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Global Human Resource Management

Agenda

1. Opening case2. HRM and its relevance3. Tasks

A.Staffing policyB. Training and developmentC. Performance appraisalD.Compensation

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1. XCO China

• XCO China is a JV between XCO (a US electronics enterprisewith sales of $ 2 billion) and Shanghai Electronic Corporation.

• John Ross – the general manager of the JV - just received a phonecall from his boss Phil Smith: “Why is the JV’s return on investment so low 4 years after your appointment”? Your goal is20%!!” Before his appointment, Ross was really successfull in XCO, including extended postings in Mexico and Hungary….

• The JV was a mess: inefficient operations, low product quality, lax inventory controls, obsolete machineries. Too many personswere employed: the JV was seen as an employment program!

XCO China

• Ross asked corporate HR for 2 specialists from US to work with the Chinese workforce. 1 wanted to get back after 3 months. The other stayed for 1 year, but didn’t interact muchwith the local Chinese employees.

• So, Ross tried to send 4 of his best Chinese employees to the US along with a translator for a 2-month program on the latesttechniques. Productivity went up and after 3 years the JV turneda profit.

• Nevertheless competitions is getting harder…

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2. Human Resource Management (HRM)

• HRM refers to the activities an organization carries out to use its human resources effectively

• Four major tasks of HRMA. Staffing policyB. Management training and developmentC. Performance appraisal D. Compensation policy

• In international business the tasks are complicated by- profound differences between countries in labor markets,

culture, legal, and economic systems- the existence of expatriate managers (e.g. John Ross)

The relevance of HRM

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3. Task A: staffing policy

• Staffing policy- Selecting individuals with requisite skills to do a particular

job- Tool for developing and promoting the desired corporate

culture (as GE does!)

• Types of Staffing Policy- A1. Ethnocentric- A2. Polycentric- A3. Geocentric

A1. Ethnocentric Policy

• Advantages- To overcome the possible

lack of qualified managers in the host nations

- Unified culture (the reason why P&G adopts it)

- To allow the transfer core competencies (they are often tacit)

• Disadvantages- Resentment in host country

nationals (lower productivity and increased turnover)

- Possible cultural myopia(a failure to understand cultural differences)

Key management positions filled by parent-country nationals

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A1. Ethnocentric Policy

• E.g.: Mitsubisji Motors was adopting an ethnocentric approach: Japanese managerswere running the US plants.

• The company was sued by the Federal Equal Employment OpportunityCommission for tolerating extensive and systematic sexual harassment in a plantin Illinois. Managers denied the charges…

A2. Polycentric Policy

• Advantages- To alleviate cultural

myopia- Less expensive

• Disadvantages- It limits the opportunities to

gain experience of host country nationals outside their own country (and limits their careers)

- It can create a gap between home and host country operations

Host-country nationals manage subsidiaries, while parent company nationals hold key headquarter positions

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A.3 Geocentric Policy

• Advantages:- It enables the firm to make the

best use of its human resources- It equips executives to work in a

number of cultures feeling home

- It helps in building a strong unifying culture and an informal management network

• Disadvantages:- National immigration

policies may limit its implementation

- It is expensive to implement due to training and relocation costs

- Compensation structure can be a problem

Staff the best people, regardless of nationality

Staffing policy –Strategy consistency

Global standardization Transnational

International Localization

ETHNO

GEO

POLY

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The Expatriate Problem

• The ethnocentric and the geocentric staffing policies rely on the use of “expatriates”, that are citizens of one country working in another country

• The expatriate failure is the premature return of the expatriate manager to his/her home country

• Cost of failure is high: estimate = 3 times the expatriate’s annual salary plus the cost of relocation

Expatriate Failure Rate

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Reasons for Expatriate Failure

1. Inability of spouse to adjust2. Manager’s inability to adjust3. Other family problems4. Manager’s personal or

emotional immaturity5. Inability to cope with larger

overseas responsibilities

1. Inability to cope with larger overseas responsibilities

2. Difficulties with the new environment

3. Personal or emotional problems

4. Lack of technical competence5. Inability of spouse to adjust

Expatriate Selection

• An executive’s domestic performance does not (necessarily) equate to his/her overseas performance potential!

• Expatriate failure rates can be reduced by improving selection procedures:

- Family issues- Cultural issues

• However, only the 10% of the Fortune 500 consider these issues!

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Four Attributes that Predict Success

• Self-Orientation: possessing high self-esteem, self-confidence and mental well-being

• Others-Orientation: ability to develop relationships and communicate

• Perceptual Ability: ability to understand why people of other countries behave the way they do (being nonjudgmental and flexible)

• Cultural Toughness: relationship between country of assignment and the expatriate’s adjustment to it (India, Southeast Asia and Middle East are much tougher… reduced healthcare and housing standards, inhospitable climate, lack of Western entertainment, language difficulties)

Expatriates at Shell

• It employs more than 85.000 persons, 5.000 of which are expatriates. International mobility is recognized to be essential for success

• According to a survey, the main issues affecting the willingness to accept an international assignment are:

- Separation from children - Harm done to a spouse’s career and employment- Failure to recognize and involve a spouse in the

relocation decision- Failure to provide adequate information and

assistance regarding relocation- Health issues

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Expatriates at Shell

• Shell built elementary schools for employees

• As for secondary school education, it provides grants and supplements

• It developed a spouse employment center to help spouses with career. It refunds up to 4,400 USD for training and education

• It sets up “the outpost”, a global information and advice network that recommends schools, medical facilities, provide housing advices etc..

3. Task B. Training and Development

• TRAINING: building skills for a particular foreign posting

- Cultural training: to foster an appreciation of the host country’s culture

- Language training: to improve expatriate’s effectiveness, to relate more easily to foreign culture, and foster a better firm image

- Practical training: to ease into day-to-day life of the host country

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Training and Development

• DEVELOPMENT: broader concept involving developing manager’s skills over his/her career with the firm

- Several foreign postings over a number of years- Attending management education programs at

regular intervals• Used as a strategic tools to build a strong unifying

culture and informal management network (e.g. every year Ericsson transfers about 100 managers between headquarters and subsidiaries for 1 or 2 years)

Repatriation of Expatriates

• Repatriation should be seen as the final link in an integrated, circular process that selects, trains, sends, and brings home expatriate managers

• It could be problematic: - the organization doesn’t know what they have done,

how to use their knowledge or doesn’t care- they scrounge for job or occupy stand-by positions

• Thus, 15% of returning expatriates leave their firms within 1 year, while 40% leave them within 3 years!

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• It’s a global provider of agricultural products with revenues of about $12 billion and 20.000employees.

• It selects potential expatriates on the basis of cultural and family issue

• It runs cross-cultural training courses for them and their families

• Expatriates sign an agreement about how their assignment fit into the firm’s business objectives and about the job opportunities they will have once back home

• Once back, they have de-briefing sessions (with a facilitator) to showcase their experiences to peers, subordinates and superiors

Monsanto

• Headquarters may unfairly evaluate and under-appreciate expatriates:

- home country evaluators are biased by distance and lack of experience working abroad

- they evaluate on hard data (e.g. productivity, profitability) that are often out of expatriates’control

• If the evaluation is left to managers from the host nation, the process could be biased by their cultural frame of reference(e.g. a participative style is not appreciated in India where there is a social stratification)

3. Task C. Performance Appraisal

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Guidelines for Performance Appraisal

1. More weight should be given to on-site manager’sevaluation as they are able to recognize the “soft” variables (e.g. capability to work with local managers and to develop a cross-cultural awareness)

2. Better if (s)he has the same nationality of the expatriate3. Former expatriates who worked in same location should

assist the evaluation4. Home-office manager should be consulted before the

completion of formal evaluation by the on-site evaluator

3. Task D. Compensation

• Two issues1. How compensation should be adjusted to reflect national

differences in economic circumstances and compensation practices (Pay executives in different countries according to the standards in each country or equalize pay on a global basis?) – for a west multinational means to deal with the trade off between resentments and costs

2. Method of payment

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D1. Compensation around the world

D2. Expatriate Pay

• The “balance sheet approach” is usually adopted - It equalizes purchasing power across countries to

maintain the same living standard wherever the expatriate is sent

- It provides financial incentives to offset qualitative differences between assignment locations

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Components of Expatriate Pay

• Base Salary (Same range as a similar position in the home country)

• Foreign service premium (Extra pay for work outside country of origin)

• Allowances (Hardship, housing, cost-of-living, and education allowances)

• Taxation (Firm pays expatriate’s income tax in the host country)

• Benefits (Level of medical and pension benefits identical overseas)