Chapter 8 GLOBAL HUMAN RESOURCE MANAGEMENT

LEARNING OUTCOMES
- Understand the strategic role of human resource management.
- Identify the different approaches to staffing policy in international business.
- Understand the Training and Management Development.
- Explain the performance appraisal systems across nations.
- Explain how and why compensation systems might vary across nations.
- Understand how the compensation systems work.

1. STRATEGIC ROLE OF GLOBAL HRM: MANAGING A GLOBAL WORKFORCE

1.1. Definition of Human Resource Management
- Human Resource Management (HRM) refers to the activities an organization carries out to use its
human resources effectively.
- International HRM differs considerably from domestic HRM because of differences in national business
environments.
- There is an issue of expatriates—citizens of one country who are living and working in another; many
issues arise when expatriate employees have job assignments that last several years.
- Training and development programs and recruitment and selection practices must often be tailored to
local practices.
- In an international business, the strategic role of HRM is more complex, where related activities are
complicated by profound differences between countries in labor markets, culture, legal systems, economic
systems.

1.2 The role of human resources in business operation

- Strategic Alignment: HRM ensures that the organization's human capital is aligned with its strategic
goals and objectives. By effectively managing employees, HRM helps drive business performance and
achieve long-term success.
- Talent Acquisition and Retention: HRM plays a key role in recruiting, selecting, and retaining top
talent. A skilled and motivated workforce is essential for driving innovation, productivity, and
competitiveness in the market.
- Employee Development: HRM is responsible for training and developing employees to enhance their
skills and capabilities. Investing in employee development leads to higher job satisfaction, increased
engagement, and improved performance.
- Performance Management: HRM establishes performance standards, conducts performance evaluations,
and provides feedback to employees. Effective performance management systems help identify strengths
and areas for improvement, leading to better individual and organizational outcomes.
- Employee Relations: HRM manages employee relations, resolves conflicts, and promotes a positive
work environment. Maintaining healthy employee relations fosters a culture of trust, collaboration, and
teamwork within the organization.

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- Compliance and Risk Management: HRM ensures compliance with labor laws, regulations, and ethical
standards. By adhering to legal requirements and mitigating risks related to employee issues, HRM helps
protect the organization from legal liabilities and reputational damage.
- Change Management: HRM plays a critical role in managing organizational change, such as mergers,
acquisitions, or restructuring. HR professionals help employees adapt to change, minimize resistance, and
facilitate a smooth transition process.
- Diversity and Inclusion: HRM promotes diversity and inclusion in the workplace, creating a culture that
values and respects differences. Embracing diversity leads to a more innovative and inclusive work
environment, driving business success.
- Cost Control and Efficiency: HRM manages labor costs, benefits, and workforce planning to optimize
resource allocation and operational efficiency. By controlling costs and maximizing productivity, HRM
contributes to the organization's financial performance.
- Employee Well-being: HRM focuses on employee well-being, health, and safety. Prioritizing employee
wellness leads to higher job satisfaction, lower turnover rates, and a more engaged workforce.

2. STAFFING POLICY
- Staffing policy is the selection of employees for particular jobs.
- Staffing policy can be a tool for developing and promoting the desired corporate culture of the firm.
- Staffing policy is influenced by international environment.
- Some MNCs require their personnel of being high skilled for performing particular jobs and behavioral
styles, beliefs, and value systems which are consistent with those of MNCs.
- The main approaches to the staffing of international operations are ethnocentric, polycentric, and
geocentric.

2.1.The Ethnocentric Approach

- Individuals from the home country manage operations abroad. All key management positions are filled by
parent-country managers.
- Appeals to companies that want to maintain tight control over decision making in branch offices abroad.
- This has implications for companies pursuing an international strategy.
2.1.1 Reasons for the Ethnocentric Approach
- Centralized Decision-Making: Decisions regarding staffing, operations, and strategy are made at the
headquarters in the home country, with limited autonomy given to foreign subsidiaries or offices.
- Transfer of Corporate Culture: By staffing key positions with employees from the home country, the
ethnocentric approach aims to maintain and transfer the company's corporate culture, values, and practices
to foreign locations.
- Knowledge and Expertise Transfer: Expatriates bring knowledge, expertise, and best practices from the
home country to foreign subsidiaries, facilitating knowledge transfer and skill development in the host
country.
- Control and Consistency: The ethnocentric approach allows the company to maintain control over
operations and ensure consistency in management practices and standards across different locations.

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- Development of Global Leaders: By giving opportunities to employees from the home country to work in
international assignments, the ethnocentric approach can help develop a pool of global leaders with cross-
cultural experience and skills.

2.1.2 Some Limitations of the Ethnocentric Approach

- Challenges with Local Adaptation: This approach may lead to resistance from local employees and hinder
effective communication and collaboration.
- Costs and Expatriate Management: Hiring and managing expatriates can be costly for the company,
including expenses related to relocation, housing, schooling for dependents, and expatriate compensation
packages.
- Expatriate managers may not overcome cultural barriers or understand the needs of their local employees
or their local customers.
- Limit advancement opportunities for host country members. This can lead to resentment, lower
productivity, and increase staff turnover among that group.

2.2 The Polycentric Approach

- A polycentric staffing policy requires host-country personnel to be recruited to manage subsidiaries, while
parent country nationals occupy key positions at corporate headquarters.
- Individuals from the host country manage operations abroad.
- This approach is well suited to companies who want to give national units a degree of autonomy in
decision making.
- This policy has implications for companies pursuing a localization strategy.

2.2.1 Reasons for the polycentric approach

- Deeper Local Market Knowledge: Host country nationals have a deep understanding of the local market
dynamics, consumer behavior, cultural nuances, and regulatory environment. By hiring local managers and
staff, the company can leverage this knowledge to tailor its products, services, and strategies to meet the
specific needs of the local market.
- More Cultural Sensitivity: Local employees are often better equipped to navigate cultural differences,
build relationships with local stakeholders, and communicate effectively within the local context.
- Higher Cost Savings: Local employees may require lower compensation packages, relocation expenses,
and expatriate benefits, leading to overall cost efficiencies for the company.
- More Local Talent Development: By investing in local talent development, the company can build a
strong pipeline of future leaders with in-depth knowledge of the local market.
- More Local Acceptance and Trust: Local employees are often perceived as more committed to the
company's success and more invested in the well-being of the local operations.
- Better Government Relations: Local managers may have better connections and insights into local
regulations, compliance requirements, and business practices, which can facilitate smoother operations and
regulatory compliance.

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- Easier Adaptation to Local Conditions: Local managers can make informed decisions based on their
knowledge of the local environment, enabling the company to stay agile and responsive to local challenges
and opportunities.

2.2.2 Some limitations of the polycentric approach

- Limited Global Integration: Each foreign subsidiary operates autonomously, which can lead to silos,
duplication of efforts, and inconsistencies in policies and practices across different locations.
- Communication Challenges: Differences in language, culture, and time zones can complicate
communication channels and coordination efforts, leading to misunderstandings, delays, and inefficiencies
in information sharing.
- Limited Career Mobility for Expatriates: With host country nationals occupying key positions in foreign
subsidiaries, expatriates may find it challenging to advance their careers or gain diverse international
experience within the organization.
- Limited Transfer of Best Practices: Each location may develop its own processes and practices, which can
hinder cross-fertilization of ideas, innovation, and learning across the organization.
- Lack of Standardization: This can lead to inconsistencies in performance management, talent
development, compensation structures, and employee benefits, which may impact organizational efficiency
and employee satisfaction.
- Risk of Local Bias: This can limit the diversity of thought, creativity, and innovation within the
organization, potentially hindering its competitiveness in the global marketplace.

2.3 The Geocentric Approach

- A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of
nationality.
- This policy has implications for companies pursuing a global standardization strategy or transnational
strategy
2.3.1 The reasons for Geocentric Approach
- Global Talent Utilization: This allows organizations to access a diverse pool of skills, knowledge, and
perspectives to drive innovation and competitiveness.
- Better Global Integration: By standardizing HR practice, this approach can lead to improved
coordination, communication, and collaboration among international teams.
- Better Cross-Cultural Understanding: The geocentric approach can lead to greater diversity of thought,
creativity, and problem-solving capabilities within the organization.
- Global Leadership Development: This approach can enhance leadership effectiveness, decision-making,
and strategic alignment across the organization.
- Enhanced Employee Engagement: By valuing talent based on merit rather than nationality, the geocentric
approach can promote a sense of fairness, equality, and inclusivity among employees. This can lead to
higher levels of employee engagement, satisfaction, and retention.
2.3.2. Some limitations of the Geocentric approach

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- Complexity and Cost: Implementing a geocentric approach can be complex and costly, requiring
significant resources to standardize HR practices, provide global mobility opportunities, and develop global
leadership capabilities.
- Resistance to Change: Employees and managers accustomed to local autonomy and decision-making may
resist the shift towards a geocentric approach, leading to resistance, conflicts, and cultural barriers within
the organization.
- Cultural Barriers: Cultural misunderstandings and conflicts may arise, impacting productivity and
morale.
- Legal and Regulatory Compliance: Adhering to local labor laws, regulations, and compliance
requirements in multiple countries can be complex and challenging in a geocentric approach.

Types of Staffing Policies Summary

Staffing Strategic Advantages Disadvantages
Approach Appropriateness
Ethnocentric International - Overcomes lack of qualified - Produces resentment in host
managers in host nation country
- Unifies culture - Can lead to cultural myopia
- Helps transfer core
competencies
Polycentric Localization - Alleviates cultural myopia - Limits career mobility
- Inexpensive to implement - Isolates headquarters from
foreign subsidiaries
Geocentric Global - Uses human resources - National immigration
standardization efficiently policies may limit
and transnational - Helps build strong culture implementation
and informal management - Expensive
networks

2.2. Expatriate managers

- Expatriates are citizens of one country who are working in another country.
- Inpatriates are employees of a multinational company who is from a foreign country, but is transferred
from a foreign subsidiary to the corporation's headquarters
2.2.1. Expatriate failure
- Expatriate failure represents a failure of the firm’s selection policies to identify individuals who will not
be successful abroad.
- Thirty to fifty percent of American expats, who get paid an average of $250,000 a year, are ineffective in
doing their jobs.
2.2.2 Consequences of Expatriate failure
- An early return from a posting abroad and high turnover rates. About twice as many overseas managers
quit their jobs as domestic managers.

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- The parent company can lose as much as three times the expatriate's annual salary in their home country
plus the cost of moving them. (the costs of each failure run between $40,000 and $1 million)

2.2.3 Reasons for expatriate failure

For U.S. multinationals:
- Inability of spouse to adjust.
- Manager’s inability to adjust.
- Other family problems.
- Manager’s personal or emotional maturity.
- Inability to cope with larger overseas responsibilities.
For European multinationals:
- The inability of the manager’s spouse to adjust to a new environment
For Japanese multinationals:
- Inability to cope with larger overseas responsibilities.
- Difficulties with new environment.
- Personal or emotional problems.
- Lack of technical competence.
- Inability of spouse to adjust.

3. TRAINING AND MANAGEMENT DEVELOPMENT

- Training program might be used to give expatriate managers the skills required for success in a foreign
posting.
- Management development is intended to develop the manager’s skills over his or her career with the
firm.
- As part of a management development program, a manager might be sent on several foreign postings over
a number of years to build his or her cross-cultural sensitivity & experience.

3.1 Training for expatriate managers

Cultural Training:
- Expatriates should receive training in the host country’s culture, history, politics, economy, religion, and
social and business practices.
- Understanding a host country’s culture will help the manager empathize with the culture, which will
enhance his or her effectiveness in dealing with host-country nationals.
Language Training
- A willingness to communicate in the language of the host country, even if the expatriate is far from fluent,
can help build rapport with local employees and improve the manager’s effectiveness.
Practical Training
- Practical training is aimed at helping the expatriate manager and family ease themselves into day-to-day
life in the host country.
- Where an expatriate community exists, firms often devote considerable effort to ensuring the new
expatriate family is quickly integrated into that group.

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3.2 Management development and strategy
- Management development programs are designed to increase the overall skill levels of managers
through a mix of ongoing management education and rotations of managers through a number of jobs
within the firm to give them varied experiences.
- The management development is crucial in firms pursuing a transnational strategy. Because these firms
need a strong unifying corporate culture and informal management networks to assist in coordination and
control.
- Transnational firm managers need to be able to detect pressures for local responsiveness—and that
requires them to understand the culture of a host country.

4. PERFORMANCE APPRAISAL
- Performance appraisal systems are used to evaluate the performance of managers against some criteria
that the firm judges to be important for the implementation of strategy and the attainment of competitive
advantage globally.
- A firm’s performance appraisal systems are an important element of its control systems which are a
central component of organizational architecture.
4.1 Performance appraisal problems
- Home-country managers’ appraisals may be biased by distance and by their own lack of experience
working abroad.
=> This could be one reason many expatriates believe a foreign posting does not benefit their careers.
4.2 Guidelines for performance appraisal
- First, an appraisal from a manager who works on-site should be more important than an appraisal from a
manager who works off-site.
- Second, to help get rid of bias, the evaluation should include a former expatriate who worked in the same
place.
- Finally, managers of home offices should be informed before a manager on-site does a written review of a
firing. This gives the boss of the home office a chance to calm down what could be a very negative review
based on a misunderstanding of culture.

5. COMPENSATION
- Two issues of compensation in international business:
+ how compensation should be adjusted to suit different national economic circumstances and
compensation practices
+ how expatriate managers should be paid.
5.1 National difference in compensation
- There are substantial differences in executive compensation across countries.
- Firms have to decide whether to pay executives in different countries according to the prevailing
standards in each country, or equalize pay on a global basis.
=> This is an especially challenging issue in firms with geocentric staffing policies. Many firms have
recently moved toward a compensation structure that is based on global standards.

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5.2 Expatriate Pay
- Most firms use the balance sheet approach to pay. This equalizes purchasing power across countries so
employees have the same living standard in their foreign posting as at home.
- An expatriate’s compensation package is made up of:
+ base salary
+ a foreign service premium
+ various allowances
+ tax differentials
+ benefits
- The balance sheet: income taxes, housing expenses, expenditures for goods and services (food, clothing,
entertainment, etc.), and reserves (savings, pension contributions, etc.)
5.2.1. 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.
- Base salary can be paid either in the home currency or in the local currency.
5.2.2. Foreign Service Premium
- A foreign service premium is extra pay the expatriate receives for working outside his or her country of
origin.
- It is generally offered as an incentive to accept foreign assignments.
5.2.3. Allowances
Types of allowance:
- hardship allowances
- housing allowances
- cost-of-living allowances
- education allowances
5.2.4. Taxation
The expatriate may have to pay income tax to both the home country and the host-country governments if
the host country does not have a reciprocal tax treaty with the expatriate’s home country.
5.2.5. Benefits
Many firms provide the same level of medical and pension benefits abroad that they received at home