International Business
Chapter Twenty
Human Resource
Management
Chapter Objectives
• To discuss the importance of human resource
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•
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•
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
20-2
Introduction
Human resource management (HRM): the conduct of
the broad range of activities that relate to the
effective staffing of an organization
• Generally, HRM is more challenging for firms that
compete internationally because of:
– differences in political, cultural, legal, and environmental
factors amongst countries
– the challenges of convincing highly-skilled executives to
go abroad
• The mandate for HRM is to develop the means and
methods for a firm to build and retain the cadre of
managers that can lead an organization to even greater
performance in a day and age of globalization.
20-3
Fig. 20.1: Human Resources in
International Business
20-4
The Strategic Function of
Human Resource Management
Creating value by opening and operating a business, subsidiary, or branch requires that a firm:
•
•
•
•
•
determine its human resource needs
hire the people required to meet those needs
motivate its employees to perform well
continually upgrade its employees’ skills
retain those employees whose performance explicitly improves the productivity of the firm’s core
competencies within the context of the value chain
The roles and characteristics of international managers
evolve over time.
20-5
Staffing Policies
Staffing policy: defines the process by which a firm
assigns the most appropriate candidate to a given
position
Expatriate: an employee who leaves his or her home
country to live and work in a foreign (host) country
Third-country national: an employee who is a citizen
of neither a firm’s home country nor its host country
Interpretive framework: the way in which a firm
understands its world and the strategy it pursues
to create value
• The strategic values and leadership ideals of a firm
translate into the assumptions and generalizations that
define its interpretive framework.
20-6
MNE Staffing Policies:
The Ethnocentric Approach
Ethnocentric staffing policy: fills
all key management positions
with home-country nationals
Core competency: the special outlook, skill,
capability, and/or technology that creates unique
value for a firm and is hard for rivals to imitate
• People transferred from headquarters to pursue an
international strategy are more likely to best understand and protect the firm’s core competencies.
• An ethnocentric policy can result in a
narrow perspective of foreign operations.
20-7
Leading Reasons to Staff Foreign
Operations with Expatriates
• Command and control
• Local talent gaps
• Social integration
• Ownership structure
• Local implementation
• Higher turnover among locals
• Management training
Effective transfer of corporate
systems to foreign operations
Specialized skills of corporate
managers
Improved understanding of
the global entity
Use of key positions to protect
property and other interests
Quicker resolution of breakdowns and bottlenecks
Prevention of intellectual
property leaks
Development of corporate
managers’ global perspectives
20-8
MNE Staffing Policies:
The Polycentric Approach
Polycentric staffing policy:
uses host-country nationals
to manage local subsidiaries
• A polycentric policy views the effectiveness of
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•
the business practices of host country operations
as equivalent to those in the home country.
The use of host country managers to pursue a multidomestic strategy helps to maintain local motivation
and morale and also to improve the firm’s local image.
A polycentric policy can result in a gap between
local and global operations because of issues of
accountability, allegiance, and mobility.
20-9
Leading Reasons to Staff Foreign
Operations with Locals
• Cost containment
• Nationalism
• Management development
• Employee morale
• Expatriate failure rates
• Product issues
Expatriate compensation is
typically higher than that of a
local hire
Host governments may
restrict access to local jobs
Training of local mangers
motivates local employees
Local workers may respond
better to a local manager
Consequences to corporate
and local operations of expatriate failure can be severe
Local managers interpret local
conditions more effectively
20-10
MNE Staffing Policies:
The Geocentric Approach
Geocentric staffing policy: seeks the best
people for key positions throughout the
organization, regardless of their nationality
• A geocentric policy enables firms pursuing a global
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or transnational strategy to build the requisite cadre
of cosmopolitan executives who can promote global
learning by moving amongst countries and cultures
without forfeiting their effectiveness.
Economic factors, decision-making routines, and
legal contingencies often make geocentric staffing
policies hard to develop and costly to maintain.
20-11
Features and Functions of Staffing
Approaches
STAFFING
APPROACH
GENERAL
ASSUMPTONS
Ethnocentric
Headquarters International
Leverages a firm’s
makes all
core competence
decisions
Headquarters Multidomestic Eases adaptation to
makes broad
the local workplace
strategic
decisions
Headquarters Global and
Leverages ideas
and subsidiTransnational worldwide;
aries diffuse
global
best practices
via collaboration
Polycentric
Geocentric
promotes
learning
STRATEGIC
FIT
ADVANTAGES
20-12
International Staffing Approaches:
Unforeseen Contingencies
The strategic fit of an MNE’s staffing policy can be
unpredictably influenced by:
• types of foreign ownership:
•
while firms may secure staff
for foreign operations through acquisitions and joint ventures,
they may do so at the price of serious conflicts with their
existing staffing policies
third-country nationals: when firms establish lead operations abroad, third-country nationals often have the competencies needed to get new, regional operations up and
running
MNEs tend to champion those staffing policies that are most
congruent with their existing standards of value creation.
20-13
Expatriate Qualifications
Expatriate selection is largely influenced by a
candidate’s:
• technical competence:
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•
translates into the managerial
attributes of self-confidence and mental toughness
adaptiveness: reflects a person’s potential for personal
resourcefulness and self-maintenance, for developing
satisfactory relationships with host nationals, and for
interpreting the immediate environment
leadership ability: a key indicator of success for a
senior manager at a foreign subsidiary where ambiguity
and a broad range of duties are involved
20-14
Expatriate Preparation
and Development
Expatriate failure: the premature return home of an
expatriate employee
• Areas of training and development that can improve the
probability of expatriate success include:
– relevant country-specific information
– cultural sensitivity training
– practical social training
• The need to generate, transfer, and adopt ideas on a
worldwide basis compels MNEs to regularly engage a
greater proportion of their employees in international
development.
The leading cause of expatriate failure is the inability
of a spouse to adapt to the host nation.
20-15
Expatriate Compensation
Balance sheet compensation plan: aims to develop a
salary structure that equalizes purchasing power
across countries
• Common methods of implementing a balance sheet
compensation plan include:
– the home-based method
[preserves equity with home-country colleagues]
– the headquarters-based method
[preserves equity with headquarters colleagues]
– the host-based method
[reflects prevailing costs and salary scales in the host country]
Compensation must neither overly reward nor unduly
punish a person for accepting a foreign assignment.
20-16
Expatriate Compensation:
Key Aspects
• Living abroad may be expensive because:
– expatriates may be slow to change their habits
– expatriates may be unsure of how and where to shop
• Key aspects of expatriate compensation include:
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–
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the base salary
the foreign-service premium
cost-of-living allowances [housing, spouse, hardship, travel]
fringe benefits [medical & retirement benefits plus risk insurance]
tax differentials [double taxation issues]
MNEs often provide additional compensation or greater fringe
benefits to employees who work in remote or dangerous areas.
20-17
Sending an Expatriate from Seattle
to Tokyo: Typical Expenses
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DIRECT COMPENSATION COSTS
Base salary
Foreign service premium
Goods and services differential
Housing
Hypothetical U.S. taxes
COMPANY-PAID COSTS
Education (for 2 children)
Japanese income taxes
Transfer moving costs
Miscellaneous costs
Working spouse allowance
Annual home leave expenses
Add’l insurance, pension, & evacuation coverage
$150,000
25,000
120,000
97,000
(38,000)
$ 30,000
115,000
47,000
85,000
75,000
15,000
20,000
20-18
Complications Posed by
Country Differences
Stock options: the right to purchase a specific number
of shares of stock for a specified price at specified
times [usually granted to key employees]
• Firms struggle to determine how to pay managers in
•
different countries because of the complications caused
by legal, cultural, and government-related factors.
Total compensation, forms of compensation, as well as
the gap between top executives and hourly workers vary
substantially across countries.
While the inequality between CEO and average worker pay
is greatest in the United States, it is smallest in Japan.
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Fig 20.3: Variance in CEO
Packages Among Countries
20-20
Fig. 20.4: The Difference in Pay between
CEOs and the Average Worker, 2000
20-21
Expatriate Repatriation
• Expatriates face repatriation strains in three key areas:
– changes in personal finances
– readjustment to the home-country corporate structure
– readjustment to life at home
• One survey of repatriated executives found that:
– more than 33% still held temporary assignments three
months after returning home
– nearly 80% viewed their new jobs as demotions when
compared to their foreign assignments
– more then 60% felt they did not have opportunities to
transfer their international expertise to their new jobs
– nearly 25% left their companies within three months of
returning home
The principal cause of repatriation frustration is the challenge of
matching an expatriate to a job that offers sufficient responsibility.
20-22
International Labor Relations
Labor union: an association of workers who have
united to collectively express their views for wages,
hours, and working conditions
Collective bargaining: negotiations between labor
union representatives and employers regarding a
broad spectrum of work-related issues
• Overall attitudes within a country affect the ways in
which management and labor view one another and the
ways in which labor attempts to negotiate better working
conditions.
A country’s sociopolitical environment will largely determine the
type of relationship between labor and management and
affect the number, representation, and organization of unions.
20-23
International Labor Relations:
Labor’s Concerns about MNEs
• A key concern is the degree to which organized
labor can limit an MNE’s operational and strategic
choices.
• Labor claims it is disadvantaged in dealing with
MNEs because:
– it is very difficulty to get complete information regarding
MNE operations and to interpret their financial data
– MNEs can manipulate product and resource flows
– MNEs can easily switch value-adding activities to other
countries and/or regions
– the scale and complexity of MNE operations make it hard
to identify the location of decision-making authority
20-24
International Labor Relations:
Labor’s Actions toward MNEs
• Workers have organized unions to fight for higher
pay, better benefits, greater job security, and
improved working conditions.
• Internationally, unions cooperate with one another
by sharing information, assisting bargaining units in
other countries, and dealing simultaneously with
MNEs.
• Labor can appeal to transnational institutions such
as the International Labor Organization (ILO) and a
variety of industry-specific trade secretariats to
assist in their efforts to check the power of MNEs.
20-25
International Labor Relations:
Labor’s Continuing Struggles
Codetermination: emphasizes cooperative decision
making that benefits both workers and the firm via
the joint participation of management and labor in
the management of a firm
• The demography, structure, ideals, and goals of unions
•
•
vary significantly from country to country.
Both collective bargaining methods and approaches to
the reconciliation of labor tensions differ from country to
country.
National unions are locked in a zero-sum game, as they
compete with each other to attract both domestic and
foreign investment.
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Trends in the Relationship between
MNEs and Labor
• MNEs’ efforts to integrate labor relations across
countries sharpen their understanding of labor
issues and ultimately increase their bargaining
power.
• Reasons behind the declining union membership
seen in many countries include:
– the increase in white-collar works as a percentage of total
workers
– the increase in service employment in relation to manufacturing
employment
– the rising portion of women in the workforce
– the rising portion of part-time and temporary workers
– the trend toward smaller average plant size
– the decline in the belief in collectivism among younger workers
20-27
Fig. 20.5: Trade Union Decline in
Industrialized Countries
20-28
Implications/Conclusions
• Firms are increasingly sensitive to the congruence between (i) their organizational cultures
and leadership values and (ii) those of their
employees.
• Two major international training functions are
(i) building global awareness amongst managers
in general and (ii) equipping managers to handle
the specific challenges of a foreign assignment.
[continued]
20-29
• Hiring locals rather than expatriates demon-
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strates that MNEs do provide opportunities for
local citizens, are considerate of local interests,
and may prefer to avoid the red tape of crossnational transfers.
MNEs transfer managers abroad to infuse technical competence and headquarters business
practices, to control foreign operations, and to
develop managers’ international business skills.
The debate is ongoing as to whether the MNE,
through the power of its globally dispersed
value chain, systematically weakens the rights
and roles of labor.
20-30