INTERNATIONAL HUMAN RESOURCE MANAGEMENT

CHAPTER 11: INTERNATIONAL HUMAN RESOURCE MANAGEMENT LEARNING OBJECTIVES To introduce the topic by defining it, understanding its differences from domestic, and elaborating on its importance for the MNC. To discuss the various functions of International H/R Management (recruitment, selection, training, and development, performance appraisal and compensation) for managerial employees.

International HRM: Introduction Definition The process of accomplishing organizational objectives by attracting acquiring, developing, maintaining and properly using the human resources in an organization. Differences from domestic Factors such as culture, legal system, labor markets, management style, etc make the management of international human resource different (Hiring women? Minimum wage? Cost of living? Accepted leadership style? Any training for employees to be transferred?) Packages and policies might have to change Importance If strategic goals are to be achieved then the HRM function has to be in line with the international strategy. E.g. In implementing a cost- leadership strategy, recruitment, selection and training methods have to be formulated with the concept of “low cost” in mind.

Human Resource Process Strategy (e.g. Cost, Leadership) HR Management Select, recruit and train new workers in foreign country. Replace home country workers Select managers to go abroad, train them and offer appropriate packages Operating policies abroad Recruitment and Selection Training and Development Performance Appraisal Competition and Benefits Effective Work-force relationships Shift production to a low-cost labor country.

Number of Managers, Nationality, Skills and Training depends on: A. The size of International Operations The Export Department The manager, who usually reports to an executive, can be a citizen of the home country and not necessarily possess special skills in marketing and finance for abroad. If sales pick up then specialists might be needed in export documentation, trade financing overseas distribution, and marketing. Accordingly, the appropriate number and training will be provided. The International Division The Division Manager at the headquarters is usually a home country citizen for better communication between the domestic and foreign operators The heads of the subsidiaries abroad and the various functional managers can be either home or host country citizens. For better coordination with headquarters the home country citizens are preferred. For quick adjustment to changes in the foreign country the host country national are preferred. They also know the ins and outs in the country. Cost consideration also play a major role.

The Global Organization For an MNE with global organizational structure we should be interested in managers with conceptual skills. The division managers should be experts in producing, marketing and financing a product and at the same time coordinate the activities worldwide for synergies and economies. Therefore, the division managers should have knowledge of the product line, the various functions involved. Nationality is not of major concern. B.Decision making (Centralization Vs Decentralization) HRM needs and nationality are also affected by whether the firm wants to delegate decision making at lower levels or not. Is decision making for finance, marketing, production and human resources delegated or not? Usually, firms that operate with a multi-domestic approach decentralize and firms with an ethnocentric approach centralize.

I.Ethnocentric approach: Many MNRs prefer to hire parent (home, expatriates) country nationals in spite of not being knowledgeable about host country´s culture and language. Why? 1.To start up operations. Host country nationals might not be suitable. 2.For preparing parent country nationals for high-level positions at headquarters (train promising managers for international experience). 3.For better coordination with headquarters. 4.For making sure that the company´s culture, laws, and language might be expensive and not a perfect substitute. The approach is very popular when the know-how and technology was developed in the home country. C. Philosophy on Nationality Whether the firm will use home, host or third country national depends on the philosophy on nationality (executives, believers, past experience….

II. Polycentric approach Many MNRs prefer to hire mostly host-country (locals) nationals. Why? 1.There is no problem with adaptation since they are familiar with customs, culture and language. 2.Cost of employing them are usually lower. (Salaries, training for the new culture and language, schooling of children…) 3.Hiring host country nationals is good public relations. 4.The laws of countries they operate might require that citizens of that country are employed only (nativization is expected) – It is suitable when companies operate in countries with significant differences in culture. However, host country nationals might be unfamiliar with policies and practices of the MNE, they might even resist promotions in other countries and might favor local suppliers who may not be cheaper as compared to foreign suppliers.

III Geoncetric approach For many MNEs nationality is not of importance. We might even see individuals coming from a third country. Why? 1.The main concern is the ability of the individual to rationalize on an international basis (international perspective) 2.The technical abilities of the individual might be of utmost importance and not the cultural adaptability or communication skills with headquarters. 3.The firm does not follow a consensus-oriented approach to decision making. – It might be an extensive approach when individuals come from a third country (heavy training for firm policies and partly for cultural differences might be needed)

Recruitment Developing a pool or list of job (managerial) candidates Recruitment for Experienced Managers First, we might want to look inside the company (home and abroad) Check on retired executives to fill short-term international assignments Identify prospective managers who work for other firms (headhunters – resulting firms might be used) Recruitment for Younger Managers Hire college graduates with foreign language skills, international travel experience and a major in international business. Domestic assignments and training might be given to them first. Coca-Cola and Colgate-Palmolive use this method intensively

Selection Choosing the right candidates from the pool developed for an overseas assignment can prove to be a major problem General Criteria Although the nature of the job determines heavily the criteria and their weight, both technical and human criteria should be considered. Japanese MNCs that consider relational skills (ability to deal with clients, customers, superiors, peers, subordinates) criteria were found to have higher success in choosing the right people as compared to American MNCs that focus more on the technical criteria. Commonly used criteria for choosing overseas managers Adaptability to culture – Check on previous overseas travel, immigration background, foreign language, ability to integrate with different people. Independence – project experience, hobby or college activities… Physical and emotional health – nervous disorders, heart condition… Leadership – Maturity, ability to communicate, initiative, creativity… Spouses, dependents – Family unhappiness is the number one reason for expatriate failure – spouse interview… living away from family…

A note on Expatriate Failure and Cultural Shock… -AT&T is proud of its low expatriate failure. Proud of its selection methods. -Expatriate failure (early return home due to inability to perform abroad) costs around ½ million dollars for most MNEs. -Going abroad on a foreign assignment might lead to what is called “cultural shock” (the fear for loosing your culture). This might create confusion and a low self-esteem. This will reflect on the performance of an individual at work Phases people go through on foreign assignments Honeymoon: Excitement for the first days. Exotic. Fantasia. Unreal. A dream. Disillusionment: A deeper exploration of the environment and a realization that it is fundamentality different. Differences are blown out of proportion. Family faces problems. Some might stay here and decide to return home. Adaptation: New culture and language is understood. Anxiety ends Biculturalism: Individual functions effectively. Integration of new behavior Note: Another significant problem might be repatriation (the return home – a bad experience) People assume that nothing has changed. Friends, relatives and coworkers might have moved. Abroad the manager was like a king…not anymore. Technological and organizational changes are observed. It is advised that managers freely choose to go abroad and realistic expectations are given. How about a mentor?

Training and Development -Training and development programs are useful in avoiding critical mistakes on foreign assignments. This will lead to efficiency and profitability -Training should focus on both, technical and behavioral aspects. -Programs can last only a few hours or they can last for months. Standardized programs can be used. They are less expensive and the applications the same regardless of where the managers are sent in the world. They do not have to be culturally specific. They can be for behaviorally oriented concepts such as communication, motivation, and leadership or they can be of a quantitative nature such as financial forecasting or program evaluation techniques. Customized (tailor-cut) programs can also be used. They are created for the specific needs of the participants. The focus is on the particular culture, language, specific legal system and other differences the individual will face. Eg. Gifts´ exchange, idioms used, work methods… They can be in the form of lectures, case studies, role playing, tests on cultural terminology…etc.

Performance Appraisal In assessing a manager on a foreign assignment we should take into consideration the given conditions (competition, customers, problems in communication with headquarters, immediate assistance from home, history/performance of subsidiary…) and accordingly evaluate. How well the manager has contributed in solving the problems of the subsidiary he or she manages should be the focus. We should always remember that an appraisal is done so as to provide feedback and improve the performance of an individual.

Compensation The overall compensation package will vary from country to country due to differences in legally mandated benefits, tax laws, competition, cost of living and what is customary given in a particular country. Five common elements in the typical expatriate compensation package: Best salary: This is usually according to the salary the expatriate receives at home. Exchange rates should be taken into consideration. Benefits: One-third of compensation. Expatriates get even more (extra vacation, expenses for ill relatives at home) Allowances: Designed to provide the expat with the same standard of living that she enjoyed in the home country. eg. A payment for the difference between COLA abroad and home, moving, shipping and storage changes, housing expenses, education (schooling), hardship premium for working in hazardous areas with a poor quality of life and a high political risk. Incentives. Special incentives for expats. Premium for overseas assignment. Taxes: Some countries permit a deduction of a certain amount of foreign Income in the case where both countries tax. When the income of the expat is more than the specified amount, the MNC pays the difference.