Global Human Resource Management (HRM)
Global Human Resource Management (HRM)
Global Human Resource Management (HRM)
Due to globalization, the economy around the world has been largely integrated.
Many corporations are expanding their markets into regions or other countries
they have never touched before. These corporations are experiencing an
evolutionary stage: internationalization. It is clear that effective human resource
management of an organization is the major competitive advantage and may
even be the most important determinant of organizational performance. Thus, in
order to survive in the crucial global economic market, a multinational
corporation (MNC) mainly relies on the capability of its international human
resource management (IHRM) during the internationalization process. In other
words, it is the IHRM’s responsibility to enable the MNCs to be successful globally.
Due to the development of globalization, new challenges occur and increase the
complexity of managing MNCs. IHRM is seen as a key role to balance the need for
coordinating and controlling oversea subsidiaries, and the need to adapt to local
environments. Therefore, the definition of IHRM has extended to management
localization, international coordination, and the development of global
leadership, etc.
Table (1)
Staffing Policy
Human resource management in international business presents issues that are
different from those in domestic or local business. The nature and characteristics
of international business are more complicated than domestic or local business.
As such, it is necessary to account for different types of human resource
management issues in international business. HR managers must also choose the
right staffing policy approach based on the needs of the organization. Effectively
addressing the various types of human resource management issues and deciding
on the most suitable staffing policy approach leads to success in HRM in
international business.
Ethnocentric staffing
Polycentric staffing
Geocentric staffing
The polycentric policy approach to staffing assigns home country workers to top
positions in the central offices or headquarters, and overseas local workers to
other positions. The main advantage of this policy approach is that it facilitates
organizational learning on local markets. This staffing policy approach also
provides better opportunities for locals to improve their careers through
promotion. However, this promotion is limited to key positions in the local
operations, and does not include central or corporate top positions. This staffing
policy approach is disadvantageous because it could create knowledge and
performance gaps between overseas managers and managers in the home
country.
The geocentric policy approach to staffing assigns job positions to any person
best suited for the position, regardless of the employee’s background, culture or
country of origin. The main advantage of this staffing policy approach is that it is
highly flexible. It can increase the firm’s cultural knowledge about the different
markets and countries. However, a disadvantage of this staffing policy approach is
that it could be difficult to apply. Immigration policies, costs of worker relocation
and diversity management create pressure on HR management.
The expatriate management policy in the UAE would also limit expatriate workers
to staffing key positions in the organization. The UAE government supports
expatriate workers and allows expatriate management policies that require
expatriate workers in top ranking positions. However, a firm’s expatriate
management policy and staffing policy in the UAE must support local workers in
the organization to ensure that the regulations of the country are satisfied. These
regulations cover local employment in addition to expatriate employment in the
firm’s staffing policy. The involvement of local workers also has the benefit of
organizational learning based on workers’ local knowledge of the UAE market.
The staffing policy approach suitable for the UAE is either polycentric or
ethnocentric. The final choice depends on the specific needs of the organization
at the time of the implementation of the staffing policy approach. Overall, the
expatriate management policy in the UAE is comparable to those of the US and
other countries in the Middle East.
The advantages and disadvantages of the three approaches to staffing policy are
summarized in Table (2). Broadly speaking, an ethnocentric approach is
compatible with an international strategy, a polycentric approach is compatible
with a localization strategy, and a geocentric approach is compatible with both
global standardization and transnational strategies. While the staffing policies
described here are well known and widely used among both practitioners and
scholars of international businesses, some critics have claimed that the typology is
too simplistic and that it obscures the internal differentiation of management
practices within international businesses. The critics claim that within some
international businesses, staffing policies vary significantly from national
subsidiary to national subsidiary; while some are managed on an ethnocentric
basis, others are managed in a polycentric or geocentric manner. Other critics note
that the staffing policy adopted by a firm is primarily driven by its geographic
scope, as opposed to its strategic orientation. Firms that have a broad geographic
scope are the most likely to have a geocentric mind-set.
Table (2)
EXPATRIATE MANAGERS
Expatriate Failure Rates
Two of the three staffing policies we have discussed-the ethnocentric and the
geocentric-rely on extensive use of expatriate managers. As defined earlier,
expatriates are citizens of one country who are working in another country.
Sometimes the term inpatriates is used to identify a subset of expatriates who are
citizens of a foreign country working in the home country of their multinational
employer. Thus, a citizen of Japan who moves to the United States to work at
Microsoft would be classified as an inpatriate (Microsoft has large numbers of
inpatriates working at its main U.S. location near Seattle). With an ethnocentric
policy, the expatriates are all home-country nationals who are transferred abroad.
With a geocentric approach, the expatriates need not be home-country nationals;
the firm does not base transfer decisions on nationality. A prominent issue in the
international staffing literature is expatriate failure-the premature return of an
expatriate manager to his or her home country. Here we briefly review the
evidence on expatriate failure before discussing a number of ways to minimize
the failure rate.
Expatriate Failure Rates
According to Gary Lloyd, director of the Business Council for International
Understanding, the failure rate of American expatriates in London is 10%; in
Tokyo, 36%; and in Saudi Arabia, 68%, at a cost to the company of anywhere
between $250,000 to $1,000,000 per failure (Caudron, 1992, p. 36). A separate
study estimated the expatriate failure rate to fluctuate between 25 and 40
percent at an average cost per failure of $55,000 to n$150,000 (Hogan &
Goodson, 1990, p. 50).
In addition, even among those 60% to 84% of expatriates that do not return early,
approximately half are considered ineffective by their firms (Black & Gregersen,
1991, p. 462). Because the costs of maintaining a manager in an overseas post
averages about $300,000 per year, the costs for ineffective expatriates may well
be higher than the costs of "failed" expatriates.
However, the real cost of failure of international executives extends beyond the
cost of moving personnel since it almost invariably has a negative impact on
future interactions between the multi-national corporations (MNCs) and the host
countries (Zeira &Banai, 1985, p. 34).
The tangible and intangible consequences of poor cross-cultural adjustment of
expatriate managers are significant. They include the unmeasured costs of
damaged company reputations, lost business opportunities, and/or weakened
abilities to attract top candidates to overseas assignments (Black & Gregersen,
1991, p. 498).
Since it is almost universally acknowledged that American business firms must
"globalize" their business efforts, three questions emerge from the
aforementioned statistics; they are:
1. Why does a technically competent employee fail in an overseas assignment?
2. What can be done by management to reduce this failure rate of expatriates and
improve their success rate?
3. Why doesn't management do what they know they should do?
The answers to these three questions will be the focus of this paper.
A much more detailed analysis of expatriate failure is delineated by Rosalie Tung.
In a survey of U.S. MNCs, respondents were asked to indicate the most important
reasons for expatriate failure. The reasons given in descending order of
importance were:
1. Inability of the manager's spouse to adjust to a different physical or cultural
environment.
2. The manager's inability to adjust to a different physical or cultural environment.
3. Other family related problems.
4. The manager's personality or emotional immaturity.
5. The manager's inability to cope with the responsibilities posed by overseas
work.
6. The manager's lack of technical competence.
7. The manager's lack of motivation to work overseas (Tung, 1986,
p. 117).
Expatriate Selection
One way to reduce expatriate failure rates is by improving selection procedures to
screen out inappropriate candidates. In a review of the research on this issue,
Mendenhall and Oddou state that a major problem in many firms is that HRM
managers tend to equate domestic performance with overseas performance
potential.34 Domestic performance and overseas performance potential are not
the same thing. An executive who performs well in a domestic setting may not be
able to adapt to managing in a different cultural setting. From their review of the
research, Mendenhall and Oddou identified four dimensions that seem to
predict success in a foreign posting: self-orientation, others-orientation,
perceptual ability, and cultural toughness.
• Self-Orientation: possessing high self-esteem, self-confidence and mental well-
being
• Others-Orientation: ability to develop relationships and communicate
• Perceptual Ability: ability to understand why people of other countries behave
the way they do (being nonjudgmental and flexible)
• Cultural Toughness: relationship between country of assignment and the
expatriate’s adjustment to it (India, Southeast Asia and Middle East are much
tougher… reduced healthcare and housing standards, inhospitable climate, lack of
Western entertainment, language difficulties)
Cultural Training
The belief is that understanding a host country's culture will help the manager
empathize with the culture, which will enhance his or her effectiveness in dealing
with host-country nationals. It has been suggested that expatriates should receive
training in the host country's culture, history, politics, economy, religion, and
social and business practices.
Language Training
Those firms that did offer foreign language training for expatriates believed it
improved their employees' effectiveness and enabled them to relate more easily
to a foreign culture, which fostered a better image of the firm in the host country.
Practical Training
Where an expatriate community exists, firms often devote considerable effort to
ensuring the new expatriate family is quickly integrated into that group. The
expatriate community can be a useful source of support and information and can
be invaluable in helping the family adapt to a foreign culture.
Performance Appraisal
Performance appraisals are comprised of preset standards which are used to
measure employees’ work behavior and the results are provided as feedback for
the employee. An appraisal system helps employers with the decision-making
process involved in employee promotion and compensation, or perhaps in an
unfortunate situation, termination. A performance appraisal system falls under
the umbrella of performance management software and these platforms are
typically used in conjunction with each other.
EXPATRIATE PAY
The components of the typical expatriate compensation package are a base
salary, a foreign service premium, allowances of various types, tax differentials,
and benefits. We shall briefly review each of these components.64 An expatriate's
total compensation package may amount to three times what he or she would
cost the firm in a home country posting. Because of the high cost of expatriates,
many firms have reduced their use of them in recent years. However, a firm's
ability to reduce its use of expatriates may be limited, particularly if it is pursuing
an ethnocentric or geocentric staffing policy.
Base Salary
An expatriate's base salary is normally in the same range as the base salary for a
similar position in the home country. The base salary is normally paid in either the
homecountry currency or in the local currency.
Allowances
Four types of allowances are often included in an expatriate's compensation
package: hardship allowances, housing allowances, cost-of-living allowances, and
education allowances. A hardship allowance is paid when the expatriate is being
sent to a difficult location, usually defined as one where such basic amenities as
health care, schools, and retail stores are grossly deficient by the standards of the
expatriate's home country.
Taxation
Unless a host country has a reciprocal tax treaty with the expatriate's home
country, the expatriate may have to pay income tax to both the home- and host-
country governments. When a reciprocal tax treaty is not in force, the firm
typically pay s the expatriate's income tax in the host country. In addition, firms
normally make up the difference when a higher income tax rate in a host country
reduces an expatriate's take-home pay.
Benefits
Many firms also ensure that their expatriates receive the same level of medical
and pension benefits abroad that they received at home. This can be costly for
the firm, since many benefits that are tax deductible for the firm in the home
country (e.g., medical and pension benefits) may not be deductible out of the
country.