Chapter 18
Human Resource Management
in the Global Firm
International Business
Strategy, Management
& the New Realities
Cavusgil, Knight & Riesenberger
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Challenges of International
Human Resource Management
• Recruiting, managing, and retaining human
resources at a firm with extensive global operations
are especially challenging.
• For example, in 2005, German firm Siemens had
460,800 employees in some 190 countries: 290,500
throughout Europe, 100,600 in the Americas, 58,000
in the Asia-Pacific region, and 11,900 in Africa, the
Middle East, and Russia.
• Each of Volkswagen, Nestle, IBM, Unilever, WalMart, McDonald’s, and Matsushita has more than
150,000 employees outside the home country.
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International Human Resource Management
• International human resource management:
the planning, selection, training, employment,
and evaluation of employees for international
operations.
• How a firm recruits, trains, and places skilled
personnel in its worldwide value chains sets it
apart from competition.
• The combined knowledge, skills, and
experiences of employees are distinctive and
provide myriad advantages to the firm’s
operations worldwide.
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Three Employee Categories at the MNE
• Host-country nationals (HCNs): citizens of the
country where the subsidiary or affiliate is located.
HCNs make up largest proportion of employees that
the firm hires abroad. Examples: the labor force in
manufacturing, assembly, basic service activities,
clerical work, and other non-managerial functions.
• Parent-country nationals (PCNs): also known as
home-country nationals, PCNs are citizens of the
country where the MNE is headquartered.
• Third-country nationals (TCNs): employees who are
citizens of countries other than the home or host
country. Most work in management; have unique skills
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Differences between
Domestic and International IHRM
1.
New HR responsibilities. E.g., international
taxation, international relocation and orientation,
services for expatriates, host government relations,
language translation services.
2.
Need for a broader perspective. E.g., establishing
a fair and comparable compensation scale when
there is a mix of PCNs, HCNs, and TCNs.
3.
Greater involvement in employees’ personal
lives. E.g., housing arrangements, health care,
children’s education, safety, security, proper
compensation, higher living costs abroad.
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Differences between
Domestic and International IHRM (cont.)
4. Managing the mix of expatriates versus locals.
The firm may staff each location with HCNs, PCNs,
and TCNs. The mix of staff mainly depends on the
firm’s international experience, cost-of-living abroad,
local laws, and availability of qualified local staff.
5. Greater risk exposure. Exposure to political risk and
terrorism may require increased compensation and
security arrangements.
6. External influences of the nation and culture. E.g.,
taxes, local work regulations, unique cultural
circumstances, traditional work practices.
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Key Tasks of IHRM
1. Staffing – activities directed at recruiting, selecting,
and placement of employees.
2. Training and developing employees.
3. Performance appraisal; involves providing feedback
necessary for the employee’s professional
development.
4. Compensation or remuneration of employees
including formulation of benefit packages that vary
greatly from country to country.
5. Management of labor unions and collective
bargaining processes, known as industrial relations.
6. Achieving diversity in the workplace.
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Staffing: Searching for Talent
• Recruitment: searching for and locating
potential job candidates to fill the firm’s needs.
• Selection: gathering information to evaluate and
decide who to employ in particular jobs.
• Managers must proactively identify potential
candidates and groom them to become
corporate leaders, train personnel to meet
evolving business needs, and ensure the talent
supply keeps pace with the growth of the firm.
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Employee Characteristics That
Facilitate International Effectiveness
• Technical Competence. Must have adequate
managerial and technical capabilities.
• Self-Reliance. Entrepreneurial, proactive mindset;
expatriate managers function with considerable
independence, and limited support from headquarters.
• Adaptability. Ability to adjust to foreign cultures, cultural
empathy, flexibility, diplomacy, and a positive attitude.
• Interpersonal Skills. Ability to build relationships is key.
• Leadership Ability. Must view change positively, and
proactively manage threats and opportunities.
• Physical and Emotional Health. Life abroad is stressful.
• Spouse / Dependents Prepared for Living Abroad
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Expatriate
• An employee who goes to work abroad for an
extended period, usually years
• Repatriation: return of the expatriate to the home
country. Requires advance preparation. Unless
managed well, returning expatriate may encounter
problems, such as career disruptions and ‘reverse
culture shock’.
• Expatriate failure: the premature return of an
expatriate, due to an inability to perform well abroad.
Costly to the firm (lost productivity and relocation
costs) and to expatriates themselves (family stress
and career disruption).
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Culture Shock
• The confusion and anxiety, often akin to mental
depression, that can result from living in a foreign
culture for an extended period. Often affects family
members most.
• A leading cause of expatriate failure.
• Especially a factor for those assigned to culturally
dissimilar countries, such as China, Yemen.
• Can be reduced via advance preparation, training,
language skills, deep interest in the new country.
• Regular exercise, relaxation techniques, or keeping
a detailed journal of experiences are helpful.
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Three Components of Training
Personnel for International Assignments
1. Area studies: factual knowledge of the
historical, political and economic environment
of the host country;
2. Practical information: knowledge and skills
necessary to function effectively in a country,
including housing, health care, education, and
daily living;
3. Cross-cultural awareness: ability to interact
effectively and appropriately with people from
different language and cultural backgrounds.
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Training
 In order of increasing rigor, training methods
include: videos, lectures, assigned readings, case
studies, books, Web-based instruction, critical
incident analyses, simulations, role-playing,
language training, field experience, and long-term
immersion.
 Role-playing and simulations involve the employee
acting out typical encounters with foreigners.
 Long-term immersion places the employee in the
country for several months or more, often for
language and cultural training.
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Cultivating a Geocentric Orientation
• Ethnocentric views are common in many MNEs.
• More progressive MNEs follow a geocentric
orientation, staffing HQ and subsidiaries with
the most competent personnel, regardless of
nationality. Characterized by an openness to,
and articulation of, multiple cultural and strategic
realities on both global and local levels.
• Best to hire, develop, nurture, and recognize
employees who possess a global mindset and
offer global leadership potential.
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Performance Appraisal
• Performance appraisal: formal process of assessing
how effectively employees perform their jobs.
• Helps identify problem areas where an employee
needs to improve and additional training is warranted.
• Determines compensation and company performance.
• MNEs devise procedures to assess the performance
of individual employees; ascertain if any problems are
attributable to inadequate skill levels; provide
additional training and resources; and terminate
employees who consistently fail to achieve goals.
• Often very challenging in international business.
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Compensation of Personnel
• Compensation varies internationally due to
differences in legally mandated benefits, tax
laws, cost of living, local tradition, and culture.
• Employees posted abroad expect to be
compensated at a level that allows them to
maintain their usual standard of living, which can
make compensating expatriates very costly.
• Includes base remuneration, benefits (e.g.,
health care plans), allowance (e.g., for housing,
children’s education, travel), incentives
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Labor Unions and Collective Bargaining
• Management and workers determine the job
relationships that will be in effect at the workplace.
• Collective bargaining involves negotiations between
management and workers regarding wages and
working conditions.
• Labor regulations vary substantially, with minimum
regulations in Africa and India to very detailed
regulations in Northern Europe.
• Union membership has declined in most countries,
but remains high in several European countries.
• Strikes can disrupt international operations.
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Trends in International Labor
• Mobility of labor across national borders has
increased substantially. Reasons:




Growing interconnectedness of national economies;
Rapid expansion of multinational firms;
Rise of international collaborative ventures; and
Greater emphasis on global teams.
• Many countries are coping with an influx of
immigrants, both legal and illegal, who compete with
established workers by providing low-cost labor.
Trend is significant in Europe, Persian Gulf countries,
and the United States (but not in Japan).
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Women in International Business
• Women currently occupy relatively few top
management positions (in Europe, women occupy
only 15% of senior executive posts)
• Reasons for scarcity of women in international jobs:
• Senior managers often assume women do not make
suitable leaders abroad (e.g., due to cultural challenges)
• Some female managers prefer to remain in the home
country, to fulfill family obligations or avoid disrupting
partner’s career.
• Most companies do not accommodate child-rearing or
other family responsibilities.
• There are fewer women with sufficient experience to be
sent abroad for senior jobs.
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Recent Positive Trends
• Many more women are obtaining university
degrees in business.
• Female graduates account for some 50% of
recruits joining European firms
• Businesswomen increasingly form their own
networks, such as Women Directors on Boards in
the United Kingdom, and The Alliance of Business
Women International in the United States
(www.abwi.org).
• Overall trend is positive (except in strongly Islamic
countries). See examples: Ashley L. and Maria R.
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Success Strategies for Women in IB
• In many countries, being a foreign woman can be an
advantage. Women stand out more, and competent
women earn respect. Smart women leverage their
gender to their advantage.
• Women overcome biases abroad by acquiring
managerial, language, and international skills.
• Over time, managerial competence wins out over bias.
• Gaining substantial experience as a domestic manager
or in short international assignments can greatly
improve prospects for working abroad.
• Once abroad, women report the reaction of surprise is
often replaced by professionalism and respect.
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