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Expatriates often have both domestic (i.e. home-country) & host-country tax ... E.g. expatriate failure (the premature return of an expatriate from an ... – PowerPoint PPT presentation

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Approaches to International HRM
  • Early work emphasized a cross-cultural mgmt
    approach examined human behaviour within
    organization from an international perspective
  • Comparative IR HRM literature seeks to
    describe, compare, analyze HRM systems in
    various countries
  • Aspects of HRM in MNEs (We will use this first)

Defining International HRM
  • Let us consider which activities (like HRP,
    staffing, performance management, etc.) change
    when HRM goes international
  • Model of international HRM that consists of three
  • 3 broad HR activities procurement, allocation
  • 3 national or country categories involved in
    international HRM activities host country where
    a subsidiary may be located, home country where
    the firm is headquartered, other countries
    that may be the source of labour or finance
  • 3 types of employees of an international firm
    HCNs, PCNs, TCNs
  • IBM employs Australian citizens (HCNs) in its
    Australian operations, often sends U.S. citizens
    (PCNs) to Asia-Pacific countries on assignment,
    may send some of its Singaporean employees on an
    assignment to its Japanese operations (as TCNs)

Defining International HRM
  • Morgan defines international HRM as the interplay
    among these 3 dimensions HR activities, types
    of employees, countries of operation
  • In broad terms international HRM involves the
    same activities as domestic HRM (e.g. procurement
    refers to HRP staffing), however, domestic HRM
    is involved with employees within only one
    national boundary
  • The complexities of operating in different
    countries employing different national
    categories of workers is a key variable that
    differentiates domestic international HRM,
    rather than any major difference between the HRM
    activities performed
  • Interestingly, domestic HRM is taking on some of
    the flavour of international HRM as it deals with
    a multicultural workforce thereby managing
    workforce diversity however, mgmt of diversity
    within a single national context may not
    necessarily transfer to a multinational context
    without some modification

Complexity of International HRM
  • Complexity of international HR can be attributed
    to 6 factors that differentiate international
    from domestic HRM
  • More HR activities
  • Need for a broader perspective
  • More involvement in employees personal lives
  • Changes in emphasis as the workforce mix of
    expatriates locals varies
  • Risk exposure
  • More external influences

More HR activities
  • Activities like
  • international taxation,
  • international relocation orientation,
  • administrative services for expatriates,
  • host-government relations,
  • language translation services would not be
    necessary in a domestic environment, however, in
    an international environment, a HR dept. must
    engage in such activities

More HR Activities International Taxation
  • Expatriates often have both domestic (i.e.
    home-country) host-country tax liabilities, so,
    tax equalization policies must be designed to
    ensure that there is no tax incentive or
    disincentive associated with any particular
    international assignment
  • Administration of tax-equalization policies is
    complicated by the wide variations in tax laws
    across host countries by the possible time lag
    between the completion of an expatriate
    assignment the settlement of domestic
    international tax liabilities

More HR Activities International relocation
  • Involves arranging for pre-departure training
    providing immigration travel details providing
    housing, shopping, medical care, recreation,
    schooling information finalizing compensation
    details such as delivery of salary abroad,
    determination of various international
    allowances, taxation treatment
  • Many of these factors may be a source of anxiety
    for the expatriate require considerable time
    attention to resolve potential problems
    successfully certainly much more time than
    would be involved in a domestic transfer /
    relocation such as New York to Dallas, Taipei to
    Kaohsiung, etc.

More HR Activities Administrative services
  • Providing administrative services can often be a
    time-consuming complex activity because
    policies procedures are not always clear cut
    may conflict with local conditions
  • Ethical questions can arise when a practice that
    is legal accepted in the host country may be at
    best unethical at worst illegal in the home
  • Eg. host-country requires an AIDS test for a work
    permit for an employee whose parent firm is
    headquartered in the US where employment-related
    AIDS testing remains a controversial issue

Need for a Broader Perspective
  • Because HR mgrs. working in an international
    environment face the problem of designing
    administering programs for more than one national
    group of employees (e.g. PCN, HCN, TCN
    employees who may work together in Zurich at the
    European regional headquarters of a U.S-based
    multinational), the need to take a broader view
    of issues
  • E.g. of an equity issues a broader more
    international perspective on expatriate benefits
    would endorse the view that all expatriate
    employees, regardless of nationality, should
    receive a foreign service or expatriate premium
    when working in a foreign location
  • However, many a times, HCN TCN employees
    perceive that PCN employees are given
    preferential treatment on these issues

More Involvement in Employees Personal Lives
  • A greater degree of involvement in employees
    personal lives is necessary for the selection,
    training, effective mgmt of both PCN TCN
  • HR dept. needs to ensure that the expatriate
    employee understands housing arrangements, health
    care, all aspects of the compensation package
    provided for the assignment (cost-of-living
    allowances, premiums, taxes, etc.)
  • In international setting, the HR dept. must be
    much more involved needs to know more about
    employees personal life in order to provide the
    level of support required.
  • E.g. some govts. require the presentation of a
    marriage certificate before granting a visa to an
    accompanying spouse thus, marital status could
    become an aspect of the selection process,
    regardless of the best intention of the firm to
    avoid using a potentially discriminatory
    selection criterion.

Changes in Emphasis as the Workforce Mix of PCNs
HCNs Varies
  • As foreign operations mature, the emphases put on
    various HR activities change
  • The need for PCNs TCNs declines more trained
    locals become available with that, resources
    previously allocated to areas such as expatriate
    taxation, relocation, orientation are
    transferred to activities such as local staff
    selection, training devpt.

Risk Exposure
  • Frequently, the human financial consequences of
    failure in the international arena are more
    severe than in domestic business
  • E.g. expatriate failure (the premature return of
    an expatriate from an international assignment)
    is a potentially high-cost problem for
    international companies
  • Direct costs (salary, trg. costs, travel
    relocation expenses) per failure to the present
    firm may be as high as 3 times the domestic
    salary plus relocation expenses, depending on
    currency exchange rates location of assignments
  • Indirect costs such as loss of market share
    damage to international customer relationship may
    be considerable
  • Terrorism is another aspect of risk exposure
    relevant to international HRM

More External Influences
  • Major external factors that influence
    international HRM are the type of govt., the
    state of economy, generally accepted practices
    of doing business in each of the various host
    countries in which the multinational operates
  • E.g. a host govt. can dictate hiring procedures
    as in the case in Malaysia during the 1970s the
    govt. introduced a requirement that foreign firms
    comply with an extensive set of affirmative
    action rules designed to provide additional
    employment opportunities for the indigenous
    Malays who constitute the majority of the
    population but tend to be underrepresented in
    business professional employment groups
    relative to Chinese Indian Malays

Variables Moderate Diff. between Domestic
International HRM
  • So far, we have argued that the complexity
    involved in operating in different countries
    employing different national categories of
    employees, rather than any major differences
    between the HRM activities performed, is a key
    variable that differentiates domestic
    international HRM
  • In addition to complexity, there are 4 other
    variables that moderate (i.e., either diminish or
    accentuate) differences between domestic
    international HRM these are
  • Cultural environment
  • Industry (industries) with which the
    multinational is primarily involved
  • Extent of reliance of the multinational on its
    home-country domestic market
  • Attitudes of senior management

Moderator Variable Cultural Environment
  • Usually used to describe a shaping process, i.e.
    members of a grp / society share a distinct way
    of life with common values, attitudes,
    behaviours that are transmitted over time in a
    gradual, yet dynamic, process
  • Culture is so subtle a process that one is not
    always conscious of its effect on values,
    attitudes, behaviours one has to be
    confronted with a diff. culture in order to fully
    appreciate this effect (like anyone traveling
    abroad experiences situations that demonstrate
    cultural differences in language, food, dress,
    hygiene, attitude to time where they experience
    culture shock a phenomenon experienced by
    people who move across cultures
  • New environment requires many adjustments in a
    relatively short period of time, challenging
    peoples frames of reference to such an extent
    that their sense of self, especially in terms of
    nationality, comes into question
  • People, in effect, experience a shock reaction to
    new cultural experiences that cause psychological
    disorientation because they misunderstand or do
    not understand important cues
  • Culture shock can lead to negative feelings about
    the host country its people a longing to
    return home

Moderator Variable Cultural Environment
  • Issues in cross-cultural or comparative
  • Cross-national differences have been interpreted
    as cultural differences
  • Concerns the emic-etic distinction
  • Emic refers to culture-specific aspects of
    concepts or behaviour
  • A Phonemic system documents meaningful sounds
    specific to a given language
  • Etic refers to culture-common aspects
  • A Phonetic system organizes all sounds that have
    meaning in any language

Moderator Variable Cultural Environment
  • Both emic etic approaches are legitimate
    research orientations
  • Major problem may arise, however, if a researcher
    imposes an etic approach (i.e. assumes
    universality across cultures) when there is
    little or no evidence for doing so
  • E.g. of imposed etic approach is the convergence
    hypothesis that dominated much of U.S. European
    research in 1950s 1960s which is based on 2 key
  • Principles of sound mgmt that held regardless of
    national environments thus the existence of
    local or national practices that deviated from
    these principles simply indicated a need to
    change these local practices
  • Universality of sound mgmt practices would lead
    to societies becoming more more alike in the
    future given that the U.S was leading industrial
    economy, the point of convergence would be toward
    the U.S. model

Moderator Variable Cultural Environment
  • Convergence Divergence Hypotheses
  • Majority of convergence studies focus on
    macro-level variables (e.g. structure
    technology used by firms across cultures), the
    majority of the divergence studies focus on
    micro-level variables (e.g. the behaviour of
    people within firms)
  • Although firms in different countries are
    becoming more alike (an etic or convergence
    approach), the behaviour of individuals within
    these firms is maintaining its cultural
    specificity (an emic or divergence approach)

Importance of Cultural Awareness
  • Generally recognized that culturally insensitive
    attitudes behaviours stemming from ignorance or
    from misguided beliefs (my way is best or what
    works at home will work here) not only
    inappropriate but often cause international
    business failure
  • Activities such as hiring, promoting, rewarding
    dismissal will be determined by the practices of
    the host country often based on a value system
    peculiar to that countrys culture
  • A firm may decide to head up a new international
    operation with an expatriate general manager but
    appoint as the HR dept. manager a local a
    person who is familiar with the host-countrys HR
  • This practice can cause problems, though, for the
    expatriate general manager, as happened to an
    Australian who was in charge of a new mining
    venture in Indonesia (Elaborate the example) or
    expatriate HR managers of a large firm in Papua,
    New Guinea who were concerned over a number of
    accidents involving operators of very large,
    expensive, earth-moving vehicles (Elaborate the

Industry Type
  • International competition vary widely from one
    industry to another
  • At one end of the continuum of international
    competition is the multi-domestic industry one in
    which competition in each country is essentially
    independent of competition in other countries
    (traditional examples include retailing,
    distribution insurance)
  • In a multi-domestic industry then, international
    strategy collapses to a series of domestic
  • At the other end of the continuum is global
    industry one in which a firms competitive
    position in one country is significantly
    influenced by its position in other countries
    ( include commercial aircraft,
    semiconductors, copiers)
  • Global industry is not merely a collection of
    domestic industries but a series of linked
    domestic industries in which the rivals compete
    against each other on a truly worldwide basis

Industry Type
  • The issues that are uniquely international
    revolve around how to do business abroad, how to
    select good countries in which to compete (or
    assess country risk), mechanisms to achieve the
    one-time transfer of know-how
  • Role of HRM function in multi-domestic global
    industries can be analyzed using Porters
    value-chain model in Porters model, HRM is
    seen as one of 4 support activities for the 5
    primary activities of the firm
  • Since HRM are involved in each of the primary
    support activities, the HRM function is seen as
    cutting across the entire value chain of a firm

Industry Type
  • If the firm is in a multi-domestic industry, the
    role of the HR dept. will most likely be more
    domestic in structure orientation
  • At times there may be considerable demand on
    international services from the HRM function
    (e.g. when a new plant or office is estd. in a
    foreign location the need for expatriate
    employees arises), but these activities would not
    be pivotal (like many of these services may be
    provided via consultant /or temp. employees)
  • Here the main role for the HRM function would be
    to support the primary activities of the firm in
    each domestic market to achieve a competitive
    advantage through either cost / efficiency or
    product / service differentiation

Industry Type
  • If the multi-national is in a global industry,
    however, the imperative for coordination
    described by Porter would require a HRM function
    structured to deliver the international support
    required by the primary activities of the

Industry Type
  • Laurent proposes that a truly international
    conception of HRM would require the following
  • An explicit recognition by the parent org. that
    its own peculiar ways of managing HR reflect some
    assumptions values of its home culture
  • An explicit recognition by the parent org. that
    its peculiar ways are neither universally better
    nor worse than others but are different likely
    to exhibit strengths weaknesses, particularly
  • An explicit recognition by the parent org. that
    its foreign subsidiaries may have other preferred
    ways of managing people that are neither
    intrinsically better nor worse, but could
    possibly be more effective locally
  • A willingness from HQs to not only acknowledge
    cultural differences, but also to take active
    steps in order to make them discussable
    therefore usable
  • The building of a genuine belief by all parties
    involved that more creative effective ways of
    managing people could be developed as a result of
    cross cultural learning

Reliance of the MNE on its Home-country Domestic
  • When we look through lists of very large firms it
    is frequently assumed that a global market
    perspective would be dominant in the firms
    culture thinking. However, the size is not the
    only key variable when looking at a MNE the
    extent of reliance of the MNE on its home-country
    domestic market is also very important.
  • In fact, for many firms, a small home market is
    one of the major motives for going
  • UNCTAD in its annual survey of FDI calculates
    what it refers to as an index of
    transnationality which is an average of ratios
    of foreign assets to total assets, foreign sales
    to total sales, foreign employment to total
  • Based on this index of transnationality the most
    foreign-oriented MNE is Nestle with 87 of
    assets, 98 of sales, 97 of employees located
    outside Switzerland (others include, ABB,
    Electrolux, Unilever, Philips)

Reliance of the MNE on its Home-country Domestic
  • There isnt one U.S. firm in the top 15 MNE
    Coca-Cola McDonalds are ranked 31st 42nd
  • Reason is as obvious as it is important the
    size of the domestic mkt. for U.S. firms
  • A very large domestic market influences all
    aspects of how a MNE organized its activities
  • E.g. a MNE will be more likely to use an
    international division as the way it organizes
    its international activities even if it uses a
    global product structure the importance of
    domestic mkt will be pervasive
  • A large domestic mkt will also influence the
    attitudes of senior managers will generate a
    large number of managers with an experience base
    of predominantly or even exclusively domestic mkt