CHAPTER - 14

Staffing in International context

Compiled By –

Richa Goel

Neha Siwach

SYNOPSIS

International human resource management focuses on the management of human resources on a global basis. An organization’s strategy on globalization strongly affects the approach it takes to international human resource management. The approach to international human resource management in turn influences the implementation of the major international human resource management functions of recruitment and selection, development and training, performance evaluation, remuneration and benefits, and labor relations. Companies taking an ethnocentric approach attempt to impose their home country methods on their subsidiaries. The polycentric approach follows local practices. Finally, a geocentric or global approach develops practices for world-wide use.

Staffing in International context

14.1 Definition of IHRM

Is defined as human resource management issues, function and policies and practices that result from the strategic activities of multinational enterprise and

impact of international concerns and goals of that enterprise.

14.2 Major differences between Domestic HRM and IHRM.

Business activities e.g. taxation, international relocation, expatriate remuneration, performance appraisals, cross-cultural training and repatriation.

Increased complexities e.g. currency fluctuations, foreign HR policies and practices, different labour laws.

Increased involvement in employee’s personal life e.g. personal taxation, voter registration, housing, children’s education, health, recreation and spouse employment.

Complex employee mix – cultural, political, religious, ethical, educational and legal background.

Increased risks e.g. emergency exits for serious illness, personal security, kidnapping and terrorism

14.3 Main challenges in IHRM

High failure rates of expatriation and repatriation

Deployment – Getting the right mix of skills in the organization regardless of geographical location

Knowledge and innovation dissemination – Managing critical knowledge and speed of information flow

Talent identification and development – Identify capable people who are able to function effectively

Barriers to women in IHRM

International ethics & Language (e.g. spoken, written, body language)

14.4 Major IHRM Functions

1. Recruitment and selection – Recruitment is the process of attracting a pool of qualified applicants for available positions & selection is the process of choosing qualified applicants from the available candidates and ensuring that the skills, knowledge, and abilities of the selected employees match the requirements of the positions

2. Performance evaluation – Is the process of appraising employees’ job performance

3. Compensation and benefits- Function of HRM is designed to develop uniform salary systems and other forms of remuneration, such as health insurance, pension funds, vacation, and sick pay

4. Training and development -Function involves planning for effective learning processes, organizational development, and career development

5. Labor relations - Function is designed to assist managers and workers determine their relationships within the workplace

6. Also, management of expatriate workers

14.5 Staffing Needs

Firms that centralize decision making at headquarters typically favor home-country managers, while Firms that decentralize decision making to the subsidiary level often employ host country nationals.

Since most companies do not fall at one extreme or the other, most companies have a combination of both home and host country managers.

14.6 TYPES OF GLOBAL EMPLOYEES.

1. Parent country national (PCN): The nationality of the employee is the same as that of the headquarters of the global organization

2. Host country national (HCN): The employee’s nationality is the same as that of the subsidiary

3. Third country national (TCN): The employee’s nationality is neither that of the headquarters or of the local subsidiary

14.7 Parent country Nationals

14.7.1 Advantages

1. Control and co-ordination by HQ is maintained.

2. Promising managers get international experience.

3. PCNs may be the best people for the job.

Assurance that the subsidiary will comply with company objectives policies etc

Disadvantages

1. HCNs promotion opportunities are limited.

2. Adaptation to host country may take a long time.

3. PCNs may impose an inappropriate HQ style.

4. Compensation differences between PCNs and HCNs may cause problems.

14.7.2 Host-country Nationals

Advantages

1. No problems with language and culture.

2. Reduced hiring costs.

3. No work permits required.

4. Continuity of management improves since HCNs stay longer in positions.

5. Govt. policy may force hiring of HCNs.

6. Promotional opportunities not limited - so higher morale among HCNs

Disadvantages

1. HQ may have less control over operations.

2. HCNs may still have limited career opportunities outside the subsidiary.

3. Hiring HCNs limits opportunities for PCNs to gain overseas experience.

4. Hiring HCNs may encourage a federation of disintegrated national units rather than one integrated global unit.

14.7.3 Third-country Nationals

Advantages

1. Salary and compensation may be lower than for PCNs.

2. May be more familiar with host country than the PCNs.

Disadvantages

1. Transfers must consider national animosities.

2. Host government may resent TCNs as much as PCNs.

3. TCNs may not comply with HQ style of management.

TCNs may not want to return after assignment

14.8 Types of International Staffing Policy.

14.8.1 Ethnocentric

All key managerial positions are filled by parent-country nationals.

Consistent with international strategy

Disadvantage: cultural myopia

The cultural differences & environmental differences will be huge and expatriates may not be able to cope up with. Thus resulting in costly management mistakes. e.g., Procter & Gamble – Associate with higher incidence of IHRM problems

Example - Korean MNC's Hyundai, Samsung, Indian MNC's TCS, Infosys, Wipro. US MNC's GE, Citi corp., Exxon appoint home country nationals to lead the foreign subsidiary. (Ethnocentric approach)

14.8.2 Polycentric

Key positions are filled with HCN’s

Host country nationals manage subsidiaries

Consistent with multidomestic strategy

Disadvantage: Create a gap between home and host operations( This gap is created due to cultural differences between the two countries(i.e. host and subsidiary)

Example: US MNC's P&G, Pepsi, Coca cola. Indian MNCs Ranbaxy appoint a host country executive along with a home country executive to support or vice-versa (polycentric approach)

14.9.3 Geocentric or global

Best managers are recruited from within or outside the company regardless of nationality, TCN’s – used by European MNC’s, transpatriates, some U.S. companies (Philips, Heinz, Unilever, IBM)

Help build an informal management network

Disadvantage: May be subject to the immigration policies

Electrolux (the vacuum cleaner company) has for many years attempted to recruit and develop a group of international managers from diverse countries. These people constitute a mobile base of managers who are used in a variety of facilities as the need arises.

14.9.4 Regiocentric

Recruiting on a regional basis.

For example, a U.S. based firm could create three regions;

Europe, the Americas, and Asia-pacific.

European staff would be transferred throughout the European region (say a Briton to Germany, a French national to Belgium, and a German to Spain).

Eg: Ford Motor Company.

Disadvantage: produce federalism at a regional rather than a country basis and constrain the organization from taking a global stance.

Figure 14.9.1 Advantages and disadvantages of using local employees to staff international subsidiaries

Advantages Disadvantages

Lower labor costs

Demonstrates trust in local citizenry

Increases acceptance of the company by the local community

Maximizes the number of options available in the local environment

Leads to recognition of the company as a legitimate participant in the local economy

Effectively represents local considerations and constraints in the decision-making process

Makes it difficult to balance local demands and global priorities

Leads to postponement of difficult local decisions until they are unavoidable, when they are more difficult, costly, and painful than they would have been if implemented earlier

May make it difficult to recruit qualified personnel

May reduce the amount of control exercised by headquarters

Figure 14.9.2. Advantages and disadvantages of using expatriate employees to staff international subsidiaries

Advantages Disadvantages

Cultural similarity with parent company ensures transfer of business/management practices

Permits closer control and coordination of

Creates problems of adaptability to foreign environment and culture

Increases the »foreigness« of the subsidiary

international subsidiaries

Gives employees a multinational orientation through experience at parent company

Establishes a pool of internationally experienced executives

May involve high transfer and salary costs

May result in personal and family problems

Leads to high failure rate

14.10 Staffing For International Assignment

• Today, as businesses globalize, the market for executive talent is also globalizing.

• Top management teams are increasingly diverse in their members.

While most MNCs do not hire new college graduates to take foreign positions immediately, many hire graduates with the intention of sending them abroad in the future.

14.11 Factors in Expatriate Selection

Diagram 14.11.1

14.11.1 Cross cultural Suitability

Expatriates require cross-cultural abilities that enable the person to operate in a new environment.

This includes: cultural empathy, adaptability, diplomacy, language ability, positive attitude, emotional stability and maturity.

Effectiveness skills are defined as the ability to successfully translate the managerial or technical skills into the foreign environment

14.11.2 Family requirements

Adjustment of the spouse can be positively correlated with the adjustment of the expatriate manager.

Inclusion of the family members especially spouse essential in the selection process.

Reluctance of the company to delve in to the private lives of their employees can become a constraint in selecting the right couple

14.11.3 Country/ Cultural Requirement

The host country may be an important determinant.

Some regions and countries are considered "hardship postings”- remote areas away from major cities or modern facilities, or war-torn regions with high physical risk.

14.11.4 MNE Requirements

Situational factors have an influence on the selection decision.

This also affect the selection ratio - that is PCN:TCN:HCN

Other situational factors are:

The mode of operation involved – input from local partner in selecting staff

The duration of the assignment – essential if family is accompanying the manager

The amount of knowledge transfer inherent in the expatriate’s job in the foreign operation – the nature of the job and the essential skills required to do that job

14.11.5 Language

The ability to speak a second language is an aspect often linked with cross-cultural ability.

Language skills may be regarded as of critical importance for some expatriate positions, but lesser in others.

Communication skills rather than specific language skills was an important selection criteria for the top subsidiary management position.

Differences in language are recognized as a major barrier to effective cross cultural communication.

Language problems were largely viewed as mechanical and manageable problems that could be solved individually.

Another component to language as a situation factor in the selection decision.

14.12 .1 Training

At the international level, human resource development professionals are responsible for:

1. Training and development of employees located in subsidiaries around the world.

2. Specialized training to prepare expatriates for assignments abroad, and

3. Development of a special group of globally minded managers.

14.12.2 Cross Cultural training

14.12.3 Methods of Cross Cultural Training

Cultural BriefingsExplain the major aspects of the host country culture, including customs, traditions, everyday behaviors.

Area BriefingsExplain the history, geography, economy, politics and other general information about the host country and region.

CasesPortray a real life situation in business or personal life to illustrate some aspect of living or working in the host culture.

Role PlayingAllows the trainee to act out a situation that he or she might face in living or working in the host country.

Culture AssimilatorProvides a written set of situations that the trainee might encounter in living or working in the host country.

Field ExperiencesProvide an opportunity for the trainee to go to the host country or another unfamiliar culture to experience living and working there for a short time.

14.12.4 Advantages of CCT

People Learn About Themselves: Through cross cultural training, people are exposed to facts and information about their own cultures, preconceptions, mentalities and worldviews that they may otherwise not have contemplated. Cross cultural training helps people learn more about themselves through learning about others.

Encourage Confidence: Cross cultural training promotes self-confidence in individuals and teams through empowering them with a sense of control over previously difficult challenges in the workplace.

Break Down Barriers: All of us have certain barriers such as preconceptions, prejudices and stereotypes that obstruct our understanding of other people. Cross cultural training demystifies other cultures through presenting them under an objective light. Through learning about other cultures, barriers are slowly chipped away thus allowing for more open relationships and dialogue.

Build Trust: When people’s barriers are lowered, mutual understanding ensues, which results in greater trust. Once trust is established altruistic tendencies naturally manifest allowing for greater co-operation and a more productive workplace.

Motivate: One of the outcomes of cross cultural training is that people begin to see their roles within the workplace more clearly. Through self-analysis people begin to recognise areas in which they need to improve and become motivated to develop and progress.

Open Horizons: Cross cultural training addresses problems in the workplace at a very different angle to traditional methods. Its innovative, alternative and motivating way of analysing and resolving problems helps people to adopt a similarly creative strategy when approaching challenges in their work or personal lives.

Develop Interpersonal Skills: Through cross cultural training participants develop great ‘people skills’ that can be applied in all walks of life. By learning about the influence of culture, i.e. the hidden factors upon people’s behaviours, those who undertake cross cultural training begin to deal with people with a sensitivity and understanding that may have previously been lacking.

Develop Listening Skills: Listening is an integral element of effective and productive communication. Cross cultural training helps people to understand how to listen, what to listen for and how to interpret what they hear within a much broader framework of understanding. By becoming good listeners, people naturally become good communicators.

People Use Common Ground: In the workplace people have a tendency to focus on differences. When cross cultural communication problems arise the natural inclination is to withdraw to opposing sides and to highlight the negative aspects of the other. Cross cultural training assists in developing a sense of mutual understanding between people by highlighting common ground. Once spaces of mutual understanding are established, people begin to use them to overcome culturally challenging situations.

Career Development: Cross cultural training enhances people’s skills and therefore future employment opportunities. Having cross cultural awareness gives people a competitive edge over others especially when applying for positions in international companies with a large multi-cultural staff base.

14.13.1 Expatriate Failure:

The selection process in international firms is particularly important because of the high cost of expatriate failure.

Expatriate failure is the early return of an expatriate manager to his or her country because of an inability to perform in the overseas assignment.

14.13.2 Causes of expatriate assignment failure:

Spouses in 90% of cases come back early .They faces isolation, loneliness, boredom.

Financial package, cost in foreign country may be higher. Example's family overseas in Japan may face such a situation.

Lack of inability to adapt. In host country they have to face uncertainties ,relate with people with different values and beliefs. this happens when no training is given on cultural nuances

Poor programmers for career support and repatriation.

Lack of support from HQ.

Inadequate preparation, training and orientation prior to assignment.

Managers sent on foreign assignments may experience culture shock, a psychological phenomenon that may lead to feelings of fear, helplessness, irritability, and disorientation

14.13.3 Costs of Expatriate Failure:

Direct costs:

Airfares

Associated relocation expenses

Salary and benefits

Training and development

Costs vary according to:

Level of position

Country of destination

Exchange rates

Whether ‘failed’ manager is replaced by another expatriate

Indirect Cost of Expatriate Failure:

Damaged relationships with key stakeholders in the foreign location

Negative effects on local staff

Poor labor relations

Negative effects on expatriate concerned

Family relationships may be affected

Loss of market share

14.13.4 Steps for reducing Expatriate Failure:

Firms are now beginning to pay more attention to repatriation-bringing a manager back home after a foreign assignment has been completed.

Individuals that successfully adapted to the foreign environment may experience culture shock upon returning to their own country

Regarding “non-cultural” issues leading to success or failure overseas, managers tend to be more successful in foreign assignments when 5 conditions are met:

They can freely decide whether or not to accept a foreign assignment

They have a realistic understanding of the new job and assignment

They have a realistic expectation of a repatriation assignment.

They have a mentor in the parent firm who will look out for their careers

There is a clear link between the foreign assignment and the manager’s long-term career path.

14.13.5 Compensation to Expatriate Manager:

Compensating expatriate managers can be a complex process because factors such as differences in currency valuation, standards of living, lifestyle norms, and so forth must be taken into consideration

A cost-of-living allowance may be given to managers to offset differences in the cost-of-living in the home and host countries.

A hardship premium (also known as a foreign service premium) may be paid to mangers who accept assignments in relatively unattractive locations.

Special benefits packages that may be provided to expatriate managers include housing, education, medical treatment, travel to the home country, and club memberships

14.14.1 REPATRIATION:

Virtually all repatriated personnel experienced some personal difficulty in reintegrating on return home. The main complaints were loss of status loss of autonomy lack of recognition of the value of the experience and lack of career direction

Means PNCs, TCNs, or even HCNs finish their overseas assignment & come back to their home headquarters & which leads to reverse cultural shock.

Effects-

Anxious.

Dissatisfied.

Co-workers may not be interested in hearing his experience.

Repatriate’s job may not make as much use of internationally acquired KSAs as it could

14.14.2 Repatriation: Reverse Culture-shock

JOB RELATED FACTORS

“Out of sight out of mind”

International experience devalued

Loss of status and pay relatively peaking

Changes in the HQ

SOCIAL FACTORS

Expat assignment - different type of social interaction (going from a very close expat community to where everyone is very busy with their own lives)

Problems of spouse returning to the workforce

Lack of peer support for teenagers

14.14.3 Making most of repatriate’s KSAs

Serving as trainer or mentor for CCT programs.

Acting as long distance supervisor to other expatriates.

Join the pool of international managers

14.15 Other issues in strategic HRM:

INTERNATIONAL PERFORMANCE APPRAISAL:

Performance appraisal in an expatriate assignment depends upon various things like:

Scope of communication in job Accounting system of host country Mode of communication and infrastructure of that country Cost of labor in that country.

The method for the performance evaluation should be bars and anchor rating scale which measure behavior approach.

INTERNATIONAL COMPENSATION:

in case of an expatriate assignment it is necessary to give compensation keeping various in consideration like:

Cost of living Taxes Savings Travelling allowance Education

By keeping in mind all these factors there are three methods employed by organizations like:

Host country based: In this case base salary is kept as that in host country and other expenses according to home country.

Home country based: In this case base salary is kept as that of home country but other expenses according to host country.

Region based: In this case people working away from their home country or in a different region are paid more.

INTERNATIONAL LABOR RELATIONS:

In this it is necessary for an organization going global to know about types of unions and rate of unionization in that country.

14.16 Important lessons for global firms

The need to manage change

The need to respect local cultures

The need to understand a corporation’s culture

The need to be flexible

The need to learn

14. 17 Summary

Expatriates – Employees who are assigned to work overseas on temporary basis.

14.17.1 Staffing in IHRM

Staffing Philosophy

Strategy Fit Pros Cons

Ethnocentric

Key overseas positions staffed by home managers

International

Puts qualified managers in place

Creates global culture

Transfer of core competences

Local manager resentment

Cultural myopia Immigration

barriers Costly

Polycentric

Key overseas positions staffed by local managers

Multidomestic Alleviates cultural myopia

Inexpensive to implement

Limits career mobility

Isolates HQ from overseas subs

Geocentric

Best for job gets it

Global and Transnational

Uses HR efficiently Builds strong global

culture and informal management network

Costly Immigration

barriers

14.17.2 Cross cultural training.

CCT prepares an expatriate to live and work in a different culture because coping with a new environment is much more challenging than dealing with a new job

To treat the international assignment as merely one step in overall career development one should take care of issues & policies of job rotation. Employee should remain on rotation long enough to attain a level of proficiency that enhance knowledge & efficacy.

14.17.3 Other issues in strategic HRM

International performance appraisal – in international context along with job objective several other factors become criteria for PA like –

• Extent of interaction position requires.

• Upper level managers often evaluated on basis of subsidiary bottom line result

• Volatility of foreign labour market

• Telecommunication & transportation infrastructure.

International compensation – covers 3 policies

Home based policy- links expatriate’s salary to salary structure of relevant home country.

Adv- creates equity with home country colleagues

Can be cheaper when home country has lower wage than host country.

Problem occur when expatriate is been bouncing from subsidiary to subsidiary over many years and no longer identifies himself as a birth country national

Host based – links base salary to salary structure of host country but retains the home country salary structure for other international supplements.

Region based – compensates expatriates working in their home regions at somewhat lower levels than those who are working in region far from home.

International labour relations. International hr manager must devise strategies to improve best fit between labour relation activities & external environment

14.18 Questions

Q1) Discuss the issues need to be considered for recruitment in the context of IHRM?

Q2) Discuss the causes of expatriate failure?

Q3) What is repatriation and how can one make most of expatriates knowledge?

References

• Strategic HRP

• Research Paper : Expatriation: the cross cultural issues and design of training for coping by Amit Pande (IIM)

• HUMAN RESOURCE MANAGEMENT IN INTERNATIONAL ORGANIZATIONSby Sonja Treven.