1. International Business 10e
By Charles W.L. Hill
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. Global Human Resource Management
Chapter 19
Global Human Resource Management

3. What Is Human Resource Management?
Human resource management (HRM) - the activities an organization carries out to utilize its human resources effectively
These activities include
determining human resource strategy
staffing
performance evaluation
management development
compensation
labor relations
Firms need to ensure there is a fit between their human resources practices and strategy
LO 1: Summarize the strategic role of human resource management in the international business.
There are four major tasks of HRM:
Staffing policy
Management training and development
Performance appraisal
Compensation policy

4. 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 business
differences between countries in labor markets, culture, legal systems, economic systems, etc.

5. 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 assignments
how they should be compensated
how they should be trained
how they should be reoriented when they return home

6. What Is the Strategic Role of HRM in International Firms?
The Role of Human Resources in Shaping Organizational Architecture
As shown in in this figure, people are the linchpin of a firm’s organization architecture. For a firm to outperform its rivals in the global marketplace, it must have the right people in the right postings. Those people must be trained appropriately so that they have the skill sets required to perform their jobs effectively, and so that they behave in a manner that is congruent with the desired culture of the firm. Their compensation packages must create incentives for them to take actions that are consistent with the strategy of the firm, and the performance appraisal system the firm uses must measure the behavior that the firm wants to encourage.
As indicated, the human resource function, through its staffing, training, compensation, and performance appraisal activities, has a critical impact upon the people, culture, incentive, and control system elements of the firm’s organization architecture (performance appraisal systems are part of the control systems in an enterprise). Thus, human resource professionals have a critically important strategic role.

7. What Is a Staffing Policy?
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 an promoting the firm’s corporate culture
the organization’s norms and value system
a strong corporate culture can help the firm implement its strategy
LO 2: Identify the pros and cons of different approaches to staffing policy in the international business.

8. What Is a Staffing Policy?
Three main approaches to staffing policy:
The ethnocentric approach - fill key management positions with parent-country nationals
The polycentric approach - recruit host-country nationals to manage subsidiaries in their own country, and parent-country nationals for positions at headquarters
The geocentric approach - seek the best people, regardless of nationality, for key jobs

9. Why Choose an Ethnocentric Staffing Policy?
Firms that pursue an ethnocentric policy believe that
there 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 culture
value can be created by transferring core competencies to a foreign operation via parent country nationals
it makes sense with an international strategy
But
it limits advancement opportunities for host country nationals
it can lead to "cultural myopia"
LO 2: Identify the pros and cons of different approaches to staffing policy in the international business.

10. Why Choose a Polycentric Staffing Policy?
The polycentric approach
makes sense for firms pursuing a localization strategy
can minimize cultural myopia
may be less expensive to implement than an ethnocentric policy
But
host-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 managers
LO 2: Identify the pros and cons of different approaches to staffing policy in the international business.

11. Why Choose a Geocentric Staffing Policy?
The geocentric approach
is consistent with building a strong unifying culture and informal management network
makes sense for firms pursuing a global or transnational strategy
enables 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 cultures
But
can be limited by immigration laws
is costly to implement
LO 2: Identify the pros and cons of different approaches to staffing policy in the international business.

12. Which Staffing Policy Is Best?
Comparison of Staffing Approaches
LO 2: Identify the pros and cons of different approaches to staffing policy in the international business.

13. What Is Expatriate Failure?
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
each expatriate failure can cost between $40,000 and $1 million
between 16 and 40% of all American expatriates in developed countries fail and almost 70% of Americans assigned to developing countries fail
LO 3: Explain why managers may fail to thrive in foreign postings.
The Closing Case: MMC China describes the problems of one expatriate working in China. The expatriate is struggling to find a way to explain to his superior the challenges of operating in China. However, because his superior is using home country assessment criteria to evaluate the expatriate’s performance, the expatriate appears to be falling short of his goals.

14. What Is the Rate of Expatriate Failure?
Expatriate Failure Rates
Table source: Data from R.L. Tung, “Selection and Training Procedures of U.S., European, and Japanese Multinationals,” California Management Review 25(1982), pp. 51–71.
Management Focus: Managing Expatriates at Royal Dutch Shell examines how Royal Dutch Shell, a global petroleum company employing over 100,000 people, manages its expatriates. The international mobility of its workforce is an important part of Shell’s overall philosophy. However, in the early 1990s, the company found that it was having an increasingly difficult time recruiting personnel for foreign postings.

15. Why Do Expatriate Managers Fail?
The main reasons for U.S. expatriate failure are
the inability of an expatriate's spouse to adapt
the manager’s inability to adjust
other family-related reasons
the manager’s personal or emotional maturity
the manager’s inability to cope with larger overseas responsibilities
LO 3: Explain why managers may fail to thrive in foreign postings.

16. Why Do Expatriate Managers Fail?
The reason for European expatriate failure is
the inability of the manager’s spouse to adjust
The main reasons for Japanese expatriate failure are
the inability to cope with larger overseas responsibility
difficulties with the new environment
personal or emotional problems
a lack of technical competence
the inability of spouse to adjust

17. How Can Firms Reduce Expatriate Failure?
Firms can reduce expatriate failure through improved selection procedures
Four dimensions that predict expatriate success are
Self-orientation - the expatriate's self-esteem, self-confidence, and mental well-being
Others-orientation - the ability to interact effectively with host-country nationals
Perceptual ability - the ability to understand why people of other countries behave the way they do
Cultural toughness – the ability to adjust to the posting
LO 3: Explain why managers may fail to thrive in foreign postings.

18. Why Is a Global Mind-set Important?
A global mind-set may be the fundamental attribute of a global manager
cognitive complexity
cosmopolitan outlook
A global mind-set is often acquired early in life from
a family that is bicultural
living in foreign countries
learning foreign languages as a regular part of family life

19. What Is Training and Management Development?
After selecting a manager for a position, training and development programs should be implemented
Training focuses upon preparing the manager for a specific job
Management development is concerned with developing the skills of the manager over time
gives the manager a skill set and reinforces organizational culture
Historically, most firms focus more on training than on management development
LO 4: Recognize how management development and training programs can increase the value of human capital in the international business firm.

20. Why Is Training Important for Expatriate Managers?
Training can reduce expatriate failure
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
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
LO 4: Recognize how management development and training programs can increase the value of human capital in the international business firm.

21. What Happens When Expatriates Return Home?
Training and development should include preparing and developing expatriate managers for reentry into their home country organization
need good programs for
re-integrating expatriates back into work life within their home country organization
utilizing the knowledge they acquired while abroad
Repatriation should be seen as the final link in an integrated, circular process that selects, trains, sends, and brings home expatriate managers.

22. Why Is Management Development Important to Firm Strategy?
Management development programs increase the overall skill levels of managers through
ongoing management education
rotations 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
support both transnational and global strategy
LO 4: Recognize how management development and training programs can increase the value of human capital in the international business firm.
Management Focus: Monsanto's Repatriation Program describes Monsanto’s repatriation program for its expatriate managers. The program is very sophisticated and is designed to provide a supportive environment for the company’s managers who are returning from overseas assignments. The feature describes the details of the repatriation program, which is a model program for the repatriation of expatriate managers.

23. How Should Expatriates Be Evaluated?
Evaluating expatriates can be especially complex
typically, both host-nation managers and home-office managers evaluate the performance of expatriate managers
But, both types of managers are subject to unintentional bias
home-country managers tend to rely on hard data when evaluating expatriates
Host-country managers can be biased towards their own frame of reference
LO 5: Explain how and why performance appraisal systems might vary across nations.

24. How Can Performance Appraisal Bias Be Reduced?
To reduce bias in performance appraisal
more weight should be given to an on-site manager's appraisal than to an off-site manager's appraisal
a former expatriate who has served in the same location should be involved in the process
home office managers should be consulted before an on-site manager completes a formal termination evaluation
LO 5: Explain how and why performance appraisal systems might vary across nations.

25. What Are the Key Issues in Compensating Expatriates?
Two key issues on compensation
How to adjust compensation to reflect differences in economic circumstances and compensation practices
How to pay expatriate managers
LO 6: Understand how and why compensation systems might vary across nations.
Two issues are raised in every discussion of compensation practices in an international business. One is how compensation should be adjusted to reflect national differences in economic circumstances and compensation practices. The other issue is how expatriate managers should be paid.
From a strategic perspective, the important point is that whatever compensation system is used, it should reward managers for taking actions that are consistent with the strategy of the enterprise.

26. How Should National Differences in Compensation Be Treated?
Currently, there are substantial differences in executive compensation across countries
Research shows
a top U.S. executive made an average of $525,923 in the period, compared to $278,697 in Japan, and $158,146 in Taiwan
LO 6: Understand how and why compensation systems might vary across nations.

27. How Should National Differences in Compensation Be Treated?
Question: Should pay be equalized across countries?
Many firms have recently moved toward a compensation structure that is based on global standards
especially important in firms with a geocentric staffing policy
But, most firms still set pay according to the prevailing standards in each country
Management Focus: Global Compensation Practices at McDonald’s explores McDonald’s efforts to create a compensation and performance appraisal system that takes into account differences between markets, yet is still considered equitable by employees.

28. 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
and adds a financial incentive to take the position
LO 6: Understand how and why compensation systems might vary across nations.
Note that home-country outlays for the employee are designated as income taxes, housing expenses, expenditures for goods and services (food, clothing, entertainment, etc.), and reserves (savings, pension contributions, etc.).
The balance sheet approach attempts to provide expatriates with the same standard of living in their host countries as they enjoy at home plus a financial inducement (i.e., premium, incentive) for accepting an overseas assignment.

29. How Should Expatriates Be Paid?
A compensation package has five components
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 currency
Foreign service premium - extra pay the expatriate receives for working outside his country of origin
generally offered as an incentive to accept foreign assignments

30. How Should Expatriates Be Paid?
Various allowances - hardship, housing, cost-of-living, education
Tax differentials - may have to pay income tax to both the home country and the host-country governments no reciprocal tax treaty exists
company usually covers extra tax assessments
Benefits – many firms provide the same level of medical and pension benefits abroad that employees receive at home

31. Why Are International Labor Relations Important?
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 strategy
HRM needs to foster harmony and minimize conflict between management and organized labor
LO 7: Understand how organized labor can influence strategic choices in the international business firm.

32. What Are the Concerns of Organized Labor?
Organized labor is concerned that
Multinationals can counter union bargaining power by threatening to move production to another country
Multinationals will farm out only low-skilled jobs to foreign plants making it easier to switch production locations
Multinationals will import employment practices and contractual agreements from their home countries and reduce the influence of unions
LO 7: Understand how organized labor can influence strategic choices in the international business firm.

33. How Does Organized Labor Respond to MNC Power?
Organized labor has responded to the increased bargaining power of multinational corporations by
Trying to set-up their own international organizations
Lobbying for national legislation to restrict multinationals
Trying to achieve regulation of multinationals through international organizations such as the United Nations
So far, these efforts have had only limited success
LO 7: Understand how organized labor can influence strategic choices in the international business firm.

34. 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
in 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
LO 7: Understand how organized labor can influence strategic choices in the international business firm.