15-1McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All Rights Reserved.

fundamentals of

Human Resource Management 4th editionby R.A. Noe, J.R. Hollenbeck, B. Gerhart, and P.M. Wright

CHAPTER 15

Managing Human Resources Globally

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What Do I Need to Know?

1. Summarize how the growth in international business activity affects human resource management.

2. Identify the factors that most strongly influence HRM in international markets.

3. Discuss how differences among countries affect HR planning at organizations with international operations.

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What Do I Need to Know? (continued)

4. Describe how companies select and train human resources in a global labor market.

5. Discuss challenges related to compensating employees from other countries.

6. Explain how employers prepare managers for international assignments and for their return home.

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HRM in a Global Environment

• The environment in which organizations operate is rapidly becoming a global one.

• Foreign countries can provide a business with new markets.

• Companies set up operations overseas because of lower labor costs.

• Technology makes it easier for companies to spread work around the globe.

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As companies in the United States and Britain cut software jobs and outsource to other countries in order to drive down costs, countries such as India continue to see employment rise.

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HRM in a Global Environment (continued)

• Global activities are simplified and encouraged by trade agreements among nations.

• As these trends and arrangements encourage international trade, they increase and change demands on human resource management.– Organizations need employees who understand the

customers and suppliers in foreign countries.– Organizations need to understand the laws and

customs that apply to employees in other countries.

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Employees in an International Workforce

• Parent-country national – employee who was born and works in the country in which an organization’s headquarters is located.

• Host-country national – employee who is a citizen of the country (other than parent country) in which an organization operates a facility.

• Third-country national – employee who is a citizen of a country that is neither the parent country nor the host country of the employer.

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Employees in an International Workforce (continued)

• When organizations operate overseas, they hire a combination of parent-country nationals, host-country nationals, or third-country nationals.

• Expatriates – employees assigned to work in another country.

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Figure 15.1: Levels of Global Participation

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Employers in the Global Marketplace

• International organization – an organization that sets up one or a few facilities in one or a few foreign countries.

• Multinational company – an organization that builds facilities in a number of different countries in an effort to minimize production and distribution costs.

• Global organization – an organization that chooses to locate a facility based on the ability to effectively, efficiently, and flexibly produce a product or service using cultural differences as an advantage.

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Test Your Knowledge

• Hans works for a company who’s headquartered in France and has foreign operations in Germany, only. Hans is a citizen of the Netherlands. Which of the following is most likely true?a) Hans works for a domestic company and is from the parent

country.b) Hans works for a multinational company and is from the

host country.c) Hans works for a global company and is from a third

country.d) Hans works for an international company and is from a third

country.

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Transnational HRM System

• Transnational HRM system:– makes decisions from a global perspective– includes managers from many countries– based on ideas contributed by people

representing a variety of cultures

• Decisions that are the outcome of a transnational HRM system balance uniformity with flexibility.

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Factors Affecting HRM inInternational Markets

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Culture

• Culture – a community’s set of shared assumptions about how the world works and what ideals are worth striving for.

• Culture can greatly affect a country’s laws.• Culture influences what people value, so it

affects people’s economic systems and efforts to invest in education.

• Culture often determines the effectiveness of various HRM practices.

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Culture (continued)

• Cultural characteristics influence the ways members of an organization behave toward one another as well as their attitudes toward various HRM practices.

• Cultures strongly influence the appropriateness of HRM practices.

• Cultural differences can affect how people communicate and how they coordinate their activities.

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Hofstede’s Five Dimensions of Culture

1. Individualism/Collectivism Describes the strength of the relation between an individual and other individuals in the society.

2. Power Distance Concerns the way the culture deals with unequal distribution of power and defines the amount of inequality that is normal.

3. Uncertainty Avoidance Describes how cultures handle the fact that the future is unpredictable.

4. Masculinity/Femininity The emphasis a culture places on practices or qualities that have traditionally been considered masculine or feminine.

5. Long-term/Short-term Orientation

Suggests whether the focus of cultural values is on the future (long term) or the past and present (short term).

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In Taiwan, a country that is high in collectivism, coworkers consider themselves more as group members instead of individuals.

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Culture (continued)

• Organizations must prepare managers to recognize and handle cultural differences.– Recruit managers with knowledge of other

cultures– Provide training

• For expatriate assignments, organizations may need to conduct an extensive selection process to identify individuals who can adapt to new environments.

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Education and Skill Levels

• Companies with foreign operations locate in countries where they can find suitable employees.

• The educations and skill levels of a country’s labor force affect how and the extent to which companies want to operate there.

• In countries with a poorly educated population, companies will limit their activities to low-skill, low-wage jobs.

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Economic System

• The economic system provides many of the incentives or disincentives for developing the value of the labor force.

• In developed countries with great wealth, labor costs are relatively high. This impacts compensation and staffing practices.

• Income tax differences between countries make pay structures more complicated when they cross national boundaries.

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Political-Legal System

• The country’s laws often dictate the requirements for HRM practices: training, compensation, hiring, firing, and layoffs.

• An organization that expands internationally must gain expertise in the host country’s legal requirements and ways of dealing with its legal system.

• Organizations will hire one or more host- country nationals to help in the process.

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Human Resource Planning in aGlobal Economy

• Human resource planning involves decisions about where and how many employees are needed for each international facility.

• Decisions about where to locate include considerations such as the cost and availability of qualified workers.

• These considerations must be weighed against financial and operational requirements.

• Other location decisions involve outsourcing.

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Criteria for Selection of Employees for Foreign Assignments

1. Competency in the employee’s area of expertise2. Ability to communicate verbally and nonverbally in

the foreign country3. Flexibility, tolerance of ambiguity, and sensitivity to

cultural differences4. Motivation to succeed and enjoyment of challenges5. Willingness to learn about the foreign country’s

culture, language, and customs6. Support from family members

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Qualities associated with success in foreign assignments are the ability to communicate in the foreign country, flexibility, enjoying a challenging situation, and support from family members.

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Figure 15.2: Emotional Cycle Associated with a Foreign Assignment

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Test Your Knowledge

• Rachel, an expatriate working in Japan is feeling very uncomfortable in her surroundings. She often feels as if she has said the wrong thing. Rachel is most likely in which emotional stage of expatriation:a) Honeymoonb) Culture shockc) Learningd) Adjustment

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Training and Developing aGlobal Workforce

• Training and development programs should be effective for all participating employees, regardless of their country of origin.

• When organizations hire employees to work in a foreign country or transfer them to another country, the employer needs to provide the employees with training in how to handle the challenges associated with working in a foreign country.

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Table 15.1: Effects of Culture on Training Design

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Test Your Knowledge

• Employees from a high-power distance culture would feel most comfortable in a training class that:a) Involved several group activities with classmatesb) The teacher was the expert and responded

definitively to all questionsc) The teacher acted as a facilitator of group

discussiond) None of the above

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Delivering Training in Other Countries

• Know your goals – clarify what overseas training is supposed to achieve.

• Consider international differences among trainees when developing the training plan.

• Keep an eye on quality – overseas trainers should meet the same quality standards as training at headquarters.

• Be clear about standards for confidentiality and intellectual property.

• Know the local laws that affect training programs.

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Foreign Assignments

• Would you consider taking a foreign assignment for a 6 months to 1 year duration?

A = Yes B = No

• Before you took on a foreign assignment, what would you want to know?

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Cross-Cultural Preparation

• This is training to prepare employees and their family members for an assignment in a foreign country.

• The training covers all three phases of an international assignment:1. Preparation for departure2. The assignment itself3. Preparation for the return home

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Performance Management AcrossNational Boundaries

• When establishing performance management methods in other countries, organizations have to consider:– Legal requirements– Local business practices– National cultures

• Differences may include:– Which behaviors are

rated– How and the extent to

which performance is measured

– Who performs the rating– How feedback is

required

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Compensating an International Workforce

• Market pay structures can differ substantially across countries in terms of both pay level and the relative worth of jobs.

• This creates a dilemma for global companies:– Should pay levels and differences reflect what

workers are used to in their own countries?– Should pay levels and differences reflect the

earnings of colleagues in the country of the facility, or earnings at the company headquarters?

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Figure 15.3: Earnings in Selected Occupations in Three Countries

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Compensating an International Workforce (continued)

• Compensation decisions affect a company’s costs and ability to compete.

• The challenge of competing with organizations in low-wage countries can be very difficult.

• Decisions about benefits must take into account the laws of each country involved, as well as employees’ expectations and values in those countries.

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Figure 15.4: Average Hours Worked in Selected Countries

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International Labor Relations

• Labor relations on an international scale involves differences in laws, attitudes, economic systems, and differences in negotiation styles.

• Organizations establish overall policies and goals for labor relations, overseeing labor agreements, and monitoring labor performance.

• The day-to-day decisions about labor relations are usually handled by each foreign subsidiary.

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Managing Expatriates:Selecting Expatriate Managers• Expatriate managers need technical

competence in the area of operations.• In addition, many other skills are necessary to

be successful in an overseas assignment:– Ability to maintain a positive self-image and feeling

of well-being– Ability to foster relationships with host-country

nationals– Ability to perceive and evaluate the host country’s

environment accurately

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Topics for Assessing Candidates for Overseas Assignments

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Managing Expatriates:Preparing Expatriates• Pre-assignment site visit• Job orientation• Country orientation• Culture orientation• Language training• Compensation /

benefits / taxes counseling

• Housing counseling• Health care / schools /

shopping / recreation counseling

• Counseling by returning expatriates

• Local sponsorship from host country

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Figure 15.5: Impressions of Americans – Comments by Visitors to the United States

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Compensating Expatriates

• Balance sheet approach – this approach adjusts the manager’s compensation so that it gives the manager the same standard of living as in the home country plus extra pay for the inconvenience of locating overseas.

• This approach involves an effort by the global organization to ensure that its expatriates are “made whole.”

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Figure 15.6: The Balance Sheet for Determining Expatriate Compensation

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Toyko Tops Priciest Cities

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Compensating Expatriates (continued)

• After setting the total pay, the organization divides this amount into the four components of the total pay package:1. Base salary2. Tax equalization allowance3. Benefits4. Allowances

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Figure 15.7: International Assignment Allowance Form

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Helping Expatriates Return Home

• Repatriation – the process of preparing expatriates to return home from foreign assignment.1. Communication: the expatriate receives

information and recognizes changes at home while abroad

2. Validation: giving the expatriate recognition for the overseas service when this person returns home.

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Summary

• More and more companies are entering international markets by exporting and operating foreign facilities.

• Organizations therefore need employees who understand customers and suppliers in other countries.

• They need to understand local laws and customs and be able to adapt their plans to local situations.

• To do this organizations may hire a combination of parent-country, host-country, and third-country nationals.

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Summary (continued)

• A global organization needs a transnational HRM system, which:– Makes decisions from a global perspective– Includes managers from many countries– Is based on ideas contributed by people representing a

variety of cultures

• The most important influence is the culture of each market – its set of shared assumptions about how the world works and what ideals are worth striving for.

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Summary

• Another influence on international HRM is the foreign country’s political-legal system.

• A country’s economic system, as well as the government’s involvement in the economy, is a strong factor determining HRM practices.

• HR planning involves decisions about where and how many employees are needed for each international facility.

• Most foreign operations positions are filled with host-country nationals.

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Summary (continued)

• Foreign positions are also filled with parent-country and third-country nationals.

• Pay structures can differ substantially among countries in terms of pay level and the relative worth of jobs.

• Laws may dictate differences in benefits packages, and the value of benefits will differ if a country requires them or makes them a government service.

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Summary (continued)

• The organization must prepare the manager selected for an overseas assignment.

• Cross-cultural training for the assignment as well as preparation for repatriation after the assignment are critical success factors.

• Communication of changes at home and validation of a job well done abroad help the expatriate through the repatriation process.