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BBK3363 | International Business Environment

by Dr Khairul Anuar

L4: Global Human Resource Management

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Case: Molex

• World’s second largest manufacturer of electronic components• 50 manufacturing plants, 21 countries

• HRM viewed as most localized of all the functions

• Hires experienced, educated foreign nationals in the US for foreign postings

• Moves people around the world

• In house management development programs

Ch 13

Human Resource Management

It refers to the activities an organization carries out to use its human resources effectively.

These activities include:i.Determine firm’s HR strategyii.Staffingiii.Performance Evaluationiv.Management Developmentv.Compensationvi.Labour relations

Ch 14

Importance of HRM

i. Related to the strategy of the firm.

ii. Influence on the character, development, quality and productivity of firm’s HR

iii. Helps firms to achieve strategic goal of reducing cost of value creation

iv. Helps firms add value by serving customer needs better.

Ch 15

How different is Global HRM?

Several key factors make Global HRM different from domestic management:

i.Different labour markets

ii.Mobility problems: legal, economic, cultural barriers

iii.Different management styles

iv.Varied compensation practices

v.Labour laws.

Ch 16

Key Issues

i. How to staff key management posts in the Co.?

ii. How to develop managers, who can do business in different countries?

iii. How to compensate people in different nations?

iv. How to evaluate the performance of managers in different countries?

v. Expatriate managers

Ch 17

Strategic Role of Global HRM

• Strategy is implemented through organizational architecture.

• Right people at right postings.

• Effective training to acquire right skill set to help perform jobs effectively.

• Behaviour, congruent with the desired organizational culture.

• Compensation must create incentives for actions inline with the strategy.

• Performance appraisal to measure the behaviour, firm wants to encourage.

Ch 18

Key Issues

i. Staffing Policyii. Training and Management Developmentiii. Performance Appraisaliv. Compensation

Ch 19

I. Staffing Policy

Staffing policy is concerned with the selection of employees for particular jobs.

i.Selecting individuals who have the skill to do a particular job.

ii.Tool for developing and promoting the desired corporate culture (norms & value system) of the firm.

Ch 110

Types of staffing policies

There are three types of staffing policies in IB:

i. Ethnocentric approach

ii. Polycentric approach

iii. Geocentric approach

Ch 111

i. Ethnocentric approach

All key management positions are filled by parent – country nationals.

One’s own culture is superior Overlooks important cultural factors Host country lacks qualified professionals Maintain a unified corporate culture Create value by transferring core competencies Limits advancement opportunities for host country nationals Leads to resentment, lower productivity, and high turnover in

employees. E.g.: Procter & Gamble, Toyota and Matushita

Ch 112

i. Ethnocentric approach

• Advantages:• Overcomes lack of qualified managers in host

nation• Unified culture• Helps transfer core competencies (and skills

back)• Disadvantages:

• Produces resentment in host country• Can lead to cultural myopia

Ch 113

i. Polycentric approach Decentralized control Business Units in different countries have autonomy from home

office, like a local Co. No standard forms or procedures Recruits host country nationals to manage subsidiaries, while

parent country nationals occupy key positions at corporate HQ. Firm is less likely to suffer from cultural myopia. Less expensive to implement Host country nationals have limited opportunities to gain

experience outside their own countries Gap due to language barriers, cultural differences may isolate

corporate HQ from foreign subsidieries.

Ch 114

i. Polycentric approach

• Advantages:• Alleviates cultural myopia.• Inexpensive to implement• Helps transfer core competencies

• Disadvantages:• Limits opportunity to gain experience of host-

country nationals outside their own country.• Can create gap between home-and host-country

operations

Ch 115

i. Geocentric approach

It seeks the best people for key jobs, throughout the organization, regardless of nationality.

Hybrid of Ethno and Poly Based on informed knowledge of home and host countries. Enables firms to make best use of its HR Helps the firm to build a cadre of international executives,

who feel at home working in No. of countries. Helps building a strong unifying corporate culture and

informal management network. Reduces cultural myopia Enhance local responsiveness

Ch 116

i. Geocentric approach

• Advantages:• Enables the firm to make best use of its human

resources• Equips executives to work in a number of cultures• Helps build strong unifying culture and informal

management network

• Disadvantages:• National immigration policies may limit implementation• Expensive to implement due to training and relocation• Compensation structure can be a problem.

Ch 117

II. Training and Management Development

After selection, the next step is training the manager to do the specific job.

Management development plan (MDP) is a broader concept, it is intended to develop a manager’s skills over her career in the firm, e.g., sending managers on various foreign postings over years to build her cross cultural sensitivity and experience.

To enhance management and leadership skills of executives.

MDP have a strategic purpose, and helps reinforce desired culture of the firm by creating an informal network.

Ch 118

Types of training

i. Cultural training – understanding the culture of host country, enhance effectiveness, familiarization trip before formal transfer.

ii. Language training – manager’s ability to interact, help build rapport and improve manager’s effectiveness.

iii. Practical training – adjust to day to day life in host country, establish a routine, successful adaptation, support network of friends

Ch 119

III. Performance Appraisal

These are the systems used to evaluate the performance of managers against some criteria, that the firm judges to be important for the implementation of strategy and attainment of competitive advantage.

Important elements of control system.

2 groups evaluate the performance of Expatriates, - Host country managers and home country managers.

Biasness by cultural frame of reference and expectations Unfair evaluation

Due to proximity, onsite manager should evaluate soft variables of expatriate’s performance.

Consultation of home country manager to balance out.

Ch 120

IV. Compensation

National differences in compensation

Payments according to global standards or country specific standards.

Issues in compensation practices:i. How compensation should be adjusted to reflect

national differences in economic circumstances and practices?

ii. How should the expatriate managers be paid?

Ch 121

Expatriate Managers

• Expatriates are citizens of one country, who are working in another country.

• Inpatriates is a subset of expatriates who are citizens of a foreign country, working in the home country of their multinational employer. (e.g., citizen of India, who moves to U.S to work for Microsoft)

Ch 122

Expatriate selectionFour dimensions that predict success in a foreign posting:

• Self orientation – self esteem, self confidence, mental well being, adapt their interest in food, sports, music and hobbies.

• Others orientation – ability to interact with host country’s nationals, relationship development and willingness to communicate by learning local language.

• Perceptual ability – to understand the particular behaviour of people in host countries, empathise.

• Cultural toughness – relationship between country of assignment and how well an expatriate adjusts

Ch 123

Acc. To “Balance Sheet Approach”, it equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting, as the enjoyed at home.

It also provides financial incentives to offset qualitative differences between assignment locations.

Expatriate Pay

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Reasons for expatriate failure

• US multinationals• Inability of spouse to adjust

• Manager’s inability to adjust

• Other family problems• Manager’s personal or

emotional immaturity• Inability to cope with larger

overseas responsibilities

• European multinationals Inability of spouse to adjust

• Japanese Firms• Inability to cope with larger

overseas responsibilities• Difficulties with the new

environment• Personal or emotional

problems• Lack of technical

competence• Inability of spouse to adjust.

Ch 125

Expatriate Pay - Balance Sheet Approach

Ch 126

Components of a typical compensation package

i. Base Salary – in same range as base salary for similar position in home country.

ii. Foreign Services Premium – extra pay to work outside country of origin. Offered as inducements to accept foreign postings. Compensates for living in an unfamiliar country.

iii. Allowances – a) Hardship allowance – difficult location, where basic amenities like

health care schools, etc are deficient.b) Housing allowance – to afford same quality of housingc) Cost of living allowance – maintain std. of livingd) Education Allowance – expatriate’s children receive same std. of

education as in home countryiv. Taxationv. Benefits – Medical, pension, etc.