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Chapter 3 IHRM: Sustaining International Business Operations IBUS 618 Dr. Yang 1 Chapter 3 IHRM: Sustaining International Business Operations IBUS 618 Dr. Yang 1

Chapter Objectives The previous two chapters have concentrated on the global environment and organizational Chapter Objectives The previous two chapters have concentrated on the global environment and organizational contexts. We now focus on the ‘managing people’ aspect. The aim is to establish the role of HRM in sustaining international business operations and growth. We will cover the following: n Issues related to various approaches to staffing foreign operations; n Reasons for using international assignments: position filling, management development and organizational development; (cont. ) IBUS 618 Dr. Yang 2

Chapter Objectives (cont. ) n Various types of international assignments: n n Standard assignments: Chapter Objectives (cont. ) n Various types of international assignments: n n Standard assignments: Short-term, extended, and longer-term; Non-standard arrangements: Commuter, rotator, contractual, and virtual. n The role of expatriates and non-expatriates (international business travellers) in supporting international business activities n The role of the corporate HR functions IBUS 618 Dr. Yang 3

Approaches to Staffing n Factors affecting approaches to staffing n General staffing policy on Approaches to Staffing n Factors affecting approaches to staffing n General staffing policy on key positions at headquarters and subsidiaries n Constraints placed by host government n Staff availability Ethnocentric Polycentric Geocentric Regiocentric IBUS 618 Dr. Yang 4

Ethnocentric n Strategic decisions are made at headquarters; n Limited subsidiary autonomy; n Key Ethnocentric n Strategic decisions are made at headquarters; n Limited subsidiary autonomy; n Key positions in domestic and foreign operations are held by headquarters’ personnel; n PCNs manage subsidiaries. IBUS 618 Dr. Yang 5

Polycentric n Each subsidiary is a distinct national entity with some decision-making autonomy; n Polycentric n Each subsidiary is a distinct national entity with some decision-making autonomy; n HCNs manage subsidiaries who are seldom promoted to HQ positions; n PCNs rarely transferred to subsidiary positions. IBUS 618 Dr. Yang 6

Geocentric n A global approach - worldwide integration; n View that each part of Geocentric n A global approach - worldwide integration; n View that each part of the organization makes a unique contribution; n Nationality is ignored in favor of ability: Best person for the job; n Color of passport does not matter when it comes to rewards, promotion and development. n IBUS 618 Dr. Yang 7

Geocentric Staffing Requirements IBUS 618 Dr. Yang 8 Geocentric Staffing Requirements IBUS 618 Dr. Yang 8

Regiocentric n Reflects a regional strategy and structure; n Regional autonomy in decision making; Regiocentric n Reflects a regional strategy and structure; n Regional autonomy in decision making; n Staff move within the designated region, rather than globally; n Staff transfers between regions are rare. IBUS 618 Dr. Yang 9

Ethnocentric Approach Advantages: Disadvantages: v To ensure new subsidiary n Limits the promotion opportunities Ethnocentric Approach Advantages: Disadvantages: v To ensure new subsidiary n Limits the promotion opportunities complies with overall of HCNs, leading to reduced corporate objectives and productivity and increased policies turnover among the HCNs v Has the required level of n Longer time for PCNs to adapt to competence host countries, leading to errors and poor decisions being made v Assignments as control n High cost n Considerable income gap, high authority, and increased standard of living may relate to lack of sensitivity IBUS 618 Dr. Yang 10

Polycentric Approach Advantages: n Employment of HCNs eliminates language barriers, avoids adaptation of PCNs, Polycentric Approach Advantages: n Employment of HCNs eliminates language barriers, avoids adaptation of PCNs, reduces the need for cultural awareness training programs n Employment of HCNs allows a multinational company to take a lower profile in sensitive political situations n Employment of HCNs is less expensive n Employment of HCNs gives continuity to the management of foreign subsidiaries (lower turnover of key managers) IBUS 618 Dr. Yang 11

Polycentric Approach Disadvantages: n Difficult to bridge the gap between HCN subsidiary managers and Polycentric Approach Disadvantages: n Difficult to bridge the gap between HCN subsidiary managers and PCN managers at headquarters ( language barriers, conflicting national loyalties, cultural differences) n HCN managers have limited opportunities to gain experience outside their own country n PCN managers have limited opportunities to gain international experience n Resource allocation and strategic decision making will be constrained when headquarter is filled only by PCNs who have limited exposure to international assignment IBUS 618 Dr. Yang 12

Geocentric Approach Advantages: v Ability of the firm to develop an international executive team Geocentric Approach Advantages: v Ability of the firm to develop an international executive team v Overcomes the federation drawback of the polycentric approach v Support cooperation and resource sharing across units Disadvantage: Host government may use immigration controls in order to increase HCNs employment Expensive to implement due to increased training and relocation costs Large numbers of PCNs, HCNs, and TCNs need to be sent across borders Reduced independence of subsidiary management IBUS 618 Dr. Yang 13

Regiocentric Approach n Advantages: n Disadvantages: Allow interaction between executives transferred to regional headquarters Regiocentric Approach n Advantages: n Disadvantages: Allow interaction between executives transferred to regional headquarters from subsidiaries in the region and PCNs posted to the regional headquarters Provide some sensitivity to local conditions Help the firm to move from a purely ethnocentric or polycentric approach to a geocentric approach IBUS 618 Dr. Yang Produce federalism at a regional rather than a country basis and constrain the firm from taking a global stance Staff’s career advancement still limited to regional headquarters, not the parent country headquarters 14

Parent-Country Nationals Advantages Disadvantages n Organizational control and n Promotional opportunities coordination is maintained. Parent-Country Nationals Advantages Disadvantages n Organizational control and n Promotional opportunities coordination is maintained. n Rising stars are given international experience. n PCNs may be the best people for the specific job due to special skills and experience. n An assurance that the subsidiary will comply with company objectives & policies. of HCNs are limited. n Time and performance costs associated with adaptation to the host country. n PCNs may impose an inappropriate HQ style. n Compensation for PCNs and HCNs may differ. IBUS 618 Dr. Yang 15

Host-Country Nationals Advantages Disadvantages n Language and other barrier n Hiring of HCNs may Host-Country Nationals Advantages Disadvantages n Language and other barrier n Hiring of HCNs may n n eliminated Reduced hiring costs Continuity of management Government policy may require hiring HCNs Possible increased morale because of increased career potential encourage a federation of national rather than global units n HCNs have limited career opportunity outside the subsidiary n Control and coordination of HQ may be impeded n Hiring HCNs limits opportunities for PCNs to gain foreign experience IBUS 618 Dr. Yang 16

Third-Country Nationals Advantages Disadvantages n Salary and benefit n Transfers must consider requirements may Third-Country Nationals Advantages Disadvantages n Salary and benefit n Transfers must consider requirements may be lower than for PCNs. n TCNs may be better informed than PCNs about host-country environment. national animosities. n Host government may resent hiring TCNs. n TCNs may not want to return to their own countries after assignment. IBUS 618 Dr. Yang 17

Determinants of IHRM Approaches and Activities IBUS 618 Dr. Yang 18 Determinants of IHRM Approaches and Activities IBUS 618 Dr. Yang 18

Reasons for International Assignments n Position filling, e. g. n Skills gap, launch of Reasons for International Assignments n Position filling, e. g. n Skills gap, launch of new endeavor, technology transfer n Management development n Training and development purposes, assisting in developing common corporate values n Organizational development n Need for control, transfer of knowledge, competence, procedures and practices IBUS 618 Dr. Yang 19

Types of International Assignments n Short term: up to 3 months n n n Types of International Assignments n Short term: up to 3 months n n n Troubleshooting Project supervision A stopgap until a permanent arrangement is found n Extended: up to 1 year n May involve similar activities as short-term assignments n Long term n n Varies from 1 to 5 years The traditional expatriate assignment IBUS 618 Dr. Yang 20

Non-standard Assignments n Commuter assignments n Rotational assignments n Contractual assignments n Virtual assignments Non-standard Assignments n Commuter assignments n Rotational assignments n Contractual assignments n Virtual assignments Some of these arrangements assist in overcoming the high cost of international assignments but are not always effective substitutes for the traditional expatriate assignment. IBUS 618 Dr. Yang 21

Factors Influencing Virtual Assignments IBUS 618 Dr. Yang 22 Factors Influencing Virtual Assignments IBUS 618 Dr. Yang 22

Roles of an Expatriate A Simple Management Network n Agent of direct control n Roles of an Expatriate A Simple Management Network n Agent of direct control n Agent of socialization B n Network builder n Boundary spanner G C E D n Language node n Transfer of competence and knowledge A F Informal contacts between managers within a MNE IBUS 618 Dr. Yang 23

The Role of Non-expatriates n People who travel internationally yet are not considered expatriates The Role of Non-expatriates n People who travel internationally yet are not considered expatriates as they do not relocate to another country n Road warriors, globetrotters, frequent fliers n Much of international business involves visits to foreign locations, e. g. Sales staff attending trade fairs n Periodic visits to foreign operations n IBUS 618 Dr. Yang 24

A Glamorous Life n International business travelers cite the positives as: Excitement and thrills A Glamorous Life n International business travelers cite the positives as: Excitement and thrills of conducting business deals in foreign locations n Life style (top hotels, duty-free shopping, business class travel) n General exotic nature n IBUS 618 Dr. Yang 25

But a High Level of Stress! n Home and family issues n Frequent absences But a High Level of Stress! n Home and family issues n Frequent absences n Work arrangements n Domestic side of position still has to be attended to n Travel logistics n waiting in airports, etc. n Health concerns n Poor diet, lack of sleep, etc. n Host culture issues n Limited cultural training IBUS 618 Dr. Yang 26

Various Roles of Corporate HR Centralized HR Companies Decentralized HR Companies Transition HR Companies Various Roles of Corporate HR Centralized HR Companies Decentralized HR Companies Transition HR Companies n Large well-resourced n Small HR n Medium-sized HR HR departments n Key role: Managing all n Key role: Managing n Key role: Management high-grade management positions worldwide elite corporate managers and development of senior managers and expatriates n Key activities: Influencing operating units to support international assignments, supporting decentralized HR Persuading divisional managers to release key staff using informal and subtle methods, strategic staffing. n Key activities: Planning international assignments and performance management globally, identifying high-potential staff Source: Based on H. Scullion and K. Starkey, in Search of the Changing Role of the Corporate Human Resource Function in the International Firms, International Journal of Human Resource Management, V 11, N 6 (2000) pp. 1061 -1081. IBUS 618 Dr. Yang 27

The Role of the Corporate HR Function n Can we manage our people like The Role of the Corporate HR Function n Can we manage our people like a global product, e. g. , the feasibility of: The concept of a global internal labor market n Standardization of work practices and HR activities n n What HR matters require central control and what can be decentralized? IBUS 618 Dr. Yang 28

Chapter Summary This chapter has expanded on the role of IHRM in sustaining international Chapter Summary This chapter has expanded on the role of IHRM in sustaining international business operations. We have: n Looked at the various approaches to staffing international operations – ethnocentric, polycentric, geocentric and regiocentric – examining their advantages and disadvantages and factors that may determine the choice of these options. n Considered the reasons for using international assignments: position filling, management development and organization development. (cont. ) IBUS 618 Dr. Yang 29

Chapter Summary (cont. ) n Discussed the various types of international assignments: short, extended Chapter Summary (cont. ) n Discussed the various types of international assignments: short, extended and long-term (traditional); and nonstandard forms such as commuter, rotational, contractual and virtual assignments. n Examined the various roles of the expatriate: as an agent for direct control, as an agent for socialization, as network builders, as boundary spanners and as language nodes. These various roles of the expatriate help to explain why expatriates are utilized and illustrates why international assignments continue to be an important aspect of international business from the organization’s perspective. (cont. ) IBUS 618 Dr. Yang 30

Chapter Summary (cont. ) n Recognized that non-expatriates are also critical to international business Chapter Summary (cont. ) n Recognized that non-expatriates are also critical to international business operations. International business travellers present their own challenges, such as the effect of frequent absences on family and home life, the possible negative health effects and other stress factors. The management of such individuals, however, does not appear to fall within the domain of the HR department. n Looked at the role of the corporate HR function as the firm grows internationally, building on sections from Chapters 1 and 2. IBUS 618 Dr. Yang 31