Global Human Resource

Management CH 16
 Strategic Role of HR

 4 Basic Tasks
 Staffing policy
 Management training & development
 Performance appraisal
 Compensation policy

 Labor Relations & Strategy

Human Resources
 Activities a firm carries out to use human resource effectively
– strategy, staffing, performance evaluation, management
development, compensation & labor relations

 Through influence on character development, quality &

productivity a firm’s HR can help achieve the primary strategic
goal of reducing the cost of value creation & adding value by
better serving customer needs.

 International HR complicated by profound differences in labor

markets, culture, legal systems & economic systems
 How to staff key management posts
 How to develop managers to have cultural literacy
 How to compensate people in different nations
 How to deal with issues of expatriate managers
Opening Case - Molex
 Opening Case - Molex
 70 year old Chicago manufacturer of electronic components

 1967 International Division to coordinate exporting – 1970 Japanese plant – 1971 Irish plant

 2003 61% of business from international sales of $1.84 b – 50 plants in 21 countries – 16,000
people worldwide (1/3 in US)

 Strategy =
 Low cost & excellent customer service
 Plants are located where conditions are favorable & major customers are close
 Truly global company - at home wherever in world they operate that proactively shares
valuable knowledge across operations in different countries
 Committed to globally minded managers, multilingual competency & creation of common
company culture

 HR most localized of functions

 Regular expatriates – 3 to 5 years in another country (50)
 Inpats – come to US to work at HQ
 3rd country nationals who move from one Molex entity to another (Singapore to Taiwan)
 Short term project transfers – 6 to 9 months
 Medium term project transfers – 12 to 24 months
Strategic Role of
International HR
 Strong fit between HR practices & strategy is required for high
profitability

 Sustained source of high productivity & competitive advantage in

the global economy

 HR policies need to be congruent with strategy - 4 Strategies

pursued by international business
 Multi-domestic = create value by emphasizing local responsiveness
 International = transferring core competencies overseas
 Global = realizing experience curve & location economies
 Transnational = doing all these thing simultaneously

 Molex – transnational strategy – building a strong corporate

culture & informal management network for transmitting
information within the organization.
Staffing Policy

 Selection of employees for particular jobs

 Tool for developing and promoting corporate

culture (norms & value system) to attain higher
performance

 Types
 Ethnocentric
 Polycentric
 Geocentric
Types of Staffing Policy
Ethnocentric
 Ethnocentric - all key management positions are filled by
parent company nationals
 May believe the host country lacks qualified individuals
 May see this as the best way to maintain a unified corporate
culture
 May believe it is the best way to transfer core competencies
to a foreign operation
 Disadvantages
 Limits advancement opportunities for host-country nationals
-> resentment, lower productivity & increased turnover
 Can lead to “cultural myopia” – failure to understand host
country cultural differences that require different approaches
to management & marketing

 Compatible with an international strategy

Types of Staffing Policy
Polycentric
 Polycentric – Requires host country nationals to be recruited to
manage subsidiaries, while parent country nationals occupy key
positions at corporate HQ
 Firm less likely to suffer from cultural myopia
 Less expensive to implement -> reducing the cost of value creation (expats
are $$$)

 Disadvantages
 Host country nationals have limited opportunities to gain experience
outside their own country & can’t progress to senior positions ->
resentment
 Gap can form between host country managers & parent country – isolating
HQ staff from various foreign subsidiaries (Unilever’s little kingdoms &
transnational)
 Lack of management transfers can lead to lack of integration -> a
federation of largely independent national units with only nominal links to H
 Difficult to transfer core competencies or realize experience curve &
location economies

 Compatible with a multi-domestic strategy

Types of Staffing Policy
Geocentric
 Geocentric – seeks the best people for the job throughout the
company, regardless of nationality
 Enables firm to make the best use of its human resources
 Enables the firm to build a cadre of international executives who are at
home working in a number of cultures
 Build a strong unifying corporate culture & informal management network –
required for global & transnational strategies
 Better able to create value from the pursuit of experience curve & location
economies and from the multidirectional transfer of core competencies
 Reduce cultural myopia & enhance local responsiveness

 Disadvantages
 Immigration laws can require the employment of host-country nationals
 Expensive to implement – training & relocation costs
 Need a compensation structure with a standardized international base pay
level higher than national levels in most countries

 Compatible with both global & transnational strategies

Expatriate Managers
 Ethnocentric & geocentric staffing policies rely on
extensive use of expatriate managers

 Prominent feature is expatriate failure – pre-mature

return of an expatriate manager to his or her home
country
 Failure of firm’s selection policies to identify individuals
who will not thrive abroad (^ 40% return early from
developed & ^ 70% return early from developing)
 Cost of failure can be 3X the expat’s annual domestic
salary + cost of relocation = $250,000 - $1M
 Reasons (US) inability of spouse to adjust; manager’s
inability to adjust; other family problems; manager’s
personal or emotional maturity; inability to cope with
larger overseas responsibilities
Selecting Expatriate
Managers
 90% of time employees are selected on the basis of their technical
expertise, not their cross cultural fluency.

 Only 10% of 50 Fortune 500 firms tested for important traits such as cultural
sensitivity, interpersonal skills, adaptability & flexibility

 4 dimensions predict success in a foreign posting (Mendenhall & Oddou)

 Self-orientation – self-esteem, self-confidence, & mental well being
 Others-orientation – ability to interact effectively with host country nationals
(relationship development & willingness to communicate)
 Perceptual ability – ability to understand why people in other countries behave
the way they do
 Cultural toughness – relationship between country of assignment & how well
an expatriate adjusts to a particular posting
Training & Development
 Training the manager to do the specific job & management
development which can happen over the course of a career

 Job transfers are opportunities for broad international experience that

will enhance the management & leadership skills of executives

 Training expatriate manager & spouse – cultural, language & practical

training to reduce failure

 Repatriation of Expats – prepare them for reentry into the home

country (15% of returning expats leave w/i 1 year, 40% w/i 3 years)

 Management development as a strategic tool – especially

transnational
 Strong unifying corporate culture & information management network to
assist in coordination & control
 Need to be able to detect pressures for local responsiveness & that requires
cultural understanding
Performance Appraisal
 Two groups usually evaluate the
performance of expats – host nation & home
office managers. Both are subject to bias
 More weight should be given to on-site manager
appraisal than off-site (soft variables)
 Former expat who served in country could be
involved in the appraisal
 When on-site prepares, off-site should be
consulted before it is complete to balance
Compensation
 How should compensation be adjusted to reflect
national differences – according to prevailing country
standards or equalize pay on a global basis

 How should expatriate managers be paid

 Ethnocentric – how much home country expats should be
paid
 Polycentric – lack of managers’ mobility among national
operations -> pay can be kept country specific
 Geocentric – pay the international executives the same
basic salary regardless of country of origin or assignment

 Balance sheet approach to expat pay = equalizes

purchasing power across countries (figure 16.1 page
549)
International Labor
Relations
 Concern of domestic unions about MNEs
 company can counter its bargaining power with the power to move the
plant to another country
 International business will keep highly skilled tasks in the home country
& farm out low-skilled tasks to the foreign plants
 International business will attempt to import employment practices &
contractual agreements from its home country

 Organized labor has responded by

 Trying to establish international labor organizations
 Lobbying for national legislation to restrict MNEs
 Achieve international regulations on MNEs through UN

 Not very successful because

 Unions want to cooperate but compete with each other for jobs
 Wide variation in union structure
 Divergent ideologies about role of union in society & class conflict