• Chapter 7

• Global Human Resource

Management
 Introduction
• Human resource management (HRM) refers to the
activities an organization carries out to utilize its human
resources effectively

These activities include:

• determining the firm's human resource strategy
• staffing
• performance evaluation
• management development
• compensation
• labor relations
 Introduction
• HRM can help the firm reduce the costs of value creation
and add value by better serving customer needs
• HRM is more complex in an international business
because of differences between countries in labor
markets, culture, legal systems, economic systems, and so
on
• HRM must also determine when to use expatriate
managers (citizens of one country working abroad), who
should be sent on foreign assignments, how they should
be compensated, how they should be trained, and how
they should be reoriented when they return home
 The Strategic Role Of International HRM

• Firms need to ensure there is a fit between

their human resources practices and strategy
• In order to carry out a strategy effectively,
employees need the right training, an
appropriate compensation package, and a
good performance appraisal system
 The Strategic Role Of International HRM
Figure 18.1: The Role of Human Resources in Shaping
Organizational Architecture
 Staffing Policy
• A firm’s staffing policy is concerned with the
selection of employees who have the skills
required to perform a particular job
• A staffing policy can be a tool for developing
an promoting the firm’s corporate culture (the
organization’s norms and value system)
• A strong corporate culture can help the firm
implement its strategy
 Types Of Staffing Policy
There are three main approaches to staffing
policy within international businesses:
1. the ethnocentric approach
2. the polycentric approach
3. the geocentric approach
 Classroom Performance System
The three types of staffing approaches for
international firms include all of the following
except

a) Transnational
b) Ethnocentric
c) Geocentric
d) Polycentric
 Types Of Staffing Policy
1. The ethnocentric approach to staffing policy fills key
management positions with parent-country nationals
• It makes sense for firms with an international strategy

Firms that pursue an ethnocentric policy believe that:

• there is a lack of qualified individuals in the host country
to fill senior management positions
• it is the best way to maintain a unified corporate culture
• value can be created by transferring core competencies
to a foreign operation via parent country nationals
 Types Of Staffing Policy
The ethnocentric staffing policy is no longer
popular with most firms because:
• it limits advancement opportunities for host
country nationals
• it can lead to "cultural myopia"
 Types Of Staffing Policy
2. The polycentric staffing policy recruits host country
nationals to manage subsidiaries in their own country,
and parent country nationals for positions at
headquarters
• It makes sense for firms pursuing a localization strategy

The polycentric approach:

• can minimize cultural myopia
• may be less expensive to implement than an
ethnocentric policy
 Types Of Staffing Policy
There are two disadvantages to the polycentric
approach:
• host country nationals have limited
opportunities to gain experience outside their
own country and thus cannot progress beyond
senior positions in their own subsidiaries.
• a gap can form between host country
managers and parent country managers
 Types Of Staffing Policy
3. The geocentric staffing policy seeks the best
people, regardless of nationality for key jobs
• This approach is consistent with building a
strong unifying culture and informal
management network
• It makes sense for firms pursuing either a
global or transnational strategy
• Immigration policies of national governments
may limit the ability of a firm to pursue this
policy
 Types Of Staffing Policy
The geocentric approach:
• enables the firm to make the best use of its
human resources
• builds a cadre of international executives who
feel at home working in a number of different
cultures
• can be limited by immigration laws
• is costly to implement
 Types Of Staffing Policy
Table 18.1: Comparison of Staffing Approaches
 Classroom Performance System
Firms using _______ fill all key management
positions with parent-country nationals.

a) An ethnocentric staffing policy

b) A geocentric staffing policy
c) A polycentric staffing policy
d) A transcentric staffing policy
 Classroom Performance System
When a firm wants to pursue a transnational
strategy, a _________ approach to staffing
makes sense.

a) Ethnocentric
b) Geocentric
c) Polycentric
d) Transcentric
 Expatriate Managers
• Expatriate failure is the premature return of
an expatriate manager to his or her home
country
• Between 16 and 40 percent of all American
expatriates in developed countries fail to
complete their assignments, and almost 70
percent of Americans assigned to developing
countries return home early
• Each expatriate failure can cost between
$250,000 and $1 million
 Expatriate Managers
Table 18.2: Expatriate Failure Rates
 Expatriate Managers
Research shows the main reasons for expatriate
failure for U.S. multinationals are:
• the inability of an expatriate's spouse to adapt.
• the inability of the employee to adjust
• the manager’s inability to adjust
• other family-related reasons
• the manager’s personal or emotional maturity
• the manager’s inability to cope with larger
overseas responsibilities
 Expatriate Managers
For European firms, only one reason was found to
consistently explain expatriate failure:
• the inability of the manager’s spouse to adjust to a new
environment.

For Japanese firms, the reasons for failure are:

• the inability to cope with larger overseas responsibility
• difficulties with the new environment
• personal or emotional problems
• a lack of technical competence
• the inability of spouse to adjust
 Classroom Performance System
The most common reason for expatriate failure
is

a) The manager’s inability to adjust

b) The manager’s emotional or personal
maturity
c) The inability of the spouse to adjust
d) The manager’s lack of technical competence
 Expatriate Managers
• Firms can reduce expatriate failure through improved selection
procedures

Four dimensions that predict expatriate success are:

1. self-orientation - the expatriate's self-esteem, self-confidence, and
mental well-being
2. others-orientation - the ability to interact effectively with host-
country nationals
3. perceptual ability - the ability to understand why people of other
countries behave the way they do
4. cultural toughness – the ability to adjust to the posting
 Classroom Performance System
Which of the following does not help predict
success in a foreign positing?

a) Others-orientation
b) Cultural toughness
c) Perceptual ability
d) Technical expertise
 The Global Mindset
• A global mindset may be the fundamental
attribute of a global manager
• A global mindset is often acquired early in life
from a family that is bicultural, lives in foreign
countries, or learns foreign languages as a
regular part of family life
 Training And Management Development

• Training focuses upon preparing the manager

for a specific job
• Management development is concerned with
developing the skills of the manager over his
or her career with the firm
• Historically, most firms focus more on training
than on management development
 Training For Expatriate Managers
• 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), and practical training (helps the
expatriate manager and her family ease themselves into day-
to-day life in the host country) have all help reduce
expatriate failure
• Yet, according to one study only about 30 percent of
managers sent on one- to five-year expatriate assignments
received training before their departure
 Repatriation Of Expatriates
• Preparing and developing expatriate managers
for reentry into their home country
organization is an important part of training
and development
• HRM needs to develop good programs for re-
integrating expatriates back into work life
within their home country organization once
their foreign assignment is over, and for
utilizing the knowledge they acquired while
abroad
 Management Development And Strategy

Management development programs increase the overall skill

levels of managers by:
• ongoing management education
• rotations of managers through jobs within the firm to give
them varied experiences

• 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
 Performance Appraisal
• Performance appraisal systems are part of the
firm’s control system
• Evaluating expatriates can be especially
complex
 Performance Appraisal Problems
• Typically, both host nation managers and
home office managers evaluate the
performance of expatriate managers
• Both types of managers are subject to
unintentional bias
• Home country managers tend to rely on hard
data when evaluating expatriates, while host
country managers can be biased towards their
own frame of reference
 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
• when foreign on-site mangers write performance
evaluations, home office managers should be consulted
before an on-site manager completes a formal termination
evaluation
 Compensation
Firms face two key issues on compensation:
1. how to adjust compensation to reflect
differences in economic circumstances and
compensation practices
2. how to pay expatriate managers
 National Differences In
Compensation
• There are substantial differences in executive compensation
across countries
• In the U.S., a top HR executive made an average of $525,923 in
the 2005-2006 period, compared to $237,697 in Japan, and
just $158,146 in Taiwan
• 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
• The 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
 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:

1. base salary
2. a foreign service premium
3. various allowances
4. tax differentials
5. benefits
 Expatriate Pay
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 wither in the home currency or in the
local currency

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
 Expatriate Pay
3. Allowances
Expatriate compensation package often include :
• hardship allowances
• housing allowances
• cost-of-living allowances
• education allowances
 Expatriate Pay
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. Benefits
• Many firms provide the same level of medical and pension
benefits abroad that they received at home
 International Labor Relations
• The key issue in international labor relations is
the degree to which organized labor 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 labor unions
• HRM needs to foster harmony and minimize
conflict between the firm and organized labor
 The Concerns Of Organized Labor
• The bargaining power of unions comes from their ability to threaten
to disrupt production by striking or protesting

However, organized labor is concerned that:

• multinationals can counter union bargaining power by threatening
to move production to another country
• multinationals will farm out only low-skilled jobs to foreign plants
making it easier to switch production locations
• multinationals will import employment practices and contractual
agreements from their home countries and reduce the influence of
unions
 The Strategy Of Organized Labor
Organized labor has responded to the increased
bargaining power of multinational corporations by:
• trying to set-up their own international organizations
• lobbying for national legislation to restrict
multinationals
• trying to achieve regulations of multinationals through
international organization such as the United Nations

• However, these efforts have had only limited success

 Approaches To Labor Relations
• In the past, labor relations have usually been
decentralized to individual subsidiaries
• Today, many firms are centralizing labor
relations in order to enhance the bargaining
power of the multinational vis-à-vis organized
labor
• Many firms are recognizing that the way in
which work is organized within a plant can be
a major source of competitive advantage
 Classroom Performance System
Which of the following is not a response by labor to the
increased bargaining power of multinationals?

a) Establishing global unions

b) Setting-up their own international organizations
c) Lobbying for national legislation to restrict
multinationals
d) Trying to achieve regulations of multinationals through
international organization such as the United Nations