Managing Human Resources Globally Abie Widyatmojo 1306355990 Adrianus 1306356021 Agus Belfrid P. Sihombing 1306356034 Caroline Ekaputri 1306419602 Donny Ganjar Prabowo Widiastomo 1306356601 Pamela Indrajati Suryoputro 1306420163 Ulung GK Khoe 1306357636 Vincent Ricky Tanubrata 1306420466 William Suhaidir 1306357730

Introduction Indonesia with 250 million people where 66% are economically active* have always been proud of itself to have cheap and good labor. But is this an illusion? (Is our engineer and consultant better compare to India, China, malaysia or even australia? In summary can they give better results with cheaper price?) How much cost do these expatriate talent actually cost? Since they need training, adjustment period, visa, culture shock. Do these additional cost actually in the end justify the lower paycheck and better resume? We will try to answer some of these problems in the presentation and how in the end expatriate might be usefull or even costly to your business. *Data from world bank 17/11/2014

Current Global Changes

Current Global Changes .. Cont. European Economic Community (EEC) Began in 1992 Commerce regulated by an overseeing body – European Commission (EC) In 1999, introducing Euro as single currency for EEC members By 2004, 27 European countries has joined EEC North American Free Trade Agreement (NAFTA) Initiated by free trade agreement of Canada and US in 1989 Now NAFTA covered Canada, US and Mexico The Growth of Asia Japan has become dominant economic force for over 20 years Recently Singapore, Hong Kong and Malaysia have become significant economic forces in addition to China and India ASEAN is one of the economic forces in south east asia General Agreement on Tariffs and Trade (GATT) An international framework of rules & principles for reducing trade barriers Established World Trade Organization (WTO) to resolve disputes among GATT members

Factors Affecting HRM in Global Markets Culture Education – Human Capital Political – Legal System Economic System

Uncertainty Avoidance Culture Geert Hofstede’s Classic Study of Culture Power Distance the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally. Individualism the degree of interdependence a society maintains among its members Masculinity The fundamental issue here is what motivates people, wanting to be the best (masculine) or liking what you do (feminine). Uncertainty Avoidance The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid. Pragmatism how every society has to maintain some links with its own past while dealing with the challenges of the present and future Indulgence the extent to which people try to control their desires and impulses

Education – Human Capital Majorly determined by the educational opportunities available to the labour force Countries with low human capital attract facilities that require low skills and low wage levels. The opposite to that will be an attractive sites for direct foreign investment that creates high skill jobs. Indonesia ranks 61 out of 122 countries - Human Capital Report 2013 - World Economic Forum. Finland is on the top of the ranks followed by Singapore (3), Australia (13), Korea Republic (17), Germany (19), Israel (27), Japan (28), United Arab Emirates (29), Malaysia (34), Saudi Arabia (55), China (58), India (63), Phillipnes (65), Vietnam (73), Thailand (79), and Yemen on the bottom of the ranks (122).

Political – Legal System The political/legal system often dictates requirements of certain HRM practices, such as training, compensation, hiring and layoffs. Legal system is an outgrowth of the culture, reflecting societal norms. U. S. has led the world in eliminating discrimination in the workplace and controlling the process of labor management negotiations. Germany has provided employees with a legal right to "codetermination" in the workplace. ( Codetermination is a concept that involves the right of workers to participate in management of the companies they work for, Codetermination aims principally to give worker a voice in the company decisions ) The EEC (European Economic Community) provides fundamental social rights of workers: freedom of movement and freedom to choose one's occupation and be fairly compensated.

Economic System A country's economic system influences HRM in a number of ways In socialist economies, there is little economic incentive to develop human capital, but ample opportunity exists because education is free. In capitalist systems, the opposite situation exists, with higher tuition at state universities but economic incentives exist through individual salaries. Every country varies in terms of culture, human capital and their legal, political and economic systems.

Managing Employees in a Global Context A parent country is the country in which the company's corporate headquarters is located. A host country is the country in which the parent country organization seeks to locate (or has already located) a facility. A third country is a country other than the host country or parent country.

Types of International Employees Expatriate - employee sent by a company in one country to manage operations in a different country. Parent-country nationals (PCNs) - employees who were born and live in a parent country. Host-country nationals (HCNs) - employees who were born and raised in the host country. Third-country nationals (TCNs) - employees born in a country other than the parent country or host country but who work in the host country.

Levels of Global Participation Domestic International Multinational Global Parent Country Host Corporate headquarters Corporate headquarters Corporate headquarters Corporate headquarters Foreign subsidiary Foreign subsidiary Foreign subsidiary Foreign subsidiary Foreign subsidiary Increasing Participation in Global Markets

Levels of Global Participation (cont.) Domestic Begin by operating within a domestic marketplace Recruiting, hiring, training, compensating from local labor market Focus on technical competence and to some extent on interpersonal skills One labor market – determining market rate of pay for various jobs is easy Jakarta Office

Levels of Global Participation (cont.) International Entering international markets, initially by exporting products but ultimately by building production facilities in other countries Different situation of culture, HC, political-legal, and economic system Requires an extensive selection effort to identify individuals capable of adapting to new environments and an extensive training program Jakarta Office Singapore Branch

Levels of Global Participation (cont.) Multinational Build facilities in a number of different countries, attempting to capitalize on lower production and distribution costs in different locations Still have 1 Headquarter Employ inpatriates  need to integrate managers from different cultures into the culture of the parent company Employ expatriates  need for cross cultural training to provide managerial skills for interaction with individual from different cultures Jakarta Office Singapore Branch Malaysia Branch Thailand Factory

Levels of Global Participation (cont.) Global / Transnational Have multiple headquarters spread across the globe; less hierarchically structured organizations that emphasize decentralized decision making. Transnational HRM system: Transnational Scope  make HRM decision from an international perspective Transnational Representation  multinational composition of a company’s managers Transnational Process  company’s planning and decision-making process include representatives and ideas from a variety of cultures Rather than simply integrating foreigners into the domestic organization, a successful transnational company needs managers who will treat managers from other cultures as equals.

Managing Expatriates in Global Markets Selection of Expatriate Managers Successful expatriates have technical competence, flexibility and ability to adjust to, and be sensitive to, a new culture. These adaptive skills have been categorized into three dimensions: Self  skills to maintain a positive self-image and psychological well-being. Relationship  skills to foster relationships with the host-country nationals. Perception  skills to accurately perceive and evaluate the host environment. Determining which individuals in the organization are most capable of handling an assignment in a different culture is not easy. Expatriate managers must hv technical competence in the area of operations; otherwise they will be unable to earn the respect of subordinates. Technical competence has been almost the sole variable used in deciding who to send on overseas assignments, despite the fact that multiple skills are necessary for successful performance in these assignments.

Managing Expatriates in Global Markets (cont.) A study found that international assignees considered the following five factors to be important (in descending order of importance): Family situation Flexibility and adaptability Job knowledge and motivation Relational skills Extracultural openness

Managing Expatriates in Global Markets (cont.) CQ = Cultural Intelligence: an individual’s ability to adapt across cultures through sensing the different cues regarding appropriate behavior across cultural settings or in multicultural settings. Use of women in expatriate assignments has proven beneficial for companies. Research suggests that men and women can perform equally well in international assignments. For a long time, US firms believed that women would not be successful managers in countries where women hv not traditionally been promoted to mgmt positions like in Japan and other Asian countries.

Managing Expatriates in Global Markets (cont.) Training & Development of Expatriates Why they need it : Ease the expatriates transition process, increase adaptability and job performance (effectiveness) Help avoid costly mistakes They don’t need job related skill, they need cross cultural training Prepare beforehand, reduce learning/adaptation period, ready to work Bring liquor to Moeslim country, personally : deported; company:”disinvited” damage company reputation

Managing Expatriates in Global Markets (cont.) Training & Development of Expatriates What they need : Clear about their own cultural background as it is perceived by the host country Understand the particular aspect of culture in the new work environment Learn to communicate accurately in the new culture Manager can modify their behavior to accentuate the effective characteristics while minimizing those that are dysfunctional Identifying the type of behaviors and interpersonal styles that are considered acceptable in both business meetings and social gatherings. Ex : German value promptness for meeting more than Latin America, other example of body language in Bulgaria node head up&down = no while back&forth = yes, india whistling in the public is rudeness, argentina -> pointing a finger to the head and spin it means a phone call Seldom the host country people speak the parent country language fluently, thus expatriates must be trained to communicate with others when language barrier exist. Ex: clear, slow speech, do not use everyday language, simple sentence, active verbs

Managing Expatriates in Global Markets (cont.) Training & Development of Expatriates What HR Department can do: Make International assignment planning a part of the career development process Encourage early international experience Create learning opportunities during the assignment User international assignments as a leadership development tool Understand the business in one local area to lead the bigger regional area Pre-departure training in the host country Learn new culture, learn new process, make decision locally Training to lead a remote area of the business, with their own judgment based on the local condition

Managing Expatriates in Global Markets (cont.) Compensation of Expatriates Determine compensation package equal with purchasing power of expatriates Total package level can determine by balance sheet approach Company provide a premium and/or incentive to compensate different environment troble of living

Managing Expatriates in Global Markets (cont.) Balance Sheet for Determining Expatriate Compensation Source: C. Reynolds, "Compensation of Overseas Personnel," in Handbook of Human Resource Administration, 2nd ed., ed. J. J. Famularo (New York: McGraw-Hill, 1986), p. 51

Managing Expatriates in Global Markets (cont.) Compensation of Expatriates Total Package Component: Base Salary Exchange rate, market rate Tax equalization allowance Benefit Pension plan, health care Allowances Cost living: accommodation, education, relocation

Managing Expatriates in Global Markets (cont.) Reacculturation of Expatriates Reentry may result in culture shock. 60 to 70 % of expatriates do not know what their position will be upon their return. 25% leave the company within one year upon returning. Transition process to help: Communication Validation Training and rewards beyond salary and benefits are key.

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