IHRM: SUSTAINING INTERNATIONAL
BUSINESS OPERATIONS
Dony Eko Prasetyo, S.IP.
Globalization Involves Us All
We experience international
transactions daily
Imports and exports reach
even remote areas
Technology and e-biz
promote trade
Consumers and companies
pull markets closer
Globalization
Trend toward greater economic, cultural, political and
technological interdependence among national institutions
and economies
Globalization of markets
Convergence in buyer
preferences in markets
around the world
Globalization of
production
Dispersal of production
activities worldwide to
minimize costs or
maximize quality
Benefits of Globalization
Globalization
of markets
Globalization
of production
• Reduces marketing costs
• Access lower-cost labor
• New market opportunities
• Access technical expertise
• Levels income stream
• Access production inputs
Challenges to Business
Physical
security
Digital
security
Reputational
risk
Examine company
vulnerability and
create a disaster
recovery plan
Guard proprietary
information and
confidential
communications
Require ethical and
lawful behavior from
all employees and
business partners
Globalization Drivers I
Remove barriers to trade
and investment
GATT
WTO
Regional trade
agreements
Trade Exceeds Output
Globalization Drivers II
Technological Innovation
Email and
videoconferencing
Better
coordination
and control
Internet, intranets,
and extranets
Transportation
advancements
Improved
communications and
management
More efficient,
dependable
shipping
Measuring Globalization
Globalization Then and Now
Highly mobile
labor market
Fear of jobs
moving abroad
Free-flowing
capital and trade
Backlash among
the disaffected
Global Business Environment
International Business
International Business Players
Multinational
Corporation
Small Businesses
and Entrepreneurs
Small companies and
Business that has direct
individuals becoming
investments abroad in
increasingly active in
multiple countries
international trade and
investment
Born Global Firm
Adopts a global
perspective and engages
in international business
from or near its inception
International Business Defined
International business: all commercial
transactions between parties in two or more
countries
– Private firms are profit-oriented.
– Government organizations may or may not
be profit-oriented.
The international business environment
is more complex and diverse than the
domestic business environment.
Fig. 1.1: International Business:
Operations and Influences
Reasons That Firms Engage in
International Business
• To expand sales
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•
•
•
•
•
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Volkswagen [Germany]
Ericsson [Sweden]
Michelin [France]
Nestlé [Switzerland]
IBM [USA]
Seagram [Canada]
Sony [Japan]
• To acquire resources
•
•
•
•
Products, components, services
Foreign capital
Technologies
Information
• To minimize risk
• Take advantage of business cycle
differences amongst countries
• Diversify suppliers across countries
• Counter competitors’ advantages
Modes of Entry into International
Business
• Merchandise exports and imports
• Service exports and imports
• Use of assets [licensing agreements]
• [Foreign investment]
– Foreign direct investment
– [Portfolio investment]
Means for Conducting International
Operations
International Business Terminology
• Strategic alliance: a collaborative
arrangement of critical importance to one or
more of the alliance partners
• Multinational enterprise [MNE]: a firm that
takes a global approach to its foreign markets
and production
Multinational corporation [MNC] and
transnational company [TNC]
may be used in this same context.
International Business Managers
• Must understand the relevance of:
–
–
–
–
–
–
–
Domestic and international law
Political science
Anthropology
Sociology
Psychology
Economics
Geography
• Must be knowledgeable about the competitive
dimensions of the international business environment
Physical and Societal Influences on
International Business
Competitive Factors Affecting
International Business
Approaches to Staffing
• Factors affecting approaches to staffing
– General staffing policy on key positions at
headquarters and subsidiaries
– Constraints placed by host government
– Staff availability
Ethnocentric
Polycentric
Geocentric
Regiocentric
Ethnocentric
• Strategic decisions are made at
headquarters;
• Limited subsidiary autonomy;
• Key positions in domestic and foreign
operations are held by headquarters’
personnel;
• PCNs manage subsidiaries.
Ethnocentric Approach
Advantages:
 To ensure new subsidiary
complies with overall
corporate objectives and
policies
 Has the required level of
competence
 Assignments as control
Disadvantages:
Limits the promotion opportunities
of HCNs, leading to reduced
productivity and increased turnover
among the HCNs
Longer time for PCNs to adapt to host
countries, leading to errors and poor
decisions being made
High cost
Considerable income gap, high
authority, and increased standard of
living may relate to lack of sensitivity
Polycentric
• Each subsidiary is a distinct national entity
with some decision-making autonomy;
• HCNs manage subsidiaries who are seldom
promoted to HQ positions;
• PCNs rarely transferred to subsidiary
positions.
Polycentric Approach
Advantages:
Employment of HCNs eliminates
language barriers, avoids adaptation
of PCNs, reduces the need for
cultural awareness training programs
Employment of HCNs allows a
multinational company to take a
lower profile in sensitive political
situations
Employment of HCNs is less
expensive
Employment of HCNs gives continuity
to the management of foreign
subsidiaries (lower turnover of key
managers)
Disadvantages:
Difficult to bridge the gap between
HCN subsidiary managers and PCN
managers at headquarters ( language
barriers, conflicting national loyalties,
cultural differences)
HCN managers have limited
opportunities to gain experience
outside their own country
PCN managers have limited
opportunities to gain international
experience
Resource allocation and strategic
decision making will be constrained
when headquarter is filled only by
PCNs who have limited exposure to
international assignment
Geocentric
• A global approach - worldwide integration;
• View that each part of the organization makes
a unique contribution;
• Nationality is ignored in favor of ability:
– Best person for the job;
– Color of passport does not matter when it
comes to rewards, promotion and
development.
Geocentric Approach
Advantages:
 Ability of the firm to
develop an international
executive team
 Overcomes the
federation drawback of
the polycentric approach
 Support cooperation and
resource sharing across
units
Disadvantage:
Host government may use
immigration controls in order
to increase HCNs
employment
Expensive to implement due
to increased training and
relocation costs
Large numbers of PCNs,
HCNs, and TCNs need to be
sent across borders
Reduced independence of
subsidiary management
Geocentric Staffing Requirements
Regiocentric
• Reflects a regional strategy and structure;
• Regional autonomy in decision making;
• Staff move within the designated region,
rather than globally;
• Staff transfers between regions are rare.
Regiocentric Approach
• Advantages:
Allow interaction between
executives transferred to
regional headquarters from
subsidiaries in the region and
PCNs posted to the regional
headquarters
Provide some sensitivity to
local conditions
Help the firm to move from a
purely ethnocentric or
polycentric approach to a
geocentric approach
• Disadvantages:
Produce federalism at a
regional rather than a
country basis and
constrain the firm from
taking a global stance
Staff’s career
advancement still limited
to regional headquarters,
not the parent country
headquarters
The advantages and disadvantages of using
PCNs, TCNs and HCNs
Determinants of IHRM approaches and activities
Reasons for international
assignments
• Position filling
– Eg. Skills gap, launch of new endeavour, technology
transfer
• Management development
– Training and development purposes, assisting in
developing common corporate values
• Organizational development
– Need for control, transfer of knowledge, competence,
procedures and practices
Types of international assignments
• Short term
– Up to 3 months
• Extended
– Up to 1 year
• Long term
– Varies from 1 to 5 years
– The traditional expatriate assignment
Non-standard assignments
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•
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Commuter assignments
Rotational assignments
Contractual assignments
Virtual assignments
Some of these arrangements assist in
overcoming the high cost of international
assignments but are not always effective
substitutes for the traditional expatriate
assignment
Factors influencing virtual assignments
Roles of an expatriate
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Agent of direct control
Agent of socialization
Network builder
Boundary spanner
Language node
Transfer of competence and knowledge
The roles of an expatriate
The role of non-expatriates
• People who travel internationally yet are not
considered expatriates as they do not relocate
to another country
– Road warriors, globetrotters, frequent fliers
• Much of international business involves visits
to foreign locations, eg.
– Sales staff attending trade fairs
– Periodic visits to foreign operations
A glamorous life?
• International business travelers cite the
positives as:
– Excitement and thrills of conducting business
deals in foreign locations
– Life style (top hotels, duty-free shopping, business
class travel)
– General exotic nature
But a high level of stress!
• Home and family issues – frequent absences
• Work arrangements – domestic side of
position still has to be attended to
• Travel logistics – waiting in airports, etc.
• Health concerns – poor diet, lack of sleep, etc.
• Host culture issues – limited cultural training
Various roles of corporate HR
The role of the corporate HR
function
• Can we manage our people like a global
product? The feasibility of:
– The concept of a global internal labour market
– Standardization of work practices and HR activities
• What HR matters require central control and
what can be decentralized?