INTERNATIONAL
HUMAN RESOURCE
MANAGEMENT
CHAPTER 11:
INTERNATIONAL HUMAN RESOURCE MANAGEMENT
LEARNING OBJECTIVES
• To introduce the topic by defining it, understanding its
differences from domestic, and elaborating on its importance for
the MNC.
• To discuss the various functions of International H/R
Management (recruitment, selection, training, and development,
performance appraisal and compensation) for managerial
employees.
International HRM: Introduction
Definition
The process of accomplishing organizational objectives by attracting
acquiring, developing, maintaining and properly using the human
resources in an organization.
Differences from domestic
Factors such as culture, legal system, labor markets, management
style, etc make the management of international human resource
different (Hiring women? Minimum wage? Cost of living? Accepted
leadership style? Any training for employees to be transferred?)
Packages and policies might have to change
Importance
If strategic goals are to be achieved then the HRM function has to be
in line with the international strategy. E.g. In implementing a costleadership strategy, recruitment, selection and training methods have to
be formulated with the concept of “low cost” in mind.
Human Resource Process
Strategy
(e.g. Cost, Leadership)
Shift production to a
low-cost labor
country.
HR Management
Effective
Work-force
relationships
Select, recruit and train new
Recruitment
workers in foreign country.
and
Replace home country
Selection
workers
Select managers to go
Operating policies
abroad, train them and
abroad
offer appropriate
packages
Competition
and Benefits
Performance
Appraisal
Training and
Development
Number of Managers, Nationality, Skills and Training depends on:
A. The size of International Operations
The Export Department
• The manager, who usually reports to an executive, can be a citizen of the home
country and not necessarily possess special skills in marketing and finance for
abroad.
• If sales pick up then specialists might be needed in export documentation,
trade financing overseas distribution, and marketing. Accordingly, the
appropriate number and training will be provided.
The International Division
• The Division Manager at the headquarters is usually a home country citizen
for better communication between the domestic and foreign operators
• The heads of the subsidiaries abroad and the various functional managers
can be either home or host country citizens. For better coordination with
headquarters the home country citizens are preferred. For quick adjustment
to changes in the foreign country the host country national are preferred.
They also know the ins and outs in the country. Cost consideration also play
a major role.
The Global Organization
For an MNE with global organizational structure we should be interested in
managers with conceptual skills. The division managers should be experts in
producing, marketing and financing a product and at the same time coordinate
the activities worldwide for synergies and economies. Therefore, the division
managers should have knowledge of the product line, the various functions
involved. Nationality is not of major concern.
B. Decision making (Centralization Vs Decentralization)
HRM needs and nationality are also affected by whether the firm wants to
delegate decision making at lower levels or not. Is decision making for finance,
marketing, production and human resources delegated or not?
Usually, firms that operate with a multi-domestic approach decentralize and
firms with an ethnocentric approach centralize.
C. Philosophy on Nationality
Whether the firm will use home, host or third country national depends on the
philosophy on nationality (executives, believers, past experience….
I.
Ethnocentric approach:
Many MNRs prefer to hire parent (home, expatriates) country nationals in
spite of not being knowledgeable about host country´s culture and language.
Why?
1. To start up operations. Host country nationals might not be suitable.
2. For preparing parent country nationals for high-level positions at
headquarters (train promising managers for international experience).
3. For better coordination with headquarters.
4. For making sure that the company´s culture, laws, and language might be
expensive and not a perfect substitute. The approach is very popular
when the know-how and technology was developed in the home country.
II. Polycentric approach
Many MNRs prefer to hire mostly host-country (locals) nationals. Why?
1. There is no problem with adaptation since they are familiar with customs,
culture and language.
2. Cost of employing them are usually lower. (Salaries, training for the new
culture and language, schooling of children…)
3. Hiring host country nationals is good public relations.
4. The laws of countries they operate might require that citizens of that
country are employed only (nativization is expected)
– It is suitable when companies operate in countries with significant
differences in culture. However, host country nationals might be
unfamiliar with policies and practices of the MNE, they might even
resist promotions in other countries and might favor local suppliers
who may not be cheaper as compared to foreign suppliers.
III Geoncetric approach
For many MNEs nationality is not of importance. We might even see
individuals coming from a third country. Why?
1. The main concern is the ability of the individual to rationalize on an
international basis (international perspective)
2. The technical abilities of the individual might be of utmost importance
and not the cultural adaptability or communication skills with
headquarters.
3. The firm does not follow a consensus-oriented approach to decision
making.
– It might be an extensive approach when individuals come from
a third country (heavy training for firm policies and partly for
cultural differences might be needed)
Recruitment
Developing a pool or list of job (managerial) candidates
Recruitment for Experienced Managers
• First, we might want to look inside the company (home and abroad)
• Check on retired executives to fill short-term international
assignments
• Identify prospective managers who work for other firms
(headhunters – resulting firms might be used)
Recruitment for Younger Managers
• Hire college graduates with foreign language skills, international
travel experience and a major in international business. Domestic
assignments and training might be given to them first.
•Coca-Cola and Colgate-Palmolive use this method intensively
Selection
Choosing the right candidates from the pool developed for an
overseas assignment can prove to be a major problem
General Criteria
Although the nature of the job determines heavily the criteria and their
weight, both technical and human criteria should be considered.
Japanese MNCs that consider relational skills (ability to deal with
clients, customers, superiors, peers, subordinates) criteria were found
to have higher success in choosing the right people as compared to
American MNCs that focus more on the technical criteria.
Commonly used criteria for choosing overseas managers
• Adaptability to culture – Check on previous overseas travel,
immigration background, foreign language, ability to integrate with
different people.
• Independence – project experience, hobby or college activities…
•Physical and emotional health – nervous disorders, heart condition…
• Leadership – Maturity, ability to communicate, initiative,
creativity…
•Spouses, dependents – Family unhappiness is the number one reason
for expatriate failure – spouse interview… living away from family…
A note on Expatriate Failure and Cultural Shock…
-
AT&T is proud of its low expatriate failure. Proud of its selection methods.
Expatriate failure (early return home due to inability to perform abroad) costs
around ½ million dollars for most MNEs.
Going abroad on a foreign assignment might lead to what is called “cultural
shock” (the fear for loosing your culture). This might create confusion and a
low self-esteem. This will reflect on the performance of an individual at work
Phases people go through on foreign assignments
• Honeymoon: Excitement for the first days. Exotic. Fantasia. Unreal. A dream.
• Disillusionment: A deeper exploration of the environment and a realization that it is
fundamentality different. Differences are blown out of proportion. Family faces
problems. Some might stay here and decide to return home.
• Adaptation: New culture and language is understood. Anxiety ends
• Biculturalism: Individual functions effectively. Integration of new behavior
Note: Another significant problem might be repatriation (the return home – a bad
experience) People assume that nothing has changed. Friends, relatives and coworkers
might have moved. Abroad the manager was like a king…not anymore. Technological and
organizational changes are observed. It is advised that managers freely choose to go abroad
and realistic expectations are given. How about a mentor?
Training and Development
-
Training and development programs are useful in avoiding critical mistakes on
foreign assignments. This will lead to efficiency and profitability
Training should focus on both, technical and behavioral aspects.
Programs can last only a few hours or they can last for months.
Standardized programs can be used. They are less expensive and the applications
the same regardless of where the managers are sent in the world. They do not have
to be culturally specific. They can be for behaviorally oriented concepts such as
communication, motivation, and leadership or they can be of a quantitative nature
such as financial forecasting or program evaluation techniques.
Customized (tailor-cut) programs can also be used. They are created for the specific
needs of the participants. The focus is on the particular culture, language, specific
legal system and other differences the individual will face. Eg. Gifts´ exchange,
idioms used, work methods… They can be in the form of lectures, case studies, role
playing, tests on cultural terminology…etc.
Performance Appraisal
In assessing a manager on a foreign assignment we should take into
consideration the given conditions (competition, customers, problems
in communication with headquarters, immediate assistance from
home, history/performance of subsidiary…)
and accordingly evaluate.
How well the manager has contributed in solving the problems of the
subsidiary he or she manages should be the focus.
We should always remember that an appraisal is done so as to provide
feedback and improve the performance of an individual.
Compensation
• The overall compensation package will vary from country to country due to
differences in legally mandated benefits, tax laws, competition, cost of living
and what is customary given in a particular country.
• Five common elements in the typical expatriate compensation package:
Best salary: This is usually according to the salary the expatriate receives at
home. Exchange rates should be taken into consideration.
Benefits: One-third of compensation. Expatriates get even more (extra
vacation, expenses for ill relatives at home)
Allowances: Designed to provide the expat with the same standard of living
that she enjoyed in the home country. eg. A payment for the difference between
COLA abroad and home, moving, shipping and storage changes, housing
expenses, education (schooling), hardship premium for working in hazardous
areas with a poor quality of life and a high political risk.
Incentives. Special incentives for expats. Premium for overseas assignment.
Taxes: Some countries permit a deduction of a certain amount of foreign
Income in the case where both countries tax. When the income of the expat is
more than the specified amount, the MNC pays the difference.