Introduction
Human resource management refers to the activities an organization carries out to use its human resource effectively. These activities include determining the firm's human resource strategy, staffing, performance evaluation, management development, compensation, and labor relations.
The strategic role of HRM is complex enough in a purely domestic firm, but it is more complex in an international business, where staffing, management development, performance evaluation, and compensation activities are complicated by profound differences between countries in labor markets, culture, legal systems, economic systems, and the like .
We examined four strategies pursued by international businesses--the multidomestic, the international, the global, and the transnational. Multidomestic firms try to create value by emphasizing local responsiveness; international firms, by transferring core competencies overseas; global firms, by realizing experience curve and location economies; and transnational firms, by doing all these things simultaneously. Success also requires HRM policies to be congruent with the firm's strategy and with its formal and informal structure and controls. The opening case alluded to the relationship between strategy, structure, and HRM. Through its employee selection, management development, performance appraisal, and compensation policies, the HRM function can help develop these things.
Staffing Policy
Staffing policy is concerned with the selection of employees for particular jobs. At one level, this involves selecting individuals who have the skills required to do particular jobs.
The need for integration is substantially lower in a multidomestic firm. There is less performance ambiguity and not the same need for cultural controls. In theory, this means the HRM function can pay less attention to building a unified corporate culture. In multidomestic firms, the culture can be allowed to vary from national operation to national operation.
Types of Staffing Policy
The Ethnocentric Approach
An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. First, the firm may believe the host country lacks qualified individuals to fill senior management positions. Second, the firm may see an ethnocentric staffing policy as the best way to maintain a unified corporate culture. Third, if the firm is trying to create value by transferring core competencies to a foreign operation, as firms pursuing an international strategy are, it may believe that the best way to do this is to transfer parent - country nationals who have knowledge of that competency to the foreign operation..
The Polycentric Approach
A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. In many respects, a polycentric approach is a response to the shortcomings of an ethnocentric approach. One advantage of adopting a polycentric approach is that the firm is less likely to suffer from cultural myopia. Host-country managers are unlikely to make the mistakes arising from cultural misunderstandings that expatriate managers are vulnerable to. A second advantage is that a polycentric approach may be less expensive to implement, reducing the costs of value creation. Expatriate managers can be very expensive to maintain.
A polycentric approach also has its drawbacks. Host-country nationals have limited opportunities to gain experience outside their own country and thus cannot progress beyond senior positions in their own subsidiary..8
The Geocentric Approach
A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. There are a number of advantages to this policy. First, it enables the firm to make the best use of its human resources. Second, and perhaps more important, a geocentric policy enables the firm to build a cadre of international executives who feel at home working in a number of cultures. Creation of such a cadre may be a critical first step toward building a strong unifying corporate culture and an informal management network, both of which are required for global and transnational strategies (see Table 18.1).9 Firms pursuing a geocentric staffing policy may be better able to create value from the pursuit of experience curve and location economies and from the multidirectional transfer of core competencies than firms pursuing other staffing policies. In addition, the multinational composition of the management team that results from geocentric staffing tends to reduce cultural myopia and to enhance local responsiveness.
Expatriate Failure Rates
Expatriate failure represents a failure of the firm's selection policies to identify individuals who will not thrive abroad. The costs of expatriate failure are high. One estimate is that the average cost per failure to the parent firm can be as high as three times the expatriate's annual domestic salary plus the cost of relocation .Tung asked her sample of multinational managers to indicate reasons for expatriate failure. For US multinationals, the reasons, in order of importance, were
1. Inability of spouse to adjust.
2. Manager's inability to adjust.
3. Other family problems.
4. Manager's personal or emotional maturity.
5. Inability to cope with larger overseas responsibilities.
Managers of European firms gave only one reason consistently to explain expatriate failure: the inability of the manager's spouse to adjust to a new environment. For the Japanese firms, the reasons for failure were
1. Inability to cope with larger overseas responsibilities.
2. Difficulties with new environment.
3. Personal or emotional problems.
4. Lack of technical competence.
5. Inability of spouse to adjust.
Expatriate Selection
1. Self-orientation. The attributes of this dimension strengthen the expatriate's self-esteem, self-confidence, and mental well-being. Expatriates with high self-esteem, self-confidence, and mental well-being were more likely to succeed in foreign postings.
2. Others-orientation. The attributes of this dimension enhance the expatriate's ability to interact effectively with host-country nationals. The more effectively the expatriate interacts with host-country nationals, the more likely he or she is to succeed. Two factors seem to be particularly important here: relationship development and willingness to communicate. Relationship development refers to the ability to develop long-lasting friendships with host-country nationals.
3. Perceptual ability. This is the ability to understand why people of other countries behave the way they do; that is, the ability to empathize. This dimension seems critical for managing host-country nationals. Expatriate managers who lack this ability tend to treat foreign nationals as if they were home-country nationals.
4. Cultural toughness. This dimension refers to the fact that how well an expatriate adjusts to a particular posting tends to be related to the country of assignment. Some countries are much tougher postings than others because their cultures are more unfamiliar and uncomfortable.
Training and Management Development
Training for Expatriate Managers
Cultural Training
Cultural training seeks to foster an appreciation for the host country's culture. The belief is that understanding a host country's culture will help the manager empathize with the culture, which will enhance her effectiveness in dealing with host-country nationals. It has been suggested that expatriates should receive training in the host country's culture, history, politics, economy, religion, and social and business practices.
Language Training
English is the language of world business; it is quite possible to conduct business all over the world using only English.
Practical Training
Practical training is aimed at helping the expatriate manager and family ease themselves into day-to-day life in the host country. The sooner a routine is established, the better are the prospects that the expatriate and her family will adapt successfully.
Repatriation of Expatriates
A largely overlooked but critically important issue in the training and development of expatriate managers is to prepare them for reentry into their home country organization. Repatriation should be seen as the final link in an integrated, circular process that connects good selection and cross-cultural training of expatriate managers with completion of their term abroad and reintegration into their national organization.
Often when they return home after a stint abroad--where they have typically been autonomous, well-compensated, and celebrated as a big fish in a little pond--they face an organization that doesn't know what they have done for the last few years, doesn't know how to use their new knowledge, and doesn't particularly care. In the worst cases, reentering employees have to scrounge for jobs, or firms will create standby positions that don't use the expatriate's skills and capabilities and fail to make the most of the business investment the firm has made in that individual.
Management Development and Strategy
Management development programs are designed to increase the overall skill levels of managers through a mix of ongoing management education and rotations of managers through a number of jobs within the firm to give them varied experiences. They are attempts to improve the overall productivity and quality of the firm's management resources.
International businesses increasingly are using management development as a strategic tool. This is particularly true in firms pursuing a transnational strategy, as increasing numbers are. Such firms need a strong unifying corporate culture and informal management networks to assist in coordination and control.
Management development programs help build a unifying corporate culture by socializing new managers into the norms and value systems of the firm. In-house company training programs and intense interaction during off-site training can foster esprit de corps--shared experiences, informal networks, perhaps a company language or jargon--as well as develop technical competencies. These training events often include songs, picnics, and sporting events that promote feelings of togetherness.
Performance Appraisal
Performance Appraisal Problems
Unintentional bias makes it difficult to evaluate the performance of expatriate managers objectively. In most cases, two groups evaluate the performance of expatriate managers, host-nation managers and home-office managers, and both are subject to bias. The host-nation managers may be biased by their own cultural frame of reference and expectations. Home-country managers' appraisals may be biased by distance and by their own lack of experience working abroad. Home-office management is often not aware of what is going on in a foreign operation.
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.
Guidelines for Performance Appraisal
Several things can reduce bias in the performance appraisal process. First, most expatriates appear to believe more weight should be given to an on-site manager's appraisal than to an off-site manager's appraisal. Due to proximity, an on-site manager is more likely to evaluate the soft variables that are important aspects of an expatriate's performance. The evaluation may be especially valid when the on-site manager is of the same nationality as the expatriate, since cultural bias should be alleviated. Finally, when the policy is for foreign on-site managers to write performance evaluations, home-office managers should be consulted before an on-site manager completes a formal termination evaluation
Compensation
National Differences in Compensation
Substantial differences exist in the compensation of executives at the same level in various countries. These differences in compensation raise a perplexing question for an international business: Should the firm pay executives in different countries according to the prevailing standards in each country, or should it equalize pay on a global basis? The problem does not arise in firms pursuing ethnocentric or polycentric staffing policies.
Expatriate Pay
Base Salary
An expatriate's base salary is normally in the same range as the base salary for a similar position in the home country. The base salary is normally paid in either the home-country currency or in the local currency.
Foreign Service Premium
A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. It is offered as an inducement to accept foreign postings. It compensates the expatriate for having to live in an unfamiliar country isolated from family and friends, having to deal with a new culture and language, and having to adapt new work habits and practices.
Allowances
Four types of allowances are often included in an expatriate's compensation package: hardship allowances, housing allowances, cost-of-living allowances, and education allowances. A hardship allowance is paid when the expatriate is being sent to a difficult location, usually defined as one where such basic amenities as health care, schools, and retail stores are grossly deficient by the standards of the expatriate's home country. A housing allowance is normally given to ensure that the expatriate can afford the same quality of housing in the foreign country as at home. In locations where housing is very expensive .
Taxation
Unless a host country has a reciprocal tax treaty with the expatriate's home country, the expatriate may have to pay income tax to both the home- and host-country governments. When a reciprocal tax treaty is not in force, the firm typically pays the expatriate's income tax in the host country. In addition, firms normally make up the difference when a higher income tax rate in a host country reduces an expatriate's take-home pay.
Benefits
Many firms also ensure that their expatriates receive the same level of medical and pension benefits abroad that they received at home. This can be very costly for the firm, since many benefits that are tax deductible for the firm in the home country may not be deductible out of the country.
International Labor Relations
The HRM function of an international business is typically responsible for international labor relations. From a strategic perspective, the key issue in international labor relations is the degree to which organized labor can limit the choices of an international business.
The Concerns of Organized Labor
Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. Unions' bargaining power is derived largely from their ability to threaten to disrupt production, either by a strike or some other form of work protest. This threat is credible, however, only insofar as management has no alternative but to employ union labor.
A principal concern of domestic unions about multinational firms is that the company can counter their bargaining power with the power to move production to another country.
The Strategy of Organized Labor
Organized labor has responded to the increased bargaining power of multinational corporations by taking three actions:
(1) trying to establish international labor organizations.
(2) lobbying for national legislation to restrict multinationals.
(3) trying to achieve international regulations on multinationals through such organizations as the United Nations. However, the ITSs have had virtually no real 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. Trade unions developed independently in each country. As a result, the structure and ideology of unions tend to vary significantly from country to country, as does the nature of collective bargaining.
Approaches to Labor Relations
International businesses differ markedly in their approaches to international labor relations. The main difference is the degree to which labor relations activities are centralized or decentralized. Historically, most international businesses have decentralized international labor relations activities to their foreign subsidiaries because labor laws, union power, and the nature of collective bargaining varied so much from country to country. It made sense to decentralize the labor relations function to local managers. The belief was that there was no way central management could effectively handle the complexity of simultaneously managing labor relations in a number of different environments.
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