1. international human resource management and labor relations
chapter 18
international human resource management and labor relations

2. Chapter main elements the Strategic Role of International HRM
Staffing Policy
Training and mgt development
Performance appraisal
Compensation
International labor relations
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3. The strategic role of HRM
Research says that profitability requires a strong fit between HR practices and strategy.
Look at figure 19.1 you find that people are in the center. The culture and the incentive systems are very much related.
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4. The strategic role of HRM
Competitive advantage can be obtained through people.
People need to be selected developed and trained, and retained. This is the strategic role of the HRM and to align this with the enterprise strategy.
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5. The strategic role of HRM
How do we align strategy with HRM?
Localization strategy must be aligned with quality HRM strategy.
Global strategy – experience curve and location economies.
Transnational strategy- requires different alignment.
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6. The strategic role of HRM
Transnational strategy requires strong corporate culture and informal mgt network for transmitting information and knowledge within the org.
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7. Staffing policy
Some times called recruitment policy: the selection of employees for a particular job.
But staffing policy can also manage the corporate culture- norms and value system. Strong corporate culture can help implement the strategy of the firm.
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8. Staffing policy
At GE candidates are accepted according to their behavioural styles, beliefs, and value system that are consistent with GE.
Some researchers find that you can bring ordinary people but the smart thing is in managing them to get an extraordinary outcomes.
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9. Types of staffing policy
1- the ethnocentric approach: home country nationals.
Why
1- lack of qualified individuals at host country.
2- a way to keep a unified corporate culture
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10. Types of staffing policy
3- transferring core competencies to a foreign operation which requires transferring parent country nationals. Example, transferring Mkt competencies. Tacit knowledge cannot be transferred.
Some countries like the expatriates for their know-how and think that they could me more professional than locals
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11. Types of staffing policy
2- the polycentric approach- requires host country nationals to be recruited to manage subsidiaries.
This approach is less expensive and avoids cultural misunderstandings.
More adaptive and responsive to local needs and culture.
Drawback: the gap between home and host country managers in language and competencies.
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12. Types of staffing policy
Drawback of Polycentric approach: the gap between home and host country managers in language and competencies.
This approach is good for a localization strategy. Not any other strategy.
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13. Types of staffing policy
The third approach: Geocentric: seeks the best people for key jobs throughout the organization regardless of nationality. See the opening case. Good for global standardisation and transnational strategies.
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14. Types of staffing policy
Geocentric seems to be most attractive strategy.
Tata Group US and UK managers.
Sony in 2005 hired Howard Stringer a former president of CBS.
One study: 24% of the top managers in US companies are from outside US
European companies: 40% from outside Europe.
Can you apply this approach here in KSA.
Which approach is available. You can add this in your project. See table 18.1
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15. Types of staffing policy
Look at expatriate failure rates in Figure 18.2
Fail to adjust, family, weather, culture....etc.
Is it a selection failure?
Cost of return expatriates is high.
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16. Types of staffing policy
To solve the above problem:
Be extra careful in selection.
Four dimensions to predict success in foreign posting.
Self-orientation- adjust the self
Others-orientation- adjust with others- social dimension.
Perceptual ability- understand that others are different.
Cultural toughness – related to the toughness of the posting and the posting is culture-related. Working conditions in India are different than Canada for example.
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17. Types of staffing policy
Do you have a global mindset?
If so this means you can adjust.
Open to the world?
In the selection stage, we have to test managers ability to have this global mind set. Selecting people just based on their technical expertise is not adequate.
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18. Second Training and Mgt development
Training for expatriate managers
Cultural training
Language training
Practical training
Repatriation- prepare for re-entry into their home-country org.
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19. Second Training and Mgt development
Mgt development and strategy.
Very important for the transnational strategy and the need for local responsiveness.
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20. Performance Appraisals
You need to be very careful in evaluating expatriates performance
Don't ask employees for help in India!
It will affect your evaluation.
Bias is a big problem
Performance evaluation must be objective with clear guidelines and criteria.
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21. Compensation
National differences
Expatriate pay
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22. International labour relations
Organized labour
The strategy
Approaches to labour relations
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23. Chapter Objectives 2
Discuss how international firms conduct performance appraisals and determine compensation for their expatriate managers
Analyze retention and turnover issues in international business
Explain basic human resource issues involving nonmanagerial employees
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24. Human Resource Management
HRM is the set of activities directed at attracting, developing, and maintaining the effective workforce necessary to achieve a firm’s objectives.
This chapter deals with HRM activities as they primarily apply to managers in the company with international operations.
HRM includes recruiting and selecting non-managers and managers, providing training and development, appraising performance, and providing compensation and benefits. International HR managers must deal with differences in cultures, levels of economic development, and legal systems among the countries in which a firm operates. These differences may force it to customize its hiring, firing, training, and compensation programs on a country-by-country basis.
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25. IHRM process 2
HRM is more difficult for the international company than for domestic companies.
Differences in cultural, legal, economic, ..etc are responsible for that.
These forces may force companies to customize its hrm. practices.

26. Strategic Significance of HRM
Research indicates that there is positive relationship between HRM processes and performance.
HRM strategy should be designed in a way that promotes overall corporate strategy and business strategies.
For instance, if the company is using a cost leadership strategy it may shift production to a low-cost labor country.

27. Figure 20.1 The International Human Resource Management Process
HRM’s Strategic Content
Recruitment and Selection
Training and Development
Performance Appraisal
Compensation and Benefits
Labor Relations
Contribution to Organizational Effectiveness
The basic elements of the international HRM process are shown in Figure 20.1, which provides the framework around which this chapter is organized.
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28. International Staffing Needs
Staffing is related to the process by which the company assigns the most appropriate candidate.
Strategic and developmental issues are more important for managerial employees whereas cultural and legal conditions may be of greater importance for nonmanagerial workers.

29. International Staffing Needs
Managerial/Executive
employees
Nonmanagerial
employees
The staffing issues confronting international HR managers can be divided into two broad categories. One of these is recruiting, training, and retaining managerial and executive employees. The other is recruiting, training, and retaining nonmanagerial employees, such as blue-collar production workers and white-collar office staff. For managerial employees strategic and developmental issues are of primary importance. For nonmanagerial workers differences in cultural, political, and legal conditions among countries may be of greater significance.
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30. Scope of Internationalization
Type of the organization structure depends on level of international involvement.
For instance, the company is likely to have an export department at the beginning. The manager is likely to be a citizen of the home country.
As the firm grows it is likely to have an international division. Then global organization.

31. Scope of Internationalization
Export department
International division
The size of this task of recruiting, training, and retaining managers depends on the scope of the firm’s international involvement. Obviously, a firm’s needs in the beginning stages of internationalization, such as in indirect exporting, are far less complex and comprehensive than those confronting an MNC with extensive investments in numerous countries.
Export department: A firm’s initial foray into international business usually involves small-scale exporting using output from existing domestic production facilities. Its international activities are administered by an export department, whose manager reports to an existing company executive such as the vice president of marketing. The manager is likely to be a citizen of the home country and may or may not have special training in overseas marketing and financing.
International division: As its international operations grow in importance, a firm often creates a separate international division to administer all of its international activities. Typically, a firm’s international division is housed at corporate headquarters in its home country and is headed by a home country citizen to facilitate communication and coordination between the domestic and international operations. These foreign subsidiaries’ managers (including their presidents as well as heads of functional departments such as finance, marketing, and production) may be either home country or host country citizens.
Global organization: A firm further along in the internationalization process often adopts a global organization form. (Because of the complexity of its operations, a global organization must assemble a team of managers that have the expertise to produce, finance, and market its products worldwide while simultaneously coordinating its activities to achieve global production, financing, and marketing economies and synergies. The needs of a global organization are discussed further in the next slide.
Global organization
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32. Centralization versus Decentralization of Control
Firms can use centralized or decentralized approach
Centralized firms
Favor home country managers
Most common amongst international division form
Decentralized firms
Favor host country managers
Most common amongst multidomestic firms
An international business’s HRM needs also are affected by whether the firm wants decision making to be centralized at corporate headquarters or delegated (decentralized) to operating subsidiaries. Firms that use a centralized approach often favor employing home country managers; firms that follow a decentralized decision-making philosophy are more likely to employ host country managers. Certain organizational approaches and forms affect the choice of centralization or decentralization. Firms that view themselves as multidomestic rather than multinational are likely to favor decentralization of decision making. The global area form facilitates delegating responsibility to managers of the firm’s foreign subsidiaries. Conversely, the international division form favors centralizing decision making at corporate headquarters.
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33. Staffing Philosophy Parent country nationals (PCN) Host country
(HCN)
Third country
Nationals
(TNC)
The extent of the firm’s internationalization and its degree of centralization or decentralization affects (and is affected by) its philosophy regarding the nationality of its international managers. Parent country nationals (PCNs) are residents of the international business’s home country. Use of PCNs in an MNC’s foreign operations provides many advantages to the firm. Because PCNs typically share a common culture and educational background with corporate headquarters staff, they facilitate communication and coordination with corporate headquarters. Host country nationals (HCNs) are residents of the host country. HCNs are commonly used by international businesses to fill middle-level and lower-level jobs, but they also often appear in managerial and professional positions. An international firm may hire third-country nationals (TCNs), who are not citizens of the firm’s home country or of the host country. Like PCNs, TCNs are most likely to be used in upper-level and/or technical positions. TCNs and PCNs collectively are known as expatriates, or people working and residing in countries other than their native country.
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34. PCNs
Are residents of the international business’s home country who are transferred to one of its foreign operations.
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35. Advantage of the PNCs
Communications and coordination with corporate headquarters is typically facilitated when PCNs are employed because they normally share a common culture and education background with headquarters’ staff.
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36. Disadvantage of PCNs
PCNs may, however, lack knowledge of local laws, culture, economic conditions, social structure, and political processes. Moreover, they may be expensive to relocate and maintain in the host country. In addition, because a host country may impose restrictions on the number of employees that can be transferred, a company may not have the freedom to hire whom it wants.
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37. HCNs
Host country nationals (HCNs) are residents of the host country, and are the most common choice for mid-level and lower-level jobs. But they also appear in managerial and professional positions.
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38. Advantage of HCNs
Employing HCNs is popular because they are already familiar with local laws, culture, and economic conditions.
HCNs may be cheaper than PCNs because a firm can avoid the costs such as relocation expenses that are associated with PCNs.
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39. Disadvantage of HCNs
because an HCN may not be familiar with the firm’s corporate culture nor its business practices, a company could lose out on opportunities.
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40. TCNs
Third country nationals (TCNs) are citizens of neither the firm’s home country nor of the host country.
TCNs are most likely to be employed in upper-level or technical positions.
TCNs and PCNs are collectively known as expatriates (people working and residing in countries other than their native country).
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41. Strategies for Staffing
Ethnocentric staffing model : It fills all key management positions with home-country nationals.
Polycentric staffing model: HCNs are used upon the belief that HCNs know the local market best.
Geocentric staffing model: firms that want to hire the most qualified person for the job, regardless of the individual’s nationality.
Most international firms develop a systematic strategy for choosing among HCNs, PCNs, and TCNs for various positions. Some firms rely on the ethnocentric staffing model, whereby they primarily use PCNs to staff higher-level foreign positions. This approach is based on the assumption that home office perspectives should take precedence over local perspectives and that expatriate PCNs will be most effective in representing the views of the home office in the foreign operation. Other international firms follow a polycentric staffing model; that is, they emphasize the use of HCNs in the belief that HCNs know the local market best. Finally, the geocentric staffing model puts PCNs, HCNs, and TCNs on an equal footing. Firms that adopt this approach want to hire the best person available, regardless of where that individual comes from.
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42. Recruitment and Selection
The firm must define the business skills necessary to do the job.
Skills can be divided into two types: those needed to do the job and those needed to work in a foreign market.
The technical skill is an example of the first and adaptation is an example of the second.

43. Figure 20.2 Necessary Skills and Abilities for International Managers
Necessary to Do
the Job
Technical
Functional
Managerial
Skills and Abilities
Necessary to Work
in a Foreign Location
Adaptability
Location-specific skills
Personal characteristics
A firm’s scope of internationalization, level of centralization, and staffing philosophy help determine the skills and abilities its international managers need. As shown in Figure 20.2, these skills and abilities fall into two general categories: those needed to do the job and those needed to work in a foreign location.
Improved Chances of Succeeding in
an International Job Assignment
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44. Recruitment of Managers
Once skills are determined a pool of qualified applicants should be developed to select from.
Companies may recruit those who have previous experience in the firm or somewhere else.
Or the company may recruit new college graduates and prepare them for overseas assignments.

45. Recruitment of Managers
Experienced
Managers
Experienced managers can
be recruited from within the firm
itself or from other firms.
Younger
Managers
Hiring graduates with the intention of
sending them abroad in the future.
International businesses recruit experienced managers through a variety of channels. A common source of recruits is within the firm itself—among employees already working for the firm in the host country or those who, although currently employed in the home country, might be prepared for an international assignment in the host country. The latter group may include both managers who have never held an international assignment and managers who have already completed previous international assignments. An international business also may attempt to identify prospective managers who work for other firms. These may be home country managers who are deemed to be qualified for an international assignment or managers already working in an international assignment for another firm. For higher-level positions firms often rely on so-called headhunters to help them locate prospective candidates. Headhunters are recruiting firms that actively seek qualified managers and other professionals for possible placement in positions in other organizations. A firm may sometimes find it useful to relocate its facilities to be closer to a pool of qualified employees.
It is uncommon for large MNCs to hire new college graduates for immediate foreign assignments. Some firms, however, will hire new graduates they ultimately intend to send abroad and, in the short term, give the graduates domestic assignments. Particularly attractive are graduates with foreign-language skills, international travel experience, and a major in international business or a related field.
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46. Selection
Once the pool is developed we must decide which persons from the pool are qualified.
Most promising candidates tend to have/be
Managerial competence, Appropriate training, Adaptive.
Appropriate training(education,knowledge..etc)
Adaptability of new situations

47. Selection 2 Expatriate failure is caused by:
Selection is important because failure is costly.
Expatriate failure is the early return of the expatriate mangers to the home country.
Expatriate failure is caused by:
Inability of the manager or the spouse to adjust to the new life.
Lack of motivation and interest in the foreign assignment.

48. Expatriation and Repatriation issues
Expatriates may experience a culture shock.
It is the frustration that results when having to learn and cope with a vast array of cultural cues and expectations.
When the manager is brought back home after a foreign assignment is completed(repatriation) he might experience a reverse culture shock.

49. Figure 20.3 Phases in Acculturation
Honeymoon
Disillusionment
Adaptation
These phases are discussed further on the following slides.
Biculturalism
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50. Honeymoon Phase New culture seems exotic and stimulating
Excitement of working in new environment makes employee overestimate ease of adjusting
Lasts for first few days or months
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51. Disillusionment Phase
Differences between new and old environments are blown out of proportion
Challenges of everyday living
Many stay stuck in this phase
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52. Adaptation Phase Employee begins to understand patterns of new culture
Gains language competence
Adjusts to everyday living
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53. Biculturalism Anxiety has ended
Employee gains confidence in ability to function productively in new culture
Repatriation may be difficult
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54. Overseas Success
Likelihood of managers being successful at overseas assignment increases if the managers
Can freely choose whether to accept or reject the assignment
Have been given a realistic preview of the job and assignment
Have been given a realistic expectation of what their repatriation assignment will be
Have a mentor back home who will guard their interests and provide support
See a clear link between the expatriate assignment and their long-term career path
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55. Compensation
To be competitive firms should provide prevailing compensation packages for their managers.
The packages usually include salary and non-salary items.
Factors that determine compensation include:
Supply and demand forces.
Standard of living
Occupational stutas
Regulations and taxes

56. Compensation 2
MNCs find it necessary to provide expatriate managers with compensation that makes up the differences in currency valuation, standard of living..etc.
This adjustment is important when a manager is transferred from low-cost country or location to high-cost location.
In addition to the base salary other allowances or components of the compensation package are included(next slide).

57. Compensation Packages
Cost-of-living allowance
may be given to managers to offset differences
in the cost of living in the home and host countries.
Hardship premium
may be paid to mangers that accept assignments
in relatively unattractive locations.
Most international businesses find it necessary to provide these managers with differential compensation to make up for dramatic differences in currency valuation, standards of living, lifestyle norms, and so on. When managers are on short-term assignments abroad, their home country salaries normally continue unchanged. If foreign assignments are indefinite or longer term, compensation is routinely adjusted to allow the managers to maintain their home country standard of living. This adjustment is particularly important if a manager is transferred from a low-cost location to a high-cost location or from a country with a high standard of living to one with a lower standard of living. Figure 20.5 (shown on the next slide) summarizes cost-of-living differences for the twenty most expensive international business centers. The starting point in differential compensation is a cost-of-living allowance, which is intended to offset differences in the cost of living in the home and host countries. Sometimes firms find they must supplement base pay to get a manager to accept an assignment in a relatively unattractive location. Although it may not be difficult to find people willing to move to England or Japan, it may be much more difficult to entice people to move to Colombia or Afghanistan. Called either a hardship premium or a foreign-service premium, this supplement is essentially an inducement to the individual to accept the international assignment.
Tax equalization system
means of ensuring that the expatriate’s after-tax
income in the host country is similar to what the person’s
after-tax income would be in the home country.
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