COURSE: GLOBAL BUSINESS MANAGEMENT MGT610

DR. DIMITRIS STAVROULAKIS PROFESSOR OF HUMAN RESOURCE MANAGEMENT DEPT OF ACCOUNTING TEI OF PIRAEUS

Unit 9. International Human Resource Management Training Material: Ch 14 of: Cullen, J.B. & P.K. Parboteeah (2010): International Business. London: Routledge.

I don't want any yes-men around me. I want everybody to tell me the truth even if it costs them their jobs.”

Samuel Goldwyn

US (Polish-born) movie producer

HRM vs. IHRM

      Several functions of HRM are the same with IHRM (job analysis, human resource planning, training & development), but even these have to be extended in order to adapt to international requirements. HRM is much more important to the MNC than to the conventional firm. HRM is a complex function itself and the global dimension complicates further the situation: Crucial issues are at stake with regard to overseas staffing.

Compensation policies differ significantly among countries.

Performance appraisal systems focus on different factors across countries.

Equal employment legislation may be rigorously pursued in specific countries, but may be marginal in others. Labor unions function in entirely different modes across countries. Japanese auto makers were baffled by the variety of the UK trade unions they had had to negotiate with in the 90s.

Expatriate manager (expat):

A person working in a sub away from home country. In international sales, expats may be best when products are highly technical or when selling requires extensive knowledge of company/product line.

   

IHRM Functions (cont)

IHRM is much broader than expat management, since it covers the overall worldwide management of the MNC human resources ( Brewster & Hilary, 1999). MNC subs have developed sophisticated human resource systems, in particular concerning career development, fringe benefits & perks, pensions & healthcare, while local firms often focus mostly on collective bargaining. Nevertheless, despite the necessity to develop global staff, empirical research among 326 MNCs has shown that HR was the weakest among business functions (Coleman, 2002).

Strategic preparation of global leaders has become a major component of IHRM. In essence, IHRM must design HR processes, including global training and management development, so as to ensure that the “global whole” is greater than the sum of its domestic parts (Briscoe & Schuler, 2004, 282).

Factors Affecting the Scope of HRM: Globalization/Localization

International Staffing

International staffing fulfils the following functions:     To fill positions in countries of low social capital with qualified personnel from abroad. To share and transfer knowledge across MNC units.

To develop global managers by exposing qualified personnel to diverse cultural environments. In most MNCs international assignments are, at least indirectly, associated with promotion.

To transmit the company culture to units abroad.

 Staffing deals with the selection of employees to fill org positions. At a first level, individuals who have the knowledge and skills that respond to job descriptions are preferred.

 In most MNCs, however, more is demanded: Selected individuals have to fit to the corporate culture. In GE for example, only persons whose lifestyle, values, and beliefs are compatible to the GE culture are hired.

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Staffing & Socialization Policy

Turnover costs are extremely high in MNCs. To ensure that candidates will stay with the company, job requirements are presented to them beforehand as

much tougher than in reality .

Morgan Stanley advised MBA applicants to discuss tough work requirements with family before accepting the job.

“Carbon has to be compressed: It either becomes a diamond, or it peters away”. Or put it another way, if some people have to leave, let them leave now. This is how many MNCs think about their newly-hired MBAs.

“Compression” occurs during the socialization & acculturation period. Morgan Stanley, McKinsey, IBM, P&G, among others, submit the newly hired MBAs to exhaustive tests for several weeks, including weekends, before posting them to the “trenches” (tough positions demanding talent & skills).

Philips runs a hard entry program named “Organization Cohesion Training”.

Unilever’s entry program is called straight-forwardly “Indoctrination” (brain-washing ?) Team-building exercises.

The Seven Spirits of Matsushita

        Founder Konosuke Matsushita developed in 1932 a grand, 250 year vision, broken into 25-year sections. Each January he linked the annual objectives with the company vision and culture. This vision was titled

“Seven Spirits of Matsushita”:

Service through Industry Fairness Harmony and Cooperation Struggle for Progress Courtesy and Humility Adjustment and Assimilation Gratitude  Newly-hired employees spend a big portion of their first 6 months studying in-depth the seven spirits. They learn to transform this abstract philosophy to everyday behavior and operational decisions.

Staffing Policies

Ethnocentric [ International & Global ] Staffing Policy

 The

ethnocentric approach

to staffing fills key management positions with parent-country nationals. Very popular in the past, but still holds on (P&G, Matsushita, Toyota, Samsung). Research in Japanese MNCs showed that only 29% of subs had presidents who were not Japanese.

  Firms pursue an ethnocentric policy because:  There is a lack of qualified candidates in the host country.

  It is the best way to maintain a unified corporate culture.

Value can be created by transferring core competencies to a foreign operation via parent country nationals. Transfer of innovative practices has to be supported by experts from home.

Disadvantages of the ethnocentric staffing policy:  Limits advancement opportunities for locals, stifles motivation and may cause resentment and tension.

 Can lead to "cultural myopia“. Parent company loses contact with the host country culture with negative implications on marketing & management.

.

Polycentric (Multinational) Policy

The

polycentric approach

recruits mostly host country nationals to manage subs in their own country, and parent country nationals for positions at headquarters.

 Advantages:    Makes sense for firms pursuing a localization strategy.

Addresses the problem of cultural myopia.

May be less expensive to implement than an ethnocentric policy, due to the high cost of expats.

 Disadvantages:  Host country nationals have limited opportunities to gain experience outside their own country. Therefore, it is difficult for them to proceed beyond their own sub and to compete for HQ key positions.  Barriers in knowledge, competencies and culture may be raised between subs and HQ. Therefore, a federation of largely independent units is likely to be created. This form of organization may hamper the transfer of innovative practices. .

Polycentric Policy (cont)

o    Moreover, this org form is difficult to change, e.g.: In the case of Unilever, “little kingdoms” had opposed vehemently attempts of the HQ to limit their autonomy and to coordinate centrally.

Philips had to confront fiercely independent national management teams. The term “Dutch mafia” was assigned by local managers to Dutch executives who were assigned key positions in Phillips subs ( mafia implies that one cannot rise to the top of the gang if not being Italian).

In order to tackle this problem, Philips created a top-level

World Policy Counci

l, comprising key managers of strategic markets. Throughout this Council, Philips managed to ensure support to HQ decisions, which otherwise would be unacceptable to host country managers.

 

Geocentric (Transnational) Policy

The

geocentric approach

seeks the best people for key positions, regardless their nationality. Advantages:  Consistent with building a strong unifying culture and informal management networks.

  Enables the firm to utilize best its human resources Builds a cadre of international executives with a global mindset, who feel at home working in diverse cultures.

Disadvantages:    Might be limited by immigration laws. Many countries, including the USA, scrutinize thoroughly the foreigners who enter the country in order to fill strategic positions. Documentation may be time-consuming and expensive.

Is expensive to implement due to high costs of training and relocation.

Risk of executive failure is higher, therefore rigorous selection methods have to be applied.

.

 

Regiocentric Policy

Individuals from the world region are selected for key positions in subs. In broad terms, region is not restricted to geographic terms, but may expand to language and cultural proximity of countries (c.f. psychic distance , e.g. UK is “nearer” to USA than to Czech Republic). Advantages: Serves best the development of competent regional managers, who address best the demands of the region.

Regional managers are familiar with cultures of specific regions (e.g. Southern Europe), and simultaneously possess a remarkable international experience.

Disadvantages: A strong “regional division culture” may be at odds with the company culture. Barriers may rise between the HQ and largely independent regional divisions.

Regional managers may prove dysfunctional in cultures outside their region (e.g. a Latin American in Middle East), a fact that might hamper their advancement to the top of their company.

Compensation policies



International payment systems

Through an efficient payment system, MNCs have to: -Safeguard and motivate competent personnel. MNCs often have to adopt a leader strategy in order to attract and retain the best.

-Enhance productive and cooperative behavior of employees -Facilitate managers’ mobility between subs. -Offer attractive compensation packages and perks according to countries’ standards & culture. E.g. share options, which are most popular in the USA, UK, Canada & Australia, may be unwelcome in Greece, Italy, and Portugal. -Moderate, but not reform deeply-rooted beliefs e.g. about the payment of women, or of lower classes. -Integrate contingencies such as inflation and currency rates. -Distinguish strategically important subs.

-Create a sense of equity among employees - Ensure transparency and understanding of compensation schemes. This might backfire, however, as when employees from Bulgaria learned what their counterparts in Germany receive. Complaints among employees about well-paid colleagues in EU.

   

Strategic flexibility of international payment systems

Milkovich & Bloom introduced a

model of strategic flexibility

, demonstrating employees’ compensation structure:

Core compensation set

provides motivation for a uniform company mindset and commitment to global customers, e.g. competitive cash rewards, flexible employment within the MNC (involving international workforce interaction & “flexible” job security), career-building oppts, family benefits etc.

Craft compensation

components include both legally mandated and socially preferred rewards, provided that local managers have the authority to offer them. For example, in Germany vacation leave is prescribed to endure 20 days, but most employers offer 30 days. In China employees prefer subsidization of their housing and mortgage loans. In the US provision of healthcare is a controversial issue, but in the EU it is universally guaranteed.

Choice compensation set

involves elements that can be picked by employees themselves, according to the value perceived and within a total cost limit (cafeteria-style compensation plan). E.g. younger employees might refrain from pension plans, while mothers may prefer flexible working hours. Scandinavian managers may prefer credit cards to bonuses due to taxation.

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Cultural considerations on compensation policy

In countries notorious for kidnapping executives (Colombia, Ecuador), rewards have to provide for such an eventuality.

Social benefits, e.g. the desirable life employment in Greece and Japan may have to be compromised with comparatively lower rewards. In Europe there exists a stronger sentiment in favor of maternity and paternity than in the USA. In strong Uncertainty Avoidance countries (Greece, Turkey, Portugal) insecurity has to be tackled through standard and uniform salaries, while in weak UA countries (UK, USA, India, Malaysia) performance based payment is indicated.

In strong Individualist countries (Canada, Netherlands) individual customized rewards may be appropriate, while in Collectivist countries (China, Japan), group-based rewards may be welcome.

In Masculine countries (Mexico, USA, UK) hard money is preferred, while in Feminine countries (Scandinavian) emphasis is stressed on Quality of Work Life.

In strong Power Distance countries (India, Middle East) distinction in payment reflects distinction in status, while in low PD ones (Ireland, N. Zealand) profit-sharing and gain-sharing plans are more popular.

Training & Development

Training & Development in global business

   Training has to be successfully delivered because it is costly, and a training failure (e.g. on advanced technology) would seriously impair the sub performance. Widespread use of English has largely facilitated training processes. In underdeveloped countries business training has to complement formal education.

Mode of training depends on the MNC’s approach to internationalization (ethnocentrism etc). Particular training styles are appropriate according to country culture (Hofstede’s dimensions):  In countries with high UA (Greece), highly structured material and passive learning techniques are indicated. In countries with low PD & UA, brainstorming, panels, and simulations are most welcome.

The cultural dimension of training

   Companies that wish to sustain a strong company culture apply more or less uniform training styles around the world. Nevertheless, cultural differences have always to be addressed: The Brazilian sub of Johnson Wax had to be exempted from a training course on team-building. Brazilians are so much devoted to teamwork, that such a course would be redundant and possibly insulting.

Transmission of a strong parent culture may backfire, as in the case of GE and CGR (a recent French buyout). GE attempted to assimilate the French through training seminars, where the French were obliged to wear GE T-shirts and to stick GE posters in their offices. The French were deeply insulted and about 1.500 employees left.

In Asian cultures, training is highly authoritative. Students do not ask questions, and instructors do not ask students’ opinions. Class participative techniques may fail in this context.

Training policies

   IBM has allocated its training activities in 5 regional centers covering 132 countries. Each regional division has customized activities in small clusters, even in separate countries, which offer highly sophisticated packages. Small countries have only a few trainers, but the HQ education division in the USA employs more than 2,000 persons. 3M has established semi-autonomous training divisions in each of the 52 host countries, but the HQ in Dusseldorf coordinate training divisions all over Europe. Unilever has established an innovative training center in London, called “Four Acres”, where managers all over the world are sent in order to build contact, to establish relationships, to acquire cultural skills and to promote networking. About 300-400 managers attend the Four Acres every year. There the company identifies and keeps track of its most competent managers, to be carefully nurtured and further developed. According to an executive, “this experience initiates you in the Unilever club and the clear norms, values, and behaviors that distinguish our people … we can spot a Unilever manager anywhere in the world”

Training Policies

Corporate Universities

They comprise a strategic umbrella for developing and educating employees, prospective managers, even suppliers and customers, in order to meet an organization’s business strategies.

 Corporate training aims at: Developing corporate citizenship.

  Building core workplace competencies among employees.

Well-known business training centers: The Wal-Mart U, the GM Technical College, the Goldman-Sachs U, the Intel U, the Disney Institute, the Ritz-Carlton Leadership Training Center, the HSBC Leadership Academy, the Hamburger U.

 Scientific Journal:

“The Corporate University Review”

The “Hamburger U” (1961) aims at instilling corporate values and teaching related business skills. Trainees come throughout the entire food chain (franchisees, staff, country managers etc).



Hamburger University

Instead of a dorm, students stay at the

Hyatt Lodge

. About 46

accredited courses

are offered. More than 5,000 students from more than 119 countries graduate annually. The facility contains a 300-seat auditorium, 3 kitchen labs, 12 interactive training rooms, 13 teaching rooms. The title is called

hamburgerology

and the graduation ceremony includes naming

the valedictorian.

• Fast food “the McDonald’s way” - Curriculum Restaurant operations, food preparation • • • • • Crew selection, training and team building Marketing and promotion Restaurant management, corporate citizenship & ethics Asset management & quality control Leadership & effective supervisory skills Elements of the McDonalds strong culture:  An ordinary (non-franchise) employee in the USA may place a call to the CEO and be called back within 24 hours.

 East Ball Bakery (a bun supplier who struck a handshake deal with Ray Kroc in 1955) still has no formal contract.

Hamburger University

Hong Kong London

Illinois

Munich Sydney

Comparative research on HRM practices among MNCs and big local firms in Greece (Barbara Myloni, 2002)

       Although both clusters of firms applied advanced selection tools (psychometric tests, multi-level interviews), subs were more likely to apply a combination of methods.

Greek firms focused more on formal qualifications, while subs valued also personality traits (initiative, responsibility etc).

Subs emphasized more on training (customized & based on training needs).

Subs were likely to offer a more variable compensation package (bonuses, share options). Rewards were considerably higher in subs, but also the payment gap (highest vs. lowest salary) was much wider.

Fringe benefits among Greek firms included mostly child care and career-breaking. Subs offered more extra pension schemes (subs: 62%, Greek: 24%). Evaluation in Greek firms was conducted by the supervisor, while in subs a sophisticated 360 degree appraisal was applied. Favoritism in appraisal was higher among Greek firms.