Introduction to International Business April 20, 2007 Brian Chen/Sanny Liao

What is “human resource management”?  Definition: human resource management refers to the activities and organization carries out to use its human resources effectivelyrefers to the activities and organization carries out to use its human resources effectively  These activities include: determining firm’s human resource strategy, staffing, performance evaluation, management development, compensation, and labor relationsdetermining firm’s human resource strategy, staffing, performance evaluation, management development, compensation, and labor relations  Can you think of any instance where one of these may be different across countries?

Firms may pursue different strategies in managing international business  KFC serves rice congee in China  Localization strategy  Microsoft develops most of its products in the U.S. and sells them worldwide  International strategy  McDonald’s standardizes its production process  Global standardization strategy  Catepillar designs its products to use many identical components and invests in a few large-scale component manufacturing facilities to cheaply supply these components; at the same time, Catepillar set up smaller plants in individual markets to augment the final product to suit particular market demands  Transnational strategy

Staffing policies  Def: staffing policy is concerned with the selection of employees for particular jobs.  Types of staffing policies Ethnocentric staffingEthnocentric staffing Polycentric staffingPolycentric staffing Geocentric staffingGeocentric staffing

Ethnocentric staffing  All key management positions are filled by parent-country nationals  Pros? Cons? GoodBad  Provides quality managers when talent is scarce in the host country  Maintains a unified corporate culture  Ensures smoother transfer of uncodifed knowledge (esp. core competencies)  Limits the advancement of host country nationals  resentment  Can lead to “cultural myopia”

Polycentric staffing  Recruits host-country nationals to manage subsidiaries while parent-country nationals occupy key positions at corporate headquarters  Pros? Cons? GoodBad  firm is less likely to suffer from cultural myopia  Less expensive to hire locals than expatriates  Glass ceiling for host country nationals  resentment  Gap can form between host- country managers and parent- country managers, the gap may be perpetuated by time

Geocentric staffing  Seeks the best people fro key jobs throughout the organization, regardless of nationality.  Pros? Cons? GoodBad  Enables the firm to make the best use of its human resources  Enables the firm to build a cadre of international executives who feel at home working in a number of cultures  can benefit both from local knowledge and hard-to-transfer firm core competencies  Governments may stipulate that the foreign subsidiaries only hire local citizens  Can be very costly to implement (training and relocation costs can be high)  Placement of managers on international “fast track” may create resentment

Expatriate managers suffer high attrition rates  Why? US multinationalsUS multinationals  Inability of spouse to adjust  Manager’s inability to adjust  Other family problems  Manager’s personal or emotional maturity  Inability to cope with larger overseas responsibilities Japanese multinationalsJapanese multinationals  Inability to cope with larger overseas responsibilities  Difficulties with new environment  Personal or emotional problems  Lack of technical competence  Inability of spouse to adjust  Can be alleviated by careful selection and extensive training

What kind of training should expatriate managers receive?  Cultural training  Language training  Practical training  Repatriate managers should also be trained

Performance Appraisal  If you are on the board of a firm with foreign subsidiaries, what measures of performance would you use?  It is difficult to appraise the performance of foreign managers Host-nation managers may be biased by their own cultural frame of referenceHost-nation managers may be biased by their own cultural frame of reference May be biased by distance and by their lack of experience working abroad  need to rely on hard data alone, but that is often does not provide a comprehensive pictureMay be biased by distance and by their lack of experience working abroad  need to rely on hard data alone, but that is often does not provide a comprehensive picture

Ways to augment performance appraisal  Put more weight on on-site manager’s appraisal than to an off-site manager’s appraisal  Be cognizant of the nationality of the appraising manager  Rely on former expatriates to help reduce bias  Home-office managers should be consulted before foreign on-site managers complete formal termination evaluations  limits the bias from cultural misunderstanding.

National differences in compensation  There is a wide gap among executive compensations across various countries  What is appropriate? Expatriate PayExpatriate Pay = Base Salary + Foreign Service Premium + Allowances (hardship, housing, cost of living, education) + Differences in tax rates + Differences in benefits

International labor relations  Firms need to be cognizant about differences in labor rules across countries  Examples: Working hours/weekWorking hours/week Style of managementStyle of management Others?Others?

Global Human Resource Management Exercise  You are executive directors at Wal-Mart, Coca- Cola, and Wipro, and are planning your international expansion strategy into Russia, Brazil, and Southeast Asia. How will you staff your senior management positions? What strategy do you plan to take?What strategy do you plan to take? What staffing strategy approach would your take? What are the pros and cons of the strategy that you decide upon?What staffing strategy approach would your take? What are the pros and cons of the strategy that you decide upon? List the qualities that you seek in your ideal candidate. Draft his/her resumeList the qualities that you seek in your ideal candidate. Draft his/her resume How would you propose to evaluate his/her performance?How would you propose to evaluate his/her performance? What compensation package would you propose?What compensation package would you propose? Would you provide any special training for the new manager?Would you provide any special training for the new manager?