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PART FIVE EMPLOYEE RELATIONS C H A P T E R S e v e n t e e n Managing Global Human Resources Lecture Outline 32 17 Strategic Overview HR and the Internationalization of Business The HR Challenges of International Business How Inter-country Differences Affect HRM Global Differences and Similarities in HR Practice Personnel Selection Procedures The Purpose of the Performance Appraisal Training and Development Practices The Use of Pay Incentives How to Implement a Global HR System Making the Global HR System More Acceptable Developing a More Effective Global HR System Implementing the Global HR System Staffing the Global Organization International Staffing: Home or Local? Offshoring Values and International Staffing Policy Why Expatriate Assignments Fail Selecting Expatriate Managers Training and Maintaining Expatriate Employees Orienting and Training Employees on International Assignments Compensating Expatriates Appraising Expatriate Managers International Labor Relations Terrorism, Safety and Global HR Repatriation: Problems and Solutions A Final Word: Auditing the HR Function In Brief: This chapter outlines some of the HR problems and issues involved with international businesses. The subjects covered include inter-country differences, using selection to improve international assignments, and training and maintaining international employees. Interesting Issues: Many companies desire to rotate managers through international assignments, but find that work visa requirements of the host countries (including the U.S.) can sometimes greatly hinder these efforts. ANNOTATED OUTLINE I. HR and The Internationalization of Business International Business and Its Impact on Managing - Due to the European Market unification, the introduction of the euro currency, the opening of Eastern Europe, and the rapid development of demand in Asia and other areas of the world, large and small firms are finding their success depends on their ability to market and manage overseas. A. The HR Challenges of International Business - deployment, knowledge and innovation dissemination, and identifying and developing talent on a global basis. Complicating these decisions are the cultural, political, legal, and economic differences among countries and their peoples. 33 B. How Inter-country Differences Affect HRM - A company operating multiple units abroad does not have the luxury of dealing with a relatively limited set of economic, cultural, and legal variables. 1. Cultural Factors - Countries differ widely in their cultures, which are the basic values to which their citizens adhere. Cultural differences from country to country necessitate corresponding differences in management practices among a company's subsidiaries. 2. Economic Systems - Differences in economic systems translate into differences in HR practices. Differences in labor costs are substantial. 3. Legal and Industrial Relations Factors - vary dramatically from country to country. In many European countries, work councils replace the informal or union based worker-management mediations typical in U.S. firms. In Germany and several other countries, codetermination is the rule where employees have the legal right to a voice in setting company policies. 4. The European Community - refers to the unification of separate European countries in the 1990s into a common market for goods, services, capital, and labor. II. NOTES Educational Materials to Use Global Differences and Similarities in HR Practices A. Personnel Selection Procedures - Employers around the world tend to use similar criteria and methods for selecting employees. As in the United States, employers around the world usually rank \"personal interviews,\" \"the person's ability to perform the technical requirements of the job,\" and \"proven work experiences in a similar job\" at or near the top of the criteria or methods they use. B. The Purpose of the Performance Appraisal - There tends to be more variation in how employers in different countries use the results of performance appraisals. To recognize subordinate\" was a main purpose for appraisals in Japan and Mexico. C. Training and Development Practices - there are usually more similarities than differences across countries. In particular, employers just about everywhere rank \"to improve technical abilities\" as the main purpose for providing employees with training. The amount of training firms provide does vary substantially from country to country. When You're on Your Own, HR for Line Managers and Entrepreneurs: Comparing Small Businesses, HR Practices in the United States and China - Researchers have identified many differences between HR for small businesses in China from those in the United States. Differences are significant in the areas of: job analysis, performance appraisal practices, and actual pay practices. 34 D. The Use of Pay Incentives - there are great variations in the use of incentive pay. Some communist countries actually use more incentive pay than the U.S. III. NOTES Educational Materials to Use How To Implement a Global HR System A. Making the Global HR System More Acceptable 1. Remember global systems are more accepted in truly global organizations. 2. Investigate pressures to differentiate and determine their legitimacy. 3. Try to work within the context of a strong corporate culture. B. Developing a More Effective Global HR System 1. Form global HR networks. 2. Remember that it's more important to standardize ends and competencies than specific methods. C. Implementing the Global HR System 1. Remember, \"You can't communicate enough.\" 2. Dedicate adequate resources for the global HR effort. IV. NOTES Educational Materials to Use Staffing the Global Organization A. International Staffing: Home or Local? - Multinational companies (MNCs) employ several types of international managers. Locals are citizens of the countries where they are working. Expatriates (\"expats\") are non-citizens of the countries in which they are working. Home-country nationals are citizens of the country in which the multinational company has its headquarters. Third-country nationals are citizens of a country other than the parent or the host country. B. Offshoring - having local employees abroad do jobs that the firm's domestic employees previously did in-houseis growing by leaps and bounds. Offshoring jobs is very controversial. In the 1980s and 1990s, it was mostly manufacturing jobs that employers shipped overseas. 35 C. Values and International Staffing Policy - Ethnocentric run firms would staff foreign subsidiaries with parent-country nationals because they believe that home country attitudes, management styles, and knowledge are superior to the host country. Polycentric run firms would staff foreign subsidiaries with hostcountry nationals because they are the only ones that can really understand the culture and the behavior of the host country market. Geocentric run firms would staff foreign subsidiaries with the best people for key jobs regardless of nationality because they believe that the best manager for any specific position anywhere on the globe may be in any of the countries in which the firm operates. D. Why Expatriate Assignments Fail - International assignments fail for various reasons including: personality, the person's intentions, and non-work factors. E. Selecting Expatriate Managers - is similar to selecting domestic managers, but you need to determine if managers for international assignments can cope internationally. 1. Adaptability screening, often conducted by a psychologist or psychiatrist, is aimed at assessing the assignee's and family's probable success in handling the foreign transfer. The New Workplace: Sending Women Managers Abroad - Many managers assume that women don't want to work abroad. In fact, this survey found, women do want international assignments. Employers tend to assume that women posted abroad are more likely to become crime victims. However, most of the surveyed women expats said that safety was no more an issue with women than it was with men. Fear of cultural prejudices against women is another common issue. Here, there's no doubt that in some cultures women have to follow different rules than do their male counterparts. But even here, as one expat said, \"even in the more harsh cultures, once they recognize that the women can do the job, once your competence has been demonstrated, it becomes less of a problem.\" NOTES Educational Materials to Use V. Training and Maintaining Expatriate Employees A. Orienting and Training Employees for International Assignments - Some claim there is generally little or no systematic selection and training for assignments overseas. A four-step approach is recommended: 1) focus on the impact of cultural differences, and on raising trainees' awareness of such differences and their impact on business outcomes; 2) get participants to understand how attitudes (positive and negative) are formed and how they influence behavior; 3) provide factual knowledge about the target country; and 4) provide skill building in areas like language, adjustment and adaptation skills. 1. Trends in Expatriate Training - more firms are providing continuing, incountry cross-cultural training during the early stages of a person's overseas assignment; employers are returning managers as resources to cultivate the 36 \"global mindsets\" of the rest of their home office staff; there is increased use of software and the Internet for cross-cultural training. B. Compensating Expatriates - presents some tricky problems due to the question of whether or not to maintain companywide pay scales and policies 1. The Balance Sheet Approach, the common approach to expatriate pay, refers to equalizing purchasing power across countries. 2. Incentives - Many firms offer overseas managers long-term incentives that are tied more closely to performance at the foreign subsidiary level. C. Appraising Expatriate Managers - can be improved by: 1. Stipulating the assignment's level; 2. Weighing the evaluation more toward the on-site manager's appraisal than toward the home-site manager's distant perceptions of the employee's performance. 3. Modifying the normal performance criteria used for that particular position to fit the overseas position. These differences can be in many different areas. Know Your Employment Law: The Equal Employment Opportunity Responsibilities of Multinational Employers - U.S. employers doing business abroad, or foreign firms doing business in the United States or its territories, have wide-ranging responsibilities to their employees under American equal employment opportunity laws, including Title VII, the ADEA, and the ADA. D. Terrorism, Safety, and Global HR 1. Taking Protective Measures 2. Kidnapping and Ransom (K&R) Insurance - The insurance itself typically covers several costs associated with kidnappings, abductions, or extortion attempts. These costs might include, for instance, hiring a crisis team, the actual cost of the ransom payment to the kidnappers or extortionists, ensuring the ransom money in case it's lost in transit, legal expenses, and employee death or dismemberment. E. Repatriation: Problems and Solutions - Some common repatriation problems are: they often fear that out of sight is out of mind; returning expatriates are assigned to mediocre or makeshift jobs; returnees are taken aback when the trappings of the overseas job are lost upon return; the expatriate's former colleagues have been promoted while he/she was gone; and the expatriate's family may go through culture shock. Some possible solutions are: written repatriation agreements; assign a sponsor; provide career counseling; keep communications open; and develop reorientation programs. Improving Productivity Through HRIS: Taking the HRIS Global - As a company grows relying on manual HR systems to manage activities like worldwide safety, benefits administration, payroll, and succession planning becomes unwieldy. For global firms, it makes particular sense to expand the firm's human resource information systems abroad. 37 F. A Final Word: Auditing the HR Function requires using accounting and statistical techniques to calculate the cost of human resources. The HR Review should be aimed at tapping top managers' opinions regarding the HR function's effectiveness by assessing what should be, and what is. \"What should be\" refers to HR's broad aim, which involves a broad philosophy and vision statement, and a focused mission statement. \"What is\" should address the following questions. What are the HR functions? How important are these functions? How well is each of the functions performed? What needs improvement? How effectively does the corporate HR function use resources? How can HR become most effective? The HR Scorecard, Strategy and Results: Managing Global Human Resources - Lisa takes steps to make the Hotel Paris' HR functions global in nature. This includes expatriate manager training, integrated HRIS that allows top management to monitor HR performance on an ongoing basis, and a new incentive system for local managers. NOTES Educational Materials to Use DISCUSSION QUESTIONS 1. You are the president of a small business. What are some of the ways you expect being involved internationally will affect your business? Being involved internationally can affect virtually every aspect of your business. It can affect the growth of your business due to additional markets, it can affect costs of doing business, and it can affect every aspect of HRM as outlined in the chapter 2. What are some of the specific uniquely international activities an international HR manager typically engages in? 1) Formulating and implementing HR policies and activities in the home-office of a multinational company. This HRM manager would engage in selecting, training, and transferring parent-company personnel abroad and formulating HR policies for the firm as a whole and for its foreign operations. 2) Conducting HR activities in the foreign subsidiary of an MNC is another form. Again, local HR practices are often based on the parent firm's HR policies, fine-tuned for local country practices. 3. What inter-country differences affect HRM? Give several examples of how each may specifically affect HRM. 1) Cultural Factors - U.S. managers may be most concerned with getting the job done. Chinese managers may be most concerned with maintaining a harmonious environment. And Hispanic managers may be more concerned with establishing trusting, friendship relationships. 2) Economic Factors - U.S. economic systems tend to favor policies that value productivity while more socialistic countries like Sweden would favor policies that prevent unemployment. 3) Labor Cost Factors - Mexican labor costs (low) can allow inefficiencies of labor, while German labor costs (high) might require a focus on efficiency. 4) Industrial Relations Factors German law requires that workers have a vote in setting policies while in Japan the employees do not have a say, but the government may have a say in establishing policies. 5) The European Community - The EC will gradually reduce the differences between member countries. 4. You are the HR manager of a firm that is about to send its first employees overseas to staff a new subsidiary. Your boss, the president, asks you why such assignments fail, and what you plan to do to avoid such failures. How do you respond? Estimates say that 20% to 25% of all 38 overseas assignments fail. Reasons include: inability of spouse to adjust, managers' inability to adjust, other family problems, and managers' inability to cope with responsibility. We will need to select a manager that displays: adaptability and flexibility, cultural toughness, self-orientation, othersorientation, perceptual ability, and has a family with adaptability. 5. What special training do overseas candidates need? In what ways is such training similar to and different from traditional diversity training? It is suggested that a four-step training approach be taken: 1) training focused on the impact of cultural differences and their impact on business outcomes; 2) training focused on attitudes that are aims at getting participants to understand how attitudes (both positive and negative) are formed and how the influence behavior; 3) training focused on factual knowledge about the target country; and 4) skill building in areas like language and adjustment and adaptation skills. This training is different from traditional diversity training in the last two steps, which are not normally part of diversity training. In addition, traditional training and development is needed as with any other manager. 6. How does appraising an expatriate's performance differ from appraising that of a home-office manager? How would you avoid some of the unique problems of appraising the expatriate's performance? A major difficulty is: Who actually appraises the performance? (Cultural differences could affect it) There are five suggestions: 1) Stipulate the assignment's difficulty level; 2) Weight the evaluation towards the on-site manager's appraisal; 3) Have a former expatriate advise the home-site manager in his or her evaluation; 4) Modify the normal performance criteria to fit the position and characteristics of the locale; 5) Attempt to give credit for insights, not just measurable criteria. 7. As an HR manager, what program would you establish to reduce repatriation problems of returning expatriates? The programs listed in the chapter give a good summarization of the types of programs and activities that should be established to assure a smooth repatriation. DESSLER COMPANION WEB SITE We invite you to visit the Dessler homepage (http://www.prenhall.com/dessler) on the Prentice Hall Web site for the best online business support available. This site provides professors with a customized course Web site, including new communication tools, one-click navigation of chapter content, and great resources, such as Internet Resources, an HRCI Exam Prep Guide, assessment exercises, and more. 39 INDIVIDUAL AND GROUP ACTIVITIES 1. Working individually or in groups, write an expatriation and repatriation plan for your professor, who your school is sending to Bulgaria to teach HR for the next three years. In developing their expatriation and repatriation plan, the students should use Internet resources to find information on various cultural, economic, and legal factors that could affect their professor. They should include a description of the type of training program their professor should take prior to leaving for Bulgaria, the pay structure while on the international assignment, and particulars for how the repatriation plan will work for the professor's return. 2. Give three specific examples of multinational corporations in your area. Check the library or Internet or with each firm to determine in what countries these firms have operations and explain the nature of some of their operations, and whatever you can find out about their international HR policies. The examples will vary according to what companies have operations in your area. This can be an exciting opportunity for students to find out more about companies and what they are doing beyond your immediate geographic area. 3. Choose three traits useful for selecting international assignees, and create a straightforward test (not pencil and paper) to screen candidates for these traits. There are an infinite number of responses that you might get to this question. First, make sure that the traits either are on the list in the chapter, or are reasonable and logical traits that would be useful. Second, assure that the tests that the students develop are ones that will actually identify the presence of these traits. 4. Use a library source to determine the relative cost of living in five countries as of this year, and explain the implications of such differences for drafting a pay plan for managers being sent to each country. The most common approach is to equalize purchasing power across countries, a technique known as the balance sheet approach. The basic idea is that each expatriate should enjoy the same standard of living he or she would have had at home. 5. The HRCI \"Test Specifications\" appendix at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development). In groups of four to five students, do four things: (1) review that appendix now; (2) identify the material in this chapter that relates to the required knowledge the appendix lists; (3) write four multiple choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team's questions in front of the class, so the students in other teams can take each others' exam questions. The material from this chapter that is applicable to the HRCI certification exam would include: The HR challenges of international business, how inter-country differences affect HRM, global differences and similarities in HR practice, how to implement a global HR system, staffing the global organization, and training and maintaining expatriate employees. 6. The April 2004 issue of HR Magazine contained an article titled \"Aftershocks of War,\" which said that soldiers returning to their jobs from Iraq would likely require HR's assistance in coping with \"delayed emotional trauma.\" The term delayed emotional trauma refers to the personality changes such as anger, anxiety, or irritability and associated problems such as tardiness or absenteeism that exposure to the traumatic events of war sometimes triggers in returning veterans. Assume you are the HR manager for the employer of John Smith, who is returning to work next week after one year in Iraq. Based on what you read in this chapter, what steps would you take to help ensure that John's reintegration into your workforce goes as smoothly as possible? There are several suggestions in the section \"Repatriation: Problems and Solutions.\" At minimum, you should arrange for a sponsor/mentor, career counseling, and a reorientation program. You need to also make sure that there are clear and open doors for him to communicate with you. It would be a good idea to have some counseling available as well. 40 EXPERIENTIAL EXERCISES & CASES Experiential Exercise: Compensation Incentives for Expatriate Employees This exercise forces students to think realistically about the compensation problems with expatriate employees. The rankings will vary, but students should be prepared to defend their rankings with reason and logic. Similarly, while the described \"effects on compensation\" may vary, they should be reasonable and logical. When discussing the problems that the higher level of compensation might create, do not forget: 1) jealousy of other employees, 2) problems of adjustment when repatriation occurs, and 3) whether even this level will be adequate to entice employees to take the foreign assignments. Application Case Incident: \"Boss, I Think We Have a Problem\" 1. Based on the chapter and case incident, compile a list of 10 international HR mistakes Mr. Fisher has made so far. Among his mistakes: Fisher has not properly identified candidates; cultural sensitivity, interpersonal skills and flexibility have not been included as required job skills; there is no system in place to assess candidates for proper skills; the company does not have realistic cost projects for cross-border operations; the company has not determined whether it would be cost effect to have an expatriate manager; there are no assignment letters documenting the scope of the job; there is no international compensation system in place; the company has not taken into account differences in foreign expenses; the company has not taken into account foreign taxes; there is no formal relocation assistance program in place; the company has not considered the importance of family support; there is no cultural orientation program in place for expatriate mangers or their family members; among others. 2. How would you have gone about hiring a European sales manager? Why? I would have investigated the market to determine the appropriate level of compensation and benefits. Expatriate compensation packages should consider tax equalization clauses or other measures for dealing with differing costs of living. The company should also have retained consul on European labor laws/ practices. The location of the office should be carefully selected for favorable labor and tax laws. Like Fisher, I would have wanted a large pool of potential applicants, but given Fisher's inexperience, he may have benefited from the use of an outside agency (search firm). Finally, Fisher's stereotypes of European managers may have clouded his judgment with his existing pool of applicants. 3. What would you do now if you were Mr. Fisher? Fisher needs to seek legal consul in regard to his labor situation. He is likely in the wrong. In which case, he will need to reinstate the employees and apologize. He will in all likelihood need to start over and find an appropriate sales manager with knowledge of the local culture and business practices. Continuing Case: Carter Cleaning Company Going Abroad 1. Assuming they began by opening just one or two stores in Mexico, what do you see as the main HR-related challenges he and Jennifer would have to address? The students will not only need to incorporate their learnings from this chapter to answer this question, they should also include information from all the chapters in the text to come up of the main HR-related implications and challenges Carter Cleaning Company will face as a result of opening the Mexican stores. 2. How would you go about choosing a manager for a new Mexican store if you were Jack or Jennifer? For instance, would you hire someone locally or send someone from one of your existing stores? Why? The students should used the information in the chapter on selecting international managers. The students are likely to differ in their choices as to which type of international manager they would suggest for the London operation; just look for them to justify their responses. 41 3. The cost of living in Mexico is substantially below that of where Carter is now located: How would you go about developing a pay plan for your new manager if you decided to send an expatriate to Mexico? The students should use information from chapters 11, 12, and 13, and the Internet sources presented in those chapters to formulate their response to this question. 4. Present a detailed explanation of the factors you would look for in your candidate for expatriate manager to run the stores in Mexico. The students should include information presented in chapters one through fifteen, in addition to the information presented in this chapter, to develop their list of HR-related things Carter Cleaning Company needs to do in selecting their expatriate employee for Mexico. PART-ENDING VIDEO CASE Employee Relations Samuel LaFayette was sent to Paris with his family to head up a new Focus Pointe office. Samuel and his family had a great amount of difficulty acclimating themselves to their new environment, and after six months returned to New York. Samuel must now meet with his HR representatives to discuss what went wrong, and to also address his current employment situation, as his position in New York had been filled while he was in Paris. This segment focuses on how HR can best select and prepare candidates for an international assignment. For full video case and discussion questions, please visit the Faculty Resource section of the Dessler Companion Web Site at: http://www.prenhall.com/dessler KEY TERMS codetermination Employees have the legal right to a voice in setting company policies. expatriates (expats) Non-citizens of the countries in which they are working. home country nationals Citizens of the country in which the multinational company has its headquarters. third country nationals Citizens of a country other than the parent or the host country. offshoring Having local employees abroad do jobs that the firm's domestic employees previously did in-house. ethnocentric The notion that home-country attitudes, management style, knowledge, evaluation criteria, and managers are superior to anything the host country has to offer. polycentric A conscious belief that only the host-country managers can ever really understand the culture and behavior of the host-country market. geocentric The belief that the firm's whole management staff must be scoured on a global basis, on the assumption that the best manager of a specific 42 position anywhere may be in any of the countries in which the firm operates. adaptability screening A process that aims to assess the assignee's (and spouse's) probable success in handling a foreign transfer. foreign service premiums Financial payments over and above regular base pay, typically ranging between 10% and 30% of base pay. hardship allowances Compensate expatriates for exceptionally hard living and working conditions at certain locations. mobility premiums Typically, lump-sum payments to reward employees for moving from one assignment to another. 43