Items Description of Module

Subject Name Management

Paper Name HUMAN RESOURCE MANAGEMENT
Module Title GLOBAL HUMAN RESOURCE MANAGEMENT
Module ID Module 6
Pre-Requisites Understanding the Concept of Global Human Resource Management
Objectives To study the objectives and approaches to global human resource
management
Keywords Global, expatriates, ethnocentrism, polycentrism, geo-centrism
 QUADRANT –I

Module : 6; GLOBAL HUMAN RESOURCE

MANAGEMENT
1. Learning Outcome
2. Meaning of International Human Resource
Management
3. Difference between domestic and IHRM
4. Approaches of global staffing
5. Global human resource development
6. Challenges managing performance globally
7. International labor relations
8. Summary

1. Module 6: GLOBAL HUMAN RESOURCE MANAGEMENT

2. Learning Outcomes:
After studying this module, you shall be able to
 Know the concept of Globalization
 Understand the meaning of International Human Resource Management
 Comprehend difference between domestic HRM IHRM
 Understand the approaches of global staffing
 Become aware of the Global human resource development
 Understand the challenges managing performance globally
 Know the ways of compensating international workforce
 Better understand the international labor relations

3. Introduction
There are immense opportunities and problems of global human resource management.
The global managers have not only to strategize from domestic point of view but also
globally. People managing global human resources encounter several issues ranging
from cultural to political barriers when determining compensation of employees. Prior top
management takes decision on moving globally, it is very important that the critical
issues of human resource management are well pondered.

4. Global Human Resource Management

Global human resource management is the utilization of global human resources to
achieve organization objectives without regard to geographic boundaries (Mondy and
Noe, 2005). Consequently, global managers need not formulate strategies from the
domestic point of view but must think globally. People dealing with global human
resource issues face a variety of challenges in comparison to their domestic
counterparts. These considerations include cultural and political barriers, different
international aspects such as compensation, development, health, safety of workers,
global employee and employee relations. Before top management takes a decision on a
global move, it is very important that the nature of human resources issues be well
considered.
Companies conducting business globally place even greater value on strategic HR.
General Motors, the world’s largest automobile manufacturer, has completely
reengineered the way HR is operated. At GM, the corporate HR function has evolved
 from a tactical to a strategic role. GM believes it cannot become a truly global
corporation without strategic support from HR.
Global human resource managers develop and work with an interrelated global human
resource management like one experienced domestically. The functional areas
connected with an efficient and effective global HRM are identical as those experienced
domestically. Although the functional areas are same, how they are implemented may
differ. Sound global human resource management practices are required for successful
performance in each area. As with domestic human resources, the functional areas are
alike, but are highly connected.

5. Difference between domestic and International Human resource Management

Even though there is no basic difference between HR functioning of domestic companies
and international one, Peter J.Dowling states that a few distinguishing factors make
IHRM more complex. Both the concepts demonstrate striking difference between them
when their features are considered. While the HRM consists of personnel management,
organizational management and industrial relations the IHRM comprises the
management of the additional activities like expatriate management, international
perspective, cross cultural training and greater risk exposure. However, there are some
factors that differentiate domestic HRM from IHRM.

5.1 Additional HR Activities

In the case of IHRM, in addition to the usual HR activities, HR professionals require

to perform additional HR functions like international locating to different places and
orientation for employees, managerial services for expatriates (parent company
employees working in host countries), host government relations, international
taxation and language translations services.
In the case of expatriate relocation, the HR department may have to concentrate on
travel, staying, shopping, medical care, training and similar other needs of the
expatriate employees appointed in the host country. Similarly, the HR department
must determine the compensation and special allowance, if any, for the expatriates
and the mode of transfer of such compensation to them. Besides, the HR department
must contemplate the tax liabilities of the expatriates as they may encounter taxes in
host and parent countries. In such a case, the HR department must ensure that the
employee is not unduly affected due to double taxation and there is a policy available
in the company to resolve such a situation
.
5.2 International Perspective on HR Functions
While in a domestic company the HR managers may possess only one
compensation policy for all its employees, the HR managers of an international
company need to prepare different compensation policies for employees belonging
to different countries- host country, home country and third country. This is despite
the fact that all of them may be working together at the same place. If practically
possible, the company may decide either the home-country or the host-country
compensation package for all the employees, irrespective of their country of origin.
However, in reality, the company would be unwilling to offer the expatriate pay to
employees of a host or third country, which is normally higher. Thus, pay
differentiation become a necessity in international companies

5.3 Greater Attention to Expatriate Employees Personal needs

The life style, cost of living and healthcare requirements are different in the host
country for the home or third country employees. Therefore, it is essential for the HR
 department to take special care of the personal lives of these employees. The HR
department must ensure that the expatriates understand the situations and problem
of the host country properly and are prepared to hand these situations. In this regard,
the HR department may be required to coordinate various requirements of the
expatriate employees. The IHRM manager should give advice to the expatriate
employee to engage in special socio-cultural interactions and training that will help
them adjust to new condition in the foreign country. This is contrary to the traditional
HRM surroundings where this sort of training is no longer needed. The expatriate
may also be given more attention like schooling for his or her children and job
avenues for the spouse.
Once a company settles in operation in a foreign country, it normally endeavors to
replace the expatriates with the local employees to save on cost. In such a situation,
the funds hitherto allocated for relocation, orientation and compensation payable to
the expatriates may be diverted for training and developing the host-country
employees. Besides, the HR department may have to offer high wages to
compensate the well-trained and highly skilled local employees so that they remain
with the company for a long time.

5.4 Greater Risk Exposure

International organizations normally face higher risks when they operate in foreign
countries. For instance, when the business operations on a foreign soil fair, the loss
would be heavy as the company may find it difficult to relocate the business
operations to the parent country. It may suffer in terms of exchange rate fluctuation
while withdrawing the investments. It may also suffer on account of terrorism and
other upheavals. There are additional risks in IHRM because there are more external
factors involved. The management needs to be ready to face the consequences if
the expatriate is underperforming. Other factors like diplomatic ties between the
country of origin and the host country may also affect the working conditions. The
benefits of the PCNs and TCNs may also be at risk if the currency exchange rates
become suddenly unfavorable.

5.5 Other Factors*

Some more external forces influence IHRM activities. For example, government
factors such as Malaysia force HR managers to set affirmative action to provide
equal employment opportunity for the workforce and intend to increase employment
and skill level of nationals (Dowling, et al., 2008). State economy is an important
factor for HR department to consider. Other Issues include expensive labor cost in
developed countries but cheap labor in developing countries. HR managers carrying
out activities in an international environment also need to concern their ways of
conduct. For instance, they have to understand the local ways of doing business and
follow local government regulations when dealing with the issues related to labor
relations, health and safety, and taxation.

6. Global Staffing
Corporations make big investments in global assignments that can cost two to three
times what it would to employ the same executive in the United States. Unfortunately,
many HR managers have never worked abroad and are not adequately prepared to
cope with the global environment. Before the staffing process for an international
assignment begins, a thorough understanding of what is involved in the job should be
developed. A global organization must have qualified individuals in specific jobs as
specific places and times in order to accomplish its goals. Individuals should be recruited
and selected based upon the specific qualifications identified. Without proper
identification of the qualities needed for an overseas assignment, an outstanding worker
in the United State may fail on a global assignment.
Companies must choose from various types of global staff members and may employ
specific approaches to global staffing. Global staff members may be selected from
among three different types: expatriates, host country nationals, and third-country
nations. An expatriate is an employee who is not a citizen of the country in which the
firm’s operation is located, but is a citizen of the country in which the organization is
headquartered. A host-country national is an employee who is a citizen of the country
where the subsidiary is located. A third country nation is a citizen of one country, working
in a second country, and employed by an organization headquartered in a third country.
Using the three basic types of global staff, there are four major approaches to global
staffing: ethnocentric, polycentric, region-centric, and geo-centric. These reflect how the
organization develops its human resource policies and the preferred types of employees
for different positions. Fig. 6.1 explains the three approaches of global staffing.

6.1 Ethnocentrism
Ethnocentrism represents an attitude related to cultural disposition to regard
one’s own culture as superior to others. Sending managers of home country
abroad- considering that they are in a position to perform- may be an appropriate
strategy in the beginning of expanding company operations world-wide as these
officials know what to do immediately. At Royal Dutch Shell, for example, just
about all financial controllers in the world are Dutch nationals. Often the other
justifications put forward for ethnocentric staff policies include: lack of qualified
host country managerial talent, a desire to have a unified corporate culture, tight
control and the keenness to transfer the parent company’s core competencies
(say, a specialized design skill) to a foreign subsidiary more expeditiously.
However, a policy of ethnocentrism is too narrow in its focus and may evoke
strong negative reactions from local executives whose upward mobility is
blocked. There is also no surety that the expats will gain support of local
employees and make positive contributions. In fact, failures of US expats range
from 10% to 15%. European and Japanese expat failures are equally alarming,
 the costs of each such failure running to several thousands of dollars. Very often
expats are chosen on the merit of their domestic past achievements. They are
appointed overseas without necessary cross-cultural training. The family factors
remain wholly dismissed in the selection criteria. The rate of failures could be
reduced if these issues are properly considered.

6.2 Polycentrism
The polycentric corporations consciously believe that only host country managers
can ever really comprehend the culture and feel the nerve of the host country
market; therefore the local people are the better choice for managing the foreign
subsidiary. The home-office headquarters, of course, is provided by parent-country
nationals. Hiring host country nationals eliminates language restrictions, expensive
training periods, problems of cross-cultural adjustment of managers and their
families. It also allows the firms to exert pull on talented locals by presenting an
attractive compensation package. Several western MNCs have concluded that
employing local people is increases the probability of success on foreign. Analog
Devices Inc. has achieved global success in a highly technical field by selecting local
managers, training them extensively and then empowering them to hire and manage
more local people. Likewise, global sales of Bausch & Lomb improved dramatically
after utilizing the local managerial talent.

6.3 Geo-centrism
Geo-centrism believes that the candidates for managerial positions must be looked
for globally, without treating with favor anyone. The best executive for a particular
position anywhere in the globe may be looked for in any of the countries in which the
firm does business. Such a staffing policy looks for the best people for crucial
positions throughout the organization, without regard to nationality. It assists in
establishing a stronger and consistent culture and set of values among the global
management team who often interact, network and build bonds with each other, as
as their movement takes place from one assignment to another, around the globe
and participate in global development activities. Colgate-Palmolive is an example of
a company that hires the best person for the job regardless of nationality. It has been
operating globally for more than 55 years, and its products are household names in
more than 75 countries. About 60 percent of the company’s expatriates were from
other countries than the United States and two of its four CEOs were not from US.
Moreover, all the top executives speak at least two languages and important
meetings routinely take place all over the globe. This approach uses a worldwide
integrated business strategy. The firm attempts to always recruit the best individual
available for a position, without regard to where that person hails to. The geo-centric
staffing is most probably adopted and practiced by really global firms such as
General Motors and Ford. Usually, the corporate human resource function in geo-
centric companies is the most complicated, since every aspect of HR must be dealt
with in the global environment.

6.4 Regio-centrism
Regio-centrsim is similar to the polycentric approach, but regional groups of
subsidiary companies demonstrate the organization’s strategy and structure work as
a single unit. There is some degree of autonomy in decision making at regional level,
and promotions are made within the region but rarely from the region to
headquarters. Each region evolves some general employment practices.
7. Global Human Resource Development
The organization whose employees hail to different countries, some special challenges
arise with regard to training and development relating to: effectiveness of the training
program for all participating employees, without regard to their country of origin and
training in how to handle the challenges associated with working in the foreign country
when employees are hired to work in a foreign country or are transferred to another
country.

7.1 Training programs for an international workforce

Managers responsible for developing effective training programs for an international
workforce must seek answers to such questions:

 What are the objectives for the training and what is its content?
 How far the decisions about the training support the training objectives?
 What are the training techniques, strategies and media to be used during the
training?
 What are the learners’ language and culture as well as the content for the
training?

For example, during preparation U.S. employees might expect to discuss and ask
questions about the training content, whereas employees belonging to other cultures
might regard this level of participation to be discourteous, so for them some
additional support might be needed. Language Differences of language will ask for
translations and even the need for a translator at training sessions. Next, the training
plan developers should find out other interventions and conditions available for the
training to meet its objectives. For example, training is more likely to meet its
objectives if it is connected to performance management and the management fully
supports it. Finally, the developers of a training program should identify persons to
be involved for review and approval of the training program.
The plan for the training program must recognize international differences among
trainees. For example, economic and educational differences may exert some
influence on employees’ access to and ability to use Web-based training.
Cultural differences may influence the consideration if it is appropriate to ask
questions and if the trainer is expected to spend some for becoming familiar with
employees or to get down to business immediately. Table provides examples of how
cultural characteristics can influence training design.

7.2 Cross Cultural training

When a company appoints an employee for a foreign assignment, it must
prepare the employee for the conditions in the foreign country. This kind of
training is called cross-cultural preparation or cross-cultural training. Preparing
employees to work across national and cultural boundaries often includes family
members who will go with the employee on the assignment. The training is
thought essential for all three stages of an international assignment including:
 Preparing for departure- language instruction and make the employee familiar
to a country’s culture.
 The assignment may be a combination of a formal program and act as
trusted advisor for building relationship to provide regular further information
about the foreign country’s culture.
 Preparation for the return home- making information available about the
employee’s community and home-country workplace (from company
newsletter, local newspapers, and so on).
 Methods for providing the training may include lectures for employees and their
families and visits to communities of different cultures. Employees as well as
their families look for an opportunity visiting a local family from the country where
are assigned to.

U.S. based companies sometimes need to keep in mind that foreign employees
coming to the United States need cross-cultural familiarity in the same amount as
U.S. employees sent on foreign assignments. Though there are several benefits
of living in the United States, relocation can be cumbersome for inpatriates. In
fact, in the Global relation Trends 2000 Survey Report, the United States was
listed as among the most challenging foreign assignments. For example,
inpatriates exposed to the United States through Hollywood and T.V. shows are
often worried about safety in their new homes. In many parts of the world, a
middle manager or professional’s lifestyle may include servants, and the cost of
rental housing is far less. As with expatriates, organization can prepare inpatriate
employees by giving information about getting the resources they require living
safely and comfortably in their new surroundings. HR personnel may be able to
identify local immigrant communities where their inpatriate employees can go to
shop for familiar foods and hear their native languages.

7.3 Global employee development

At global organizations, international assignments are a portion of several career

paths. The organization benefits most if the principles of employee development
are applied in determining which employees should be presented for acceptance
jobs in other countries. Career development provide with needed means
expatriate and inpatriate employees make the transitions to and from their
assignments and help the organization utilize the knowledge and skills the
employees obtain from experiencing these assignments

8. Managing Performance Globally

The general principles of performance management may be in vogue in most countries,
but the specific methods that work well in one country may not succeed in another.
Therefore, organizations have to keep in mind legal requirements, local business
practices, and national cultures at the time of establishing performance management
systems in other countries. Differences may consist in behaviors rated, the manner and
the extent of performance measured, who actually carries out the rating of performance,
and the way feedback is given.
For example, National Rental Car uses a behaviorally based rating scale for customer
service representatives. To measure the extent to which customer-service
representatives’ behaviors contribute to the company’s goal of improving customer
service, the scale measures behavior such as smiling, making eye contact, greeting
customers and solving customer problems. Different behaviors may be appropriate for
different countries. In Japan, culturally defined standards for polite behavior include the
angle of bowing as well as proper back alignment and eye contact. In Ghana and many
other African countries, appropriate measures would include behavior that reflect loyalty
and repaying of obligations as well as behaviors related to observing regulations and
procedures.
The measurement of performance may also differ from country to country. In fast
changing regions, such as Southeast Asia, the organization may be required to update
its performance plans frequently.
 Feedback is also an area in which differences can be significant Employees around the
world praise positive feedback, but U.S. employees are more accustomed to direct
feedback than employees in other countries. In Mexico managers are expected to
provide positive feedback before pointing out behavior employee needs to modify. At the
Thai office of Singapore Airlines, managers resisted giving negative feedback to
employee because they feared this would cause them to have bad karma, contributing to
their reincarnation at a lower level in their next life. The airlines therefore allowed the
managers to adapt their feedback process to fit local cultures.

9. Compensating an International Workforce

Compensation management consists of decision-making about pay structure, incentive
pay, and employee benefits. All these decisions become more complex in the context of
an international workforce.
Market pay structure can differ in a considerable manner across countries in terms of
both pay value and the relative worth of jobs. For example, the markets in some
countries like India, Hungary and Budapest give much lower pay packages compared to
labor market in Frankfurt and Germany. Hungary and India also exhibit less of a pay
difference for jobs requiring greater skill and education.
Differences such as these create a dilemma for global managers: Should pay levels and
differences reflect what workers are accustomed to in their home countries. Or should
they consider the earnings of the coworkers in the host country, or earnings at the
company headquarters? For example, should a German engineer posted to Bombay be
paid according to the standard in Frankfurt or the standard in Bombay? If Frankfurt is
considered standard, the engineer in Bombay will likely see the German Engineer’s pair
as unfair. If the standard is Bombay, the company will likely find it impossible to
persuade a German engineer to take an assignment. Dilemmas such as these make a
global compensation strategy significant as a way to reflect employees that a fair pay
structure is designed and is linked to the value that employees carry to the organization.
Besides establishing a pay structure, the organization must make decisions regarding
incentive pay, such as bonuses and stock options. Although stock operations became a
common form of incentive in the United States during the 1990, European companies
did not begin this sort of compensation till the end of the decade. However, the United
States and Europe are different in the way they award stock options. European
companies usually link the choices to specific performance goals like the upward
movement in a company’s share price in comparison to its competitors.
In most of the countries, compensation packages include benefits. Decisions about
benefits must take into account the laws of each country concerned and the
expectations and values employee expect in those countries. Some countries require
paid maternity leave, and some countries have nationalized health care systems, which
would affect the value of private health insurance in a compensation package. Pension
plans are less prevalent in United States and Japan than in parts of Western Europe. A
large majority of workers in Switzerland enjoy pension plans, as do all workers in
France. Among workers with pensions, U.S. workers are less likely to have articulated
benefit plans than workers in Japan or Germany. In Western Europe paid vacation are
given more magnanimously as compared to in United States.
Work hours the employees are required to work also vary from country to country.
Mexican workers came in first with 42.85 hours worked per week. The U.S. ranks at
number 16 for the longest workweek. The average U.S. workweek is 34.4 hours behind
Ireland and ahead of the Czech Republic. German workers came in last with an average
workweek of just 26.37 hours. In Sweden some businesses have opted for a six-hour
workday, ranked sufficient high on the OECD list with an average 30.94 hour workweek.
10. International Labor Relations
Companies conducting business internationally usually need to interact with unions in
several countries. Organizations set policies and goals for industrial relations, for
overseeing collective bargaining agreements, and work performance. The routine
decisions about industrial relations are commonly taken by each foreign subsidiary. On
an international level the industrial relations differ in laws, attitudes, economic systems
and negotiating styles.
U.S. organizations exert more central control over labor relations in the various
countries where they operate as compared to European organizations. U.S.
management therefore must accept differences in the way different countries understand
and regulate industrial relations. In United States, collective bargaining usually consists
of negotiations between a union and an organization’s management, but collective
bargaining generally takes place between the employers’ organization and a
representative union of industry’s employees in Sweden and Germany. Legal differences
range from who may form a union to how much freedom an organization is permitted to
lay off workers. In China, for example, the Government passed a law asking employers
to provide new employees probationary periods of shorter duration, keep in mind
workers’ dependents in taking lay off decisions, severance pay, workers and provide the
Communist Party- run union more authority in negotiating collective bargaining contracts
and work rules. In Germany, since labor representatives participate on companies’ board
of directors, the manner in which labor relations are managed can influence a broad
range of decisions. Management therefore is encouraged to build cooperative
relationship.
International industrial relations must also take into account that negotiations
between workers and management take place in not just different economic and legal
contexts but also a different social context, Cultural differences that affect other
interactions become active in collective bargaining negotiations as well. Negotiations will
approach the process differently. It depends on whether the culture views the process as
basically cooperative or competitive and whether it is local practice to negotiate a deal
by beginning with the specific issues or agreeing on overall fundamentals. Working with
host-country nationals can help organizations deal with such differences in negotiation
style.

Summary

 The process of procuring, allocation effective utilization of human resources in an

international enterprise is called International Human Resources Management.
 The critical issues multinational corporations face concerning the employment of
different country nationals to occupy main positions in headquarter and
subsidiary operations. Different approaches followed for international human
resources staffing include ethnocentrism, polycentrism, geo-centrism, region-
centrism. The human resources development plans include the training for an
international workforce, cross-cultural training and global employee development.
 Therefore, organizations have to keep in mind legal requirements, local business
practices, and national cultures at the time of establishing performance
management systems in other countries.
 Compensation management includes decision-making about pay design,
incentive pay, and employment benefits. All these decisions become more
complex in the context of an international workforce.
 Organizations frame policies and establish goals for labor relations, for industrial
relations, for keeping watch on collective bargaining agreements, and for
monitoring labor performance.