International
Business
Fourth Edition
CHAPTER 18
Global Human Resource Management
18-3
Chapter 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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-4
The Strategic Role of International HRM
Insure that HRM policies are congruent
with the firm’s strategy, structure
and controls.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-5
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
McGraw-Hill/Irwin
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
Table 18.1
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-6
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-7
Types of Staffing Policy
Ethnocentric
Key management
positions filled by
parent-country
nationals
McGraw-Hill/Irwin
Polycentric
Host-country
nationals manage
subsidiaries,
parent company
nationals hold key
Headquarter
positions
Geocentric
Seek best
people, regardless
of nationality
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-8
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
McGraw-Hill/Irwin
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
Table 18.2
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-9
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).
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-10
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
Table 18.3
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-11
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-12
Expatriate Selection
Mendenhall & Oddou
Predictors of success:
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 hostcountry 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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-13
Training and Management Development
Training: obtaining skills
for a particular
(foreign) posting.
Development: develops
manager’s skills over
his/her career in the
Firm.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-14
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. 1. Culture
Practical:
2. Language
Ease into day-to-day life of the
host country.
McGraw-Hill/Irwin
3. Practical
18-9
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-15
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
McGraw-Hill/Irwin
20
30
40
percent
50
60
70
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-16
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-17
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-18
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-19
Compensation
Two issues:
How to adjust compensation to reflect national
differences in economic circumstances and
compensation practices.
How expatriate managers should be paid.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-20
National Differences in Compensation
Table 18.4
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
United
Kingdom
719,665
268,302
107,839
28,874
United
States
1,403,899
306,181
66,377
44,680
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-21
Compensation Issues
Ethnocentric
Polycentric
Geocentric/Transnational
McGraw-Hill/Irwin
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.
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-22
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-23
A Typical Balance Sheet
Figure 18.1
Income
Taxes
Home and
HostCountry
Income
Taxes
Housing
Housing
Goods and
Services
Reserve
Goods and
Services
HomeCountry
Salary
McGraw-Hill/Irwin
Additional
Costs Paid by
Company
Income
Taxes
Housing
Premiums
and
Incentives
Income
Taxes
Housing
Goods and
Services
Goods and
Services
Reserve
Reserve
Reserve
HostCountry
Costs
Host-Country
Costs Paid by
Company and
from Salary
Home- Country
Equivalent
Purchasing
Power
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-24
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-25
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-26
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
18-27
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.
McGraw-Hill/Irwin
© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.