Assignment 7

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International Human Resource Management

Learning Objectives (1 of 3)

Know the basic functions of human resource management.
Define international human resource management.
Understand how international human resource management differs from domestic human resource management.
Know the types of workers that multinational companies use.

Learning Objectives (2 of 3)

Explain how and when multinational companies decide to use expatriate managers.
Know the skills necessary for a successful expatriate assignment.
Understand how expatriate managers are compensated and evaluated.
Appreciate the issues regarding expatriate assignments for female managers.

Learning Objectives (3 of 3)

Know what companies can do to make the expatriate assignment easier for their female expatriates.
Understand the relationship between choice of a multinational strategy and international human resource management.

International Human Resource Management Defined (1 of 3)

Human Resource Management (HRM): deals with the overall relationship of the employee with the organization
Major goals of HRM are managing and developing human assets.

International Human Resource Management Defined (2 of 3)

Basic HRM functions are:
Recruitment: identification of qualified individuals for a vacant position
Selection: process of filling vacant positions in the organization
Training: providing opportunities to help the individual to perform
Performance Appraisal: assessing the individual’s performance

International Human Resource Management Defined (3 of 3)

Basic HRM functions are: (cont’d)
Compensation: providing the adequate reward package
Labor Relations: the relationship between the individual and the company

International Human
Resource Management and International Employees

When applied to the international setting, the HRM functions make up International Human Resource Management (IHRM).
In the international arena, the basic HRM activities take on an added complexity, for two reasons:
Employees of MNCs include a mixture of workers of different nationalities.
HR Managers must decide the necessary extent of adaptation to local business & national cultures.

Types of Employees in Multinational Organizations (1 of 4)

Expatriate: Employees who come from a country that is different from the one in which they are working
Home Country Nationals: Expatriate employees who come from the parent firm’s home country
Third Country Nationals: Expatriate workers who come from neither the host nor the home country.
Host Country Nationals: Local workers who come from the host country where the MNC unit is located.

Types of Employees in Multinational Organizations (2 of 4)

Inpatriate: Employees from foreign countries who work in the country where the parent company is located.
Flexpatriates: Employees who are sent on frequent but short-term international assignments.
International Cadre (Globals): Managers who specialize in international assignments.
Commuter Assignments Employees: Employees who live in one country, but spend part of the work week in another country.

Types of Employees in Multinational Organizations (3 of 4)

Recent research suggests the rise of the self-initiated expatriates.
Self-initiated expatriates: employees who independently decide to move to another country to work
They are professionals or managers who seek work in other countries and decide to stay there for an indefinite amount of time.
They provide many advantages.

Types of Employees in Multinational Organizations (4 of 4)

Advantages of self-initiated expatriates:
They are experts in the local culture.
They do not require the same expensive packages as regular expatriates.
Many of the emerging markets have severe shortages of qualified locals, so using self-initiated expatriates may provide the multinational with local experts at minimal costs.

Multinational Managers:
Expatriate or the Host Country
(1 of 2)

Deciding whether to use expatriate or local mangers depends mostly on a firm’s multinational strategy.
Transnational strategists see their managerial recruits as employable anywhere in the world.
Multidomestic strategists tend to favor local managers.
For a particular position, the firm should ask:
Given our strategy, what is our preference for this position (host, home, or third country national)?

Multinational Managers:
Expatriate or the Host Country
(2 of 2)

For expatriate managers (parent or third country):
Is there an available pool of managers with appropriate skills for the position?
Are they willing to take expatriate assignments?
Do any laws affect the assignment of expatriate managers?
For host country managers:
Do they have the expertise for the position?
Can we recruit them from outside our firm?

Exhibit 11.1:
Percent of Millenials Who Want to Work Outside of their Home Country

Is the Expatriate Worth It? (1 of 5)

IHRM decisions regarding use of expatriate managers must take into account the costs of such assignments.
The total compensation of expatriate managers is often 3-4 times higher than home-based salaries.
In addition to high costs of relocating expatriates, more multinationals are now concerned with expatriate safety worldwide.
Also, the failure rate of U.S. expatriates is higher than those from Europe and Japan.

Is the Expatriate Worth It? (2 of 5)

Reasons for U.S. expatriate failure:
Individual:
Personality of the manager
Lack of technical proficiency
No motivation for international assignment
Family:
Spouse or family members fail to adapt to local culture.
Spouse or family members do not want to be there.

Is the Expatriate Worth It? (3 of 5)

Reasons for U.S. expatriate failure (con’t.):
Cultural:
The Manager fails to adapt to local culture or environment.
The Manager fails to develop relationships with key people in the new country because of the complexity of cultivating networks with diverse people.

Is the Expatriate Worth It? (4 of 5)

Reasons for U.S. expatriate failure (con’t.):
Organizational:
Excess of difficult responsibilities in the assignment
Failure to provide cultural and other important pre-assignment training, like language and culture
Failure of company to pick the right person
Company’s failure to provide the level of technical support that domestic managers are used to
Failure of the company to consider gender equity

Is the Expatriate Worth It? (5 of 5)

Benefits of international assignments:
Help managers acquire skills necessary to develop successful strategies in a global context
Help the company coordinate and control operations that are dispersed geographically and culturally
Provide important strategic information.
Provide crucial information about local markets
Provide opportunities for management development
Provide important network knowledge

Selecting Expatriate Managers (1 of 4)

Selecting the wrong person for the job leads to failure.
Selecting the wrong person can be a major expense, costing more than $1 million per expatriate failure.
Improperly selected employees who cannot perform but who remain on assignment can be more damaging to the firm than those who leave prematurely.
Domestic performance does not predict expatriate performance. Selection criteria may differ.

Selecting Expatriate Managers (2 of 4)

Key success factors for expatriate assignments:
Technical and managerial skills
Personality traits (flexible, willing to learn)
Relational abilities (ability to adapt to other cultures)
Family situation (spouse & family willingness to go)
Stress tolerance (ability to maintain composure)
Language ability (speak, read & write the language)
Emotional intelligence (empathize, relate to others)

Selecting Expatriate Managers (3 of 4)

Experts also agree that another key success factor for expatriates is cross-cultural social intelligence.
Cross-cultural social intelligence: the ability of an individual to gauge and understand verbal and non verbal cues from a variety of cultures.
Cross-cultural intelligence implies that the individual can make accurate social inferences from the cultural situation and is able to behave in appropriate ways to address the verbal and non verbal cues.

Exhibit 11.4:
What Percentage of Companies are Using More Short Term Assignments?

Selecting Expatriate Managers (4 of 4)

Success factor priorities for expatriate assignments
The importance of success factors for a particular assignment depends on four assignment conditions:
Assignment length
Short assignments focus on technical and professionals skills
Cultural similarity
Required interaction and communication with locals
Job complexity and responsibility

Training and Development (1 of 4)

Predeparture cross-cultural training reduces expatriate failure rates and increases job performance.
The main objective of cross-cultural training is to increase the relational abilities of the future expatriate and the spouse and family.
The training rigor depends on the assignment.
Training rigor: The extent of effort by both trainees and trainers to prepare the expatriate for work abroad

Training and Development (2 of 4)

Low rigor training
Short time period
Consists of lectures and videos on local cultures
Briefings on company operations
High rigor training
Lasts over a month
More experiential learning
Extensive language training
Includes interactions with host country nationals

Training and Development (3 of 4)

Training cannot fully prepare expatriates to face life in the new country.
Challenges faced by expatriates:
Choosing schools for their children
Finding housing
Opening bank accounts
Finding grocery stores
Getting a driver’s license
Learning about the community

Training and Development (4 of 4)

Experts thus suggest mentorship and even buddy programs for expatriates who face these challenges.
Host country mentors:
Positively impact expatriates’ organizational knowledge, job performance, promotability, and teamwork.
Home country mentors:
Beneficial but have a positive impact only on the expatriates’ organizational knowledge, job performance, and promotability.

Exhibit 11.7:
Training Needs and
Expatriate Assignment Characteristics

Performance Appraisal
for the Expatriate (1 of 3)

Conducting reliable performance appraisal for the expatriate is very challenging.
Seldom can the firm use same performance criteria.
Challenges:
Fit of international operation in multinational strategy
Unreliable data
Complex and volatile environments
Time differences and distance separation

Performance Appraisal
for the Expatriate (2 of 3)

Without intensive and direct contact, performance appraisals can fail to demonstrate a comprehensive understanding of the expatriate manager’s situation.
To overcome these difficulties:
Fit the evaluation criteria to the strategy.
Fine-tune the evaluation criteria.
Use multiple sources of evaluation with varying periods of evaluation.

Performance Appraisal
for the Expatriate (3 of 3)

Compensation packages must be attractive to skilled managers, but also consider the increasing costs.
Compensation packages have many common factors:
Local market cost of living
Housing
Taxes
Benefits

The Balance-Sheet Approach
(1 of 2)

Provides a compensation package that attempts to balance purchasing power in the host country with that in the home country.
The expatriate should not be in a better or worse position financially because of the assignment.
The firm provides allowances for adjustments for differences in taxes, cost of living, housing, food, recreation, personal care, clothing, education, home furnishing, transportation, and medical care.

The Balance-Sheet Approach
(2 of 2)

In addition to matching purchasing power, firms may provide additional allowances:
Foreign service premiums (often 10-20% of base pay)
Hardship allowance (extra money for difficult postings)
Relocation allowances (miscellaneous costs of move)
Home-leave allowances (transportation costs to return home once or twice per year)

Exhibit 11.9:
The Balance Sheet Approach
To Expatriate Compensation

Other Approaches (1 of 3)

The high cost of expatriate compensation and the trend toward worldwide workers has resulted in modifications of the balance sheet approach. Some variations:
Headquarters-based Compensation: paying home country wages regardless of location
Host-based Compensation: adjusting wages to local lifestyles and costs of living
Global pay systems: worldwide job evaluations, performance appraisal methods, and salary scales

Other Approaches (2 of 3)

MNCs should take into consideration the following issues when designing compensation systems:
Compensation systems should be attractive enough to encourage managers to take on expatriate assignments in areas critical to the multinational.
MNCs must be mindful of costs associated with compensation plans and implement the most effective and efficient programs
MNCs must try to provide systems ensuring that expatriates have stability in terms of lifestyle and economic status.

Other Approaches (3 of 3)

MNCs should take into consideration the following issues when designing compensation systems (con’t.):
Multinationals must treat all of its employees fairly and consistently.
Multinationals must also be consistent with the overall direction and strategy of where the multinationals want to be in the future.
Multinationals must also implement systems that are easy to administer.

The Repatriation Problem (1 of 2)

Repatriation Problem: the difficulties that mangers face coming back to their home countries and reconnecting with their old jobs.
Three cultural problems “reverse culture shocks:”
Adapting to new work environment and culture of home office
Relearning to communicate with others in home and organizational cultures
Adapting to their basic living environment

The Repatriation Problem (2 of 2)

These strategies may help firms to successfully repatriate their managers:
Provide a strategic purpose for the repatriation.
Establish a team to aid the expatriate.
Provide parent country information sources.
Provide training and preparation for the return.

International Assignments
for Women (1 of 2)

Women in international assignments are strikingly rare.
Estimates are that women represent only 12% of expatriate managers, but 45% of management.
Women face a glass ceiling at home, and an expatriate glass ceiling worldwide, because of 2 myths:
Myth 1: Women do not wish to take international assignments.
Myth 2: Women will fail because of the foreign culture’s prejudices against local women.

International Assignments
for Women (2 of 2)

Don’t assume that people from foreign cultures apply the same gender role expectations to foreign workers that they do to local women.
Successful women expatriates emphasize nationality, not gender.
The issues that arise in cross-cultural interactions depend more on how foreigners react to those of a different nationality.

The Woman’s Advantage and Disadvantage (1 of 2)

Women may have advantages in expatriate positions:
Being unique means she becomes more visible.
Local business people from traditional cultures assume that she is the best person for the job.
Women are more likely to excel in relational skills, a major factor in expatriate success.
Local men speak at ease with a woman about more topics than men, leading to more interaction.
Women have higher self-transcendence scores than men.

The Woman’s Advantage and Disadvantage (2 of 2)

Women also suffer disadvantages worse than males:
Face the glass ceiling, isolation and loneliness; need to work harder to prove themselves.
Seldom given an international assignment until later in their careers.
Need to balance work and family responsibilities
Need to worry about accompanying spouse

What Can Companies Do
to Ensure Female Expatriate Success? (1 of 2)

Despite the disadvantages they face, opportunities for women as expatriate managers are expected to grow:
Shortage of high-quality multinational managers.
Fewer men are willing to take the assignments.
Because women expatriates are likely to increase in number and are as motivated and willing to take international assignments as men, companies must take the necessary steps to ensure that their female expatriates are successful.

What Can Companies Do
to Ensure Female Expatriate Success? (2 of 2)

What firms can do to ensure the success of women:
Provide mentors
Offer opportunities for interpersonal networks as a form of organizational support
Remove sources of barriers
Provide support to cope with dual-career issues

Multinational Strategy
and IHRM (1 of 4)

Multinational companies have several options for developing the appropriate IHRM policies for the implementation of their multinational strategies.
One way is to examine its IHRM orientation, or philosophy.
IHRM Orientation: A company’s basic tactics and philosophy for coordinating IHRM activities for managerial and technical workers.

Multinational Strategy
and IHRM (2 of 4)

There are four basic IHRM orientations:
Ethnocentric: All aspects of HRM tend to follow the parent organization’s home country HRM practices.
Regiocentric & Polycentric: HRM is more responsive to the host country differences in HRM practices.
Global: The firm assigns its best managers to international assignments, recruiting worldwide.

Multinational Strategy
and IHRM (3 of 4)

Ethnocentric IHRM benefits:
Little need to recruit qualified host country nationals for higher management
Greater control and loyalty of home country nationals
Little need to train home country nationals
Key decisions centralized

Multinational Strategy
and IHRM (4 of 4)

Ethnocentric IHRM costs:
Possibly limited career development for host country nationals
Host country nationals may never identify with the home company
Expatriate managers are often poorly trained for international assignments and make mistakes

Regiocentric and Polycentric IHRM Orientations (1 of 3)

Firms with regiocentric or polycentric IHRM orientations are more responsive to the host country differences in HRM practices.
Regiocentric IHRM: Regionwide HRM policies are adopted.
Polycentric IHRM: Firm treats each country-level organization separately for HRM purposes.

Regiocentric and Polycentric IHRM Orientations (2 of 3)

Benefits of polycentric and regiocentric IHRM policies are as follows:
Reduces training expenses
Fewer language and adjustment issues
Lessened hiring and relocation costs

Regiocentric and Polycentric IHRM Orientations (3 of 3)

Costs of polycentric and regiocentric IHRM policies are as follows:
Coordination problems with headquarters based on cultural, language, and loyalty differences
Limited career-path opportunities for host country and regional managers
Limited international experiences for home country managers

Global IHRM Orientations (1 of 2)

Organizations with truly global IHRM orientations assign their best managers to international assignments.
Global IHRM: Recruiting and selecting worldwide, and assigning the best managers to international assignments regardless of nationality.
In companies with global orientations, managers are selected and trained to manage cultural diversity inside and outside the company.

Global IHRM Orientations (2 of 2)

Global IHRM benefits:
Bigger talent pool
High international expertise
Development of transnational organizational cultures
Global IHRM costs:
Difficulty in importing managerial and technical employees
Added expense

Finding a Fit: IHRM Orientation and the Multinational Strategy (1 of 2)

Properly matching IHRM to the selected multinational strategy is a major requirement for successful strategy implementation.
Some IHRM decisions show a concern for local responsiveness when companies need people with a superior understanding of host country issues.
Other IHRM decisions reflect globalization pressures when companies need managers with world-class competence regardless of nationality.

Finding a Fit: IHRM Orientation and the Multinational Strategy (2 of 2)

The success of any multinational strategy requires the careful assessment of a firm’s IHRM practices.
Usually no one orientation exactly fits a company’s multinational strategy, and few companies follow any one orientation completely.
Each multinational company selects a general approach, combined with specific IHRM practices and procedures from other orientations that, all together, fit its strategic needs.

Exhibit 11.11:
IHRM Orientation and Multinational Strategies

Summary and Conclusions

When basic HRM practices are applied to a company’s international operations, they become IHRM.
Chapter 11 focused on HRM practices for expatriates.
Expatriates present special challenges for MNCs.
Successful IHRM is a 21st century challenge.
Globalization allows MNCs to hire from a worldwide pool of talent.
It is important for multinationals to find ways to properly manage expatriates successfully.