1. Chapter 15 MANAGING HUMAN RESOURCES GLOBALLY
Fundamentals of human resource management 5th edition By R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright
Chapter 15 MANAGING HUMAN RESOURCES GLOBALLY
This chapter discusses the HR issues that organizations must address in a world of global competition. How the global nature of business is affecting HRM in modern organizations, how global differences among countries affect the organization’s decisions HR, HR planning, selection, training, and compensation practices in international settings and guidelines for managing employees sent on international assignments is discussed.

2. Need to Know
How the growth in international business activity affects HRM.
Factors that influence HRM in international markets.
Differences among countries affect HR planning at organizations with international operations.
How companies select and train HR in a global labor market.
Challenges related to compensating employees from other countries.
How employers prepare managers for international assignments and for their return home.
After reading and discussing this chapter, you should be able to:

3. HRM in a Global Environment
Environment in which organizations operate is rapidly becoming a global one.
Foreign countries can provide a business with new markets.
Companies set up operations overseas because of lower labor costs.
Technology makes it easier for companies to spread work around the globe.
A variety of international activities require managers to understand HRM principles and practices prevalent in global markets. Once organizations have taken advantage of these opportunities, they sometimes find themselves locked into overseas arrangements. In the consumer electronics industry, for example, so much of the manufacturing has shifted to China and other low-wage countries that U.S. companies no longer would have suppliers nearby if they tried to build a factory in North America.

4. As companies in U.S. and Britain cut software jobs and outsource to other countries in order to drive down costs, countries such as India continue to see employment rise.

5. HRM in a Global Environment
Global activities are simplified and encouraged by trade agreements among nations.
Increase and change demands on HRM.
Organizations need employees who understand customers and suppliers in foreign countries.
Organizations need to understand laws and customs that apply to employees in other countries.
A variety of international activities require managers to understand HRM practices prevalent in global markets. They need to prepare managers and other personnel to take on international assignments and adapt their HR plans and policies to different settings. Even if some practices are the same worldwide, the company now has to communicate them to its international workforce.

6. Employees in an International Workforce
Parent-country national – employee who was born and works in the country in which an organization’s headquarters is located.
Host-country national – employee who is a citizen of the country (other than parent country) in which an organization operates a facility.
Third-country national – employee who is a citizen of a country that is neither the parent country nor the host country of the employer.
When organizations operate globally, their employees are very likely to be citizens of more than one country. Employees may come from the employer’s parent country, a host country, or a third country.

7. Employees in an International Workforce
When organizations operate overseas, they hire a combination of parent-country nationals, host- country nationals, or third-country nationals.
Expatriates – employees assigned to work in another country.
The extent to which organizations use parent-country, host-country, or third-country nationals varies. Today at multinational companies, three-fourths of senior executives are now host country nationals. Competition is stiffest for hiring Asian managers who lived in the host country but were educated in the United States or Europe.

8. Figure 15.1: Levels of Global Participation
Just as there are different ways for employees to participate in international business so there are different ways for employers to do business globally, ranging from simply shipping products to customers in other countries to transforming the organization into a truly global one with operations, employees, and customers in many countries. Figure 15.1 shows the major levels of global participation.

9. Employers in the Global Marketplace
International organization – sets up one or a few facilities in one or a few foreign countries.
Multinational company – builds facilities in a number of different countries in an effort to minimize production and distribution costs.
Global organization – chooses to locate a facility based on the ability to effectively, efficiently, and flexibly produce a product or service using cultural differences as an advantage.
As organizations grow, they often begin to meet demand from customers in other countries. The usual way that a company begins to enter foreign markets is by exporting, or shipping domestically produced items to other countries to be sold there. Eventually, it may become economically desirable to set up operations in one or more foreign countries.

10. Test Your Knowledge
Hans works for a company who’s headquartered in France and has foreign operations in Germany, only. Hans is a citizen of the Netherlands. Which of the following is most likely true?
Hans works for a domestic company and is from the parent country.
Hans works for a multinational company and is from the host country.
Hans works for a global company and is from a third country.
Hans works for an international company and is from a third country.
Hans works for a company who’s headquartered in France and has foreign operations in Germany, only. Hans is a citizen of the Netherlands. Which of the following is true?
Hans works for a domestic company and is from the parent country.
Hans works for a multinational company and is from the host country.
Hans works for a global company and is from a third country.
Hans works for an international company and is from a third country.
Answer: D

11. Transnational HRM System
makes decisions from a global perspective
includes managers from many countries
based on ideas contributed by people representing a variety of cultures
Decisions that are the outcome of a transnational HRM system balance uniformity with flexibility.
A global organization needs a transnational HRM system that features decision making from a global perspective, managers from many countries, and ideas contributed by people from many cultures. Decisions that are the outcome of a transnational HRM system balance uniformity (for fairness) with flexibility (to account for cultural and legal differences).

12. Factors Affecting HRM in International Markets
Global HRM
Culture
Education
Economic Systems
Political-Legal Systems
Whatever their level of global participation, organizations that operate in more than one country must recognize that the countries are not identical and differ in terms of four key factors:
Culture
Education
Economic systems
Political systems

13. Culture
Culture – a community’s set of shared assumptions about how the world works and what ideals are worth striving for.
greatly affect a country’s laws.
influences what people value, so it affects people’s economic systems and efforts to invest in education.
determines effectiveness HRM practices.
The most important influence on international HRM is the culture of the country in which a facility is located. Cultural characteristics influence the ways members of an organization behave toward one another as well as their attitudes toward various HRM practices.
Cultures strongly influence the appropriateness of HRM practices.
Cultural differences can affect how people communicate and how they coordinate their activities.

14. Hofstede’s Five Dimensions of Culture
1. Individualism/Collectivism
Describes the strength of the relation between an individual and other individuals in the society.
2. Power Distance
Concerns the way the culture deals with unequal distribution of power and defines the amount of inequality that is normal.
3. Uncertainty Avoidance
Describes how cultures handle the fact that the future is unpredictable.
4. Masculinity/Femininity
The emphasis a culture places on practices or qualities that have traditionally been considered masculine or feminine.
5. Long-term/Short-term Orientation
Suggests whether the focus of cultural values is on the future (long term) or the past and present (short term).
Such cultural characteristics as these influence the ways members of an organization behave toward one another, as well as their attitudes toward various HRM practices. Practices that are effective in the United States, for example, may fail or even backfire in a country with different beliefs and values. Recent research that examined Hofstede’s model of cultural differences found that differences among organizations within a particular culture were sometimes larger than differences from country to country. This finding suggests that it is important for an organization to match its HR practices to its values; individuals who share those values are likely to be interested in working for the organization. Consider the five dimensions of culture that Geert Hofstede identified in his classic study of culture:

15. The success of HRM decisions related to job design, benefits, performance management, and other systems related to employee motivation also will be shaped by culture. Cultural differences can affect how people communicate and how they coordinate their activities.
In Taiwan, a country that is high in collectivism, coworkers consider themselves more as group members instead of individuals.
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16. Culture
Organizations must prepare managers to recognize and handle cultural differences.
Recruit managers with knowledge of other cultures
Provide training
For expatriate assignments, organizations may need to conduct an extensive selection process to identify individuals who can adapt to new environments.
The challenges presented by culture have some impacts on HRM. It is important for an organization to match its HR practices to its values; individuals who share those values are likely to be interested in working for the organization.

17. Education and Skill Levels
Companies with foreign operations locate in countries where they can find suitable employees.
Education and skill levels of a country’s labor force affect how and extent to which companies want to operate there.
In countries with a poorly educated population, companies will limit their activities to low-skill, low-wage jobs.
Countries also differ in the degree to which their labor markets include people with education and skills of value to employers. Educational opportunities also vary from one country to another. In general, spending on education is greater per pupil in high-income countries than in poorer countries.

18. Economic System
Economic system provides many incentives or disincentives for developing the value of the labor force.
In developed countries with great wealth, labor costs are relatively high, impacting compensation recruiting and selection decisions.
Income tax differences between countries make pay structures more complicated when they cross national boundaries.
A country’s economic system, whether capitalist or socialist, as well as the government’s involvement in the economy through taxes or compensation, price controls, and other activities, influences HRM practices in a number of ways.

19. Political-Legal System
Country’s laws often dictate requirements for HRM practices: training, compensation, hiring, firing, and layoffs.
An organization that expands internationally must gain expertise in the host country’s legal requirements and ways of dealing with its legal system.
Organizations will hire one or more host-country nationals to help in the process.
A country’s political-legal system – its government, laws, and regulations – strongly impinges on human resource management.

20. HR Planning in a Global Economy
HR planning involves decisions about where and how many employees are needed for each international facility.
Decisions about where to locate include considerations such as cost and availability of qualified workers which must be weighed against financial and operational requirements.
As economic and technological change creates a global environment for organizations, HR planning is involved in decisions about participating as an exporter or as an international, multinational, or global company. Even purely domestic companies may draw talent from the international labor market. When organizations decide to operate internationally or globally, HR planning involves decisions about where and how many employees are needed for each international facility.

21. Criteria for Selection of Employees for Foreign Assignments
Competency in employee’s area of expertise
Ability to communicate verbally and nonverbally in the foreign country
Flexibility, tolerance of ambiguity, and sensitivity to cultural differences
Motivation to succeed and enjoyment of challenges
Willingness to learn about the foreign country’s culture, language, and customs
Support from family members
Whether the organization is hiring immigrants or selecting parent-country or third-country nationals for foreign assignments, some basic principles of selection apply. Selection for foreign assignments should reflect criteria that have been associated with success in working overseas as listed on this slide.

22. Ask students: “What would persuade you to take a foreign assignment?”
Qualities associated with success in foreign assignments are the ability to communicate in the foreign country, flexibility, enjoying a challenging situation, and support from family members.
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23. Figure 15.2: Emotional Cycle Associated with a Foreign Assignment
The factor most strongly influencing whether an employee completed a foreign assignment was the comfort of the employee’s spouse and family. Personality may also be important. Research has found successful completion of overseas assignments to be most likely among employees who are extroverted (outgoing), agreeable (cooperative and tolerant), and conscientious (dependable and achievement oriented). The emotions that accompany an overseas assignment tend to follow in a cycle like that in Figure Qualities of flexibility, motivation, agreeableness, and conscientiousness are so important because of the challenges involved in entering another culture. The emotions that accompany an overseas assignment tend to follow stages like those in Figure 15.2:
Culture Shock: Disillusionment and discomfort that occur during the process of adjusting to a new culture.

24. Test Your Knowledge
Rachel, an expatriate working in Japan is feeling very uncomfortable in her surroundings. She often feels as if she has said the wrong thing. Rachel is most likely in which emotional stage of expatriation:
Honeymoon
Culture shock
Learning
Adjustment
Rachel, an expatriate working in Japan is feeling very uncomfortable in her surroundings. She often feels as if she has said the wrong thing, Rachel is most likely in which emotional stage of expatriation:
Honeymoon
Culture shock
Learning
Adjustment
Answer: B
Honeymoon – period of fascination and euphoria as the employee enjoys the novelty of the new culture
Culture shock– the disillusionment and unfreezing of ideas that occur during the process of adjusting to a new culture.
Learning – continued learning about the host country’s culture, language increase their comfort level and their mood
Adjustment – stage where the expatriate accepts and enjoys the host country’s culture

25. Training and Developing a Global Workforce
Training and development programs should be effective for all participating employees, regardless of their country of origin.
When organizations hire employees to work in a foreign country or transfer them to another country, the employer needs to provide employees with training in how to handle challenges associated with working in a foreign country.
In an organization whose employees come from more than one country, two special challenges arise with respect to training and development. Developers of effective training programs for an international workforce must ask certain questions such as objectives for the training and its content, training techniques, strategies, and media to use. Language differences will require translations, any other interventions and conditions that must be in place for the training to meet its objectives. They need to consider who in the organization should be involved in reviewing and approving the training program, international differences among trainees and whether they will consider it appropriate to ask questions and whether they expect the trainer to spend time becoming acquainted with employees or to get down to business immediately.

26. Table 15.1: Effects of Culture on Training Design
The plan for training program must consider international differences among trainees. Table 15.1 provides examples of how cultural characteristics can affect training design.

27. Test Your Knowledge
Employees from a high-power distance culture would feel most comfortable in a training class that:
Involved several group activities with classmates
The teacher was the expert and responded definitively to all questions
The teacher acted as a facilitator of group discussion
None of the above
Employees from a high-power distance culture would feel most comfortable in a training class that:
Involved several group activities with classmates
The teacher was the expert and responded definitively to all questions
The teacher acted as a facilitator of group discussion
None of the above
Answer: B

28. Delivering Training in Other Countries
Know your goals.
Consider international differences among trainees when developing the training plan.
Keep an eye on quality.
Be clear about standards for confidentiality and intellectual property.
Know local laws that affect training programs.
Training professionals offer the following ideas for preparing and delivering training programs overseas:
Know your goals – clarify what the overseas training is supposed to achieve.
The training program must consider international differences among trainees.
Keep an eye on quality – Your overseas trainers should meet the same quality standards you have at headquarters.
Be clear about standards for confidentiality and intellectual property
Know the local laws that affect training programs
For details, see the “HR How To” box in the text.

29. Foreign Assignments
Would you consider taking a foreign assignment for a 6 months to 1 year duration?
A = Yes B = No
Before you took on a foreign assignment, what would you want to know?
At global organizations, international assignments are a part of many career paths. The organization benefits most if it applies the principles of employee development in deciding which employees should be offered jobs in other countries. With the globalization of business, foreign assignments have become more regular. It used to be that people who were most available or technically qualified would be asked to take these assignments. However, more and more companies are paying attention to non-technical factors that predict success in foreign roles as it is very expensive to have someone make the move.
Would you consider taking a foreign assignment for a 6 months to 1 year duration?
A=Yes, B=No
If you did take one you would be called an expatriate.
Because of the cost and criticality of success of foreign assignments many researchers have studied what competencies are important for such a role and effort has been placed in extensive preparation of expatriates.
Before you took on a foreign assignment, what would you want to know?
Use student’s answers to lead into the preparation stages on next slide.

30. Cross-Cultural Preparation
Training to prepare employees and their family members for an assignment in a foreign country.
Covers all three phases of an international assignment:
Preparation for departure
The assignment itself
Preparation for the return home
When an organization selects an employee for a position in a foreign country, it must prepare the employee for the foreign assignment. This kind of training is called cross-cultural preparation. It often includes family members who will accompany the employee on the assignment. Methods for providing this training may range from lectures for employees and their families to visits to culturally diverse communities. Employees and their families may also spend time visiting a local family from the country where they will be working. It is important for employers to remember that returning home is also a challenge when employees have been away for months or years. Returning employees often find that life at home seems boring, relative to the excitement of learning a new culture, and family members and colleagues at home may find it hard to relate to their recent experiences. Employers should be ready for employees who want to share what they learned and put their recently acquired skills to work in new assignments

31. Performance Management Across National Boundaries
When establishing performance management methods in other countries, consider:
Legal requirements
Local business practices
National cultures
Differences may include:
Which behaviors are rated
How and the extent to which performance is measured
Who performs the rating
How feedback is required
The general principles of performance management may apply in most countries, but the specific methods that work in one country may fail in another. The extent to which managers measure performance may also vary from one country to another

32. Compensating an International Workforce
Market pay structures can differ substantially across countries in terms of both pay level and relative worth of jobs.
Dilemma for global companies:
Should pay levels and differences reflect what workers are used to in their own countries?
Should pay levels and differences reflect the earnings of colleagues in the country of the facility, or earnings at the company headquarters?
Compensation decisions about pay structure, incentive pay, and employee benefits become more complex when an organization has an international workforce.

33. Figure 15.3: Earnings in Selected Occupations in Three Countries
As Figure 15.3 shows, market pay structures can differ substantially across countries in terms of both pay level and relative worth of jobs. A global compensation strategy is important as a way to show employees that the pay structure is designed to be fair and related to the value that employees bring to the organization.

34. Compensating an International Workforce
Compensation decisions affect a company’s costs and ability to compete.
Challenge of competing with organizations in low- wage countries can be very difficult.
Decisions about benefits must take into account the laws of each country involved, as well as employees’ expectations and values in those countries.
Organizations with a global pay strategy must adjust the strategy to account for local requirements and determine how pay decisions for optional practices will affect their competitive standing in local labor market.

35. Figure 15.4: Average Hours Worked in Selected Countries
Paid vacation tends to be more generous in Western Europe than in the United States. Figure 15.4 compares the number of hours the average employee works in various countries. Of these countries, only in South Korea and Poland do workers put in more hours than U.S. workers. In the other countries, the norm is to work fewer hours than a U.S. worker over the course of a year. Cultural and legal differences also can affect pay structure. Some countries, including Colombia, Greece, and Malaysia, require that companies provide salary increases to employees earning minimum wage. In Venezuela, employers must provide employees with a meal allowance. In Mexico and Puerto Rico, Employers must pay holiday bonuses.

36. International Labor Relations
Labor relations on an international scale involves differences in laws, attitudes, economic systems, and negotiation styles.
Organizations establish overall policies and goals for labor relations, overseeing labor agreements, and monitoring labor performance.
Day-to-day decisions about labor relations are usually handled by each foreign subsidiary.
Companies that operate across national boundaries often need to work with unions in more than one country.

37. Managing Expatriates: Selecting Expatriate Managers
Expatriate managers need technical competence in the area of operations.
Adaptation requires abilities to :
maintain a positive self-image and feeling of well-being
foster relationships with host-country nationals
perceive and evaluate the host country’s environment accurately
Most international organizations assign managers to foreign posts. These assignments give rise to significant HR challenges:
Selecting managers for these assignments
Preparing them
Compensating them
Helping them adjust to a return home
The same kinds of HRM principles that apply to domestic positions can help organizations avoid mistakes in managing expatriates:
Planning and goal setting
Selection aimed at achieving the HR goals
Performance management that includes evaluation of whether the overseas assignment delivered value relative to the costs involved

38. Assessing Candidates for Overseas Assignments
Motivation
Health
Language ability
Family Considerations
Resourcefulness
Adaptability
Career Planning
Financial
To assess candidates’ ability to adapt to a new environment, interviews should address topics such as the one’s listed in Table The interviewer should be certain to give candidates a clear and complete preview of the assignment and the host country culture. This helps the candidate evaluate the assignment and consider it in terms of his or her family situation, so the employer does not violate the employee’s privacy.

39. Managing Expatriates: Preparing Expatriates
Pre-assignment site visit
Job orientation
Country orientation
Culture orientation
Language training
Compensation / benefits / taxes counseling
Housing counseling
Health care / schools / shopping / recreation counseling
Counseling by returning expatriates
Local sponsorship from host country
Once the organization has selected a manager for an overseas assignment, it is necessary to prepare that person through training and development. Because expatriate success depends so much on the entire family’s adjustment, the employee’s spouse should be included in the preparation activities.

40. Figure 15.5: Impressions of Americans: Comments by Visitors to U.S.
The general purpose of cross-cultural training is to create an appreciation of the host country’s culture so expatriates can behave appropriately. This requires developing greater awareness of one’s own culture, so that the expatriate manager can recognize differences and similarities between the cultures and, perhaps, home-culture biases. Consider the statements in Figure 15.5, which are comments made by visitors to the United States.
Ask Students: “Do you think these observations accurately describe U.S. culture?”

41. Compensating Expatriates
Balance sheet approach – adjusts manager’s compensation so that it gives the manager same standard of living as in the home country plus extra pay for inconvenience of locating overseas.
involves an effort by the global organization to ensure that its expatriates are “made whole.”
One of the greatest challenges of managing expatriates is determining the compensation package. As shown in Figure 15.6 , the balance sheet approach begins by determining the purchasing power of compensation for the same type of job in the manager’s own country—that is, how much a person can buy, after taxes, in terms of housing, goods and services, and a reserve for savings. Other factors are considered in the calculations.

42. Figure 15.6: Balance Sheet for Determining Expatriate Compensation
As shown in Figure 15.6, the balance sheet approach begins by determining the purchasing power of compensation for the same type of job in the manager’s own country – that is, how much a person can buy, after taxes, in terms of housing, goods and services, and a reserve for savings. Next, this amount is compared with the cost of these same expenses in the foreign country. In Figure 15.6, the greater size of the second column means the costs for a similar standard of living in the foreign country are much higher in every category except the reserve amount. This situation would be likely in one of the cities identified in the chart on the next slide. For the expatriate in this situation, the employer would pay the additional costs, as shown by the third column. Finally, the expatriate receives additional purchasing power from premiums and incentives.

43. Priciest Cities
Expatriates spend more for housing, transportation, food, clothing, and other living expenses in Luanda, Angola, than in any other major city, according to a survey by Mercer Human Resources Consulting. In recent years, Asian cities dominated the top five, but in the most recent survey, two of the most expensive cities are in Africa, and only two (counting Russia) are in Asia. Rankings are influenced by the relative value of national currencies, as well as well as by political strife and natural disasters. The least expensive city among those studied was Karachi, Pakistan, where security concerns have reduced the demand for housing. Mercer’s list of the 50 most expensive cities includes only one city in North America: New York, ranked # 32.

44. Compensating Expatriates
After setting total pay, organization divides this amount into four components of total pay package:
Base salary
Tax equalization allowance
Benefits
Allowances
Expatriates sent to expensive destinations such as Singapore and Hong Kong can receive $200,000 a year in subsidies to cover the expenses of housing, transportation, and schools for their children—plus an additional $100,000 to cover the cost of taxes on these benefits. Adding in the costs to relocate the employee and his or her family can send the total bill for the assignment up to $1 million. That high cost is one of the reasons employers are investing more in recruiting and training local talent

45. Figure 15.7: International Assignment Allowance Form
Figure 15.7 is an example of a summary sheet for an expatriate manager’s compensation package, showing a variety of allowances.
Allowances can include:
Cost-of-living
Housing
Dependent Education
Relocation
Automobile

46. Helping Expatriates Return Home
Repatriation – process of preparing expatriates to return home from foreign assignment.
Communication: expatriate receives information and recognizes changes at home while abroad
Validation: giving expatriate recognition for overseas service when this person returns home.
As the expatriate’s assignment nears its end, the human resource department faces a final challenge: helping the expatriate make the transition back to his or her home country. The process of preparing expatriates to return home from a foreign assignment is called repatriation.

47. Summary
More companies are entering international markets by exporting and operating foreign facilities.
Organizations need employees who understand customers, suppliers, local laws and customs in other countries and able to adapt their plans to local situations.
Organizations may hire a combination of parent- country, host-country, and third-country nationals.
A global organization needs a transnational HRM system, that:
Makes decisions from a global perspective
Includes managers from many countries
Is based on ideas contributed by people representing a variety of cultures Most important influence is the culture of each market. Culture is each markets’ set of shared assumptions about how the world works and what ideals are worth striving for.

48. Summary
Another influence on international HRM is the foreign country’s political-legal system.
A country’s economic system, as well as the government’s involvement in the economy, is a strong factor determining HRM practices.
HR planning involves decisions about where and how many employees are needed for each international facility.
Most foreign operations positions are filled with host-country nationals.
Foreign positions are also filled with parent-country and third-country nationals.
Pay structures can differ substantially among countries in terms of pay level and relative worth of jobs.
Laws may dictate differences in benefits packages, and value of benefits will differ if a country requires them or makes them a government service.

49. Summary
Organization must prepare the manager selected for an overseas assignment.
Cross-cultural training for the assignment as well as preparation for repatriation after the assignment are critical success factors.
Communication of changes at home and validation of a job well done abroad help expatriate through repatriation process.
Along with cross-cultural training, preparation of the expatriate should include career development activities to help the individual acquire valuable career skills during the foreign assignment and at the end of the assignment to handle repatriation successfully.