUS 330 Dr. Nini Yang

25. Strategy of International Labor • Try to establish international labor organizations. • Lobby legislatures to restrict multinationals. • Use united nations to regulate multinationals. Efforts have not been successful. IBUS 330 Dr. Nini Yang

26. Multinationals’ Approach to Labor Relations • Decentralize: labor laws, union power and nature of collective bargaining vary from country to country • Now a trend toward centralization: • Want to rationalize global operations • Need to control labor costs and maximize threat of move to lower cost country • Competitive advantage can come from the way work is organized in a plant. Bargaining with local unions is, therefore, a priority • Before move, get new union approval for work practices IBUS 330 Dr. Nini Yang

27. Implication for Effective IHR • Human Resource Management practices vary across borders. • Both home-country and host-country economic, social, cultural, political, and legal factors influence and constrain HR functions. • Corporate strategies guide and determine how HR works in an organization. • Global experience and good knowledge of IHR can enhance one’s career as a successful manager whether one works at the home-country headquarters or overseas. IBUS 330 Dr. Nini Yang