Defining Human Resource Management Business Essay

Fast growth of globalization has brought about a change in the global economy during the past several decades. Factors like trade liberalization and access to cheaper labor, as well as similarity of consumer demand around the world and advances in technology and communication has expanded the consumption and production on a global level. These factors created new challenges for businesses around the world. Therefore, as a response, many companies decided to spread out their operations across national borders in order to be competitive.

A company that operates its business in at least one country other than its country is called Multinational Corporation (MNC) and is attributed with the nature of multiculturalism. The number of MNCs is increasing fast and today it is not surprising to find major MNCs such as McDonalds, Toyota, Nike and Microsoft almost in every country. They played a powerful role in the globalization by being considered as the main vehicle that enables goods and services to move around the world.

However, when company decides to internationalize, it is aware that its operations will be exposed to various environmental and cultural challenges. In order to operate successfully, it should be able to modify its products and services to meet the cultural preference of foreign customer and to adjust its operations to comply with the local legal requirements. Most likely it will employ local people and managers, whereby it should be noted that those employees then come with different culture backgrounds and different working styles as compared to its employees in the Headquarter. This is where Human Resource Management (HRM), and especially International Human Resource Management (IHRM), become an important issue for the organization which is MNC.

Human Resource Management becomes more complex at the international level and, therefore, is crucial for the organization to execute the right HRM strategy for its international operations. To make it more severe, it is argued that business failures in the international arena are often linked to poor management of human resources.

This paper aims to discuss the hypothesis given above. The importance of Human Resource Management and, especially, International Human Resource Management, as well as the business challenges of MNCs around the world and factors affecting the business operations will be all discussed and analyzed throughout the paper.

DEFINING HUMAN RESOURCE MANAGEMENT (HRM)

Human Resource Management (HRM) is the management of a business’ employees. HRM is handled differently by every business with larger businesses utilizing an entire department dedicated to this function. Smaller businesses may combine their HRM functions with other tasks of the company.

There are different definitions of Human Resource Management and it mainly refers to the function performed in organizations that facilitates the most effective use of people (employees) to achieve organizational and individual goals. It is a system that is used by organization to ensure that human talent is used effectively and efficiently to meet its organizational goals. Therefore, HRM plays a major role in everyday business practices and in the effective use of personnel or employees of the company.

There is a variety of HRM areas in each organization, regardless the size, from laws implementation to salaries. HRM’s job is to keep up with the changes and amendments of organization’s policies and to make all employees aware of the new laws and/or procedures. Also, HRM is part of the organization’s planning process and it is critical to an organization’s success. It determines what the “supply and demand” is now and will be for human resources in the future.

Organizations worldwide have very complex rules and regulations to abide by when it comes to its employees. The degree to which these regulations apply to a certain organization depends upon the type of business an organization is. Different organizations require different trainings for its employees; therefore some of them require online training classes regarding labor laws and sexual harassment, while others emphasize on the violence in the workplace. With such an HRM educating the employees on various areas, the employees gain knowledge as to what to do in different challenging situations so the company’s liability risk is small.

DEFINING INTERNATIONAL HUMAN RESOURCE MANAGEMENT (IHRM)

After defining Human Resource Management (HRM) itself, which usually covers functional areas such as human resource planning, staffing, reward, motivation, and performance management, it is important to define International Human Resource Management (IHRM) and to mention that all the activities of HRM change once it goes internationally.

With an increasing number of MNCs around the world, the role of IHRM is becoming more and more important for the internationalization process of each company. It has been identified as a powerful strategic tool that helps companies to formulate and implement their international business strategies and improve their subsidiaries performances.

IHRM refers to human resource management issues, policies and practices that result from the strategic activities of multinational enterprises. Managing HR in MNCs is different from the way the HR is being managed in the country.

There are three factors that differentiate IHRM from domestic HRM. First, the countries of operations are different. Second, there is a different type of employee to deal with. In international environment, HR management has to deal with the host-country nationals (HCNs), expatriates or home-country nationals (PCNs), and third country nationals (TCNs). For example, if L’Oreal hired an Indonesian employee in their Indonesian subsidiary, that employee is HCN. When manager from L’Oreal Headquarter in France comes to work in Indonesian subsidiary, that manager is PCN. If L’Oreal employs manager neither from Indonesia nor France to work in their Indonesian subsidiary, that manager is TCN. Third factor is the way HR practices (e.g. staffing, compensation, training, etc.) are conducted. Although IHRM practices seems to have the same activities as domestic HRM, in IHRM the manager will be dealing with different environment and diversity of employees from different cultural background.

Dissimilarities between HRM and IHRM are mostly due to the deep differences between host and home countries in terms of culture, economy, legal system, and labor markets. Because of these reasons, managing HRM in the overseas’ subsidiary is likely to be more complex and difficult as compared to managing its domestic HRM. Hence, it is important for HR manager to understand the complexity of IHRM and to be aware of other important issues related to IHRM, as well as to be able to develop and implement HR strategy that suits the international practices. Limitation to understand IHRM’s context and inability to implement the right approach will result in a failure of that particular organization’s strategy and, consequently, business overseas as a whole.

As a result of internationalization processes, companies must increasingly be managed globally, which puts managers facing several challenges. Market, product, and production plans must be coordinated on a worldwide basis. Such an organization’s structure must be formed whereby the balance between centralized home-office’s control and adequate local autonomy must be created. For example, Ford Motor Company today is managed as a global business. Activities such as product development and vehicle design are conducted on a worldwide basis, rather than in regional development centers. Manufacturing and purchasing are also handled globally. Ford approaches HR on the same global basis, “moving employees from anywhere to anywhere if they’re the best ones to do the job.” At Ford and at other global companies, this kind of global HR perspective “requires understanding different cultures, what motivates people from different societies, and how that’s reflected in the structure of international assignments.” As a result, some of the most pressing challenges companies face concern the impact of “going global” on the employers’ human resource management systems. This is because all those HR activities are complicated by the sorts of cultural and political differences that characterize different countries around the world.

When compared with domestic human resource management, IHRM requires a much broader perspective on even the most common HR activities. This is particularly so for HR managers operating from MNC’s headquarters (HQ). The number and variety of IHRM activities are daunting. International HR managers must deal with issues as varied as international taxation; international relocation and orientation; various other administrative services for expatriates; selecting, training and appraising local and international employees; and managing relations with host governments in a number of countries around the world.

HUMAN RESOURCE AND INTERNATIONAL BUSINESS CHALENGES

Companies have gone global and the number of their employees abroad has increased. In terms of employees overseas, for instance, a recent survey of 351 companies found that virtually every firm had at least one employee on international assignment. About 67% of the firms had between 1 and 40 employees abroad, while the remaining firms have 41 or more employees on international assignments. About 20% of the assignments were short term, up to 1 year, while 50% were for up to 3 years, and about 30% were for up to 5 years or more.

With more employees abroad, HR departments have had to tackle new global challenges. Each firm is faced with certain global pressures affecting its human resource management practices. Among them, the three were especially announced:

Deployment: Easily getting the right skills to where they are needed in the organization regardless of geographic allocation;

Knowledge and innovation dissemination: Spreading knowledge and practices throughout the organization regardless of where they originate; and

Identifying and developing talent on a global basis: Identifying who has the ability to function effectively in a global organization and developing these abilities.

Dealing with such challenges means most employers have had to move quickly to develop HR policies and procedures just for handling global assignments. This process itself can be very complex. For example, it is a trouble just to decide on whom to deploy to an overseas assignment and how to pay that person. What one needs to do hereby is following:

Candidate identification, assessment, and selection. In addition to the required technical and business skills, key traits to consider for global assignments include, for instance: cultural sensitivity, interpersonal skills, and flexibility.

Cost projections. The average cost of sending an employee and family on an overseas assignment is reportedly between three and five times the employee’s pre-departure salary. As a result, quantifying total costs for a global assignment and deciding whether to use an expatriate or a local employee are essential in the budgeting process.

Assignment letters. The assignee’s specific job requirements and associated pay will have to be documented and formally communicated in an assignment letter.

Compensations, benefits and tax programs. There are many ways to compensate employees who are transferred abroad, given the vast differences in living expenses around the world. Some common approaches to international pay include home-based plus a supplement and destination-based pay.

Relocation assistance. The assignee will probably have to be assisted with such matters as maintenance of the person’s home and cars, shipment and storage of household goods, and so forth.

Family support. Cultural orientation, language training, education assistance, and emergency provisions are just some of the matters to be addressed here before the family is shipped abroad. And that is just the small part. Cross-cultural, technical, and language training programs will probably be required too.

Complex labor laws and rules from country to country and provisions for re-assimilating the expatriate when he or she returns home are some of the other issues that are to be addressed as well.

THE INTERNATIONAL BUSINESS ENVIRONMENT

International business is different from domestic business because the environment changes when a firm crosses international borders. Typically, a firm understands its domestic environment quite well, but is less familiar with the environment in other countries and must invest more time and resources into understanding the new environment. The following considers some of the important aspects of the environment that change internationally.

The economic environment can be very different from one nation to another. Countries are often divided into three main categories: the more developed or industrialized, the less developed or third world, and the newly industrializing or emerging economies. Within each category there are major variations, but overall the more developed countries are the rich countries, the less developed the poor ones, and the newly industrializing (those moving from poorer to richer). These distinctions are usually made on the basis of gross domestic product per capita (GDP/capita). Better education, infrastructure, technology, health care and so on are also often associated with higher levels of economic development.

In addition to level of economic development, countries can be classified as free-market, centrally planned, or mixed. Free-market economies are those where government intervenes minimally in business activities, and market forces of supply and demand are allowed to determine production and prices. Centrally planned economies are those where the government determines production and prices based on forecasts of demand and desired levels of supply. Mixed economies are those where some activities are left to market forces and some, for national and individual welfare reasons, are government controlled. In the late twentieth century there has been a substantial move to free-market economies, but the People’s Republic of China, the world’s most populous country, along with a few others, remained largely centrally planned economies, and most countries maintain some government control of business activities.

Clearly, the level of economic activity combined with education, infrastructure, and so on, as well as the degree of government control of the economy, affect virtually all facets of doing business, and a firm needs to understand this environment if it is to operate successfully internationally.

The political environment refers to the type of government, the government relationship with business, and the political risk in a country. Doing business internationally thus implies dealing with different types of governments, relationships, and levels of risk. There are many different types of political systems, for example, multi-party democracies, one-party states, constitutional monarchies, dictatorships (military and nonmilitary). Also, governments change in different ways, for example, by regular elections, occasional elections, death, coups, war. Government-business relationships also differ from country to country. Business may be viewed positively as the engine of growth, it may be viewed negatively as the exploiter of the workers, or somewhere in between as providing both benefits and drawbacks. Specific government-business relationships can also vary from positive to negative depending on the type of business operations involved and the relationship between the people of the host country and the people of the home country. To be effective in a foreign location, an international firm relies on the goodwill of the foreign government and needs to have a good understanding of all of these aspects of the political environment.

A particular concern of international firms is the degree of political risk in a foreign location. Political risk refers to the likelihood of government activity that has unwanted consequences for the firm. These consequences can be dramatic as in forced divestment, where a government requires the firm give up its assets, or more moderate, as in unwelcome regulations or interference in operations. In any case, the risk occurs because of uncertainty about the likelihood of government activity occurring. Generally, risk is associated with instability and a country is thus seen as more risky if the government is likely to change unexpectedly, if there is social unrest, if there are riots, revolutions, war, terrorism, and so on. Firms naturally prefer countries that are stable and that present little political risk, but the returns need to be weighed against the risks, and firms often do business in countries where the risk is relatively high. In these situations, firms seek to manage the perceived risk through insurance, ownership and management choices, supply and market control, financing arrangements, and so on. In addition, the degree of political risk is not solely a function of the country, but depends on the company and its activities as well-a risky country for one company may be relatively safe for another.

The cultural environment is one of the critical components of the international business environment and one of the most difficult to understand. This is because the cultural environment is essentially unseen; it has been described as a shared, commonly held body of general beliefs and values that determine what is right for one group. National culture is described as the body of general beliefs and values that are shared by a nation. Beliefs and values are generally seen as formed by factors such as history, language, religion, geographic location, government, and education; thus firms begin a cultural analysis by seeking to understand these factors. Firms want to understand what beliefs and values they may find in countries where they do business.

Advantages and Challenges of Having a Global HR Approach

Technology is pushing global HR to the forefront, because it seamlessly integrates HR systems by taking advantage of advance servers and databases that facilitate the presence of a comprehensive Human Resource Information Systems. Payroll and benefits data is accessible across markets as a result of these technological advancements: in effect, making information readily available to HR professionals in a multinational corporation across the globe.

Learning organization: For example, it is not uncommon for Visa or American Express to have its customer service operations outsourced to a call center in Bangalore. Cross-collaboration has also been made possible because of the virtualization of IT functions across the globe. The use of video technology also enables virtual teams to communicate “face to face”, although separated by land and ocean.

Cost of labor: The cost of labor in new markets enables corporations to maximize access to international knowledge workers at minimal cost. The Inquirer (http://www.theinquirer.net) in 2003 reported computer programmers in India earned $10,000 in comparison to their US counterparts who earned over $60,000. Additionally, a global salary comparison chart provided by worldsalaries.org shows that the purchasing power parity (PPP) of computer programmers in the US is $4141 compared to $1075 for their Chinese counterparts. As a result, the cost imperatives for US businesses to take advantage of well-qualified overseas talent are very strong.

New markets: When organizations decide to expand their global strategy through mergers and acquisitions or direct investment, HR is needed to implement the people strategy of such an investment. Having a global HR strategy enables firms to create an environment and strategy that can absorb cultural obstacles through creating a proactive HR management framework. Previous experience with a global HR strategy positions an organization positively, so that it can take advantage of new market opportunities based supported by an experienced and tested global HR process.

Challenges

A multinational corporation operating internationally competes with cultural shades which are not always overcome by having a standardized corporate culture across different markets. There is a clear difference between having a multinational manager or professional who speaks the right languages in contrast to one who maintains a true open-mind, while working within the international framework.

Managers had trepidations about working overseas because of the expectation that employees will be demoted, after repatriation to their home location. For example, a manager of an IT team in Silicon Valley could have concerns about bringing on an expatriate trained in India, because of concerns that the Indian professional may not be up to same level.

Because of the obvious geographical, cultural, legal and linguistic differences, there are inherent challenges in setting up a standardized HR approach across borders. For example in most of Europe, specifically in the UK, job advertisements can clearly have age and sex requirements. Also, most job seekers are comfortable adding details about their families and may add a professional photo of themselves to their resumes. In the USA, these examples present clear equal employment opportunity challenges because basic qualifications of a job description cannot include sex and age requirements unless it is a bona fide occupational requirement. Also, putting a picture on a resume plus details of one’s family life can present concerns about employment discrimination, if a particular job seeker is not hired by company. HR is seen as a separate function in the UK, however in France it is a sub-set of the finance department and a sub-set of the legal department in Germany. This reflects a clear difference in orientation based on the aforementioned observation. A further observation is made in Russia, where expatriates there do not have a clear understanding of their total rewards and tax obligations, because of the informal manner in which such matters are handled.

Even when dealing with one particular HR function area such as compensation, the international HR manager is faced with a great variety of national and international pay issues. For example, while dealing with pay issues, the HQ-based HR manager must coordinate pay systems in different countries with different currencies that may change in relative value to one another over time. An American expatriate in Tokyo who receives a salary of $100,000 may suddenly find the buying power of that salary dramatically diminished if the Japanese yen strengthens in value relative to the US dollar.

In the case of extreme benefits provided to host company employees, some interesting complications might arise. For instance, it is common in the United States to provide health insurance benefits to employees and the employee’s family, which usually means spouse and children. In some countries, however, the term “family” may include a more extended group of relatives-multiple spouses, aunts, uncles, grandparents, nephews, and nieces. How does the firm’s benefit plan deal with these different definitions of family?

HUMAN RESOURCE MANAGEMENT AND INTER-COUNTRY DIFFERENCES

To a large extent, companies operating only within the borders of its own country have the luxury dealing with a relatively limited set of economic, cultural, and legal variables. While the different states and municipalities certainly have their own laws affecting HRM, a basic country law framework also helps produce a fairly predictable set of legal guidelines regarding matters such as employment discrimination, labor relations, and safety and health.

A company operating multiple units abroad is generally not blessed with such a relative homogeneity. For example, minimum legally mandated holidays may range from none in the United Kingdom to 5 weeks per year in Luxembourg. And while there are no formal requirements for employee participation in Italy, employee representatives on boards of directors are required in Denmark for companies with more than 30 employees. The point is that the management of the HR function in multinational companies is complicated enormously by the need to adapt personnel policies and procedures to the differences among countries in which each subsidiary is based. Cultural and economic dissimilarities are only some inter-country differences that demand such an adaptation.

Cultural Factors

In many modern languages the word culture is used in a figurative sense, with two meanings:

The first, most common, meaning is “civilization”, including education, manners, arts and crafts and their products.

The second meaning derives from social anthropology, but in the past decades it has entered common parlance. It refers to the way people think, feel, and act.

Human culture is the result of hundreds of thousands of years of evolution. During most of this time, competition between bands of gatherer-hunters was a powerful evolutionary pressure. As a result our social and intellectual skills have become ever bigger. But we did not lose the elements of our behavior that identify us as social mammals. Fights for dominance, competition for partners, a wish to belong and to know who does not belong – all of these basic drives are alive in us. No wonder that culture revolves around basic issues that have to do with group membership, authority, gender roles, morality, anxiety, emotions and drives. Culture affects our love lives, our professional lives, our wars and our dreams.

An individual human being acquires most of her or his programming during childhood, before puberty. In this phase of our lives we have an incredible capacity for absorbing information and following examples from our social environment: our parents and other elders, our siblings and playmates. But all of this is constrained by our physical environment: its wealth or poverty, its threats or safety, its level of technology. All human groups, from the nuclear family to society, develop cultures as they go. Culture is what enables a group to function smoothly.

Today’s world population is divided into some 200 nations. Comparing nations has become part of most social sciences. Some nations are more culturally homogeneous than others; especially large nations like Brazil, China, India and Indonesia comprise culturally different regions. Other culturally similar areas belong politically to different nations: this is in particular the case in Africa. Because values are acquired in childhood, national cultures are remarkably stable over time; national values change is a matter of generations. What we see changing around us, in response to changing circumstances are practices: symbols, heroes and rituals, leaving the underlying values untouched.

Economic Factors

Differences in economic systems among countries also translate into inter-country differences in HR practices. In free enterprise systems, for instance, the need for efficiency tends to favor HR policies that value productivity, efficient workers, and staff cutting. Moving along the scale toward more socialist systems, HR practices tend to shift toward preventing unemployment, even at the expense of sacrificing efficiency.

European Community

In 1992, 12 separate countries of the European Community (EC) were unified into a common market for goods, services, capital and even labor. Generally speaking, tariffs for goods moving across borders from one EC country to another disappeared, and employees (with some exceptions) now find it easier to move freely between jobs in the EC countries.

The 1999 introduction of single currency, euro, further blurred many of the inter-country differences. However, differences remain. Many countries have minimum wages while others do not, and hours permitted in the workday and workweek vary from no maximum in the UK to 48 per week in Greece and Italy. Other differences exist in matters like minimum number of annual holidays and minimum notice of termination to be given by employers.

European Union strives to gradually reduce these sorts of differences. However, cultural differences still undoubtedly lead to differences in HR practices from country to country. Therefore, managing human resources at multinational level remains difficult for HR managers even just within the Europe.

In summary, inter-country differences in cultures, economic systems, labor costs and legal and industrial relations systems complicate the task of selecting, training, and managing employees abroad. Such differences translate into corresponding differences in management styles and practices from country to country, and such differences may strain relations between headquarters and subsidiary personnel or make a manager less effective when working abroad than at home. International assignments thus run a relatively high risk of failing unless special steps are taken to select and train international assignees.

IMPROVING INTERNATIONAL ASSIGNMENTS THROUGH SELECTION

The selection process is fundamentally imperfect. Expatriate assignments rarely fail because the person cannot accommodate to the technical demands of the job. The expatriate selections are made by line managers based on the technical competence. They fail because of family and personal issues, as well as lack of cultural skills that have not been part of the process.

Multinationals utilize several types of international managers. Locals are citizens of the countries where they are working. Expatriates are noncitizens of the countries in which they are working. Home-country nationals are the citizens of the country in which the multinational company´s headquarters is based. Third-country nationals are citizens of a country other than the parent or the host country (for example a British executive working in a Tokyo subsidiary of a U.S. multinational bank).

There may also be a fear that expatriates, knowing they are posted to the foreign subsidiary for only a few years, may overemphasize short-term projects rather than focus on more necessary long-term tasks.

International Staffing Policies

Multinational firms’ top executives are often classified as either ethnocentric, polycentric, or geocentric, and these values translate into corresponding corporate policies.

In an ethnocentric corporation, the prevailing attitude is that home country attitudes, management styles, knowledge, evaluation criteria, and managers are superior to anything the host country might have to offer.

In the polycentric corporation, there is a conscious belief that only host country managers can ever really understand the culture and behavior of the host country market. Therefore, the foreign subsidiary should be managed by local people.

Geocentric assumes that management candidates must be searched for on a global basis, on the assumption that the best manager for any specific position anywhere on the globe may be found in any of the countries in which the firm operates.

These three sets of multinational value translate into three broad international staffing policies. With an ethnocentric staffing policy all key management positions are filled by parent-country nationals. A polycentric-oriented firm would staff foreign subsidiaries with host-county nationals and its home-office headquarters with parent-country nationals. This may reduce the local cultural misunderstandings that might occur when expatriate managers are used. It will also almost undoubtedly be less expensive. One expert estimates that an expatriate executive can cost a firm up to three times as much as a domestic executive because of transfer expenses and other expenses such as schooling for children, annual home leave, and the need to pay income taxes in two countries.

A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. It is similar to what Ford Motor Company is doing today. This may let global firm use its human resources more efficiently by transferring the best person to the open job, wherever he or she may be. It can also help build a stronger and more consistent culture and set of values among the entire global management team. Team members here are always interacting, networking, and building bonds with each other, as they move from assignment to assignment around the globe and participate in global development activities.

Selecting International Managers

There are common traits that managers assigned domestically and overseas must share. Wherever a person is to be posted, he or she will need the technical knowledge and skills to do the job, as well as the intelligence and people skills to be a successful manager.

However, foreign assignments are different. There is the need to cope with a workforce and management colleagues whose cultural inclinations may be drastically different from one´s own, and the stress from being alone in a foreign land can bring to bear on the single manager. Furthermore, if spouse and children are involved, there is additional pressure that the family will have to confront, from learning a new language and shopping in strange surroundings, to finding new friends and attending new schools.

Selecting managers for expatriate assignments therefore means screening them for traits that predict success in adapting to what may be dramatically new environments. One recent study identified five factors perceived by international assignees to contribute to success in a foreign assignment: job knowledge and motivation, relational skills, flexibility/adaptability, cultural openness, and family situation. Flexibility/adaptability includes such items as ability to deal with stress, flexibility, and emotional stability. Cultural openness includes variety of outside interests, interest in foreign countries, and openness. Family situation factor includes adaptability of spouse and family, spouse’s positive opinion, willingness of spouse to live abroad, etc. Family situation was generally found to be the most important factor. Thus, while all five factors are important for the expatriate’s success, the company that ignores the candidate’s family situation does so at its own risk.

Sensitivity to cultural differences could be used to distinguish between managers who had high potential as international executives and those whose potential was not as high.

Adaptability Screening

Adaptability screening aims to assess the family´s probable success in handling the foreign transfer and to alert the couple to personal issues (such as the impact on children) the move may involve. Even several successful summers spent traveling overseas or participating in foreign student programs would seem to provide some concrete basis for believing that the potential transferee can accomplish the required adaptation when he or she arrives overseas. There are also paper-and-pencil tests that can be used to help select employees for overseas assignments.

The importance of factor such is adaptabi1ity, notwithstanding job skills and competencies, is the major factor in selecting employees for international assignments.

Training and Maintaining International Employees

When it comes to special trainings for overseas candidates, one company specializing in such programs prescribes a four step approach:

Training that will first focus on the impact of cultural differences and on raising trainees awareness of such differences, and, consequently, their impact on business outcomes.

Next step will get participants understand how attitudes are formed and how they influence behaviors. Unfavorable stereotypes may subconsciously influence how a new manager responds to and treats his or her new foreign subordinates.

Training then must provide factual knowledge about the targeted country.

Last step will provide skill building in areas like language, adjustment and adaption skills.

Beyond these special training practices, there is also the need for more traditional training and improvement of overseas employees. For example, at IBM, such a development includes a series of rotating assignments that permit overseas IBM managers to grow professionally. IBM and other firms have also established management development centers around the world where executives can sharpen their skills. Beyond that, classroom programs (such as those at the London Busines Schoool) also provide overseas executives the sort of opportunities to sharpen their functional skills.

International Compensation

The whole area of international compensation management is delicate. On the one hand, there is a certain logic in maintaining companywide pay scales and policies whereby divisional marketing directors throughout the world are all paid within the same narrow range. This reduces the risk of perceived inequities and dramatically simplifies the job of keeping track of disparate country-by-country wage rates. The fact is that it can be enormously more expensive to live in some countries (like Japan) than others (like Greece). If these living cost differences are not considered, it may be almost impossible to get managers to take “high-cost” assignments.

Determining just wage rates in many countries is no very complicated. One of the greatest difficulties in managing total compensation on a multinational level is establishing a consistent compensation measure between countries that will build credibility at both, home and abroad. Some multinational companies deal with this problem by conducting their own local annual compensation surveys.

For example, Kraft conducts an annual study of total compensation in Belgium, Germany, Italy, Spain, and the United Kingdom. Kraft tries to maintain a fairly constant sample group of study participants (companies) in its survey. It, then, focuses on the total compensation paid to each of ten senior management positions held by local nationals in these firms. The survey covers all forms of compensation including cash, short and long-term incentives, retirement plans, medical benefits, and perquisites. Kraft then uses these data to establish a competitive value for each element of pay. This information in turn becomes the input for annual salary increases and eventual proposed changes in the benefit package.

The most common approach to formulating expatriate pay is to equalize purchasing power across countries, a technique known as the balance sheet approach. Idea beside is that each expatriate should enjoy the same standard of living he or she would have had at home. With the balance sheet approach, four main home country groups of expenses – income taxes, housing, goods and services, and reserve – are the focus of attention. The employer estimates what each of these four expenses is for the expatriate’s home country and also what each is expected to be in the expatriate’s host country. Any differences such are additional income taxes or housing expenses are then paid by the employer.

One trend today is to award long-term incentive pay to overseas managers. While it may not seem particularly logical, many U.S. multinational companies only permitted the top managers at corporate headquarters to participate in long-term incentive programs.

Beyond Compensation

Particularly for employees in less-industrialized countries, HR managers should take non monetary factors. For example, Johnson & Johnson HR manager points out that, after losing professional talent at a rate of over 25% per year, he saw that people joined a multinationals to enhance their careers through training and development. If they did not get that, they left. As a result, many companies like Procter & Gamble and Siemens have established corporate – style campus training centers to provide local employees with different trainings and development programs.

Performance Appraisal of International Managers

Several things complicate the task of appraising an expatriate’s performance. For one thing, the question of who actually appraises the expatriate is crucial. Obviously local management must have some input, but the appraisals may then be distorted by cultural differences.

Two experts make these five suggestions for improving the expatriate appraisal process:

Specify the assignment’s complexity level. For example, being an expatriate manager in China is generally considered more difficult than working in England, and the appraisal should take such difficulty-level differences into account.

Assess the evaluation more toward the on-site manager’s appraisal than toward the home-site manager’s distant perceptions of the employee’s performance.

lf, however (as is usually the case), the home-site manager does the actual written appraisal, have him or her use a former expatriate from the same overseas location to provide background advice during the appraisal process. This can help ensure that unique local issues are considered during the appraisal process.

Modify the normal performance criteria used for that particular position to fit the overseas position and characteristics of that particular locale. For example, maintaining positive labor relations might be more important in Chile, where labor instability is more common, than it would be in the United States.

Try to give the expatriate manager credit for his or her insights into the functioning of the operation and specifically the interdependencies of the domestic and foreign operations. In other words, do not just appraise the expatriate manager in terms of quantifiable criteria like profits or market share. His or her recommendations regarding how home office/foreign subsidiary communications might be enhanced and similar insights should affect the appraisal, too.

International Labor Relations

Firms opening subsidiaries abroad will find substantial differences in labor relations practices among the world’s countries and regions. While union membership is dropping in most countries around the world, as a percentage of wage and salary earners it is still relatively high in many countries: Brazil 44%, Argentina 39%, Germany 29%, Denmark 80%, Japan 24%, Egypt 39%, and Israel 23%. Any firm going abroad, therefore, must pay particu1ar attention to its labor relations plans.

The following synopsis illustrates some of these labor relations differences by focusing on Europe. However, we must keep in mind that similarly significant differences would exist as we move, say, to South and Central America, and to Asia as well. Some important differences between labor relations practices in Europe and the United States include:

Centralization. In general, collective bargaining in Western Europe is likely to be industry wide or regionally oriented, whereas U. S. collective bargaining generally occurs at the enterprise or plant level.

Union structure. Because collective bargaining is relatively centralized in most European countries, local unions in Europe tend to have much less autonomy and decision-making power than in the United States, and they basically concentrate on administrative and service functions.

Employer organization. Due to the pervasiveness of industry wide bargaining, the employer’s collective bargaining role tends to be performed primarily by employer associations in Europe. Individual employers in the United States generally (but not always) represent their own interests when bargaining collectively with unions.

Union recognition. Union recognition for collective bargaining in Western Europe is much less formal than in the United States. For example, in Europe there is no legal mechanism requiring an employer to recognize a particular union. Even if a union claims to represent 80% of an employer’s workers, another union can try to organize and bargain for the other 20%.

Union security. Union security in the form of formal agreements is largely absent in continental Western Europe.

Labor-Management Agreements

As in the United States, most European labor management agreements are legally binding documents, except in Great Britain, where such collective agreements are viewed as “gentlemen’s agreements” existing outside the law.

U. S. labor-management agreements tend to focus on wages, hours, and working conditions. European agreements, on the other hand, tend to be brief and simple and to specify minimum wages and employment conditions, with employers free to institute more generous terms. The relative brevity of the European agreements is a function of two things. Industry wide bargaining makes it difficult to write detailed contracts applicable to individual enterprises and, in Europe, the government is much more heavily involved in setting terms of employment such as vacations and working conditions.

In Western Europe, complaints occur much less often than in the U.S. Even when raised, they are usually handled by legislated machinery outside the union’s formal control.

Strikes generally occur less frequently in Europe. This is probably due to the industry wide bargaining, which, generally, elicit lass management resistance than in the United States (where union demands cut deeper into the individual enterprise’s revenues).

Worker participation has a long history in Western Europe, where it tends to go far beyond matters such as pay and working conditions. The aim is to create a system by which workers can participate in a meaningful way in the direct management of the enterprise. Determining wages, hours, and working conditions is not enough. Employees should participate in formulating all management decisions. In many countries in Western Europe, work councils are required. A work council is a committee in which plant workers consult with management about certain issues or share the governance of the workplace. Codetermination is a second form of European worker participation. Codetermination means that there is mandatory worker representation on an enterprise’s board of directors. It is especially prevalent in Germany.

Safety and Fair Treatment Abroad

Making provisions to ensure employee safety and fair treatment does not stop at a country´s borders. Whi1e the United States has often taken the lead with respect to matters such as occupational safety, other countries are also quick1y adopting such laws, and, in any event, it is hard to make a legitimate case for being less safety conscious or fair with workers abroad than you are with those at home.

Having employees abroad does raise some unique safety and fair treatment issues. It is crucial for a company to understand local environment, local conditions and possible existing threats. In order to reduce risks, expatriates must be provided with general training about trave1ing, living abroad, and the place they are going to so that they are more oriented when they get there.

When it comes to fair treatments, wages paid to foreign non-management workers abroad are a well-publicized aspect of employee fair treatment today. Many companies, including Nike, have therefore taken steps to lift wages and improve the foreign workers’ group. Also, under discussion is also a plan to create the Fair Labor Association. This would be a private entity controlled by both corporate and human rights or labor representatives, with a mandate to take steps such as accrediting auditors to certify whether or not companies comply with their code of conduct.

Repatriation: Problems and Solutions

Repatriation, the process of moving back to the parent company and country from the foreign assignment, is often a bittersweet experience for the returning expatriate. It means returning one’s family to familiar surroundings and old friends. But the returning employee often learns that in many respects his or her employer has ignored the manager’s career and personal needs.

Several repatriation problems are quite common. One is the expatriate’s fear that he or she has been “out of sight, out of mind” during an extended foreign stay and thus has lost touch with the parent firm’s culture, top executives, and those responsible for the firm’s promotion processes. Indeed, such fears can be well founded. Many repatriates are temporarily placed in ordinary or temporary jobs. Many are shocked to find that the executive accessories of the overseas job (private schools for the children and a company car and driver, for instance) are lost upon return, and that the executive again is just a small fish in a big pond. Perhaps more frustrating is discovering that some of the expatriate’s former colleagues have been more rapidly promoted while he or she was overseas. Even the expatriate’s family may undergo a sort of reverse culture shock, as spouse and children face the often frightening task of picking up old friendships and habits or starting new schools upon their return.

Progressive multinationals anticipate and avoid these problems by taking several sensible steps:

– Writing repatriation agreements

– Assigning a sponsor

– Providing a career counseling

– Keeping communications open

– Offering financial support

– Developing reorientation programs

– Building in return trips

CONCLUSION

Globalization has created new challenges and global competition for businesses around the world. Thus, as a response, many companies decided to expand their operation across national borders in order to be competitive. As company internationalizes its operation, it is exposed to various environments, cultures, legal and political differences, and in order to operate successfully, it should be able to adjust its operation to comply with the local culture and legal requirements.

The main challenge for International Human Resource Manager is to develop practices which will maintain congruence with the overall strategic plan of his/her respective MNC, while balancing the economic, social, politic and legal constrains of the various host countries. The mistake that MNCs often make in their international operations is lack of understanding of cultural differences of the host country and legal requirements, as well as choosing the right business practice styles and organizational structures. Therefore, in order to successfully manage people abroad, MNCs should developed and be able to implement IHRM strategies that are best fit between the company’s international environment, its overall strategy, organizational structure and HRM system.

As laws are enacted, more people are working, and technology grows, the human resource area will be a growing department of any successful business.

Order Now