This lecture demonstrates how managers can effectively utilize HRM practices to enhance their firms'

competitive response in an era when the opportunities and challenges facing business are international in

nature. It covers the stages of international involvement, the challenges of expatriate job assignments, and

the ways to make those assignments more effective. It also discusses the development of HRM policies in a

global context and the specific HR concerns of exporting firms.

A. Managing Human Resources in an International Business

Globally, HR executives are strategic partners with line managers and actively participate in top-level

business decisions that bring human resource perspectives to the global management of a company.

Basically, the role of the global human resource executive is focused on being a strategic business partner

and decision maker. Any human resource initiative must be based on maximizing productivity to best

benefit the bottom line, and, therefore, a solid understanding of the total global system is essential. Just as

global business enterprises evolve, so do the human resources that support them. The global human

resources role is, and should be, a natural extension of the positive orientation toward global human

resource management and the recognition of the strategic role that must play.

Firms progress through five stages (e.g., domestic operations, export operations, subsidiaries or joint

ventures, multinational operations, and transnational operations) as they internationalize their operations.

See Figure for a graphical

display of these stages. The

higher the stage, the more HR

practices need to be adapted to

diverse cultural, economic,

political, and legal

environments. For example,

HRM practices at Stage 5

companies (transnational

corporations) are designed to

blend individuals from diverse

backgrounds to create a shared

corporate (rather than national)

identity and a common vision.

The evolution of global

business stages are:

• Exporting—Selling

abroad, either directly

or indirectly, by retaining foreign agents and distributors.

• Licensing—An arrangement whereby an organization grants a foreign firm the right to use

intellectual properties such as patents, copyrights, manufacturing processes, or trade names for a

specific period of time.

• Franchising—The parent company grants another firm the right to do business in a prescribed

manner. Franchisees must follow stricter operational guidelines than do licensees. Licensing is

usually limited to manufacturers, whereas franchising is popular with service firms such as

restaurants and hotels.

• Multinational Corporation (MNC)—A firm that is based in one country (the parent or home

country) and produces goods or provides services in one or more foreign countries (host

countries).

• Global Corporation—Has corporate units that are integrated to operate as one organization

worldwide in a number of countries.

The utilization of global human resources to achieve organizational objectives without regard to geographic

boundaries. Those engaged in the management of global human resources develop and work through an

integrated global human resource management system similar to that experienced domestically.

A global organization must have qualified individuals in specific jobs at specific places and times in order to

accomplish its goals. This process involves obtaining such people globally through human resource

planning, recruitment, and selection.

1. Expatriate: An employee working in a firm who is not a citizen of the country in which the firm is

located but is a citizen of the country in which the organization is headquartered.

2. Host-country national (HCN): An employee working in a firm who is a citizen of the country in

which the firm is located, but where the firm is operated by an organization headquartered in another

country. Normally the bulk of employees in international offices will be host-country nationals.

3. Third-country national (TCN): A citizen of one country, working in a second country, and

employed by an organization headquartered in a third country.

1. Ethnocentric staffing: Companies primarily hire expatriates to staff higher-level foreign positions.

2. Polycentric Staffing: When more host-country nationals are used throughout the organization,

from top to bottom.

3. Regiocentric Staffing: Similar to the polycentric approach, but regional groups of subsidiaries

reflecting the organizations strategy and structure work as a unit.

4. Geocentric staffing: A staffing approach that uses a worldwide integrated business strategy.

Global training and development is needed because people, jobs, and organizations are often quite

different globally.

IV. Global Human Resource Development

a. Expatriate Development—The development process should start as soon as the workforce is

selected, even before beginning global operations if possible.

b. Repatriation Orientation and Training—Orientation and training is necessary prior to

repatriation, which is the process of bringing expatriates home. Repatriation orientation and

training is needed to prepare the employee, and the family, for a return to the home-country culture

and to prepare the expatriate’s new subordinates and supervisor for the return.

Probably the main reason that organizations relocate to other areas of the world is because of high-wage

pressures that threaten their ability to compete on a global basis. Basically, the compensation levels are

usually much lower globally. Variations in laws, living costs, tax policies, and other factors all must be

considered when establishing global compensation packages.

Safety and health aspects of the job are important because employees who work in a safe environment and

enjoy good health are more likely to be productive and yield long-term benefits to the organization. For this

reason, progressive global managers have long advocated and implemented adequate safety and health

programs. Basically, U.S.-based global operations are often safer and healthier than those of the hostcountry

operations, but frequently not as safe as similar operations in the United States.

Unfortunately, a global organization must cope with various unknowns. The management of HR functions

globally is enormously complicated by the need to adapt HR policies and practices to different host

countries. HR management must consider the potential impact of global differences on human resources.

Differences in politics, law, culture, economics, labor/management relations systems, and other factors

complicate the task of global human resource management.

a. Political and Legal Factors—the nature and stability of political and legal systems vary throughout

the globe. firms enjoy a relatively stable political and legal system. The same is true in many of the

other developed countries, particularly in Europe. However, in other nations, the political and legal

systems are much more unstable. Some governments are subject to coups, dictatorial rule, and

corruption, which can substantially alter the business environment as well as the legal environment.

Legal systems can also become unstable, with contracts suddenly becoming unenforceable because of

internal politics.

b. Cultural Factors—Cultural differences vary from country to country with corresponding differences

in HR practices. HR practices must be adapted to local cultural norms, and, therefore, most HR staff

members in a foreign subsidiary should be drawn from host-country nationals. However, just because

certain cultural norms are restrictive does not mean that an attempt at change should not be made.

Companies must bring in a critical mass of expatriates who carry the culture with them and always

leave one or two behind to oversee locals and ensure that they are following corporate policies. The

key is to accommodate local cultures but maintain the critical nature of the corporate culture.

c. Economic Factors—Differences in economic systems must also be thoroughly investigated. In a

capitalist system, the overwhelming need for efficiency favors HR policies and practices that value

productivity and efficiency. In a socialist system, HR practices favor the prevention of

unemployment, often at the expense of productivity and efficiency, which is often unacceptable. The

impact of economic factors on pending global operations must be fully understood and accounted

for prior to developing HR policies and practices. Probably one of the greatest economic factors is

the difference in labor costs.

d. Labor/Management Relations Factors—The relationship between workers, unions, and

employers varies dramatically from country to country and obviously has an enormous impact on HR

management practices.

One of the most challenging tasks for any firm operating internationally is to manage its expatriate work

force effectively.

a. Why International Assignments End in Failure

The failure. expatriates is estimated to be in the 20 to 40 percent range. Six factors account for most

failures.

1. Career blockage

2. Culture shock

3. Lack of pre-departure cross-cultural training

4. Overemphasis on technical qualifications

5. Getting rid of a troublesome employee

6. Family problems

When the expatriates return home, they may experience additional problems, which include:

7. Lack of respect for acquired skills

8. Loss of status

9. Poor planning for return position

10. Reverse culture shock

Companies can minimize the chances of failure by putting in place a sensible set of HRM policies and

practices that get to the root of the problems. Such policies and practices would pertain to selection,

training, career development, and compensation. Adequate practices in these areas can be used to avoid

problems.

The choice of an employee for an international assignment is a critical decision. To choose the best

employee for the job, management should:

1. Emphasize cultural sensitivity as a selection criteria

2. Establish a selection board of expatriates

3. Require previous international experience

4. Explore the possibility of hiring foreign-born employees

5. Screen candidates’ spouses and families

The assumption that people everywhere respond in similar fashion to the same images, symbols, and

slogans has hurt U.S. companies. Cross-cultural training sensitizes candidates for international assignment

to the local culture, customs, language, tax laws, and government.

The expatriate’s motivation to perform well on an international assignment will depend to a large amount

on the career development opportunities offered by the employer.

Firms can use compensation packages to enhance the effectiveness of expatriate assignments. However,

compensation policies can create conflict if locals compare their pay packages to the expatriate’s and

conclude that they are being treated unfairly.

Equal employment opportunity worldwide ranges from virtually none to a highly sophisticated system.

Some countries have extensive EEO laws, and they are enforced vigorously. Other countries have similar

laws that are not enforced, whereas others have no laws relating to EEO.

Global HR management of expatriates can be made simpler and more manageable by following eight steps,

which are general guidelines for developing an expatriate workforce.

• The global business plan must be completely understood to make it easier to determine how

existing human resource policies can be adapted to accomplish global objectives.

• The company’s Foreign Service policy should be a set of guidelines, not rigid rules, for relocating

employees and their families around the world while maintaining the domestic corporate culture.

• Develop a global budget process so the overall cost of each expatriate global assignment can be

estimated. Such costs represent enormous investments and should be carefully considered to

determine if expatriates or host-country or third-country nationals should be used.

• Profile the candidate and his or her family to determine who might be an effective candidate for a

global assignment. Often an entire family, not just an employee, must be considered in making the

determination.

• The terms and conditions of the global assignment should be clearly stated up front. Expatriates

should be given both a verbal and written presentation of the assignment’s terms and conditions to

ensure a complete understanding of both the benefits and responsibilities of the global assignment.

• Prepare expatriates and their families for relocation with departure orientation and training.

Employees and their families should be given language training and cultural training, as well as a

general orientation of everyday living and local customs.

• Develop and implement a continual development process to take advantage of the employee’s

global experiences, including career planning, as well as home-country development during the

global assignment period.

• Prepare returning expatriates and their families with repatriation orientation training.

Maintaining an effective corporate culture that reflects that of the home country is essential for continuity

worldwide and often requires innovative insight. When a U.S. company hires too many local people in its

foreign offices, it risks losing the unique set of values and operating procedures that defines its corporate

culture.

Often a corporation forms an alliance with a company in the host country. In such situations, it is essential

that the corporate cultures and management styles of the partners blend together as quickly as possible.

Long-term success means having a corporate culture that supports the goals of the global organization and

effectively deals with the international business environment. As a firm becomes more and more global in

nature, it becomes more difficult to have a supportive corporate culture. Alliances are useful for all partners

because collaboration makes it possible to share the costs and risks of doing business, and it enables

companies to share financial resources, technology, production facilities, marketing expertise, and of course,

human resources. However, problems may occur in international alliances when people from different

organizations and national cultures work together. Regardless of whether an alliance exists, it is essential

that the corporate culture focus on making a profit. Combining an effective corporate culture that keys on

innovatively coping with the global environment and, at the same time, being profitable is what all global

companies must strive for. Ideally, the corporate culture of global corporations will closely parallel that of

the home country.

Ethnocentric Staffing Companies primarily hire expatriates to staff higher-level foreign

positions.

Polycentric Staffing When more host-country nationals are used throughout the organization,

from top to bottom.

Regiocentric Staffing Similar to the polycentric approach, but regional groups of subsidiaries

reflecting the organizations strategy and structure work as a unit.

Geocentric Staffing A staffing approach that uses a worldwide integrated business strategy

Expatriate An employee working in a firm who is not a citizen of the country in

which the firm is located but is a citizen of the country in which the

organization is headquartered.

Licensing An arrangement whereby an organization grants a foreign firm the right to

use intellectual properties such as patents, copyrights, manufacturing

processes, or trade names for a specific period of time.

Multinational Corporation A firm that is based in one country (the parent or home country) and

produces goods or provides services in one or more foreign countries

(host countries).

Global Corporation Has corporate units that are integrated to operate as one organization

worldwide in a number of countries.