Question 3.2-international business

MGMK 4710

INTERNATIONAL BUSINESS

Chapter 20. INTERNATIONAL Human Resource MANAGEMENT

I. INTRODUCTION

Human resource management (HRM) refers to the activities that a company takes to staff its organization. International human resource management is more complex and poses challenges to MNEs because of environmental differences among countries. This chapter discusses various aspects of human resource management as they apply to MNEs’ managers.

II. STAFFING FRAMEWORKS

https://www.youtube.com/watch?v=BjSX3FVAkgw

There is a powerful relationship between HRM processes, management productivity, and firm performance. Thus, an effective HRM can be a source of competitive advantage. The function of HRM is to hire the right person in the right job in the right place for the right salary.

International HRM involves hiring the right person who can be either a local (from the host country) or an expatriate (from the home country or a third country). The decision of the country of origin of managers will depend on the staffing policy (or framework) adopted. MNEs can adopt either the ethnocentric policy, the polycentric policy, or the geocentric policy.

A. Ethnocentric policy:

An ethnocentric policy is a staffing framework adopted by MNEs that fill management positions with home-country nationals. This policy has advantages and disadvantages:

1. Advantages: MNEs use the ethnocentric policy:

- To maintain command and control consistent with headquarters’ policy

- To fill local talent shortcomings by transferring best practices from headquarters

- If the MNE has adopted the home replication strategy

- Safeguard intellectual property in joint ventures

- Counteract high turnover among local employees

- Help managers develop a global outlook.

2. Disadvantages: Filling key management position with home-country nationals can:

- Lead the company to adopt a narrow perspective in foreign markets

- Limit MNEs’ exposure to different and possibly better ways of doing things

- Leave local managers and workers unmotivated and demoralized.

B. Polycentric policy:

A polycentric policy is a staffing framework adopted by MNEs that fill management positions with host-country nationals (locals). This policy has advantages and disadvantages:

1. Advantages: MNEs use the polycentric policy:

- To control costs (compared to sending someone to work abroad)

- To better deal with host-country nationalism and be seen as better citizen

- To develop local management talent and therefore boost employee morale

- If the MNE has adopted the multidomestic strategy

- Benefit from host-country nationals’ understanding of local stakeholders and environments

2. Disadvantages: Drawbacks of the polycentric policy include:

- Potential disengagement of local staff from the parent company

- Problems of accountability and allegiance to parent company

- Development of gaps between headquarters and local operations

C. Geocentric policy:

A geocentric policy is a staffing framework adopted by MNEs that fill management positions with the best people regardless of their nationality. This policy has advantages and disadvantages

1. Advantages: MNEs use the geocentric policy when:

- The MNE has adopted the global strategy or the transnational strategy

- The MNE needs to generate new ideas through worldwide learning opportunities

2. Disadvantages: Drawbacks of the geocentric policy include:

- High costs of identifying, developing and keeping world-class talents

- Having to deal with legal contingencies such as immigration and workplace regulations

III. MANAGING EXPATRIATES

https://www.youtube.com/watch?v=_0rvZexhViU

An expatriate is a person who is sent temporarily to work in a country other than his or her country of legal residence. Expatriates can be home-country nationals or third-country nationals. Home-country nationals are citizens of the country in which the company is headquartered. Third-country nationals are citizens of neither the host country nor the home country. Key issues involved in managing expatriates include expatriate selection, expatriate failure, expatriate preparation, expatriate compensation, and expatriate repatriation.

A. Expatriate selection:

The process of expatriate selection involves screening executives to find those with the greatest inclination and highest potential for a foreign assignment. Screening can be done in terms of technical competence, adaptiveness, and leadership ability:

1. Technical competence: Technical competence (usually indicated by past performance) is a

significant determinant of success in foreign assignments. The foreign subsidiary manager must

understand both the technical necessities of a position and also the unique conditions of foreign

environments such as scaled-down plant and equipment, varying productivity standards, and less

efficient national infrastructure

2. Adaptiveness: Three types of adaptive characteristics influence an expatriate’s success when

entering a new culture:

- Self-maintenance: An expatriate needs qualities such as personal resourcefulness because things do not always go as planned in a foreign environment

- Satisfactory relationships with host nationals: An expatriate needs to have the ability to successfully interact with new and different people (host-country nationals or locals)

- Sensitivity to host environments: An expatriate needs to effectively interpret how colleagues, customers, and competitors in the local market see events

3. Leadership ability: Leadership ability is key to an expatriate’s success since expatriates often assume a greater breadth and depth of leadership responsibility on a foreign assignment than they likely would in the home country. To be successful, an expatriate should demonstrate communication skills, motivation, self-reliance, courage, risk-taking, experience, and diplomacy.

B. Expatriate failure:

https://www.youtube.com/watch?v=KgH73elCLvM

Expatriate failure occurs when a manager returns prematurely home from a foreign

assignment. The causes of expatriate failure include poor job performance, and the inability of

the expatriate and/or a spouse to adapt to the host nation’s environments. In the 1980s, research

reported that between 16–40% of Americans sent abroad to developed countries returned early,

while nearly 70% sent to less developed countries returned home early.

The average cost of an expatriate failure can be as high as three times the annual domestic

salary plus the cost of relocation. In addition, there are additional personal, family, and career

costs to expatriate failure. MNEs may try to reduce failure rates through improved training and

better selection procedures.

C. Expatriate preparation:

A number of issues should be part of a good preparation program:

1. General country understanding. The most common predeparture training is an informative

briefing about the way things work in the host country. Topics generally include things like

politics, economics, features of the workplace, and lifestyle.

2. Cultural sensitivity. Cultural training tries to preempt the effects of culture shock by helping

employees to take an open mind to the different ideas, attitudes, beliefs and norms they are likely

to encounter in the host culture

3. Practical skills. This training attempts to familiarize the expatriate and his or her family with

the routines of life in the host country. Issues such as schooling, socializing, and shopping are

to be clearly addressed.

D. Expatriate compensation

https://www.youtube.com/watch?v=_UEGOv_UAts

The amount and type of compensation needed to entice an individual to accept a foreign assignment may vary widely by person and locale. Company practices also vary in terms of compensation for differences. The most common approach to expatriate pay is the balance sheet compensation plan, which aims to develop a salary structure that equalizes purchasing power across countries so expatriates have the same standard of living in their foreign assignment as they had at home. Components of expatriate compensation:

1. Base salary: It usually falls in the same range as the base salary for the comparable job in the home country and is paid in either home-country currency or local currency

2. Foreign service premium: This is an extra pay given to expatriates for working outside the home country. This is to reward expatriates for living far from family/friends, facing a new culture, language, & workplace

3. Fringe benefits: Firms typically provide the same level of medical and retirement benefits abroad as they would at home, and may expand benefits to deal with local contingencies such as transferring ill employees or family members to out-of-country medical facilities

4. Tax differentials: Firms may adjust compensation even higher in high tax rate countries in order to make sure that expatriates have an equivalent after-tax income in the new location. In cases of double taxation, the MNE pays the expatriate’s tax bill in the host country

5. Allowances: MNEs adjust the total compensation package with a variety of allowances that help reduce the difficulties the executive and his family face. These allowances may include:

- Cost-of-living allowances: Companies usually pay for differences in cost-of-living for more expensive locations so that expatriates can enjoy the same living standards abroad as they would at home

- Housing allowances: Housing allowances ensure that expatriates will duplicate their customary quality of housing

- Spouse allowances: A spouse allowance compensates for a spouse to find work and offsets the loss in income due to a spouse forsaking his or her job

- Hardship allowances: A hardship allowance is paid to expatriates assigned to dangerous or especially difficult locations. Companies may also need to purchase ransom insurance, provide safety training, pay for home alarm systems and security guards, and assess their legal liability regarding employee safety for employees working in remote or dangerous areas

- Other allowances: MNEs may also include travel allowances to pay for visits back to the home country, and education allowances pay for the cost of children’s schooling.

E. Expatriate repatriation

https://www.youtube.com/watch?v=QS5n2R9wtmo

Repatriation is the process of returning the expatriate to his or her home country once the foreign assignment is completed. Unfortunately, problems may arise with repatriation:

1. Work readjustment: Returning home can be difficult in a work sense in that others may have been promoted, the returning manager is no longer a "big fish in a little pond," and a job may not be ready upon their return

2. Personal readjustment: Expatriates may experience reverse culture shock when returning home. They may find that they have to relearn things they took for granted

3. Changes in personal finances: Most expatriates enjoy a rich lifestyle and returning home with fewer benefits and perks may be difficult.

There are ways to ease repatriation problems. Effective human resource practices for soothing re-entry includes placement in jobs that build on foreign experiences, a reorientation program and a corporate mentor who looks after expatriates’ interests while they are abroad.