Final Exam Study Notes - Chapter 18-Global HR Management

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12 Oct 2010

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MGT491 FINAL EXAM NOTES ± Chapter 18: Global HR Management
x Human resource management (HRM) ± the activities an organization carries out to use its human resources
management development, compensation, labor relations
o All of these are related to the strategy of the firm
x HRM has an important strategic component ± influence on character, development, quality and productivity of the
ILUPVKXPDQUesources, can help the firm achieve its primary strategic goals of reducing costs of value creation
and adding value by better serving customer needs
x HRM practices need to be modified to national context
x Strategic role of HRM is complex enough in a purely domestic firm, but is more complex in an international
business where profound differences exist in labor markets, culture, legal systems, economic systems and the like
o Complicates decisions like staffing, management development, performance evaluation and
compensation activities
o Ex. compensation practices may vary from country to country, depending on prevailing management
o Labor laws may prohibit union organization in one country and mandate it in another
o Equal employment legislation may be strongly pursued in one country and not in another
x HRM function must decide how to staff key management posts, how to develop managers so they are familiar with
the nuances of doing business in different countries, how to compensate people in different countries, and how to
evaluate performance of managers in different countries
x HRM must also deal with issues related to expatriate managers
o Must decide when to use expatriates, whom to send on these postings, be clear about why they are
doing it, compensate them appropriately, and make sure they are adequately debriefed and reoriented
once home
The Strategic Role of International HRM
x Strong fit between human resources practices and strategy is required for high profitability
x Superior performance requires not only the right strategy but it must also be supported by the right organization
x Strategy is implemented through organization ± people are the centre of this architecture
x For a firm to outperform in the global marketplace, it must have the right people in the right postings
o Must be trained appropriately so they have the skill sets required to perform their jobs effectively and
so they behave in a manner that fits with the desired culture of the firm
o Compensation packages must create incentives for them to take actions consistent with the strategy of
the firm
o Performance appraisal systems used must measure the behavior that the firm wants to encourage
organization architecture (performance appraisal systems are part of control systems)
x HRM professions have a critically important strategic role ± LWLVRQWKHPWRVKDSHWKHVHHOHPHQWVRIDILUPV
organization architecture in a manner that is consistent with the strategy of the enterprise, so that the firm can
effectively implement its strategy
x Superior HR management can be a sustained source of high productivity and competitive advantage in global
x Many businesses have HRM as one of their weakest capabilities, suggesting that improving these may have
substantial performance benefits for many companies
x 4 strategies pursued by international businesses:
Incentives and
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o Localization
x Create value by emphasizing local responsiveness
o International
x Create value by transferring products and competencies overseas
o Global standardization
x Create value by realizing experience curve and location economies
o Transnational
x Create value by doing all of these things simultaneously: local responsiveness, transfer of
products and core competencies, and realizing experience curve economies and location
x Success also requires HRM policies to fit with the chosen strategy ± ex. transnational strategy requires different
staffing, management development and compensation practices than a localization strategy
x Transnational strategy ± need a strong corporate culture and informal management network for transmitting info
and knowledge within the company
o Through its employee selection, management development, performance appraisal and compensation
policies, HRM functions can help develop these things
Staffing Policy
x Staffing policy ± concerned with the selection of employees for particular jobs
o Involves selecting individuals who have the skills required to do particular jobs
o Can be a tool for developing and promoting the desired corporate culture of the firm
o Strong corporate culture can help a firm to implement its strategy
firm will be able to attain higher performance
Types of Staffing Policy
x 3 types: ethnocentric, polycentric, geocentric
x Most attractive staffing policy is usually the geocentric approach although there are several impediments to
adopting it
x The Ethnocentric Approach:
o Ethnocentric staffing policy ± one in which parent-country nationals fill all key management positions
o Was a widespread practice previously
o This policy is pursued for 3 reasons:
Firm may believe the host country lacks qualified individuals to fill senior management
x This is heard most often when the firm has operations in less developed countries
Firm may see this policy as the best way to maintain a unified corporate culture
x Ex. Japanese firms often prefer Japanese managers to head their foreign operations
x This reasoning is heard most often when the firm places a high value on its corporate
If the firm is trying to create value by transferring core competencies to a foreign operation, as
firms pursuing an international strategy are, it may believe that the best way to accomplish this
goal is to transfer parent-country nationals who have knowledge of that competency
x If the firm employs a manager who does not have knowledge of the core competency,
the firm will probably fail to produce the anticipated benefits because the knowledge
underlying a core competency cannot be easily articulated or written down for
someone to learn separately
x This knowledge is often acquired through experience
x This is often the reason for firms who need to transfer a core competency to a foreign
o Despite these reasons, the policy is now declining in frequency in most international businesses
This policy limits advancement opportunities for host-country nationals
x Leads to resentment, lower productivity, increased turnover
x Resentment is even greater if expatriate managers are paid significantly more than the
nationals, which often occurs
This policy can lead to cultural myopia ± ILUPVIDLOXUHWRXQGHUVWDQGKRVW-country cultural
differences that require different approaches to marketing and management
x Adaptation of expatriate managers can take a long time, during which they may make
major mistakes
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x Product decisions, ethically suspect decisions due to lack of understanding of the
x The Polycentric Approach:
o Polycentric staffing policy ± requires host-country nationals to be recruited to manage subsidiaries,
while parent-country nationals occupy key positions at corporate headquarters
o This approach is a response to the shortcomings of the ethnocentric approach
o Advantage ± firm is less likely to suffer from cultural myopia
o Host-country managers are unlikely to make the mistakes arising from cultural misunderstandings
which expatriate managers are vulnerable to
o Advantage ± this approach may be less expensive to implement, reducing the costs of value creation ±
expatriate managers can be expensive to maintain (see notes from class ± costs of sending someone
to work overseas)
o Drawbacks:
Host-country nationals have limited opportunities to gain experience outside their own country
and thus cannot progress beyond senior positions in their own subsidiary
x May cause resentment
Gap can form between host-country managers and parent-country managers
x Language barriers, national loyalties, range of cultural differences may isolate
corporate headquarters staff from various foreign subsidiaries
x Lack of management transfers from home to host countries and v.v. can make this
worse and lead to a lack of integration between headquarters and foreign subsidiaries
headquarters, the coordination in this that is required to transfer core competencies or
pursue experience curve and location economies may be difficult to achieve
x 7KHVH³IHGHUDWLRQV´DUHDIRUFHRILQHUWLDIRUWKHILUP± they can object strongly to
o This approach may be effective for firms with a localization strategy, but not appropriate for other
x The Geocentric Approach:
o Geocentric staffing policy ± seeks the best people for key jobs throughout the organization, regardless
of nationality
o Advantages:
Enables the firm to make the best use of its human resources
Enables the firm to build a cadre of international executives who feel at home working in a
number of cultures
x Critical first step toward building a strong unifying corporate culture and informal
management network, both of which are required for global standardization and
transnational strategies
May be better able to create value from the pursuit of experience curve and location
economies and from the multidirectional transfer of core competencies, better than firms
pursuing other staffing policies
Multinational composition of the management team reduces cultural myopia and enhances
local responsiveness
This staffing policy seems to be the most attractive
o Disadvantages/Limitations:
Many countries want foreign subsidiaries to employ their citizens
x Use immigration laws to require the employment of host-country nationals if they are
available in adequate numbers and have the necessary skills
x Most countries require firms to provide extensive documentation if they wish to hire a
foreign national instead of a local national
x Can be time consuming, expensive, and sometimes futile
Can be expensive to implement
x Training and relocation costs increase when transferring managers from country to
x May also need a compensation structure with a standardized international base pay
level higher than national levels in many countries
x Higher pay managers on an international fast track enjoy may be a source of
resentment within the firm
x Summary:
o Ethnocentric approach is compatible with an international strategy
o Polycentric approach is compatible with localization strategy
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