1. Sprott School of Business BUSI 2701D - Fundamentals of International Business Lecture 12 – Global Human Resource Management Instructor - Wade Rose, PhD Sprott School of Business BUSI 2701D - Fundamentals of International Business Lecture 12 – Global Human Resource Management Instructor - Wade Rose, PhD

2. Announcements Final Exam is 100 multiple choice questions. Final Exam is 100 multiple choice questions. More info on the exam (i.e. what is covered on the exam, etc) is on WebCT More info on the exam (i.e. what is covered on the exam, etc) is on WebCT Questions on anything???? Questions on anything???? ©MH 2011 BUSI 2701D 2

3. Lecture 12 Overview Understand why human resource management is such an important part of international business Understand why human resource management is such an important part of international business Understand the importance of management development and training in multinational firms Understand the importance of management development and training in multinational firms Understand why performance appraisal and compensation systems can vary across the nations in which a firm operates Understand why performance appraisal and compensation systems can vary across the nations in which a firm operates ©MH 2011 BUSI 2701D 3

4. What Is Human Resource Management? Human resource management (HRM) refers to the activities an organization carries out to utilize its human resources effectively Firms need to ensure there is a fit between their company strategy and human resources practices 4

5. ©MH 2011 BUSI 2701D What Is Human Resource Management? HRM activities include HRM activities include Determining the firm's human resource strategyDetermining the firm's human resource strategy StaffingStaffing Performance evaluationPerformance evaluation Management developmentManagement development Compensation policyCompensation policy Labor relationsLabor relations 5

6. ©MH 2011 BUSI 2701D What Is The Strategic Role Of HRM In International Firms? HRM can help the firm reduce the costs of value creation and add value by better serving customer needs more complex in an international businessmore complex in an international business differences between countries in culture, labor markets, legal systems, economic systems, etc. differences between countries in culture, labor markets, legal systems, economic systems, etc. 6

7. ©MH 2011 BUSI 2701D What Is The Strategic Role Of HRM In International Firms? HRM must also determine when to use expatriate managers - citizens of one country working abroad who should be sent on foreign assignmentswho should be sent on foreign assignments how they should be compensatedhow they should be compensated how they should be trainedhow they should be trained how they should be reoriented when they return homehow they should be reoriented when they return home 7

8. ©MH 2011 BUSI 2701D What Is The Strategic Role Of HRM In International Firms? The Role of Human Resources in Shaping Organizational Architecture 8

9. ©MH 2011 BUSI 2701D What Is A Staffing Policy? A firm’s staffing policy is concerned with the selection of employees who have the skills required to perform a particular job can be a tool for developing and promoting the firm’s corporate culture - the organization’s norms and value systemcan be a tool for developing and promoting the firm’s corporate culture - the organization’s norms and value system a strong corporate culture can help the firm implement its strategya strong corporate culture can help the firm implement its strategy 9

10. ©MH 2011 BUSI 2701D What Is A Staffing Policy? There are three main approaches to staffing policy within international businesses 1. The ethnocentric approach 2. The polycentric approach 3. The geocentric approach 10

11. ©MH 2011 BUSI 2701D What Is An Ethnocentric Staffing Policy? The ethnocentric approach to staffing fills key management positions with parent-country nationals makes sense for firms with an international strategymakes sense for firms with an international strategy 11

12. ©MH 2011 BUSI 2701D What Is An Ethnocentric Staffing Policy? Firms that pursue an ethnocentric policy believe that Firms that pursue an ethnocentric policy believe that there is a lack of qualified individuals in the host country to fill senior management positionsthere is a lack of qualified individuals in the host country to fill senior management positions it is the best way to maintain a unified corporate cultureit is the best way to maintain a unified corporate culture value can be created by transferring core competencies to a foreign operation via parent country nationalsvalue can be created by transferring core competencies to a foreign operation via parent country nationals But But it limits advancement opportunities for host country nationalsit limits advancement opportunities for host country nationals it can lead to "cultural myopia"it can lead to "cultural myopia" 12

13. ©MH 2011 BUSI 2701D What Is A Polycentric Staffing Policy? The polycentric approach recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters The polycentric approach recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters makes sense for firms pursuing a localization strategymakes sense for firms pursuing a localization strategy can minimize cultural myopiacan minimize cultural myopia may be less expensive to implement than an ethnocentric policymay be less expensive to implement than an ethnocentric policy 13

14. ©MH 2011 BUSI 2701D What Is A Polycentric Staffing Policy? The polycentric approach recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters The polycentric approach recruits host country nationals to manage subsidiaries in their own country, and parent country nationals for positions at headquarters But: But: host country nationals have limited opportunities to gain experience outside their own country and so cannot progress beyond senior positions in their own subsidiarieshost country nationals have limited opportunities to gain experience outside their own country and so cannot progress beyond senior positions in their own subsidiaries a gap can form between host country managers and parent country managersa gap can form between host country managers and parent country managers 14

15. ©MH 2011 BUSI 2701D What Is A Geocentric Staffing Policy? The geocentric approach seeks the best people, regardless of nationality for key jobs The geocentric approach seeks the best people, regardless of nationality for key jobs consistent with building a strong unifying culture and informal management networkconsistent with building a strong unifying culture and informal management network makes sense for firms pursuing a global standardization or transnational strategymakes sense for firms pursuing a global standardization or transnational strategy enables the firm to make the best use of its human resourcesenables the firm to make the best use of its human resources builds a cadre of international executives who feel at home working in a number of different culturesbuilds a cadre of international executives who feel at home working in a number of different cultures But But can be limited by immigration lawscan be limited by immigration laws is costly to implementis costly to implement 15

16. ©MH 2011 BUSI 2701D Which Staffing Policy Is Best? Comparison of Staffing Approaches 16

17. Case: Lenovo The case explores Lenovo’s mission to become a major player in the global personal computer industry. Lenovo acquired IBM’s personal computer division in 2004 to become the third largest personal computer firm in the world. After the acquisition, Lenovo immediately put a new management team in place led by an American, and moved the company’s headquarters from China to the United States. ©MH 2011 BUSI 2701D 17

18. Case: Lenovo 1. What is the staffing policy that Lenovo is pursuing? 2. What strategy do you think the company is pursuing? Does its staffing policy match its strategy? 3. What are the strengths of Lenovo’s staffing policy? Can you see any potential weaknesses, or problems, that the company might encounter as a result of this policy? 4. If Lenovo is to become a truly global enterprise, what should the HRM function do to enable the company to attain this goal? ©MH 2011 BUSI 2701D 18

19. ©MH 2011 BUSI 2701D What Is Expatriate Failure? Firms using an ethnocentric or geocentric staffing strategy will have expatriate managers Firms using an ethnocentric or geocentric staffing strategy will have expatriate managers Expatriate failure is the premature return of an expatriate manager to the home country Expatriate failure is the premature return of an expatriate manager to the home country each expatriate failure can cost between $250,000 and $1 millioneach expatriate failure can cost between $250,000 and $1 million between 16 and 40% of all American expatriates in developed countries fail and almost 70% of Americans assigned to developing countries failbetween 16 and 40% of all American expatriates in developed countries fail and almost 70% of Americans assigned to developing countries fail 19

20. ©MH 2011 BUSI 2701D Why Do Expatriate Managers Fail? The main reasons for U.S. expatriate failure are the inability of an expatriate's spouse to adaptthe inability of an expatriate's spouse to adapt the manager’s inability to adjustthe manager’s inability to adjust other family-related reasonsother family-related reasons the manager’s personal or emotional maturitythe manager’s personal or emotional maturity the manager’s inability to cope with larger overseas responsibilitiesthe manager’s inability to cope with larger overseas responsibilities 20

21. ©MH 2011 BUSI 2701D Why Do Expatriate Managers Fail? The reason for European expatriate failure is The reason for European expatriate failure is the inability of the manager’s spouse to adjustthe inability of the manager’s spouse to adjust The main reasons for Japanese expatriate failure are The main reasons for Japanese expatriate failure are the inability to cope with larger overseas responsibilitythe inability to cope with larger overseas responsibility difficulties with the new environmentdifficulties with the new environment personal or emotional problemspersonal or emotional problems a lack of technical competencea lack of technical competence the inability of spouse to adjustthe inability of spouse to adjust 21

22. ©MH 2011 BUSI 2701D How Can Firms Reduce Expatriate Failure? Firms can reduce expatriate failure through improved selection procedures Four dimensions that predict expatriate success are 1. Self-orientation - the expatriate's self-esteem, self- confidence, and mental well-being 2. Others-orientation - the ability to interact effectively with host-country nationals 3. Perceptual ability - the ability to understand why people of other countries behave the way they do 4. Cultural toughness – the ability to adjust to the posting. Postings vary as to the cultural toughness of the location. 22

23. ©MH 2011 BUSI 2701D Why Is A Global Mindset Important? A global mindset may be the fundamental attribute of a global manager A global mindset may be the fundamental attribute of a global manager cognitive complexitycognitive complexity cosmopolitan outlookcosmopolitan outlook A global mindset is often acquired early in life from A global mindset is often acquired early in life from a family that is biculturala family that is bicultural living in foreign countriesliving in foreign countries learning foreign languages as a regular part of family lifelearning foreign languages as a regular part of family life Can be developed or enhanced through training and management development 23

24. ©MH 2011 BUSI 2701D What Is Training And Management Development? After selecting a manager for a position, training and development programs should be implemented After selecting a manager for a position, training and development programs should be implemented Training focuses upon preparing the manager for a specific job Training focuses upon preparing the manager for a specific job Management development is concerned with developing the skills of the manager over his or her career with the firm Management development is concerned with developing the skills of the manager over his or her career with the firm gives the manager a skill set and reinforces organizational culturegives the manager a skill set and reinforces organizational culture Historically, most firms focus more on training than on management development Historically, most firms focus more on training than on management development 24

25. ©MH 2011 BUSI 2701D Why Is Training Important For Expatriate Managers? Training can reduce expatriate failure Cultural training - fosters an appreciation for the host country's culture Cultural training - fosters an appreciation for the host country's culture Language training - an exclusive reliance on English diminishes an expatriate's ability to interact with host country nationals Language training - an exclusive reliance on English diminishes an expatriate's ability to interact with host country nationals 25

26. Video: EU Funds Language Learning 1. The European Union has funded a program designed to encourage British business people to learn foreign languages. What is the European Union hoping to achieve with this program? 2. Can an individual without foreign language training have a global mind-set? How might knowledge of foreign languages help an individual develop a global mind-set? 3. Martin Brady, an English businessman is hoping the skills he learns through the European Union’s program will give him an advantage over rivals. How does knowledge of foreign languages facilitate business? Is it important to know the local language if business is conducted in English? ©MH 2011 BUSI 2701D 26

27. Video: EU Funds Language Learning 4. According to research, Britain lags behind other countries when it comes to knowledge of foreign languages. How might this deficiency affect the competitiveness of the nation as a whole? 5. What is expatriate failure? Discuss how the foreign language learning program funded by the European Union could help British firms reduce the number of expatriate failures. ©MH 2011 BUSI 2701D 27

28. ©MH 2011 BUSI 2701D Why Is Training Important For Expatriate Managers? Training can reduce expatriate failure Practical training - helps the expatriate and her family ease themselves into day-to-day life in the host country Practical training - helps the expatriate and her family ease themselves into day-to-day life in the host country But, studies show only about 30% of managers sent on one to five-year expatriate assignments received training before their departure But, studies show only about 30% of managers sent on one to five-year expatriate assignments received training before their departure 28

29. ©MH 2011 BUSI 2701D What Happens When Expatriates Return Home? Training and development should include preparing and developing expatriate managers for re-entry into their home country organization need good programs for re-integrating expatriates back into work life within their home country organization and for utilizing the knowledge they acquired while abroadneed good programs for re-integrating expatriates back into work life within their home country organization and for utilizing the knowledge they acquired while abroad 29

30. Case: AstraZeneca The case explores the HRM policies of AstraZeneca, a pharmaceutical company based in London. AstraZeneca believes that it is important to have a global workforce with managers who are comfortable in a variety of cultures and countries. To develop such managers, AstraZeneca moves executives to other countries for three year assignments. AstraZeneca carefully selects individuals to participate in the program, and then provides extensive preparation for the foreign assignment. ©MH 2011 BUSI 2701D 30

31. Case: AstraZeneca 1. Why is it so important to AstraZeneca to develop a cadre of managers who are comfortable working in multiple cultures and countries? What advantages does this policy give the firm? 2. Reflect on the selection process AstraZeneca uses to identify individuals to be assigned to foreign positions. Why does AstraZeneca spend so much time on the selection process? How might this approach impact the potential for the expatriate to fail? 3. What problems is AstraZeneca facing as it moves into emerging markets like China? How can the company’s mentoring system help the development of its Chinese managers? ©MH 2011 BUSI 2701D 31

32. ©MH 2011 BUSI 2701D Why Is Management Development Important To Firm Strategy? Management development programs increase the overall skill levels of managers through Management development programs increase the overall skill levels of managers through ongoing management educationongoing management education rotations of managers through jobs within the firm to give them varied experiencesrotations of managers through jobs within the firm to give them varied experiences Management development can be a strategic tool to build a strong unifying culture and informal management network, supportive of a transnational and global standardization strategy Management development can be a strategic tool to build a strong unifying culture and informal management network, supportive of a transnational and global standardization strategy 32

33. ©MH 2011 BUSI 2701D How Should Expatriates Be Evaluated? Evaluating expatriates can be especially complex Evaluating expatriates can be especially complex typically, both host nation managers and home office managers evaluate the performance of expatriate managerstypically, both host nation managers and home office managers evaluate the performance of expatriate managers But, both types of managers are subject to unintentional bias But, both types of managers are subject to unintentional bias home country managers tend to rely on hard data when evaluating expatriateshome country managers tend to rely on hard data when evaluating expatriates host country managers can be biased towards their own frame of referencehost country managers can be biased towards their own frame of reference 33

34. ©MH 2011 BUSI 2701D How Can Performance Appraisal Bias Be Reduced? To reduce bias in performance appraisal To reduce bias in performance appraisal more weight should be given to host nation manager's appraisal than to a home manager's appraisalmore weight should be given to host nation manager's appraisal than to a home manager's appraisal a former expatriate who has served in the same location should be involved in the processa former expatriate who has served in the same location should be involved in the process home office managers should be consulted before a host nation manager completes a formal termination evaluationhome office managers should be consulted before a host nation manager completes a formal termination evaluation 34

35. ©MH 2011 BUSI 2701D What Are The Key Issues In Compensating Expatriates? Two key issues on compensation: 1. How to adjust compensation to reflect differences in economic circumstances and compensation practices 2. How to pay expatriate managers 35

36. ©MH 2011 BUSI 2701D How Should National Differences In Compensation Be Treated? Currently, there are substantial differences in executive compensation across countries Currently, there are substantial differences in executive compensation across countries a top U.S. HRM executive made an average of $525,923 in the 2005-2006 period, compared to $237,697 in Japan, and $158,146 in Taiwana top U.S. HRM executive made an average of $525,923 in the 2005-2006 period, compared to $237,697 in Japan, and $158,146 in Taiwan Question: Should pay be equalized across countries? Question: Should pay be equalized across countries? 36

37. ©MH 2011 BUSI 2701D How Should National Differences In Compensation Be Treated? Many firms have recently moved toward a compensation structure that is based on global standards Many firms have recently moved toward a compensation structure that is based on global standards especially important in firms with a geocentric staffing policyespecially important in firms with a geocentric staffing policy But, most firms still set pay according to the prevailing standards in each country But, most firms still set pay according to the prevailing standards in each country 37

38. ©MH 2011 BUSI 2701D How Should Expatriates Be Paid? Most firms use the balance sheet approach - equalizes purchasing power across countries so employees have the same living standard in their foreign posting as at home A compensation package has five components 1. Base salary - normally in the same range as the base salary for a similar position in the home country can be paid either in the home currency or in the local currencycan be paid either in the home currency or in the local currency 38

39. ©MH 2011 BUSI 2701D How Should Expatriates Be Paid? A compensation package has five components 2. Foreign service premium - extra pay the expatriate receives for working outside his country of origin generally offered as an incentive to accept foreign assignmentsgenerally offered as an incentive to accept foreign assignments 3. Various allowances - hardship, housing, cost- of-living, education 39

40. ©MH 2011 BUSI 2701D How Should Expatriates Be Paid? A compensation package has five components 4. Tax differentials - may have to pay income tax to both the home country and the host country governments if the host country does not have a reciprocal tax treaty with the expatriate’s home country company usually covers extra tax assessmentscompany usually covers extra tax assessments 5. Benefits – many firms provide the same level of medical and pension benefits abroad that employees receive at home 40

41. ©MH 2011 BUSI 2701D Why Are International Labor Relations Important? Question: Can organized labor limit the choices available to an international business? Question: Can organized labor limit the choices available to an international business? Labor unions can limit a firm's ability to pursue a transnational or global standardization strategy Labor unions can limit a firm's ability to pursue a transnational or global standardization strategy HRM needs to foster harmony and minimize conflict between management and organized labor HRM needs to foster harmony and minimize conflict between management and organized labor 41

42. ©MH 2011 BUSI 2701D What Are The Concerns Of Organized Labor? Organized labor is concerned that 1.Multinationals can counter union bargaining power by threatening to move production to another country 2.Multinationals will farm out only low-skilled jobs to foreign plants making it easier to switch production locations 3.Multinationals will import employment practices and contractual agreements from their home countries and reduce the influence of unions 42

43. ©MH 2011 BUSI 2701D How Does Organized Labor Respond To MNC Power? Organized labor has responded to the increased bargaining power of multinational corporations by 1.Trying to set-up their own international organizations 2.Lobbying for national legislation to restrict multinationals 3.Trying to achieve regulation of multinationals through international organizations such as the United Nations So far, these efforts have had only limited success So far, these efforts have had only limited success 43

44. ©MH 2011 BUSI 2701D How Are MNCs Responding To Organized Labor? Many firms are centralizing labor relations to enhance the bargaining power of the multinational vis-à-vis organized labor Many firms are centralizing labor relations to enhance the bargaining power of the multinational vis-à-vis organized labor in the past, labor relations were usually decentralized to individual subsidiariesin the past, labor relations were usually decentralized to individual subsidiaries The way in which work is organized within a plant can be a major source of competitive advantage so it is important for management to have a good relationship with labor The way in which work is organized within a plant can be a major source of competitive advantage so it is important for management to have a good relationship with labor 44

45. Lecture 12 Overview Understand why human resource management is such an important part of international business Understand why human resource management is such an important part of international business Understand the importance of management development and training in multinational firms Understand the importance of management development and training in multinational firms Understand why performance appraisal and compensation systems can vary across the nations in which a firm operates Understand why performance appraisal and compensation systems can vary across the nations in which a firm operates ©MH 2011 BUSI 2701D 45

46. Questions?? Final Exam Final Exam Other Other ©MH 2011 BUSI 2701D 46