Global Business Management
(MGT380)
Lecture #28
Global Human Resource
Management
Learning Objectives
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To recognize how management development
and training programs can increase the value of
human capital in the international business firm.
To understand how and why performance
appraisal systems might vary across nations.
Understand how and why compensation
systems might vary across nations.
Understand how organized labor can influence
strategic choices in the international business
firm.
Quick recap of the last lecture
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Human resource management (HRM) - the activities an organization carries
out to utilize its human resources effectively
These activities include i) determining human resource strategy ii) staffing
performance evaluation iii) management development iv) compensation
labor relations v) Firms need to ensure there is a fit between their human
resources practices and strategy
HRM can help the firm reduce the costs of value creation and add value by
better serving customer needs
HRM must also determine when to use expatriate managers i)citizens of
one country working abroad ii) who should be sent on foreign assignments
iii) how they should be compensated iv) how they should be trained v) how
they should be reoriented when they return home
Staffing policy is concerned with the selection of employees who have the
skills required to perform a particular job
 can be a tool for developing an promoting the firm’s corporate culture
the organization’s norms and value system; a strong corporate culture
can help the firm implement its strategy

1.
2.
3.
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Three main approaches to staffing policy
The ethnocentric approach - fill key management positions with parentcountry nationals
The polycentric approach recruit host country nationals to manage
subsidiaries in their own country, and parent country nationals for
positions at headquarters
The geocentric approach seek the best people, regardless of nationality
for key jobs
Firms using an ethnocentric or geocentric staffing strategy will have
expatriate managers Expatriate failure is the premature return of an
expatriate manager to the home country
The main reasons for U.S. expatriate failure are i) the inability of an
expatriate's spouse to adapt ii) the manager’s inability to adjust iii) other
family-related reasons iv) the manager’s personal or emotional maturity v)
the manager’s inability to cope with larger overseas responsibilities
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A global mindset may be the fundamental attribute of a global manager
 cognitive complexity
 cosmopolitan outlook
After selecting a manager for a position, training and development
programs should be implemented
Training focuses upon preparing the manager for a specific job
Management development is concerned with developing the skills of the
manager over time
Cultural training - fosters an appreciation for the host country's culture
Language training - an exclusive reliance on English diminishes an
expatriate's ability to interact with host country nationals
Practical training - helps the expatriate and her family ease themselves into
day-to-day life in the host country
But, studies show only about 30% of managers sent on one- to five-year
expatriate assignments received training before their departure
Why Is A
Global Mindset Important?

A global mindset may be the fundamental attribute
of a global manager
cognitive complexity
 cosmopolitan outlook


A global mindset is often acquired early in life from
a family that is bicultural
 living in foreign countries
 learning foreign languages as a regular part of family life

What Is Training And
Management Development?
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After selecting a manager for a position, training and
development programs should be implemented
Training focuses upon preparing the manager for a
specific job
Management development is concerned with
developing the skills of the manager over time


gives the manager a skill set and reinforces organizational
culture
Historically, most firms focus more on training than on
management development
Why Is Training Important For
Expatriate Managers?
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Training can reduce expatriate failure
Cultural training - fosters an appreciation for the host country's
culture
Language training - an exclusive reliance on English diminishes
an expatriate's ability to interact with host country nationals
Practical training - helps the expatriate and her family ease
themselves into day-to-day life in the host country
But, studies show only about 30% of managers sent on one- to
five-year expatriate assignments received training before their
departure
What Happens When
Expatriates Return Home?

Training and development should include preparing
and developing expatriate managers for reentry
into their home country organization
 need
good programs for
 re-integrating
expatriates back into work life within their
home country organization
 utilizing the knowledge they acquired while abroad
Why Is Management Development
Important To Firm Strategy?

Management development programs increase the
overall skill levels of managers through
ongoing management education
 rotations of managers through jobs within the firm to give
them varied experiences


Management development can be a strategic tool to
build a strong unifying culture and informal
management network

support both transnational and global strategy
How Should
Expatriates Be Evaluated?
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Evaluating expatriates can be especially complex


typically, both host nation managers and home office
managers evaluate the performance of expatriate
managers
But, both types of managers are subject to
unintentional bias
home country managers tend to rely on hard data when
evaluating expatriates
 host country managers can be biased towards their own
frame of reference

How Can Performance
Appraisal Bias Be Reduced?

To reduce bias in performance appraisal
 more
weight should be given to an on-site manager's
appraisal than to an off-site manager's appraisal
 a former expatriate who has served in the same
location should be involved in the process
 home office managers should be consulted before an
on-site manager completes a formal termination
evaluation
What Are The Key Issues In
Compensating Expatriates?
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1.
2.
Two key issues on compensation
How to adjust compensation to reflect differences
in economic circumstances and compensation
practices
How to pay expatriate managers
How Should National Differences
In Compensation Be Treated?
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Currently, there are substantial differences in
executive compensation across countries
Research shows
a
top U.S. executive made an average of $525,923 in
the 2005-2006 period, compared to $278,697 in
Japan, and $158,146 in Taiwan
How Should National Differences
In Compensation Be Treated?
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
Question: Should pay be equalized across
countries?
Many firms have recently moved toward a
compensation structure that is based on global
standards
 especially
important in firms with a geocentric staffing
policy

But, most firms still set pay according to the
prevailing standards in each country
How Should
Expatriates Be Paid?
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Most firms use the balance sheet approach
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
equalizes purchasing power across countries so
employees have the same living standard in their
foreign posting as at home
and adds a financial incentive to take the position

Note that home-country outlays for the employee are designated as
income taxes, housing expenses, expenditures for goods and
services (food, clothing, entertainment, etc.), and reserves (savings,
pension contributions, etc.).
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The balance sheet approach attempts to provide expatriates with
the same standard of living in their host countries as they enjoy at
home plus a financial inducement (i.e., premium, incentive) for
accepting an overseas assignment.
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The balance sheet approach is the most widely used approach by
organizations and its main idea is to maintain the expatriate’s standard of
living throughout the assignment at the same level as it was in his/her home
country. In other words, it is about ensuring the same purchasing power,
which helps to maintain the home country’s lifestyle. Another important
notion is that the balance sheet approach implies matching the expatriate’s
salary with home-country peers, not with the host-country colleagues. There
are two common methods of calculating the balance sheet approach. The
home-based method, a term often used interchangeably with balance sheet,
bases the expat’s pay on the salary for a comparable job in his or her
home city. On the other hand, the headquarters-based method starts with the
salary for a comparable job in the corporate headquarters’ city. For
example, an expat from a Dallas office of a New York City-based
company would receive a salary structured from New York City rates. The
same goes for an expat from a London or Tokyo office of the same
company.
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1.
2.
3.
4.
5.
6.
In general, a pure home-based balance sheet calculation of expatriate pay
works something like this:
Start with home-based gross income, including bonuses.
Deduct home tax, social security and pension contributions (either a
hypothetical tax or a real tax).
Add or subtract a cost-of-living allowance. Usually, companies don’t
subtract. Instead, they allow the expatriate to benefit from the negative
differential.
Add a housing allowance, either with or without a housing norm deduction.
Add incentive premiums, including general mobility premiums and
sometimes hardship premiums.
Add or subtract to equalize taxes. In other words, gross the net salary to
protect against the double tax obligations in the home and host countries.
How Should
Expatriates Be Paid?

1.
A compensation package has five components
Base salary - normally in the same range as the
base salary for a similar position in the home country

2.
can be paid either in the home currency or in the local
currency
Foreign service premium - extra pay the expatriate
receives for working outside his country of origin

generally offered as an incentive to accept foreign
assignments
How Should
Expatriates Be Paid?
3.
4.
Various allowances - hardship, housing, cost-ofliving, education
Tax differentials - may have to pay income tax to
both the home country and the host-country
governments no reciprocal tax treaty exists

5.
company usually covers extra tax assessments
Benefits – many firms provide the same level of
medical and pension benefits abroad that
employees receive at home
Why Are International Labor
Relations Important?
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
Question: Can organized labor limit the choices
available to an international business?
Labor unions can limit a firm's ability to pursue a
transnational or global strategy
 HRM
needs to foster harmony and minimize conflict
between management and organized labor
What Are The Concerns Of
Organized Labor?

Organized labor is concerned that
1.
2.
3.
Multinationals can counter union bargaining power by
threatening to move production to another country
Multinationals will farm out only low-skilled jobs to foreign
plants making it easier to switch production locations
Multinationals will import employment practices and
contractual agreements from their home countries and
reduce the influence of unions
How Does Organized Labor
Respond To MNC Power?

Organized labor has responded to the increased
bargaining power of multinational corporations by
1.
2.
3.
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Trying to set-up their own international organizations
Lobbying for national legislation to restrict multinationals
Trying to achieve regulation of multinationals through
international organizations such as the United Nations
So far, these efforts have had only limited success
How Are MNCs Responding
To Organized Labor?

Many firms are centralizing labor relations to
enhance the bargaining power of the multinational
vis-à-vis organized labor
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
in the past, labor relations were usually decentralized to
individual subsidiaries
The way in which work is organized within a plant can
be a major source of competitive advantage so it is
important for management to have a good
relationship with labor
Summary of the lecture








A global mindset may be the fundamental attribute of a global manager
i)cognitive complexity ii) cosmopolitan outlook
A global mindset is often acquired early in life from
i)
a family that is bicultural ii) living in foreign countries iii) learning
foreign languages as a regular part of family life
Training focuses upon preparing the manager for a specific job
Management development is concerned with developing the skills of the
manager over time ---gives the manager a skill set and reinforces
organizational culture
Cultural training - fosters an appreciation for the host country's culture
Language training - an exclusive reliance on English diminishes an
expatriate's ability to interact with host country nationals
Practical training - helps the expatriate and her family ease themselves into
day-to-day life in the host country
But, studies show only about 30% of managers sent on one- to five-year
expatriate assignments received training before their departure




Management development programs increase the overall skill levels of
managers through
i)
ongoing management education ii)rotations of managers through jobs
within the firm to give them varied experiences
Evaluating expatriates can be especially complex
 typically, both host nation managers and home office managers
evaluate the performance of expatriate managers
But, both types of managers are subject to unintentional bias
i) home country managers tend to rely on hard data when evaluating
expatriates ii) host country managers can be biased towards their own
frame of reference
To reduce bias in performance appraisal
i)
more weight should be given to an on-site manager's appraisal than
to an off-site manager's appraisal ii)a former expatriate who has
served in the same location should be involved in the process
Two key issues on compensation


1.
2.
3.
4.
5.
1.
How to adjust compensation to reflect differences in economic circumstances and
compensation practices
2.
How to pay expatriate managers
A compensation package has five components
Base salary - normally in the same range as the base salary for a similar
position in the home country-can be paid either in the home currency
Foreign service premium - extra pay the expatriate receives for working
outside his country of origin
Various allowances - hardship, housing, cost-of-living, education
Tax differentials - may have to pay income tax to both the home country
and the host-country governments no reciprocal tax treaty exists

company usually covers extra tax assessments
Benefits – many firms provide the same level of medical and pension
benefits abroad that employees receive at home