Global Human Resource Management Vorravee Pattaravongvisut Traditional Organization Chart Top Management Middle Management Front-line people Customers Customer Oriented Org Chart Customers Front-line people er s us to m er m to us s Top management C C Middle management The Focus Look briefly at the strategic role of HRM. Examine HRM’s four major tasks: Staffing policy. Management training and development. Performance appraisal. Compensation policy. Tasks are complicated by: Varying compensation policies among countries. Labor laws may prohibit unions in one country and mandate them in another. Equal employment legislation may be pursued in one country and not in another. The Strategic Role of International HRM Insure that HRM policies are congruent with the firm’s strategy, structure and controls. Strategy, Structure and Control Systems International Strategy Structure and Controls Centralization of operating decision Horizontal differentiation Need for coordination Integrating mechanisms Performance Ambiguity Need for cultural controls Multidomestic Decentralized Worldwide area structure Low None International Global Transnational Core competency Some centralized Mixed centralized centralized and decentralized Rest decentralized Informal matrix Worldwide product division Worldwide Informal matrix product division Moderate High Very high Few Many Very many Low Moderate High Very high Low Moderate High Very high Staffing Policy Staffing policy: Selecting individuals with requisite skills to do a particular job. Tool for developing and promoting corporate culture. Types of staffing policy: Ethnocentric. Polycentric. Geocentric. Types of staffing policy Ethnocentric Key management positions filled by parent-country nationals Polycentric Host-country nationals manage subsidiaries, parent company nationals hold key Headquarter positions Geocentric Seek best people, regardless of nationality Staffing (A) Three international staffing approaches: Ethnocentric: Focus on home country norms (HQ) Good for an international strategy Polycentric: Emphasize host country norms (Subsidiary) Good for a multidomestic strategy Geocentric: Flexibility is the key Good for global and transnational strategies Staffing (B) Expatriates A manager working in a different country High expatriate costs: $300,000 annually High expatriate failure rates: More than 10% expat failure U.S. 76% European 41% Japanese 24% No. 1 problem for U.S. and European expats: Inability of spouse to adjust No. 1 problem for Japanese expats: Inability to cope with the larger responsibility Staffing (C) Expatriate selection Self-orientation: Self-confidence Others-orientation: Open mindedness Perceptual ability: Cross-cultural sensitivity Cultural toughness: Ability to adjust to distant cultures In other words, don’t select expats just based on technical skills and domestic track record! Comparison of Staffing Approaches Staffing Approach Ethnocentric Polycentric Geocentric Strategic Appropriateness International Multidomestic Global and Transnational Advantages Overcomes lack of qualified managers host nation Unified culture Helps transfer core competencies Alleviates cultural myopia Inexpensive to implement Uses human resources efficiently Helps build strong culture and informal management network Disadvantages Produces resentment in host country Can lead to cultural myopia Limits career mobility Isolates headquarters from foreign subsidiaries National immigration policies may limit implementation Expensive The Expatriate Problem Citizens of one country working in another. Inpatriates: expatriates who are citizens of a foreign country working working in the home country of their multinational employer. Expatriate failure: Premature return of the expatriate manager to his/her home country. Cost of failure is high: Estimate = 3X the expatriate’s annual salary plus the cost of relocation (impacted by currency exchange rates and assignment location). Expatriate Failure Rates Recall Rate Percent US Multinationals 20 - 40% 10 - 20% < 10 European Multinationals 11 - 15% 6 - 10 <5 Japanese Multinationals 11 - 19% 6 - 10 <5 Percent of Companies 7% 69 24 3% 38 59 14% 10 76 Reason for Expatriate Failure US Multinationals Inability of spouse to adjust. Manager’s inability to adjust. Other family problems. Manager’s personal or emotional immaturity. Inability to cope with larger overseas responsibilities. Japanese Firms Inability to cope with larger overseas responsibilities. Difficulties with the new environment. Personal or emotional problems. Lack of technical competence. Inability of spouse to adjust. European Multinationals: Inability of spouse to adjust. Expatriate Selection An executive’s domestic performance does not (necessarily) equate to his/her overseas performance. Self-orientation: Strengthen self-esteem, self-confidence and mental well-being. Others-orientation: Enhance ability to interact with host-country nationals. Perceptual ability: The ability to empathize - understand why people in host-country behave the way they do. Cultural toughness: How well an expatriate adjusts to a particular posting tends to be related to the country of assignment. Training and development (A) Expats training Only 30% expats receive training Always a good idea to involve family Types of training Cultural training: Deeper understanding Foreign language training: Basics will be helpful Practical training: The nuts and bolts for survival Timing and intensity Training and development Training: obtaining skills for a particular (foreign) posting. Development: develops manager’s skills over his/her career in the Firm. Training and development Training Language and cultural training Practical training Departure/entry Time Training for Expatriate Managers Cultural: Seeks to foster an appreciation of the hostcountry’s culture. Language: Can improve expatriate’s effectiveness, relate more easily to culture and fostered a better firm image. Practical: Ease into day-to-day life of the host country. Management and Development Strategy Programs designed to increase overall skill through mix of education and assignment rotations. Provides varied experience. Attempt to improve firm’s management productivity and quality. Particularly true for transnational strategy. Unifying corporate culture and management networks. Socialize norms and value systems. Foster esprit de corps. Build informal networks Strengthen identification with company. Repatriation of expatriates Didn’t know what position they hold upon return. Firm vague about return, role and career progression. Took lower level job. Leave firm within one year. Leave firm within three years 10 20 30 40 50 60 70% Performance Appraisal Problems: Unintentional bias. Host-nation biased by cultural frame of reference. Home-country biased by distance and lack of experience working abroad. Expatriate managers believe that headquarters unfairly evaluates and appreciates them. Many believe a foreign posting does not benefit their career. Guidelines for Performance Appraisal More weight given to onsite manager’s evaluation. Expat who worked in same location should assist home-office manager with evaluation. If foreign on-site manager preparing evaluation, home-office manager should be consulted before finalization. Compensation (A) National differences in compensation Pay managers in different countries according to local norms, or on a global basis? Ethnocentric firms: Pay expats according to their home country standards Polycentric firms: Pay local rates Geocentric firms: Equalization seems to be the only way out in the long run; but it can be very costly Compensation (B) Expatriate pay: Very expensive! Base salary: Similar to similar positions domestically Foreign service premium: 10-30% base salary, as an inducement Allowances Hardship Housing Cost of living Education Taxation and benefits National differences in compensation CEO HR Director Accountant Mfg. Employee Argentina $860,704 $326,874 $63,948 $17, 884 Canada 742,228 188,070 44,866 36,289 Germany 421,622 189,785 61,375 36,934 Taiwan 179,486 102,491 30,652 11,924 UK 719,665 268,302 107,839 28,874 US 1,403,899 306,181 66,377 44,680 Yo rk New York = 100, June 1997 Source: The Economist, June 28, 1997, p. 108. 100 Pr ag ue M ex ic o Jo C ity ha nn es bu rg B ud ap es t C ar ac as N ew D el hi M an ila Ja ka rta B an gk K ok ua la Lu m pu r Sa nt ia go Is ta nb ul B og ot a W ar sa w A th en s Sa o Pa B ul ue o no s A ire s Li sb on N ew B ei jin g Te lA vi v Lo nd on Se ou l Ta ip ei M os co w Si ng ap or e K on g To ky o H on g 175 Cost of living 150 125 New York = 100 75 50 25 0 Compensation Issues Ethnocentric Polycentric Geocentric/Transnational How much home-country expatriates should be paid. Pay can and should be countryspecific. May have to pay its international cadre of managers the same. Expatriate Pay Typically use balance sheet approach. Equalizes purchasing power across countries. Provides financial incentives to offset qualitative differences between assignment locations. Components of a typical expatriate compensation package include: Base salary. Foreign service premium. Various allowances. Tax differentials. Benefits. International Labor Relations Foster harmony and minimize conflict between the firm and organized labor. Key issue: degree to which organized labor can limit the choices of an international business. Concerns of Organized Labor Firms can counter bargaining power by threatening to move production to another country. International business will keep highly skilled tasks in home country and farm out only lowskilled tasks to foreign plants. Importing employment practices and contractual agreements from home country that may diminish union’s influence and power. Strategy of International Labor Try to establish international labor organizations. Lobby legislatures to restrict multinationals. Use United Nations to regulate multinationals. Efforts have not been successful. Multinationals’ Approach to Labor Relations Decentralize: labor laws, union power and nature of collective bargaining varies from country to country. Now a trend toward Centralize: Want to rationalize global operations. Need to control labor costs and maximize threat of move to lower cost country. Competitive advantage can come from the way work is organized in a plant. Bargaining with local unions is, therefore, a priority. Before move, get new union approval for work practices. International labor relations (A) Domestic unions: Resent job losses (B) Foreign unions: Resent exploitation by foreign bosses and companies (C) Global strategies of organized labor: Trying to establish international labor organiztions Lobbying governments to restrict MNEs Lobbying UN to regulate MNEs None has been very successful (e.g., Seattle protest in December 1999) Managerial implications (A) Pay attention to cultural differences and their impact on HRM (B) Focus on key problem areas: Selection, training, and repatriation of expats; Development of local managers; and Compensation (C) Be open-minded enough to accommodate changes