The strategic role of human resources in international business
International human resouce managemant (IHRM) can be defided as the planning, selection, training, employment and evaluation of employees for international operation, International human resource managers work at three defferent level in afirm that has muticountry operation:
1. Host country nationals (HCNs)
These employees are sitizens of the country where subsidiary or affiliate in located. Typically, HCNs make up the lagest proportion of the employees that the firm hires aboard. The firm’s labor force in manufacturing, assembly, basic service activities, clerical work, and other non managerial functions largely consists of HCNs.
2. Parent country nationals (PCNs)
Also knows as home country nationals. PCNs are citizens of the countrywhere the MNE is headquartered.
3. Third country nationals (TCNs)
These are employees who are citizens of countries other that the home or host country. Most TCNs work in management and are hired because they prosses special knawladge or skill
Expatriates represent a minority of managers. Thus, “most managerial positions are filled by locals rather than expatriates in both headquarters or foreign subsidiary operations.” There are several reasons to rely on local, host-country management talent for filling the foreign subsidiary’s management ranks. Manypeople simply prefer not to work in a foreign country, and in general the cost of using expatriates is far greater than the cost of using local management talent. The multinational corporation may be viewed locally as a “better citizen” if it uses local management talent, and indeed some governments actually press for the “nativization” of local management.
There may also be a fear that expatriates, knowing that they are posted to the foreign subsidiary for only a few years, may overemphasize short-term projects rather than focus on perhaps more necessary long-term tasks. There are also several reasons for using expatriates—either home-country or third-country nationals—for staffing subsidiaries. The major reason is reportedly technical competence: in other words, employers cannot find local candidates with the required technical qualifications. Multinationals also increasingly view a successful stint abroad as a required step in developing top managers. Control is another important reason. Multinationals sometimes assign home-country nationals from their headquarters staff abroad on the assumption that these managers are more steeped in the firm’s policies and culture and more likely to unquestioningly implement headquarters’ instructions.
The number of their employees abroad has increased. With more employees abroad, HR departments have had to tackle new global challenges. Three broad global HR challenges that have emerged are as follows:
• Deployment. Getting the right skills to where they are needed in the organization regardless of geographical location.
• Knowledge and innovation dissemination. Spreading state-of-the art knowledge and practices throughout the organization regardless of where they originate.
• Identifying and developing talent on a global basis. Identifying who has the ability to function effectively in a global organization and developing these abilities.
Dealing with such challenges means that most employers have had to develop HR policies and procedures just for handling global assignments. From a practical point of view, one has to address issues such as:
1. Candidate identification, assessment, and selection. In addition to the required technical and business skills, key traits to consider for global assignments include, for instance: cultural sensitivity, interpersonal skills, and flexibility.
2. Cost projections. The average cost of sending an employee and family on an overseas assignment is reportedly between three and five times the employee’s pre-departure salary; as a result, quantifying total costs for a global assignment and deciding whether to use an expatriate or a local employee are essential in the budgeting process.
3. Assignment letters. The assignee’s specific job requirements and associated pay will have to be documented and formally communicated in an assignment letter.
4. Compensation, benefits, and tax programs. There are many ways in which to compensate employees who are transferred abroad, given the vast differences in living expenses around the world.
5. Relocation assistance. The assignee will probably have to be assisted with such matters as maintenance of the person’s home and automobiles, shipment and storage of household goods, and so forth.
6. Family support. Cultural orientation, educational assistance, and emergency provisions are just some of the matters to be addressed before the family is sent abroad.
Factor contributing to the complecity of human resource management in international business
1. New HR responsibilities.
2. The need for a broader, international prespective in compensation policy
3. Greater involvement in employees’ personal lives.
4. Managing the mix of expatriates versus locals
5. Greater risk exposure
6. External influence of the goverment and national culture.
Key tasks in international HRM
| Task | Strategic goals | Illustrative challenges |
| International stafing policy | · Choose between home country nationals, host country national, and third country nationals · Develop global managers · Recruit and select expatriates | · Avoid country bias, nepotism, and other local practices · Cultivate global mindsets |
| Preparation and training of employees | · Increase effectiveness of international employees, leading to increased company performance · Train employees with emphasis on area studies, practical information and cross cultural awareness. | · Minimize culture shock and accurrence of early departure by expatriate |
| International performance appraisial | Assess, over time. How effectively managers, and other emloyee perform their job aboard | Establish uniform, organization wde performance benchmarks. |
| Compensation of employee | Develop guidelines and administer compensation, base salery, benefit, allowance | Avoid double taxation of employee |
| International labor relation | Manage and interact with labor union, colective bargaining | Reduce absenteeism, workforce injuries due to negligence, |
| Diversity in the international work force | Recruit talent from diverse backgrounds to bring experience and knowladge to firm probem and opportunities | Achieve genger diversity |
International staffing policy
Multinational firms’ top executives are often classified as either ethnocentric, polycentric, or geocentric. In an ethnocentric corporation, “… the prevailing attitude is that home country attitudes, management style, knowledge, evaluation criteria, and managers are superior to anything the host country might have to offer.” In the polycentric corporation, “there is a conscious belief that only host-country managers can ever really understand the culture and behaviour of the host-country market; therefore, the foreign subsidiary should be managed by local people.” The geocentric approach, which is becoming more common, assumes that management candidates must be searched for on a global basis, on the assumption that the best manager for any specific position anywhere on the globe may be found in any of the countries in which the firm operates.
These three multinational attitudes translate into three international staffing policies. An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals.Reasons given for ethnocentric staffing policies include lack of qualified host-country senior management talent, a desire to maintain a unified corporate culture and tighter control, and the desire to transfer the parent firm’s core competencies (for instance, a specialized manufacturing skill) to a foreign subsidiary more expeditiously.
A polycentric-oriented firm would staff foreign subsidiaries with host-country nationals and its home-office headquarters with parent-country nationals. This may reduce the local cultural misunderstandings that expatriate managers may exhibit. It will also almost undoubtedly be less expensive. One expert estimates that an expatriate executive can cost a firm up to three times as much as a domestic executive because of transfer expenses and other expenses such as schooling for children, annual home leave, and the need to pay income taxes in two countries.
A geocentric staffing policy “seeks the best people for key jobs throughout the organization, regardless of nationality.” This may allow the global firm to use its human resources more efficiently by transferring the best person to the open job, wherever he or she may be. It can also help to build a stronger and more consistent culture and set of values among the entire global management team. Team members here are continually interacting and networking with each other as they move from assignment to assignment around the globe and participate in global development activities.
Preparation and training of personnel
For employees on international assigment, training ternd to have three component
1. Area studies
Factual knowladgge of historical, critical, and economic environment of the host country.
2. Practical information
Knowladge and skill necesary to function effectively in a country, including housing, health care, education, and daily living
3. Cross cultural awareness
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Selecting International Managers
There are common traits which managers to be assigned domestically and overseas will obviously share. wherever a person is to be posted, he or she will need the technical knowledge and skills to do the job and the intelligence and people skills to be a successful manager, for instance. However, as discussed earlier in this chapter, foreign assignments make demands on expatriate assignees that are different from what the manager would face if simply assigned to a management post in his or her home country. There is the need to cope with a work force and management colleagues whose cultural inclinations may be drastically different from one’s own, and the considerable stress that being alone in a foreign land can bring to bear on the single manager. Of course, if spouse and children will share the assignment, there are also the complexities and pressures that the family will have to confront, from learning a new language to shopping in strange surroundings, to finding new friends and attending new schools.
International Compensation
The whole area of international compensation management presents some tricky problems. On the one hand, there is a certain logic in maintaining companywide pay scales and policies so that, for instance, divisional marketing directors throughout the world are all paid within the same narrow range. This reduce
the risk of perceived inequities and dramatically simplifies the job of keeping track of disparate country-by-country wage rates.
Yet, the practice of not adapting pay scales to local markets can present an HR manager with more problems than it solves. The fact is that it can be enormously more expensive to live in some countries (like Japan) than others (like Greece); if these cost-of-living differences are not considered, it may be almost impossible to get managers to take “high-cost” assignments.
However, the answer is usually not just to pay, say, marketing directors more in one country than in another.One way to handle the problem is to pay a similar base salary company-wide and then add on various allowances according to individual market conditions. Determining equitable wage rates in many countries is no simple matter, as compensation survey data is hard to come by overseas. Some multinational companies deal with this problem for local managers by conducting their own annual compensation surveys.
The Balance Sheet Approach
The most common approach to formulating expatriate pay is to equalize purchasing power across countries, a technique known as the balance sheet approach. The basic idea is that each expatriate should enjoy the same standard of living that he or she would have had at home. With the balance sheet approach, four main home-country groups of expenses—income taxes, housing, goods and services, and reserve—are the focus of attention. The employer estimates what each of these four expenses is for the expatriate’s home country, andalso what each is expected to be in the expatriate’s host country. Any differences—
such as additional income taxes or housing expenses—are then paid by the employer.
Incentives
One international compensation trend is the use of long-term incentive pay for overseas managers. Multinationals are formulating new long-term incentives specifically for overseas executives, using performance-based long-term incentive plans that are tied more closely to performance at the subsidiary level. These can help to build a sense of ownership among key local managers while providing the financial incentives needed to attract and keep the people required for overseas operations.
International EAPs
EAPs are going global, helping expatriates to take care of their mental health, which is often affected by the stressful relocation process. The approach is to proactively contact employees before departure to explain the program’s services, then about three months after arrival families are contacted again. By this
time, they have usually run into some challenges from culture shock and will welcome some assistance. The expatriates and their families have then established a connection with the EAP to use for ongoing support. Problems such as homesickness, boredom, withdrawal, depression, compulsive eating and drinking, irritability, marital stress, family tension and conflict are all common reactions to culture shock. Treatment for psychiatric illnesses varies widely around the world, as do the conditions in government-run mental health institutions. Thus consultation with an EAP professional having extensive cross-cultural training may be critical in ensuring that appropriate medical treatment is obtained.
Performance Appraisal of International Managers
Several issues complicate the task of appraising an expatriate’s performance. For one thing, the question of who actually appraises the expatriate is crucial. Obviously, local management must have some input into the appraisal, but the appraisal may then be distorted by cultural differences. Thus, an expatriate manager in India may be evaluated somewhat negatively by his host-country bosses, who find his use of participative decision making inappropriate in their culture. On the other hand, home-office managers may be so geographically distanced from the expatriate that they cannot provide valid appraisals because they are not fully aware of the situation that the manager actually faces. Thiscan be problematic: the expatriate may be measured by objective criteria such as profits and market share, but local events such as political instability may undermine the manager’s performance while remaining “invisible” to
home-office staff. Two experts make five suggestions for improving the expatriate appraisal process.
1. Stipulate the assignment’s difficulty level. For example, being an expatriate manager in China is generally considered to be more difficult than working in England, and the appraisal should take such difficulty-level differences into account.
2. Weight the evaluation more toward the on-site manager’s appraisal than toward the home-site manager’s distant perceptions of the employee’s performance.
3. If the home-site manager does the actual written appraisal, a former expatriate from the same overseas location should be used to provide background advice during the appraisal process. This can help to ensure that unique local issues are considered during the appraisal process.
4. Modify the normal performance criteria used for that particular position to fit the overseas position and characteristics of that particular locale. For example,“maintaining positive labour relations” might be more important in Chile, where labour instability is more common, than it would be in Canada.
5. Attempt to give the expatriate manager credit for relevant insights into the functioning of the operation and specifically the interdependencies of thedomestic and foreign operations, such as, do not just appraise the expatriate manager in terms of quantifiable criteria like profits or market share. For example, his or her recommendations regarding how home office/foreign subsidiary communication might be enhanced should also affect the appraisal.
International Labour Relations
Firms opening subsidiaries abroad will find substantial differences in labour relations practices among the world’s countries and regions. The following synopsis illustrates some of these differences by focusing on Europe. However, keep in mind that similarly significant differences would exist in South and Central America and Asia. Some important differences between labour relations practices in Europe and North America include:
1. Centralization. In general, collective bargaining in Western Europe is likely to be industry-wide or regionally oriented, whereas North American collective bargaining generally occurs at the enterprise or plant level. Thus local unions in Europe tend to have much less autonomy and decision-making
power than in North America. Also, the employer’s collective bargaining role tends to be performed primarily by employer associations in Europe, rather than individual employers (as in North America).
2. Content and scope of bargaining. North American labour–management agreements tend to focus on wages, hours, and working conditions. European agreements, on the other hand, tend to be brief and simple and to specify minimum wages and employment conditions, with employers being free to institute more generous terms.
3. Grievance handling and strikes. In Western Europe, grievances occur much less frequently than in North America, when raised, they are usually handled by a legislated machinery outside the union’s formal control. Generally speaking, strikes occur less frequently in Europe, due to industry-wide bargaining, which generally elicits less management resistance than in North America.
4. Government’s role. In Europe, governments generally do not regulate the bargaining process but are much more interested in directly setting the actual terms of employment than is the case in North America.
5. Worker participation. Worker participation has a long and relatively extensive history in Western Europe, where it tends to go far beyond such matters as pay and working conditions. The aim is to create a system by which workers can participate in a meaningful way in the direct management of the enterprise. Determining wages, hours, and working conditions is not enough; employees should participate in formulating all management decisions. In many countries in Western Europe, works councils are required.
6. Aworks council is a committee in which plant workers consult with management about certain issues or share in the governance of the workplace. Codetermination is a second form of worker participation in Europe.
7. Codetermination means that there is mandatory worker representation on an enterprise’s board of directors.
Repatriation
Repatriation is often a bittersweet experience for the returning expatriate. Repatriation, the process of moving back to the parent company and country from the foreign assignment, means returning one’s family to familiar surroundings and old friends. The returning employee all too often discovers, however, that in many respects his or her employer has ignored the manager’s career and personal needs.
Several repatriation problems are very common. One is the expatriate’s fear that he or she has been “out of sight, out of mind” during an extended foreignstay and has thus lost touch with the parent firm’s culture, top executives, and those responsible for the firm’s management selection processes. Such fears can
be well founded, as many repatriates are temporarily placed in mediocre or makeshift jobs. Ironically, the company often undervalues the cross-cultural skills acquired abroad, and the international posting becomes a career-limiting, rather than career-enhancing, move. Perhaps more exasperating is the discovery
that some of the expatriate’s former colleagues have been more rapidly promoted while he or she was overseas. Even the expatriate’s family may undergo a sort of reverse culture shock, as spouse and children face the often daunting task of picking up old friendships and habits or starting schools anew upon their
return. Expatriates who experience problems fitting back into the organization often leave, and the firm loses a valuable resource. Progressive multinationals anticipate and avoid these problems by taking a number of sensible steps. These can be summarized as follows:
1. Write repatriation agreements. Many firms use repatriation agreements, which guarantee in writing that the international assignee will not be kept abroad longer than some period (such as five years), and that on return he or she will be given a mutually acceptable job.
2. Assign a sponsor. The employee should be assigned a sponsor, such as a senior manager at the parent firm’s home office. This person’s role is to keep the employee apprised of significant company events and changes back home, to monitor his or her career interests, and to nominate the person to be considered for key openings when the expatriate is ready to come home.
3. Provide career counselling. Provide formal career counselling sessions to ensure that the repatriate’s job assignments upon return will meet his or her needs.
4. Keep communication open. Keep the expatriate “plugged in” to home-office business affairs through management meetings around the world, frequent home leave combined with stays at headquarters to work
on specific problems, and regularly scheduled meetings at headquarters.
5. Offer financial support. Many firms pay real estate and legal fees and help the expatriate to rent or in some other way to maintain his or her residence, so that the repatriate and his or her family can actually return “home.”
6.Develop reorientation programs. Finally, provide the repatriate and his or her family with a reorientation program to facilitate the adjustment back into the home culture.
7. Build in return trips. One study concluded that, particularly when they come from a more homogeneous culture (in this case Finland) and are sent to a more “novel” culture, expatriates can benefit from more frequent trips to the home country “to ensure that expatriates stay in touch with homecountry norms and changes during their international assignment.”
REFERENCES
· Hill CWL (2003) international busines,compiting in the global market place, 4th edition MC Graw Hill
· Cavusgil (2008) international busines, strategies, management, and new realities. 1st edition. Prentice hall
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