Global Business Today 10e

Global Business Today 10e
by Charles W.L. Hill and G. Tomas M. Hult

International Business Functions
© Michael Bezjian/Getty Images Chapter 17: Global Human Resource Management

Learning Objectives LO 17-1 Summarize the strategic role of human resource management in the international business. LO 17-2 Identify the pros and cons of different approaches to staffing policy in the international business. LO 17-3 Explain why managers may fail to thrive in foreign postings. LO 17-4 Recognize how management development and training programs can increase the value of human capital in the international business firm. LO 17-5 Explain how and why performance appraisal systems might vary across nations. LO 17-6 Understand how and why compensation systems might vary across nations. LO 17-7 Understand how organized labor can influence strategic choices in international business firms.

Opening Case: A Global Team at Mary Kay Inc.
A multilevel marketing company selling cosmetic products in more than 35 countries “Beauty consultants” sell directly to customers Global independent sales force exceeds 3.5 million with $4 billion in wholesale sales worldwide Recognition of people integral part of the Mary Kay culture – recognizing achievement heightens ambition Mary Kay global philosophy “A company is only as good as its people . . .” Employs women in the workforce in many countries, particularly developing nations This people focus is a staple of the Mary Kay global philosophy. “A company is only as good as its people [I]n order to grow and progress in the sales force, you don’t move upward, you expand outward. This gives the independent sales force a deep sense of personal worth.” While the products may vary to meet the needs and preferences of local consumers in the global marketplace, they are held to the same rigid quality-control standards whether they are purchased in the United States, Brazil, China, or Russia. This quality backing gives the independent beauty consultants assurances that they are part of a trustworthy Mary Kay Inc. team.

Introduction 1 of 2 Human resource management (HRM)
The activities an organization carries out to utilize its human resources effectively Determining human resource strategy Staffing Performance evaluation Management development Compensation Labor relations

Introduction 2 of 2 HRM is more complex in an international business because of differences between countries in labor markets, culture, legal systems, economic systems, etc. International HRM also deals with issues related to expatriate managers (citizens of one country working abroad) When to use expatriates Who to send on expatriate postings How expatriates should be compensated How to handle the repatriation of expatriates

Did You Know? Did you know the world population is now 7 billion? Click to play video

Strategic Role of Global HRM
Strategy is implemented through organization People are the linchpin to the firm’s organizational architecture Superior human resource management can be a sustained source of high productivity and competitive advantage in a global economy Success in international business requires that HRM policies be congruent with the firm’s strategy LO 17-1 Summarize the strategic role of human resource management in the international business.

Figure 17.1 The Role of Human Resources in Shaping Organizational Architecture
As indicated in Figure 17.1, the HRM function, through its staffing, training, compensation, and performance appraisal activities, has a critical impact on the people, culture, incentive, and control system elements of the firm’s organizational architecture (performance appraisal systems are part of the control systems in an enterprise). Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the Global Marketplace (New York: McGraw-Hill Education, 2017).

Will We See an Influx of Chinese Workers Worldwide?
Asia is among the fastest-growing areas of the world for international students. For example, foreign enrollment of students at universities in Indonesia and South Korea has more than doubled since In particular, China has become the most popular destination in Asia, and the country ranks third among all countries in hosting international students. Education in China is still a state-run system of public education, where the Ministry of Education is in charge. By some estimates, China has been growing investment in education by some 20 percent annually for more than a decade, and the quality of education has been improved along with this increased spending. This has resulted in Chinese people becoming more knowledgeable about today’s global marketplace; adding to the pool of talent are the Chinese who are educated abroad and decide to return home after their education. Collectively, these highly educated Chinese are more likely to want to work for a foreign company than a Chinese company. Companies already recruit Chinese in China for their foreign operations, but how significant do you think the potential influx of Chinese-educated people around the world will become in the next five years? Source: K. Sheehy, “Explore the World’s Top Universities,” U.S. News & World Report, October 8, (

Staffing Policy 1 of 11 Staffing policy is concerned with the selection of employees for a particular job It involves selecting people who have the right skills for a particular job It also involves developing and promoting the corporate culture of the firm: the organization’s norms and value systems LO 17-2 Identify the pros and cons of different approaches to staffing policy in the international business.

Staffing Policy 2 of 11 Types of Staffing Policies
The ethnocentric approach: key management positions are filled by parent-country nationals The polycentric approach: host country nationals manage local subsidiaries and parent country nationals hold positions at HQ The geocentric approach: the best people are sought for key jobs throughout the organization, regardless of their nationality The most attractive policy is the geocentric approach, however it is not always easy to implement

Staffing Policy 3 of 11 Types of Staffing Policies continued
The Ethnocentric Approach: makes sense for firms with an international strategy Attractive when: There is a lack of qualified individuals in the host country to fill senior management positions A unified corporate culture is desired The firm wants to transfer knowledge of core competencies to the foreign operation Unattractive because: It limits the advancement of host country nationals It can lead to cultural myopia an ethnocentric policy can lead to cultural myopia, the firm’s failure to understand host-country cultural differences that require different approaches to marketing and management

The Polycentric Approach: best suited to firms pursuing a localization strategy Minimizes the dangers of cultural myopia, but can create a gap between home and host country operations Attractive because: The firm is less likely to suffer from cultural myopia It may be less expensive to implement Unattractive because: Host country nationals do not gain foreign experience and cannot progress beyond senior positions in their own subsidiaries A gap can form between host country and parent managers

The Geocentric Approach: makes sense for firms with global or transnational strategies Consistent with building a strong unifying culture and informal management network Advantages: Makes the best use of human resources Builds a cadre of international executives who feel at home working in a number of different cultures Disadvantages: Difficulties with immigration laws Costs associated with implementing the strategy

Table 17.1 Comparison of Staffing Approaches
Strategic Appropriateness Advantages Disadvantages Ethnocentric International Overcomes lack of qualified managers in host nation Unifies culture Helps transfer core competencies Produces resentment in host country Can lead to cultural myopia Polycentric Localization Alleviates cultural myopia Inexpensive to implement Limits career mobility Isolates headquarters from foreign subsidiaries Geocentric Global standardization and transnational Uses human resources efficiently Helps build strong culture and informal management networks National immigration policies may limit implementation Expensive

Staffing Policy 6 of 11 Expatriate Managers Expatriate Failure Rates
Ethnocentric and geocentric approaches rely on expatriate managers Firms that use expatriates must consider the problem of expatriate failure: the premature return of an expatriate manager to the home country Expatriate Failure Rates U.S. firms have higher expatriate failure rates than either European or Japanese firms Research shows that 76% of U.S. MNEs had expatriate failure rates of 10% or more and 7% had failure rates as high as 20% Failure rates may have dropped, but estimates of the cost of expatriate failure range from $40,000 to $1 million LO 17-3 Explain why managers may fail to thrive in foreign postings. Management Focus: Managing Expatriates at Royal Dutch/Shell Summary This feature examines how Royal Dutch/Shell, a global petroleum company employing over 100,000 people manages its some 5,500 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. Discussion of the feature can begin with the following questions: Suggested Discussion Questions 1. Shell’s commitment to the success of its foreign assignments is demonstrated by its efforts to uncover expatriate concerns. Discuss the results of Shell’s survey to its present and past expatriates and families. How do these results compare to the results of other studies exploring expatriate failure? Discussion Points: Shell discovered that there were five key issues that were important to its expatriates. First, the division of families that occurred when children were sent to boarding schools while their parents were on foreign assignments, second, the harm done to a spouse’s career during the foreign assignment, third, the lack of consideration for a spouse during the expatriate assignment process, fourth, the failure to provide adequate relocation assistance, and fifth, health issues. Students should recognize the similarities between the results of this study and the results of other studies that have found difficulties with the spouse and family’s ability to adapt to be a central reason for expatriate failure. 2. Shell has implemented several changes to its expatriate program including providing education assistance to families with children, and establishing a Spouse Employment Center to help locate employment opportunities. In your opinion, will these programs “solve” Shell’s problems, or is there still more to be done? Discussion Points: Most students will suggest that Shell’s programs are a good start to ensuring the success of its expatriate program. They may also note that Shell may well be ahead of the game in even thinking about the situation. Expatriate failure can be very costly for companies, and so taking steps to ensure that expatriates are successful is an important component in a firm’s international strategy, especially for a company like Shell that relies heavily on expatriates. Teaching Tip: To learn more about Shell, go to the company’s web site at {

Would You Send a Woman on an International Assignment?
Would you send a woman expatriate to Saudi Arabia, Japan, Korea, or Kuwait? How are Western women expatriates doing in foreign cultures that have traditionally limited women’s public roles? In many cases, women sent to these countries have met with substantial success. Their key challenge is often simply to get the assignments! Once in place, women expatriates are usually successful. This is in part because once in the culture, women expatriates are seen first as expatriates who fall outside the local role for women. In addition, “expat” women also have salience in their new environment—they are noticed—and this can be a distinct business advantage. Locals often take pride in developing business relationships with women expatriates because by doing so, they can suggest that the foreign stereotype of their culture is superficial and incomplete. But cultural barriers still remain, with some cultures having restrictions on what women are allowed to do and not do in business settings and social life. With these lingering potential problems in some countries in the world, would you send a woman on an international assignment?

Staffing Policy 7 of 11 Expatriate Failure Rates continued
The main reasons for expatriate failure for U.S. MNEs The inability of an expatriate's spouse to adjust The inability of the manager to adjust Other family problems The manager’s personal or emotional maturity The inability to cope with larger overseas responsibilities

Staffing Policy 8 of 11 Expatriate Failure Rates continued
For European firms, only one reason was found to consistently explain expatriate failure The inability of the manager’s spouse to adjust to a new environment For Japanese firms, the reasons for failure were 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 a spouse to adjust The most striking difference between these lists is that “inability of spouse to adjust” was the top reason for expatriate failure among U.S. and European multinationals but only the fifth reason among Japanese multinationals.

Staffing Policy 9 of 11 Expatriate Selection
Expatriate failure rates can be reduced through better selection procedures Mendenhall and Oddou identified four dimensions that predict expatriate success Self-orientation Others-orientation Perceptual ability Cultural toughness

Staffing Policy 11 of 11 Global Mindset
Some experts believe that a global mindset is essential to the success of global managers It is predicted that people’s global mindset will improve significantly in the next 20 years 90% of the time employees are selected based on their technical expertise rather than important traits such as cultural sensitivity and adaptability

Training & Management Development 1 of 4
Training focuses upon preparing the manager for a specific job Management development focuses on developing the skills of the manager over career with the firm Traditionally, training has been considered more important than management development, however this mindset is beginning to shift LO Recognize how management development and training programs can increase the value of human capital in the international business firm.

Training for Expatriate Managers Cultural training: seeks to foster an appreciation for the host country's culture Language training: improves the effectiveness of managers and helps them better relate to the foreign country Practical training: helps the expatriate manager and family ease into day-to-day life of the host country

Language Training at Lenovo
Source: © Vincent Yu/AP Images Lenovo decided that English was to be the official language of the company, even though it is a Chinese enterprise.

Repatriation of Expatriates Managers need to be prepared for reentry into their home country organization This involves HRM planning The role of the employee in the home country at the end of the assignment How to utilize the knowledge the employee acquired while abroad Management Focus: Monsanto's Repatriation Program Summary This feature 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. Discussion of the feature can begin with the following questions: Suggested Discussion Questions 1. How does Monsanto’s repatriation program provide an incentive for high-potential managers to accept overseas assignments? Discussion Points: One question that managers often have when accepting a foreign assignment is how the assignment will help their career. At Monsanto, foreign assignments are clearly linked to business objectives allowing managers to understand what the assignment means to their future. In addition, managers are explicitly told about their position in the firm once the assignment is over, eliminating questions over how the manager might fit in when the foreign assignment ends. Students will note that these steps will help alleviate some of the stress that may come with accepting a foreign assignment. 2. According to the feature, after they return home, Monsanto’s expatriate managers are given the opportunity to showcase their experience to their peers, subordinates, and superiors, in special information exchange. Why is this important? What function does this serve in the repatriation process? Discussion Points: Students will probably recognize that Monsanto’s program allows expatriates to “show their stuff” to the home country staff. This can help avoid the problem of “out of sight, out of mind” that can make it difficult for expatriates to fit back into the headquarters. The program also allows home country staff to identify new ways the expatriate might be able to fit into the home country structure. Students will probably also note the program offers home country staff the opportunity to learn from the expatriate’s experiences. 3. How does Monsanto’s repatriation program help an expatriate manager adjust his personal life to returning home? Is this an important component of a firm’s repatriation program? Discussion Points: Studies show that expatriates go through reverse culture shock when they return home. By ensuring that expatriates have a clearly defined role at their job, the adjustment to being home can be easier. Monsanto believes that because personal matters can affect job performance, making an investment in this area benefits the firm. Teaching Tip: To learn more about Monsanto and its international operations, go to {

Management Development and Strategy Management development programs increase the skill levels of managers Management education The rotation of managers through jobs Management development is often used as a strategic tool to build a strong unifying culture and informal management network Both support transnational and global strategies Bringing managers together in one location for extended periods and rotating them through different jobs in several countries help the firm build an informal management network. Such a network can then be used as a conduit for exchanging valuable performance-enhancing knowledge within the organization

Performance Appraisal 1 of 2
Performance appraisal systems are used to evaluate employees These systems are important components in the firm’s control system Performance Appraisal Problems Unintentional bias Host country managers can be biased towards their own frame of reference Tend to rely on hard data: productivity, profitability, market share Due to such biases, many expatriate managers believe that headquarters management evaluates them unfairly and does not fully appreciate the value of their skills and experience. This could be one reason many expatriates believe a foreign posting does not benefit their careers

Performance Appraisal 2 of 2
Guidelines for 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 appraisal process Home office managers should be consulted before an on- site manager completes a formal termination evaluation

Compensation 1 of 5 Two key issues
Adjusting compensation to reflect national differences in economic circumstances and compensation practices How expatriate managers should be paid LO 17-6 Understand how and why compensation systems might vary across nations.

Compensation 2 of 5 National Differences in Compensation
Firms using a geocentric policy that want to develop an international cadre of managers must pay executives the same salary regardless of their country of origin If a firm does not equalize pay, it could create resentment among foreign nationals A recent Mercer Management Consulting survey showed that some 85% of companies in the survey have a global compensation strategy in place Management Focus: Global Compensation Practices at McDonald’s Summary This feature explores McDonald’s efforts to develop a global compensation and performance appraisal strategy. McDonald’s, which has some 400,000 managers and senior employees working in 118 different countries wants its new program to provide some standardization of compensation and performance appraisal for the firm, but at the same time, allow subsidiaries to tailor the program to local market conditions. Discussion of the feature can begin with the following questions: Suggested Discussion Questions 1. What does McDonald’s hope to gain from having a global compensation and performance appraisal system in place? Discussion Points: With hundreds of thousands of managers and senior employees working in more than 100 countries around the world, compensation and performance appraisal at McDonald’s has the potential to become a nightmare of inconsistencies and complexities. To try to reduce the potential for such a situation, McDonald’s began to implement a global compensation and performance appraisal system in The new system was developed after extensive consultation with managers all over the world, and thus reflects differing perspectives on the process. McDonald’s hope that its new program will give the firm greater control, and at the same time, provide subsidiaries with the tools necessary to develop fair policies. Under the new program, performance and compensation for an individual is based in part on how well local units meet their self-selected goals as well as their individual performance. 2. How does the compensation and performance appraisal system introduced at McDonald’s allow managers to take local market differences into account? Why is this type of approach important to employees? Discussion Points: The compensation and performance appraisal system introduced recently at McDonald’s was specifically designed to allow local market conditions to be considered. So, for example, rather than simply setting a specific performance appraisal scales, the company has issued general guidelines that allow local managers some flexibility. Similarly, McDonald’s issues a set of business principles to focus on that each local subsidiary then tailors to the conditions in its market. Employees seem to like the new approach. Turnover is down, and surveys show that employees feel the new program is fair and reflects local market conditions. Teaching Tip: To learn more about McDonald’s global operations, go to {

Figure 17.3 The Balance Sheet Approach to Expatriate Pay
Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the Global Marketplace (New York: McGraw-Hill Education, 2017). Jump to Appendix 1 long image description

Compensation 3 of 5 Expatriate Pay
The most common approach to expatriate pay is the balance sheet approach Equalizes purchasing power across countries so employees can have the same standard of living in the foreign country as they do at home Typical compensation packages include Base salary A foreign service premium Allowances of various types Benefits Tax differentials

Compensation 4 of 5 Expatriate Pay continued
Base Salary: normally in the same range as the base salary for a similar position in the home country Foreign Service Premium: extra pay the expatriate receives for working outside his country of origin Offered as an inducement to accept foreign postings Allowances: Hardship allowances Housing allowances Cost-of-living allowances Education allowances

Compensation 5 of 5 Expatriate Pay continued
Benefits: many expatriates receive the same level of medical and pension benefits abroad that they received at home Taxation: the expatriate may have to pay income tax to both the home country and the host-country governments unless a host country has a reciprocal tax treaty with the expatriate’s home country When a reciprocal tax treaty is not in force, the firm typically pays the expatriate’s income tax in the host country

Where Would You Go to Find Expat Resources?
Not so many years ago, business professionals whose companies sent them overseas to work had few outside resources to help them become acclimated to their new status as expatriates. Today, however, a wealth of information is available. For example, a simple keyword search online for “expatriate” yields an almost endless supply of links: newspapers and magazines published exclusively for expats; websites catering to expatriates in specific regions or countries; general information sites offering insiders’ guides to different countries and their finance, culture, and health care systems; not to mention blogs and chat rooms, forums and groups. The expatriate boom has even fueled an industry offering a broad array of services for expats, from mail forwarding to tax preparation to health and life insurance. While often good, the examples in this short write-up are all online, removed from the country itself. How much would you trust online information and data as the only source for “getting to know” the new country you have just signed on to spend three years in as an expat?

International Labor Relations 1 of 3
The Concerns of Organized Labor Multinationals can counter union bargaining power by threatening to move production to another country Multinationals will keep highly skilled tasks in the home country and farm out only low skilled tasks Imported employment practices and contractual agreements will reduce its influence and power LO Understand how organized labor can influence strategic choices in international business firms.

The Strategy of Organized Labor Trying to set-up their own international organizations Lobbying for national legislation to restrict multinationals Trying to achieve regulations of multinationals through international organization such as the United Nations So far, these efforts have had only limited success Although national unions may want to cooperate, they also compete with each other to attract investment from international businesses and hence jobs for their members. A further impediment to cooperation has been the wide variation in union structure. Organized labor has also met with only limited success in its efforts to get national and international bodies to regulate multinationals

Approaches to Labor Relations Traditionally, most labor relations have been decentralized to individual subsidiaries The trend is toward greater centralized control Some firms threaten unions with moving production in order to limit wage increases In addition, many firms are realizing how work is organized within a plant can be a source of competitive advantage

Summary In this chapter we have
Summarized the strategic role of human resource management in the international business. Identified the pros and cons of different approaches to staffing policy in the international business. Explained why managers may fail to thrive in foreign postings. Recognized how management development and training programs can increase the value of human capital in the international business firm. Explained how and why performance appraisal systems might vary across nations. Understood how and why compensation systems might vary across nations. Understood how organized labor can influence strategic choices in international business firms.

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