Few executives would argue with the fact that people are vital for the effective operation of a company. Managers often say that people are their most important asset. Yet the human assets are virtually never shown on the balance sheet as a distinct category, although a great deal of money is invested in the recruitment, selection, and training of people.
Recent theoretical work in business strategy (Patrick, 1998) has given a boost to the prominence of human resource (HR) in generating sustained competitive advantage. The world is becoming far more competitive and volatile than ever before, causing firms to seek to gain competitive advantage whenever and wherever possible. As traditional sources and means such as capital, technology or location become less significant as a basis for competitive advantage, firms are turning to more innovative sources. One of these is the management of human resources. Whilst traditionally regarded as a personnel department function, it is now being widely shared among managers and non-managers, personnel directors and line managers.
HRM means fillings positions in the organization structure. It involves identifying work-force requirements, inventorying the people available, and recruiting, selecting, placing, promoting, appraising, planning the careers of, compensation, and training people (Tung, 1988).
In the system approach to staffing, enterprise and organization plans become important inputs for staffing tasks. The number and quality of managers required to carry out crucial tasks depend on many different factors. One major step in staffing is to determine the people available by making a management inventory.
Staffing does not take place in a vacuum; one must consider many situation factors—both internal and external. Staffing requires adherence to equal employment opportunity laws so that practices do not discriminate, for example, against minorities or women. Also, one must evaluate the pros and cons of promoting people from within the organization or selecting people from the outside.
The selection process may include interviews, various tests, and the use of assessment centers. To avoid dissatisfaction and employee turnover, new employees must be introduced to integrated with other persons in the organization.
MNCs annually selected thousands of people to staff not only their home-country facilities but also their subsidiaries around the world. Who should be selected for a foreign assignment, and how are they handled when they get back? And how MNCs handle repatriation of the managers’ back to their country of origin? (Hamel, 1985)
The International Manager
To be effective, managers (Kramar, 1999) need various skills ranging from technical to design. The relative importance of these skills varies according to the level in the organization, analytical and problem solving abilities and certain personal characteristics are sought in managers. In addition to the various skills that effective managers need, several personal characteristics are also important. They are a desire to manage; ability to communicate with empathy; integrity and honesty and the person’s experience.
One of the greatest challenges facing managers in the 21st Century (Shari, 1999) we are told by a number of leading management gurus, will be the re-development and maintenance of ‘trust and loyalty’ in the workplace. Over the past decades, trust has become a major casualty in the workplace as a result of downsizing, restructuring and the acceleration of change. Yet trust-or rather the lack of it-is also one of the main reasons that so many change programs don’t deliver the anticipated results.
Managers must be morally sound and worthy of trust. Integrity in managers includes honesty in money matters and in dealing with others, effort to keep superiors informed adherence to the full truth, strength of character, and behavior in accordance with ethical standards.
The successful manager (Edward, 1999) has a strong desire to manage, to influence others, and to get results through team efforts of subordinates. To be sure, many people want the privileges of managerial positions. The desire to manage requires effort, time, energy, and usually, long hours of work. Another important characteristic of managers is the ability to communicate through written reports, letters, speeches, and discussions. Communication demands clarity, but even more, it demands empathy.
Another the frequently mentioned skills desired of managers (Hamel, 1994) is analytical and problem-solving ability. Mangers must be able to identify problems, analyze complex situations, and by solving the problems encountered, exploit the opportunities presented. Managers also need the will to implement the solutions; they must recognize the emotions, needs, and motivations of the people involved in initiating the required change as well as of those who resist change.
Management Recruitment and Selection Process
Recruitment is a form of business competition. Just as corporations compete to develop, manufacture, and market the best product or service, so they must also compete to identify, attract, and hire the most qualified people (Richard, 1997).
Recruitment begins by specifying human resource requirements (numbers, skills mix, levels, and time frame), that are the typical result of job analysis and HR planning activities. Conceptually and logically, job analysis precedes HR planning, it is necessary to do the work (knowledge, skills. abilities and other characteristics) before one can specify the numbers and types of people needed to do the work. Although critically important to the overall recruitment and selection process, are strategic business objectives.
The step following recruitment is initial screening, which is basically a rapid, rough “selection” process. The selection process following initial screening is more rigorous. For example, physical characters alone do not provide many clues about a person’s potential for management, or for any other kind of work for that matter (Donald, 1996).
Past the selection stage, we are no longer dealing with job candidates; we are dealing with new employees. Typically, the first step in their introduction to company policies, practices and benefits is an orientation program. Orientation may take up several hours or several weeks; it may be formal, informal, or some combination of the two.
Placement occurs after orientation; placement is the assignment of individual to jobs. In large firms, for example, individual may be selected initially on the basis of their potential to succeed in general management. After they have been observed and assessed during an intensive management training program, however, the organization is in a much better position to assign them to specific jobs within broader job families, such as marketing, production, or sales. The technical expertise and the resources necessary to implement optimal placement programs are found mostly in very large organization, such as the military. Once new employees are selected, oriented, and placed, they can be trained to achieve a competent level of job performance.
Finally, (Mendoca, 1997) performance appraisal, one component of a performance management system, provides feedback to employees regarding their past and present job performance proficiency, as well as a basis for improving performance in the future. The first time a new employee’s performance is appraised, it is like pushing the button that starts a continuous loop-more precisely, a continuous feedback loop comprising the employee’s performance, the manager’s appraisal of it, and the communication between the two about performance and appraisal.
All the phases of recruiting and selecting employees are interrelated. But the final test of all phases comes with the appraisal of job performance. When you evaluate the performance of new hires, you are doing so within the context of a system, a network of human resource activities, and you are really appraising recruitment, selection, and training, among other HRM activities.
Firms doing international business need to be particularly concerned with training and organization development to better prepare their personnel for overseas assignments. Training is the prices of altering employee behavior and attitudes in a way that increases the probability of goal attainment. This training process is particularly important in preparing employees for overseas assignment. For example, most expatriates are unfamiliar with the customs, cultures, and work habits of the local people. As a result, they often make critical mistakes.
The simplest training, in terms of preparation time, is to place a cultural integrator in each foreign operation. This individual is responsible for ensuring that the operation’s business systems are in accord with those of the local culture. The integrator advises, guides, and recommends actions needed to ensure this synchronization. One recent review found that cross-cultural training, which can take many forms, is becoming increasingly popular. A recent survey of 228 companies found the following (Tung, 1997):
* Of organization with cultural programs, 58 percent offer training only to some expatriates, while 42 percent offer it top all of them.
* 91% offer cultural orientation programs to spouses and 75% offer them to dependent children.
* The average duration of the cultural training program is 3 days.
* Cultural training is continued after arrival in the assignment location 32% of the time.
* 30% offer formal cultural training programs.
* Of those without formal cultural programs, 37% plan to add such training.
The type of training that is required of expatriates is influenced by the firm’s overall philosoophy of international management. Four basic philosophic positions of multinational corporations can influence the training program (Sparrow, 1994):
* An ethnocentric MNC puts home-office people in charge of key international management positions. The MNC headquarters group and the affiliated world company managers all have the same basic experiences, attitudes, and beliefs about how to managers operations.
* A polycentric MNC place local nationals in key positions and allows these managers to appoint and develop their own people. MNC headquarters gives the subsidiary managers authority to manage their operations just as long as these operations are sufficiently profitable.
* A regiocentric MNC relies on local managers from a particular geographic region to handle operation in and around that area.
* A geocentric MNC seeks to integrate diverse regions of the world through a global approach to decision making.
All four of these philosophical positions can be found in the multinational arena, and each puts a different type of training demand on the MNC. For example, ethnocentric MNCs will do all training at headquarters, but polycentric MNCs will rely on local managers to assume responsibility for seeing that the training function is carried out.
There are two primary reasons for training (Dowling, 1994): organizational and personal. Organizational reasons include overcoming ethnocentrism, improving communication, and validating the effectiveness of training programs. Personal reasons include improving the ability of expatriates to interact locally and increasing the effectiveness of leadership styles. There are two types of training programs: standard and tailor-made. Research shows that small firms usually rely on standard programs and larger MNCs tailor their training. The six major types of training include environment briefings, cultural orientation, cultural assimilators, language training, sensitivity training, and field experience.
A cultural assimilator is a programmed learning approach that is designed to expose members of one culture to some of the basic concepts, attitudes, role perceptions, customs, and values of another. Assimilators have been developed for many different cultures. Their validity has resulted in the improved effectiveness and satisfaction of those being trained as compared with other training methods.
Foreign Posting Compensation
Compensation, which include direct cash payments, indirect payments in the form of employee benefits, and incentives to motivate employees to strive for higher levels of productivity, is a critical component of the employment relationship. Compensation is affected by forces as diverse as labor market factors, collective bargaining, government legislation, and top management’s philosophy regarding pay and benefits. This is a dynamic area.
Compensation policies can produce intense internal conflicts within a company at any stage of globalization. Indeed, few other areas in international HR management demand as much top-management attention as does compensation. The principal problem is straightforward: salary levels for the same job differ among countries in which a global corporation operates. Compounding this problem is the fact that fluctuating exchange rates require constant attention in order to maintain constant salary rates in US dollars.
* An effective international compensation policy should meet the following objectives:
* Attract and retain employees who are qualified for overseas service.
* Facilitate transfers between foreign affiliates and between home-country and foreign locations
* Establish and maintain a consistent relationship with regard to the compensation of employees of all affiliates, both at home and abroad.
* Maintain compensation that is reasonable in relation to the practices of leading competitors.
As companies expand into overseas markets, they are likely to create an international division that becomes the home of all employees involved with operations outside the headquarters country. Three types of expatriate compensation plans typically found during this stage of development are: localization; higher-of-home-or-host compensation and balance sheet. International dimensions of HM include home-country salary; host-country costs; host-country costs paid by organization and from salary and home-country equivalent purchasing power.
In an analysis of the international compensation package, two major components are: benefits and pay adjustments and incentives.
Benefits may vary drastically from one country to another. For example, in Mexico an acquired rights law requires that if a benefit, service, or bonus is paid 2 years in a row, it become an employee’s right. Both India and Mexico mandate profits sharing -10% of pretax profits must be distributed to employees. Most developed and emerging economies have some form of national health care supplied by employer-and employers-paid premiums. In Europe, employees have various statutory rights that vary from country to country. These include pensions, sick pay, minimum wages, holiday pay, overtime pay, minimum work time, and dismissal procedures. In Japan, a supervisor whose weekly salary is modest may also get benefits that include family income allowances(Toyota provides about $180 per month for the first dependent and about $50 per month for additional dependents), housing or housing loans, subsidized vacations, year-end bonuses that can equal 3 month’s pay, and profit sharing.
Global corporations commonly handle benefits coverage in terms of the “best-of-both-worlds” benefits model. Here is how it works: Wherever possible, the expatriate is given home country benefits coverage. However, in areas such as disability insurance, where there may be no home-country plan, the employee may join the host-country plan. Most internationals also offer various types of premiums and incentives. Their purpose is to provide for the difference in living costs ( that is, the costs of goods, services, and currency realignments) between the home country and the host country. Premiums may include any one or more of the following components:
* Housing allowance
* School allowance
* Home leave
* Hazardous-duty pay
* Hardship pay
* Income tax equalization allowance
* Education allowance
In most MNCs, adjustments in individual pay levels are based, to a great extent, on how well people do their jobs, as reflected in a performance appraisal. In most areas of the third world, however, objective measures for rating employee or managerial performance are uncommon. Social status is based on characteristics such as age, religion, ethnic origin, and social class. Pay differentials that do not reflect these characteristics will not motivate workers. Although the situation is changing, especially among large companies, rewards are based less on the nature of the work performed or individual competence than on seniority and personal characteristics such as age, education, or family background. A pay system based on individual job performance would not be acceptable since group performance is emphasized and the effect of individual appraisal would be to divide the group. Despite such differences, research indicates that there are also important similarities in reward-allocation practices across cultures. The most universal of these seems to be the equity norm, according to which rewards are distributed to group members on the basis of their contributions.
When implementing performance appraisal overseas, therefore, first determine the purpose of the appraisal. Second, whenever possible set standards of performance against quantifiable assignments, tasks, or objectives. Third, allow more time to achieve results abroad than is customary in the domestic market. Fourth, keep the objectives flexible and responsive to potential market and environmental conditions.
More and more MNCs that are exploring strategic compensation approaches at home are beginning to adopt similar approaches for their senior executives worldwide. As a example, consider the balance sheet approach to expatriate compensation. It is most appropriate to the business strategies of an organization that is in the export or international stage of globalization. However, as firms evolve from multinational to global, they want their expatriates to understand that the greatest organization growth-and their fastest career development opportunities-are outside their home or base country. Hence a large part of the compensation of these individuals will be performance-based, not a package of costly allowance and premiums that represent fixed costs.
Manpower Differentials in Foreign Markets
One of the first lessons global corporations learn is that it is far cheaper to hire competent host-country national than to send their own executives overseas, for foreign service employees typically cost two to three times the salary of comparable domestic employee, and often many more times the salary of a local national employee in the assignment country.
For example, General Motors typically spends $750,000 to $100,000,0 on an executive and his or her family during a three years stint abroad. The costs of doing business are often much higher overseas than in the USA. Consider office space as an example. In USA, rent per square foot ranges from about $21 in Los Angeles to $36 in midtown Mahatteam. By contrast, rents expressed in U.S. dollar average about $49 in Paris and Frankfurt and $61 in London. In such Asian cities as Bombay, Beijing, HongKong, and Tokyo, dollar rents range from $64 to $101. Of course, these costs fluctuate with international exchange rates relative to the U.S. dollar. On top of the high costs of such items as office space are the costs incurred by a high failure rate among expatriates—between 16 and 40 percent of all Americans sent overseas. For all levels recruitment, relocation expenses, premium compensation, repatriation costs, replacement costs, and the tangible costs of poor job performance. When an overseas assignment does not work out, it still cost a company, on average, twice the employee’s base salary.
Although the costs of expatriates are considerable, there are compensating benefits to MNCs. In particular, overseas postings allow managers to develop international experience outside their home countries—the kind of experience needed to compete successfully in the global economy that we now live in. When you are sending someone abroad to work on an possible about how to do business in the country. The cost of training is inconsequential compared to the risk of sending inexperience or untrained people.
Repatriation occurs when the expatriate returns from an assignment at the parent or subsidiary located in a foreign country. It is a major event in any person’s career, and it would be expected to occur during a period of high exceptions for promotion and solid career -path progress. Such expectations are especially likely to be held by expatriates who are parent country nationals. The extent to which expectations of this kind have met is a matter of record, and the record shows that the pattern has changed. The early experience literature of the period identified several problems or concerns pertinent to the repatriation of expatriates:
* Expatriates on foreign assignment are on a career path holiday. Little or no concern is expressed for how they will fit into the organization upon their return.
* The expatriate feels isolated, personally and professionally. Communication with the home office is difficult, since no one appreciates the difficulties of operating abroad.
* Advancement relates to exposure and significance. The foreign assignment isolates the assignee and often the employer judges’ overseas experience as irrelevant to what is important for advancement.
* Repatriated expatriates are often placed in a holding pattern upon their return home, since no appropriate positions have been defined for them. In some cases, this means having to prove oneself to the parent organization all over again.
* Senior-level foreign assignments general require interactions with others, such as high-level government officials. The new job at home is that likely to be more constrained both in external contacts and in the scope of management responsibility. The personal adjustments required can be difficult.
* Repatriated executives put into a parent company holding pattern find that they can earn more money and be challenged again by taking position at other companies.
Today’s mature MNCs have expatriate policies and programs that are more established and effective than those of earlier times. For example, career path planning, which is routinely offered to executives in the large MNCs, identifies postexpatriate placement alternatives prior to an expatriate assignment. The larger firms are also more likely to have special training programs for personnel who accept expatriate assignments and for their spouses.
The enhanced concern of the MNCs for the expatriate reflects, to some degree, the expatriate’s increased importance to the competitive success of the enterprise. Since the mature MNCs seek competitive advantages that result from, among other factors, the integration of information and expertise across geographic boundaries, the people who embody multinational knowledge are especially valuable to it. Where these people originally came from is perhaps incidental to their value. It is their experience and expertise that enhance their value.
In the early days of the MNCs, expatriate repatriation was often a disappointing experience. Firms were inexperienced in dealing with expatriates, and the competitive pressures of the times necessitated moving needed people overseas quickly. Mistakes were made. Those who had been on assignment overseas often fared miserably upon their return to the home operation. For these and other reasons, especially reasons related to the taxation policies then in effect, the incidence of expatriate assignments declined.
The expatriate’s performance effectiveness once home will increase quickly. Some additional steps suggested by experts in this area included:
* Arrange an event to welcome and recognize the employee and family, either formally or informally.
* Establish support to facilitate family reintegration.
* Offer repatriation counseling or workshops to ease the adjustment.
* Assist the spouse with job counseling, resume writing, and interviewing techniques.
* Provide the employee with a through debriefing by a facilitator to identify new knowledge, insights, and skills and to provide forums to showcase new competencies.
* Provide educational counseling for the children.
* Offer international outplacement to the employee and re-entry counseling to the entire family if no positions are possible.
* Arrange a postassignment interview with the expatriate and spouse to review their view of the assignment and address any repatriation issues.
In one words, the problem of repatriation, for those who succeed abroad as well as for those who do not, have been well documented. All repatriates experience some degree of anxiety in three areas: personal finances, reclamation and readjustment to the corporate structure. They also worry about the future of their careers and the location of their foreign assignments. Financially, repatriates face the loss of the foreign-service premium and the effect of inflation on home purchases. Having become accustomed to foreign ways, upon reentry they often find home-country customs strange and at the extreme, annoying. Such “reverse culture shock” may be more challenging than the culture shock experienced when going overseas.
Business leaders of the present-let alone the future-need to possess international business skills par excellence in order to survive the chaotic world of international business. It also goes without saying that human resource managers will face new, unforeseen obstacles.
Understanding the links between people, productivity and quality is the key to understanding why some firms succeed and other don’t-in exactly the same economic and social environment. It is far too easy and wrong to categorize human resource practices as being the soft science-part of the hard science of making organizations competitive. In fact, this is far from the truth. The best organizations are very focussed and hard-nosed about their human resource policies because they clearly understand HR policies and their link to productivity and quality. Human resource strategies are designed to motivate people to immerse themselves in the activity of the company, to ensure that people are valued, respected and rewarded so that they continually contribute to the success of the company and enhance their own well being.
Understanding the difficulties of finding qualified executives for international companies (ICs) and the importance of foreign language knowledge. Knowledge of a people’s language is essential to understanding his or her culture and to know what’s going on as every effective manager must.
Compare home country, host country, and third country nationals as international companies’ executives. Source of IC executives may be home country, host countries, or third countries, and their differing culture, language, ability, and experience can strengthen IC management.
Remember some of the complications of compensation packages for expatriate executives. Expatriate manager compensation packages can be extremely complicated. Among other sources of complication are fluctuating currency exchange rates and differing inflation rates. Basic elements of those packages are salaries, allowances, and bonuses.
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