CHAPTER TWENTY
HUMAN RESOURCE MANAGEMENT
Objectives
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To discuss the importance of human resource management in international business
To profile principal types of staffing policies used by international companies
To explain the qualifications of international managers
To examine how MNEs select, prepare, compensate, and retain managers
To profile MNEs’ relations with organized labor
Chapter Overview
Firms the world over agree on the importance of qualified personnel to achieve their
foreign growth and operational objectives. Chapter Twenty broadly deals with two
primary human resource concerns. The management discussion begins with an overview
of specific international management qualifications and characteristics; it then explores
the advantages of transferring and promoting home country vs. expatriate vs. thirdcountry managers, plus the associated issues of compensation and repatriation. The
chapter concludes with an exploration of international labor concerns, including
comparative labor relations issues and the role of the MNE in the collective bargaining
process.
Chapter Outline
OPENING CASE: A Career in International Business
Today’s global companies are increasingly looking for managers who are comfortable on
the world stage. International companies use expatriate managers to varying degrees,
some extensively and some sparingly. Many companies develop their managers for years
before assigning the manager to an overseas position. Laying the foundation for a
possible career in international business is hard work, and the experience of actually
working internationally can be even harder. Managers in foreign assignments are usually
given much broader responsibilities than they have experienced in their home country.
After completing an international assignment, repatriation to the home country presents
major challenges as well. Despite the challenges of international careers, more and more
CEOs assert that international experience is an essential feature of a high-performance
career.
Teaching Tip: Review the PowerPoint slides for Chapter 20 and select those
you find most useful for enhancing your lecture and class discussion. For
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additional visual summaries of key chapter points, also review the figures and
tables in the text.
I.
INTRODUCTION
This chapter looks at the role of the individual in international business and discusses
facets of human resource management as they apply to managers in the company
with international operations. Factors that cause international human resource
management to be more complex than the domestic function include environmental
differences and organizational challenges.
II. THE STRATEGIC FUNCTION OF INTERNATIONAL HRM
International HRM can be a source of creating superior value and competitive
advantages. Superior human resources can sustain high productivity, competitive
advantage, and value creation for the international company. Despite the importance
of international HRM, many multinationals report that effectively developing and
managing human resources is one of their weakest capabilities.
III. STAFFING POLICIES
Staffing policy is the process by which the company assigns the most appropriate
candidate to a particular job. There are over 63,000 MNEs with over 690,000
foreign affiliates spread over the more than 200 countries of the world. For most of
these companies, staffing policy revolves around the decision of whether to run
international operations with local workers in the host nation, expatriates sent from
the home country, or third-country nationals. Companies are often interested not
only in finding people that have the right skills, but also want to place people in
positions who have the appropriate professional values for the job, regardless of
where the job might be located. Companies develop interpretive frameworks that
help them structure the world they operate in and serve as a foundation for decision
making.
A. The Ethnocentric Approach
An ethnocentric staffing approach fills all key management positions with homecountry nationals. People transferred from headquarters are more likely to have
a thorough understanding of the company’s core competencies and values. This
approach can, however, lead the company to adopt a narrow perspective in
foreign markets and blinds the company to the benefit of exposure to different,
and possibly better, ways of doing things. The leading reasons to staff foreign
operations with expatriates include maintaining command and control consistent
with headquarters’ policy, filling local talent gaps, using international
assignments as a mechanism for social integration, safeguarding intellectual
property in joint ventures, transferring best practices from other locations,
counteracting high turnover among local employees, and as a management
development tool to help managers develop a global outlook (see Table 20.1)
B. The Polycentric Approach
A polycentric staffing policy uses host-country nationals to manage local
subsidiaries and helps local motivation and morale. This approach can,
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however, result in problems of accountability and allegiance if a gap develops
between headquarters and local operations. A polycentric approach is used to
control costs, to cater to host-country nationalism, to develop local management
talent, to boost employee morale, to counteract high expatriate failure rates, and
to maximize local adaptations for particular products (see Table 20.2).
C. The Geocentric Approach
A geocentric staffing policy seeks the best people for key jobs throughout the
organization, regardless of their nationality. This policy is instrumental to
companies pursuing a global and, especially, a transnational strategy. This
approach is hard to develop, costly to maintain, and can be complicated by
economic factors, decision making routines, and legal contingencies. In some
cases, such an approach may be practically impossible due to immigration laws
and/or workplace regulations that push MNEs toward local staffing.
D. Summary
Each of the three staffing approaches has its merits and drawbacks (see Table
20.3). Companies may use elements of each policy, but normally one is
dominant. Type of ownership and third-country nationals can both change
MNEs approaches to staffing policy. In a joint venture situation, even
polycentric MNEs may want to employ expatriates in positions within joint
ventures to protect company interests. If special circumstances such as the
availability of context-specific knowledge require it, companies will use third
country nationals regardless of their previous orientation.
IV. EXPATRIATE SELECTION
What criteria should be used to identify the appropriate home-country and foreign
national managers for a country transfer?
A. Technical Competence
Technical competence (usually indicated by past performance) is a significant
determinant of success in foreign assignments. The foreign subsidiary manager
must understand both the technical necessities of a position and also how to
adapt to foreign conditions, such as scaled-down plant and equipment, varying
productivity standards and less efficient national infrastructure.
B. Adaptiveness
Three types of adaptive characteristics influence an expatriate’s success when
entering a new culture: (i) those needed for self-maintenance, (ii) those related to
the development of satisfactory relationships with host nationals and (iii)
cognitive skills and sensitivities that help one accurately perceive what is
happening within the host society. The adaptation of a manager’s family is also
crucial to the success of an overseas assignment.
C. Leadership Ability
Leadership ability is increasingly seen as a key to an expatriate’s success since
expatriates often assume a greater breadth and depth of leadership responsibility
on a foreign assignment than they likely would in the home country.
Communication skills, motivation, self-reliance, courage, risk-taking, and
diplomacy become essential qualities for success. Skills and attitudes such as
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optimism, drive, adaptability, foresight, experience, resilience, sensitivity, and
organization are necessary for expatriates to be successful.
V. EXPATRIATE FAILURE
Expatriate failure is when a manager returns home from a foreign assignment
prematurely due to poor job performance and is very expensive for the MNE. In the
1980s, research reported that between 16-40% of Americans sent abroad to
developed countries returned early, while nearly 70% sent to less developed countries
returned home early. Expatriate failure reflects a failure of the MNE’s selection
policies to find the right individual for the job. Companies may try to avoid
expatriate failure by expanding through acquisitions and thereby instantly acquiring
foreign personnel. MNEs also try to reduce failure rates through improved training
and better selection procedures. The leading cause of expatriate failure is the
inability of a spouse to adapt to the host nation. Foreign assignments are usually
more stressful for the expatriate’s family than for the expatriate.
VI. EXPATRIATE PREPARATION AND DEVELOPMENT
Training and predeparture preparations can lower the probability of expatriate failure
and include general country orientation, cultural sensitivity, and practical advice.
A. General Country Understanding
Training in general country understanding typically includes briefings on
political structures, job design, compensation norms, housing, climate,
education, health conditions, home sales, taxes, transport of goods, job openings
after repatriation, and salary distribution.
B. Cultural Sensitivity
Cultural training tries to preempt the effects of culture shock by helping
employees to take an open mind to the different ideas, attitudes, and beliefs they
are likely to encounter in the host culture. Foreign language competency and
cultural training for spouses and families is often also included.
C. Practical Skills
This type of training attempts to familiarize the expatriate and his or her family
with the routines of life in the host country. Issues such as schooling,
socializing, and shopping are addressed.
D. Training Gaps and Trends
Many managers don’t receive adequate training prior to an overseas assignment,
despite the proven effectiveness of training programs. Companies usually blame
too much urgency as the reason for not investing in more training for individual
employees. Sometimes companies struggle because of uncertainty as to whether
they should emphasize country specific knowledge or general cultural sensitivity
in their training programs. Research has shown there is no significant difference
in the relative effectiveness of the two approaches.
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POINT-COUNTERPOINT:
Learning a Foreign Language—Still Useful?
POINT: Many HR professionals feel foreign language competence adds profession and
personal value for employees. Even when used poorly, the effort to use the local
language sends a positive cultural message and creates a friendlier cross-cultural
environment by helping to build rapport with local employees. Those who learn the
language typically also learn more about the culture and perform better. Great
opportunities exist for those who speak other languages, particularly Portuguese, Russian,
Chinese, and local Indian languages).
COUNTERPOINT: English is so prevalent in the global business world that it is not
necessary to learn other languages. In addition, the growing sophistication of translation
software makes foreign language competency a moot point. Other abilities such as
technical competence, leadership skills, and career development are far more important
than language skills. Finally, one can have great cultural sensitivity without speaking
foreign languages.
VI. EXPATRIATE COMPENSATION
The amount and type of compensation needed to entice an individual to accept a
foreign assignment may vary widely by person and locale. Company practices also
vary in terms of compensation for differences.
A. Types of Compensation Plans
The most common approach to expatriate pay is the balance sheet approach,
which aims to develop a salary structure that equalizes purchasing power across
countries so expatriates have the same standard of living in their foreign
assignment as they had at home. There are three common methods of
implementing the balance sheet compensation plan. The home-based method
sets compensation based on the salary of a comparable job in his or her home
city, the headquarters-based method sets salary in terms of the salary of a
comparable job in the city where the MNE has its headquarters, and the hostbased method bases compensation on the prevailing pay scales in the locale of
the foreign assignment, plus foreign-service premiums, extraordinary
allowances, home-country benefits, and taxation compensation.
B. Key Aspects of Expatriate Compensation [see Table 20.4]
1. Base Salary. Usually falls in the same range as the base salary for the
comparable job in the home country and is paid in either home-country
currency or local currency.
2. Foreign Service Premium. This is extra pay given to the expatriate for
working outside the home country which rewards expatriates for living far
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from family and friends, dealing with a new culture, language, and
workplace. Many firms pay 10-30% of after tax base salary as a premium.
3. Allowances. Companies usually pay for differences in cost-of-living for
more expensive locations so that expatriates can enjoy the same living
standards abroad as they would at home. Housing allowances can be as
much as a third of the expatriates total compensation package. A spouse
allowance compensates for a spouse to find work and offsets the loss in
income due to a spouse forsaking his or her job. A hardship allowance is
paid to expatriates assigned to dangerous or especially difficult locations.
Travel allowances pay for visits back to the home country, and education
allowances pay for the cost of children’s schooling.
4. Fringe Benefits. Firms typically provide the same level of medical and
retirement benefits abroad as they would at home, and may expand benefits
to deal with local contingencies such as transferring ill employees or family
members to out-of-country medical facilities or paying premiums on
kidnapping insurance in high-risk countries.
5. Tax Differentials. Companies may adjust compensation even higher in
high tax rate countries in order to make sure that expatriates have an
equivalent after tax income in the new location. In cases of double taxation,
the MNE generally pays the expatriate’s tax bill in the host country.
C. Complications Posed by Nationality Differences
As firms employ expatriates from home and third countries, compensation issues
grow more complicated. Salaries for similar jobs vary substantially across
countries, as do the relationships of salaries within the corporate hierarchy.
There is no general consensus as to how to deal with such issues.
VII. EXPATRIATE REPATRIATION
Repatriation is the process of returning the expatriate to his or her home country
working environment, and is a process fraught with difficulties. Repatriation
problems arise in three general areas: (i) personal finances, (ii) readjustment to the
home-country work environment and (iii) readjustment to home-country social life.
A. Managing Repatriation
Effective human resource practices for soothing re-entry includes placement in
jobs that build on foreign experiences, a reorientation program and a corporate
mentor who looks after expatriates’ interests while they’re abroad. The principal
cause of repatriation frustrations is finding the right job for someone to return to.
VIII. INTERNATIONAL LABOR RELATIONS
In each country where an MNE operates, it must deal with groups of workers whose
approach to the workplace reflects the sociopolitical environment of that country.
This environment affects whether they join labor unions, how they bargain, and what
they want from businesses.
A. Labor’s Concerns About MNEs
Some labor groups argue that MNEs systematically weaken the rights and roles
of labor due to the power of their globally dispersed value chains and abilities to
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manipulate markets and governments. Labor argues it is disadvantaged because
it is hard to get full data on MNEs’ global operations, MNEs can manipulate
investment incentives, MNEs can easily move value activities to other countries,
and ultimate decision making can be in another country.
B. Product and Resource Flows
If labor strikes, MNEs can divert output from the striking facilities to other
facilities in other locations. This is only possible, however, if the MNE has
excess capacity in other areas and manufactures the same product elsewhere.
C. Value Activity Switching
MNEs often threaten to switch activities to other countries in order to extract
wage reductions or other concessions from workers.
D. Scale and Complexity of MNEs
Labor often has trouble identifying where decisions at the MNE are being made
and also may have difficulty interpreting financial data for the typical MNE.
Because of these ambiguities, labor can be at the mercy of activities, decision
makers, and resources far from the country in which labor is employed.
IX. LABOR’S ACTIONS TOWARD MNES
Labor can strengthen its position toward MNEs by organizing in unions that
cooperate internationally through the exchange of information, refusing to work
overtime to supply a market normally served by striking workers in another location,
sending financial aid to workers in other countries, and disrupting work in their own
countries. Labor can also appeal to transnational institutions such as the
International Labor Organization (ILO) for help across countries.
A. Labor’s Success and Struggle
Although there is sometimes cooperation among unions across countries, it is
difficult due to the ongoing competition among unions in different countries for
jobs and resources. Also, unions developed independently in each country and
have significant differences in terms of demography, structure, ideals, and goals.
Unions in different countries prefer different methods of collective bargaining,
and approaches to reconcile labor tension differ from country to country. In
some countries, particularly in northern Europe, labor is given the legal right to
participate in the management of companies—a concept known as
codetermination. Overall, organized labor has not been very successful in
getting national and international bodies to regulate MNEs.
LOOKING TO THE FUTURE:
Which Countries Will Have the Jobs of the Future?
As capital, technology and information become more mobile among companies and
countries, it will become increasingly difficult for firms and nations to retain highly
skilled, highly valued employees. Thus, human resource development will become an
increasingly important component of firm and national competitiveness. Population
trends in many industrialized countries suggest in the future there will be fewer people to
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do the productive work. At the same time, the continual push toward the adoption of
robotics and other labor-saving devices will escalate the need for higher-skilled workers.
As a result, the gaps between the have-nots will widen within industrialized nations just
as surely as between industrialized and developing countries. Suggested solutions to these
problems include increased emigration from developing to industrialized countries on the
one hand, and the promotion of policies that discourage brain drain and encourage recirculation on the other. Governments in industrialized countries will then face the
challenge of dealing with under-qualified workers who face deteriorating job prospects,
as their citizens blame government policies and foreign workers for their plight.
B. Trends in the Relationship Between MNEs and Labor
Union membership as a percentage of the total workforce has been declining in
most countries because (i) there has been an increase in white-collar workers as
a percentage of total workers and white-collar workers are less likely to
organize, (ii) there has been an increase in service employment relative to
manufacturing employment with more variation in service activities making
organization more difficult, (iii) the participation of women in the workforce is
rising and women are traditionally less apt to join unions, (iv) there has been a
rise in the percentage of part-time and temporary workers who are more difficult
to organize, (v) there is a trend toward smaller plant size that leads to more
aligned interests between management and labor at the plant level, and (vi) there
has been a decline in the belief in collectivism among younger workers. MNEs
have also become more adept at managing international labor relations and
effectively use threats of production switching or resource redirection to further
strengthen their positions.
CLOSING CASE: Tel-Comm-Tek (TCT) [See Map 20.1]
Tel-Comm-Tek (TCT) manufactures a variety of small office equipment such as copying
machines, dictation units, laser printers, and paper shredders. The company is
headquartered in the U.S., but has an Indian subsidiary. Steven Jones, the managing
director of TCT’s Indian subsidiary, has just resigned and needs to be replaced. Six
candidates have been identified as possibilities to fill the position. Due to plans for the
construction of a factory in Bangalore, the new director will need to have manufacturing
experience as well as the ability to function effectively in other aspects of the position.
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QUESTIONS
1.
Which candidate should the committee nominate for the assignment if TCT follows
an ethnocentric approach to staffing? A polycentric approach to staffing? A
geocentric approach to staffing? Which approach do you think makes the best sense
for TCT? Why?
The best candidate from an ethnocentric point of view is either Tom Wallace or Brett
Harrison. Wallace has the edge over Harrison due to his longer tenure with TCT and
relevant experience with a similar operation in the U.S. From a polycentric
approach, Saumitra Chakraborty would be the best selection. Although young, he is
well connected with the local business community and would be best able to
integrate TCT’s operations into the local situation. From a geocentric perspective,
Jalan Bukit Seng is a good fit. He has a broad multicultural background and
experience managing a similar operation successfully in Malaysia. It is critical that
TCT have a person with line experience in the position to assure product quality and
to control costs. Tom Wallace has that experience and would be able to manage the
companies operations well.
2.
What challenges might each candidate encounter in the position?
Tom Wallace:
Pros:
• 4.5 years from retirement
• experienced in the technical and sales aspects of the job
• managing a plant of similar size
• expressed interest in foreign assignment
• performance rated proficient
• grown children living in United States
• age and experience may be valued
Cons:
• Wallace and his wife know only English
• He is not a management star
• may be resented by local management
Brett Harrison:
Pros:
• rated highly competent
• poised to move to upper-level
• experience in Asian regional office
• acquainted with Bangalore expatriates
• well-acquainted with India
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Cons:
• Harrison may not view position as a promotion management
• teenage children
• wife has career—unable to relocate
Atasi Das:
Pros:
• rated excellent and upwardly mobile
• experienced in both staff and line positions
• expressed goal of foreign assignment
• speaks Hindi
• single; no children
• sees international experience as an essential career step
Cons:
—
Ravi Desai:
Pros:
• assistant managing director in larger Asian operation
• citizen of India
• speaks English and Hindi
• married with four young children
Cons:
—
Jalan Bukit Seng:
Pros:
• managing director of TCT’s assembly operations in Malaysia
• performance rating positive-excellent
• single
• citizen of Singapore
Cons:
—
Saumita Chaka:
Pros:
• no moving or adjustment problems
• performance rated competent
• single
• excels in employee relations
• personal connections with prominent
• families and local officials
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•
speaks Kannada, Hindi and English
Cons:
• only 27
• lacks line experience
3.
How might TCT go about minimizing these challenges facing each candidate?
Tom Wallace:
• Offer orientation and language-training for Wallace and his wife.
• Provide training visits to similar operations elsewhere.
• Offer extra encouragement so Wallace feels valued.
Brett Harrison:
• Offer special commuting arrangements so his wife can maintain her career.
• Offer fixed-term assignment.
• Provide assistance in selecting and settling the children into schools.
Atasi Das:
• Offer advanced work with local management.
Ravi Desai:
• Offer advanced work with local management.
Jalan Bukit Seng:
• Offer orientation and language training.
• Provide training visits to similar operations elsewhere.
Saumita Chaka:
• Provide staff assistance from headquarters.
• Provide technical training and development at headquarters.
4.
Should all candidates receive the same compensation package? If not, what factors
should influence each package?
There is a good deal of variation among firms with respect to the ways they
compensate managers abroad. In this instance, TCT needs to consider the base salary
each employee is earning, as well as the cost-of-living adjustment necessary to
relocate the employee to Bangalore. Housing allowances and tax differential
compensation may also be in order.
5.
What recommendations can you offer to help a company facing this sort of decision
that will enable it to balance professional and personal concerns?
In order to balance professional and personal concerns, a firm might do the
following:
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Rank applicants according to some criteria, such as experience in company,
technical competence (including managerial), language skills, area(s) of
expertise, age, stability of marital relations, personal preferences, personality
attributes, and career plans.
Check applicants for adaptiveness, sensitivity, and flexibility.
Check applicants for awareness levels.
Administer formal orientation programs that include concentrated training and
briefing processes. Include family members in the language and culture courses.
Effectively deal with the issue of security.
WEB CONNECTION
Teaching Tip: Visit www.prenhall.com/daniels for additional information and
links relating to the topics presented in Chapter Twenty. Be sure to refer your
students to the on-line study guide, as well as the Internet exercises for Chapter
Twenty.
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CHAPTER TERMINOLOGY:
type of ownership, p. 716
third-country nationals, p. 716
codetermination, p. 734
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ADDITIONAL EXERCISES: Human Resource Management
Exercise 20.1. Ask students to discuss the human resource implications for an MNE
that pursues (a) a multidomestic strategy, (b) a global strategy and (c) a
transnational strategy. Then ask them to follow that discussion by examining the
relationship among the human resource function and the sourcing/manufacturing and
the marketing functions of MNEs that pursue each of those strategies.
Exercise 20.2. Research suggests many expatriate employees encounter problems
that limit both their effectiveness in foreign assignments and their contributions to
the firm once they return home. Ask students to discuss the primary causes and
consequences of these problems. What can a firm do to reduce the occurrence of
such problems?
Exercise 20.3. A key issue in international labor relations is the degree to which
organized labor can limit a firm’s ability to pursue a global or a transnational
strategy. Ask students to identify MNEs whose operations reflect each of those
management strategies. Then ask them to discuss the ways in which organized labor
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can possibly affect (or has affected) their pursuit of those strategies. What, if
anything, can MNEs do to counter those efforts?
Exercise 20.4. Have the students pick a country other than their home country in
which they would like to work. What challenges do they think they would face
working in that country? Would they feel that learning another language would be a
prerequisite for working there? What type of compensation package would they
expect?
Exercise 20.5. Divide the class into two groups, one representing the management
of a large MNE and the other representing workers at one of the company’s plants in
Chile. Tell the students representing Chilean workers that they are unhappy with
their current compensation and working conditions. Have the two sides discuss the
situation and come to an understanding of the challenges and likely negotiating
positions on both sides.
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