International
Human Resource Management
GT20003 – International Business Semester 2, 2022-2023
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©GT20003 - teaching material derived from textbook/readings assigned
Human Resource Management
➢ 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
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International Human Resource Management
➢ Effective HRM strategy can help the firm reduce the costs of value creation and add value by better serving customer needs
➢ Managing human resource activities for international operations is more complex
▪ differences between countries
▪ (labor markets, culture, legal systems, economic systems, etc.)
▪ organizational challenges
▪ (e.g. complex training and development challenges)
▪ strategic contingencies
▪ (e.g. finding the optimal mix of employees)
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Functions of HRM
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Staffing
Training
Performance Appraisal
Compensation
Functions of Human Resource Management
➢ The nature of International HRM deals with
▪ Recruiting and Selecting non-managers and managers
▪ Determining the firm’s Staffing policy
▪ Providing Training and Development
▪ Appraising Performance
▪ Providing Compensation and Benefits
Culture plays a central role in managing human resource
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International Human Resource Management
It is important to get the right person in the right job,
in the right place, at the right time, for the right compensation.
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IHRM Function: Staffing
➢ A firm’s staffing policy is concerned with the selection and
recruitment of employees who have the skills required to perform a particular job
▪ It can be a tool for developing and promoting the firm’s corporate culture
▪ Organizational/corporate culture refers to the norms and value system that employees are encouraged to follow.
➢ Firms with multi-country operations must also determine when to use local (host-country) managers or expatriate managers (i.e.
citizens of one country working in another country)
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IHRM Perspectives
How do firms source and recruit employees for foreign operations?
➢ There are 3 types of managers/executives in IB:
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International HRM
Parent-country nationals
(PCNs)
Host-country nationals
(HCNs) Third-country
nationals (TCNs)
Citizens of the country where the MNC is headquartered
Citizens of the country other than
the host- or home-country Citizens of the country where the
MNC’s subsidiary is located
Staffing Issues in IHRM
➢ What is the ideal mix of employees to have in a firm’s foreign subsidiary?
▪ The ideal mix varies by
▪ Location
▪ Industry
▪ Stages in the value chain
▪ Availability of qualified workers
➢ Recruitment – is searching for and finding potential job candidates to fill the firm’s needs
➢ Selection – is gathering information to evaluate and decide who should be employed in a particular job
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IHRM Staffing Approaches
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➢ There are three main approaches to staffing policy within international businesses:
1)
The ethnocentric approach
▪ fill key management positions with parent-country nationals
2)
The polycentric approach
▪ use host-country nationals to manage local subsidiaries 3)
The geocentric approach
▪ firms seek the best people for key jobs throughout the organization, regardless of nationality
Staffing Approach: Ethnocentric
➢ The ethnocentric approach puts emphasis on the norms and practices of the parent company
▪ Fills key management positions with parent-country nationals [PCN]
▪ makes sense for firms pursuing an international strategy
➢ Why PCNs? 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 strong control & a unified corporate culture
▪ value can be created through knowledge sharing & by transferring core competencies to a foreign operation via parent country nationals
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Staffing Approach: Ethnocentric
➢ Disadvantages of this approach include:
▪ lack the ability to adapt or learn new methods
▪ creating a “mini-me” in a foreign locale may not be ideal
▪ it limits advancement opportunities for host country nationals
▪ it can lead to "cultural myopia“ - adaptation may take a long time
▪ may be impractical due to host government regulations
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Staffing Approach: Polycentric
➢ The polycentric approach - focuses on the norms and practices of the host country
▪ recruits host-country nationals to manage subsidiaries [HCN]
▪ makes sense for firms pursuing a localization strategy
➢ Why HCNs? Firms believe that this approach…
▪ can minimize misunderstandings due to cultural differences
▪ More suitable for countries that are distant in terms of culture / language between host-country and home-country
▪ HCNs usually understand the local business environment best
▪ may be less expensive to implement than an ethnocentric policy
▪ may be necessary to meet local government requirements
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Staffing Approach: Polycentric
➢ Limitations of the polycentric approach:
▪ Requires the MNC to decentralize authority to HCNs to run operations, which can affect allegiance and accountability
▪ a gap can form between host country managers and parent country managers
▪ HCNs may have limited opportunities to gain experience outside their own country and so cannot progress beyond senior positions in their own subsidiaries
▪ May lead to lost talent
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Staffing Approach: Geocentric
➢ The geocentric approach seeks the best people, regardless of nationality for key jobs
▪ Managers can be made up of third-country nationals [TCN] – i.e. not necessarily from home- or host-country
▪ Consistent with building a strong unifying culture and informal management network
▪ makes sense for firms pursuing a global culture or transnational strategy
➢ In this approach, HRM’s task is to develop the best people for key jobs throughout the organization – regardless of their nationality
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Staffing Approach: Geocentric
➢ Advantages:
▪ enables the firm to make the best use of its human resources
▪ Create value from experience curve & multidirectional transfer of core competencies
▪ builds a team of international executives
▪ Greater ability to enter and work in different cultural environments
▪ Top managers with global experience can broaden a firm’s strategic perspective
▪
enhances ability to respond to changes in the market
➢ Limitations:
▪ Tough to develop and costly to maintain
▪ Implementation can be limited by immigration laws & costly
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International Executives
Parent-country nationals
(PCNs)
Host-country nationals
(HCNs)
Third-country nationals
(TCNs)
Staffing: Expatriate Managers
➢ Firms using an ethnocentric or geocentric staffing strategy will have expatriate managers
▪ Parent-country nationals [PCN] or Third-country nationals [TCN]
▪ Expatriate roles include:
▪ Strategist
▪ Daily manager
▪ Ambassador
▪ trainer
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Staffing Issues: Expatriate Failure
➢ Expatriate failure is the premature return of an expatriate manager to the home-country
▪ The cost of failure – for companies – is high
➢ Reasons for expatriate failure usually a combination of both work and family problems; examples include:
▪ Inability to cope with larger scope of responsibilities
▪ The manager’s inability to culturally adjust / adjust to local conditions
▪ Inability of the spouse/family to adjust in a foreign country
▪ Manager’s personal or emotional maturity
▪ Lack of technical competence
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Staffing Issues: Expatriate Selection
➢ Living & working in an unfamiliar setting/culture – many expatriates experience culture shock
▪ Culture shock – a psychological process, characterized by confusion, irritability and depression, when faced with unfamiliar cultural setting
➢ Improved selection procedures can reduce expatriate failure
➢ Important selection criteria may include:
▪ Technical competence & professional expertise
▪ Adaptiveness (ability to adapt) - personal resourcefulness and sensitivity to the host-country environment
▪ E.g. self-maintenance, empathy, tolerance, versatile
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IHRM Function: Training & Development
After selecting a manager for a position, training and development programs should be implemented.
➢ Training focuses upon preparing the manager for a specific job
▪ For expatriates – training can help the manager (& spouse) to cope with adapting to a foreign environment
➢ Management development is concerned with developing the skills of the manager over his or her career with the firm
▪ Ongoing management education meant to skills that supports the firm’s strategies
▪ can be a strategic tool to build a strong unifying culture and informal
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Training for Expatriate Managers
➢ Training can reduce expatriate failure
▪
But, in reality, many expatriates did not receive training before their departure / for the foreign assignment
➢ Types of training (Pre-departure)
▪ Cultural training –
should be designed to develop an understanding and appreciation for the host country's culture
▪ Language training –
to enhance the expatriate's ability to interact with host country nationals
▪ Practical training - helps the expatriate (and the family) ease
themselves into day-to-day life in the host country
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Training for Expatriate Managers
➢ The Repatriation process
▪ Returning expatriates can face challenges trying to reintegrate back in their home country
▪ E.g. work-related, social, and financial problems
▪ Training and development should include preparing and developing expatriate managers for re-entry into their home country
organization
▪ Programs for re-integrating expatriates back into work life within their home country organization; and
▪ Programs for utilizing the knowledge they acquired while abroad
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IHRM Function: Performance Appraisal
➢ Performance appraisal systems are used to evaluate the performance of managers based on criteria set by the firm
▪ Evaluating expatriates can be complex
▪ Who should conduct your appraisal? Your colleagues at the subsidiary or your boss back home?
▪ What should it be based on? The performance of the subsidiary or the firm as a whole?
➢ Typically, for expatriates, both host-country managers and home office managers evaluate the performance of expatriate managers
▪ But, both types of managers are subject to unintentional bias
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IHRM Function: Compensation & Benefits
➢ Major issues on compensation:
▪
How to adjust compensation to reflect differences in economic circumstances and compensation practices?
➢ Should pay be equalized across countries?
▪
Most firms still set pay according to the prevailing standards in each country
▪ there are still substantial differences in executive compensation across different countries
▪
But, many firms have recently moved toward a compensation structure that is based on global standards
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Expatriate Compensation Issues
A compensation package generally has five components
1) Base salary - normally in the same range as the base salary for a similar position in the home country
2) Foreign service premium - extra pay the expatriate receives for working outside his country of origin
3) Various allowances - hardship, housing, cost-of-living, education 4) Tax differentials - may have to pay income tax to both the home
country and the host-country governments 5) Benefits – e.g. medical benefits abroad
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In Summary…
➢ A global mindset may be the fundamental attribute of a global manager
➢ International experience tends to enhance
▪ Cross-cultural awareness & sensitivity
▪ Confidence, initiative, & independence
▪ Analytical thinking and crisis management skills
▪ Oral & written communication skills
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