Chapter 14
International Human
Resource Management
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-1
Lecture/Chapter Topics
•
The Strategic Role of HRM
•
Staffing Policy
•
Training and Management Development
•
Performance Appraisal
•
Compensation
•
International Labour Relations
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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The Strategic Role of HRM
•
•
•
HRM is more complex in an international business
because of differences between countries in labour
markets, culture, legal systems, economic systems,
and so on.
The HRM function must also deal with a host of
issues related to expatriate managers (citizens of
one country working abroad).
Success in international business requires that HRM
policies be congruent with the firm’s strategy.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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The Strategic Role of HRM
• The Role of Human Resources in Shaping
Organisation Architecture
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
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Staffing Policy
•
•
Staffing policy is concerned with the selection of
employees who have the skills required to perform a
particular job.
Types of Staffing Polices
–
Research has identified three main approaches to staffing
policy within international businesses:
i. Ethnocentric approach
ii. Polycentric approach
iii. Geocentric approach
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-5
Staffing Policy
•
Ethnocentric Approach
– An ethnocentric approach to staffing policy is
one where key management positions in an
international business are filled by parent-country
nationals.
– The policy makes most sense for firms pursuing
an international strategy.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-6
Staffing Policy
•
Ethnocentric Approach (Cont’d)
– Firms pursue an ethnocentric staffing policy for
three reasons:
1. The firm believes there is a lack of qualified
individuals in the host country to fill senior
management positions.
2. The firm sees an ethnocentric staffing policy as the
best way to maintain a unified corporate culture.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-7
Staffing Policy
•
Ethnocentric Approach (Cont’d)
– Firms pursue an ethnocentric staffing policy for
three reasons: (cont’d)
3. The firm believes the best way to create value by
transferring core competencies to a foreign operation
is to transfer parent-country nationals who have
knowledge of that competency to the foreign
operation.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-8
Staffing Policy
•
Ethnocentric Approach (Cont’d)
– The ethnocentric staffing policy is now on the
wane in most international businesses.
– There are two reasons for this:
i. An ethnocentric staffing policy limits advancement
opportunities for host-country nationals.
ii. An ethnocentric policy can lead to ‘cultural myopia’.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-9
Staffing Policy
• Polycentric Approach
–
–
–
A polycentric staffing policy is one where host-country
nationals are recruited to manage subsidiaries in their own
country, while parent-country nationals occupy the key
positions at corporate headquarters.
While this approach minimises the dangers of cultural
myopia, it also helps create a gap between home- and
host-country operations.
The policy is best suited to firms pursuing a localisation
strategy.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-10
Staffing Policy
•
Polycentric Approach (Cont’d)
– There are two advantages to the polycentric
approach:
i. The firm is less likely to suffer from cultural myopia.
ii. This staffing approach may be less expensive to
implement than an ethnocentric policy.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-11
Staffing Policy
•
Polycentric Approach (Cont’d)
– There are two disadvantages to the polycentric
approach:
i. Host country nationals have limited opportunities to
gain experience outside their own country and thus
cannot progress beyond senior positions in their own
subsidiaries.
ii. A gap can form between host-country managers and
parent-country managers.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-12
Staffing Policy
• Geocentric Approach
– A geocentric staffing policy is one where the
best people are sought for key jobs throughout
the organisation, regardless of nationality.
– This approach is consistent with building a
strong, unifying culture and an informal
management network.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-13
Staffing Policy
• Geocentric Approach (Cont’d)
– This approach makes sense for firms pursuing
either a global or a transnational strategy.
– Immigration policies of national governments
may limit the ability of a firm to pursue this policy.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-14
Staffing Policy
•
Geocentric Approach (Cont’d)
– The advantages of a geocentric approach to
staffing include:
 Enabling the firm to make the best use of its human
resources
 Building a cadre of international executives who feel at
home working in a number of different cultures
Copyright  2007 McGraw-Hill Australia Pty Ltd
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14-15
Staffing Policy
•
Geocentric Approach (Cont’d)
– The disadvantages of the geocentric approach
include:
 Difficulties with immigration laws
 Costs associated with implementing the strategy
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-16
Staffing Policy
• Comparison of Staffing Approaches
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14-17
Staffing Policy
• Expatriate Managers
–
–
With an ethnocentric policy, the expatriates are all homecountry nationals (sometimes described as parentcompany nationals) who are transferred abroad.
With a geocentric approach, the expatriates need not be
home-country nationals; the firm does not base transfer
decisions on nationality.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-18
Staffing Policy
•
•
•
A prominent issue in the international staffing
literature is expatriate failure.
Expatriate failure is the premature return of an
expatriate manager to his or her home country.
Expatriate Failure Rates
–
Expatriate failure represents a failure of the firm’s
selection policies to identify individuals who will not
thrive abroad.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-19
Staffing Policy
•
Expatriate Failure Rates (Cont’d)
– The consequences include premature return from a
foreign posting and high resignation rates, with
expatriates leaving their company at about twice the rate
of domestic managers.
– The average cost per failure to the parent firm can be as
high as three times the expatriate’s annual domestic
salary plus the cost of relocation.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-20
Staffing Policy
• Expatriate Failure Rates (Cont’d)
– Studies show the main reasons for expatriate failure for
Western firms are:





Inability of an expatriate's spouse to adapt to a foreign
culture
Inability of the employee to adjust
Other family-related reasons
The manager’s personal or emotional maturity
Inability to cope with larger overseas responsibilities
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14-21
Staffing Policy
•
For European firms, only one reason was found to
consistently explain expatriate failure:
– Inability of the manager’s spouse to adjust to a new
environment
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-22
Staffing Policy
• Expatriate Failure Rates
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-23
Staffing Policy
•
For Japanese firms, the reasons for failure were:
–
–
–
–
–
Inability to cope with larger overseas responsibility
Difficulties with the new environment
Personal or emotional problems
A lack of technical competence
Inability of spouse to adjust
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-24
Staffing Policy
•
Expatriate Selection
– Expatriate failure rates can be reduced through improved
selection procedures.
– Mendenhall and Oddou identified four dimensions that
predict expatriate success:
1.
2.
3.
4.
Self-orientation
Others-orientation
Perceptual ability
Cultural toughness
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-25
Staffing Policy
• Expatriate Selection (Cont’d)
1. Self-orientation attributes strengthen the expatriate's selfesteem, self-confidence and mental well-being.
2. Others orientation refers to how the attributes of this
dimension enhance the expatriate’s ability to interact
effectively with host-country nationals.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-26
Staffing Policy
• Expatriate Selection (Cont’d)
3. Perceptual ability refers to the ability to understand why
people of other countries behave the way they do.
4. Cultural toughness refers to the fact that the success with
which an expatriate adjusts to a particular posting tends to
be related to the country of assignment.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-27
Training and Management
Development
•
•
Training begins where selection ends and it focuses
upon preparing the manager for a specific job.
Management development is concerned with
developing the skills of the manager over the course
of his or her career with the firm.
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14-28
Training and Management
Development
•
Training for Expatriate Managers
– Cultural training, language training and practical training
have all been shown to reduce expatriate failure.
– Yet, according to one study only about 30% of managers
sent on one- to five-year expatriate assignments received
training before their departure.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-29
Training and Management
Development
• Training for Expatriate Managers (Cont’d)
– Cultural Training

Cultural training seeks to foster an appreciation for the host
country's culture.
– Language Training

An exclusive reliance on English diminishes an expatriate
manager's ability to interact with host country nationals.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-30
Training and Management
Development
• Training for Expatriate Managers (Cont’d)
–
Practical Training

Practical training helps the expatriate manager and his or
her family ease themselves into day-to-day life in the host
country.
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14-31
Training and Management
Development
• Repatriation of Expatriates
– A critically important issue in the training and development
of expatriate managers is to prepare them for re-entry into
their home country organisation.
– The HRM function needs to develop a good program for reintegrating expatriates back into work life within their home
country organisation once their foreign assignment is over,
and for utilising the knowledge they acquired while abroad.
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14-32
Training and Management
Development
•
Management Development and Strategy
– Management development programs increase the overall
skill levels of managers through a mix of ongoing
management education and rotations of managers
through jobs within the firm to give them varied
experiences.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-33
Training and Management
Development
•
Management Development and Strategy (Cont’d)
– Management development is often used as a strategic
tool to build a strong unifying culture and informal
management network, both of which are supportive of a
transnational and global strategy.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-34
Performance Appraisal
•
Performance Appraisal Problems
–
–
–
In most cases, two groups evaluate the performance of
expatriate managers — host-nation managers and homeoffice managers — and both are subject to unintentional
bias.
Home-country managers tend to rely on hard data when
evaluating expatriates.
Host-country managers can be biased towards their own
frame of reference.
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PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-35
Performance Appraisal
•
Guidelines for Performance Appraisal
– To reduce bias in performance appraisal:

Most expatriates believe more weight should be given to
an on-site manager's appraisal than to an off-site
manager's appraisal.

A former expatriate who has served in the same location
could be involved in the appraisal process to help reduce
bias.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-36
Performance Appraisal
•
Guidelines for Performance Appraisal
– To reduce bias in performance appraisal: (cont’d)

When the policy is for foreign on-site mangers to write
performance evaluations, home-office managers should
probably be consulted before an on-site manager
completes a formal termination evaluation.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-37
Compensation
•
National Differences in Compensation
– Should firms pay executives in different countries
according to the prevailing standards in each country, or
should they equalise pay on a global basis?
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14-38
Compensation
• Expatriate Pay
–
The most common approach to expatriate pay is the
balance sheet approach.
–
This approach equalises purchasing power across
countries so employees can enjoy the same standard in
their foreign posting as they enjoyed at home.
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14-39
Compensation
• The Balance Sheet
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14-40
Compensation
•
The components of the typical expatriate
compensation package are:
– Base salary
– A foreign service premium
– Allowances of various types
– Tax differentials
– Benefits
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14-41
Compensation
• Base Salary
–
An expatriate’s base salary is normally in the same range
as the base salary for a similar position in the home
country.
• Foreign Service Premium
–
–
A foreign service premium is extra pay the expatriate
receives for working outside his or her country of origin.
It is offered as an inducement to accept foreign postings.
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14-42
Compensation
•
•
Allowances
Four types of allowances are often included in an
expatriate’s compensation package:
1.
2.
3.
4.
Hardship allowances
Housing allowances
Cost-of-living allowances
Education allowances
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14-43
Compensation
• Taxation
–
–
Unless a host country has a reciprocal tax treaty with the
expatriate’s home country, the expatriate may have to pay
income tax to both the home-country and host-country
governments.
When a reciprocal tax treaty is not in force, the firm
typically pays the expatriate’s income tax in the host
country.
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14-44
Compensation
• Benefits
–
–
Many firms also ensure that their expatriates receive the
same level of medical and pension benefits abroad that
they received at home.
This can be costly for the firm, since many benefits that
are tax deductible for the firm in the home country (e.g.
medical and superannuation benefits) may not be
deductible out of the country.
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14-45
International Labour Relations
•
•
A key issue in international labour relations is the
degree to which organised labour is able to limit the
choices available to an international business.
A firm's ability to pursue a transnational or global
strategy can be significantly constrained by the
actions of labour unions.
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14-46
International Labour Relations
•
Concerns of Organised Labour
– A principal concern of organised labour is that the
multinational can counter union bargaining power by
threatening to move production to another country.
– Another concern is that multinationals will try to import and
impose unfamiliar labour practices from other countries.
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14-47
International Labour Relations
• Strategy of Organised Labour
– Organised labour has responded to the increased
bargaining power of multinational corporations by:



trying to set up their own international organisations
lobbying for national legislation to restrict multinationals
trying to achieve regulation of multinationals through
international organisations such as the United Nations
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14-48
International Labour Relations
• Approaches to Labour Relations
–
–
–
Traditionally labour relations has been decentralised to
individual subsidiaries within multinationals.
Now there is a trend towards greater centralisation to
enhance the bargaining power of the multinational vis-à-vis
organised labour.
There is a growing realisation that the way in which work is
organised within a plant can be a major source of
competitive advantage.
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14-49
Summary of Main Themes
• This chapter focused on human resource management in
international businesses.
• HRM activities include human resource strategy, staffing,
performance evaluation, management development,
compensation and labour relations.
• None of these activities is performed in a vacuum; all must
be appropriate to the firm’s strategy.
Copyright  2007 McGraw-Hill Australia Pty Ltd
PPTs t/a Global Business Today 1e by Hill. Slides prepared by Fuming Jiang.
14-50