Chapter 3

IHRM: Sustaining International Business Operations

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Chapter Objectives
The previous two chapters have concentrated on the global environment and organizational contexts. We now focus on the managing people aspect. The aim is to establish the role of HRM in sustaining international business operations and growth. We will cover the following:
 Issues related to various approaches to staffing

foreign operations;  Reasons for using international assignments: position filling, management development and organizational development; (cont.)
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Chapter Objectives (cont.)

 Various types of international assignments:
 Standard assignments: Short-term, extended, and longer-term;  Non-standard arrangements: Commuter, rotator, contractual, and virtual.

 The role of expatriates and non-expatriates (international business travellers) in supporting international business activities  The role of the corporate HR functions
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Approaches to Staffing
 Factors affecting approaches to staffing
  

General staffing policy on key positions at headquarters and subsidiaries Constraints placed by host government Staff availability
Ethnocentric Polycentric Geocentric Regiocentric
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Ethnocentric
 Strategic decisions are made at

headquarters;  Limited subsidiary autonomy;  Key positions in domestic and foreign operations are held by headquarters personnel;  PCNs manage subsidiaries.
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Polycentric
 Each subsidiary is a distinct national

entity with some decision-making autonomy;  HCNs manage subsidiaries who are seldom promoted to HQ positions;  PCNs rarely transferred to subsidiary positions.
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Geocentric
 A global approach - worldwide integration;  View that each part of the organization

makes a unique contribution;  Nationality is ignored in favor of ability:

 

Best person for the job; Color of passport does not matter when it comes to rewards, promotion and development.
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Geocentric Staffing Requirements

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Regiocentric
 Reflects a regional strategy and structure;  Regional autonomy in decision making;  Staff move within the designated region,

rather than globally;

 Staff transfers between regions are rare.

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Ethnocentric Approach
Advantages:
 To ensure new subsidiary complies with overall corporate objectives and policies  Has the required level of competence  Assignments as control

Disadvantages:
Limits the promotion opportunities of HCNs, leading to reduced productivity and increased turnover among the HCNs Longer time for PCNs to adapt to host countries, leading to errors and poor decisions being made High cost Considerable income gap, high authority, and increased standard of living may relate to lack of sensitivity
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Polycentric Approach
Advantages:
Employment of HCNs eliminates language barriers, avoids adaptation of PCNs, reduces the need for cultural awareness training programs Employment of HCNs allows a multinational company to take a lower profile in sensitive political situations Employment of HCNs is less expensive Employment of HCNs gives continuity to the management of foreign subsidiaries (lower turnover of key managers)

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Polycentric Approach
Disadvantages:
Difficult to bridge the gap between HCN subsidiary managers and PCN managers at headquarters ( language barriers, conflicting national loyalties, cultural differences) HCN managers have limited opportunities to gain experience outside their own country PCN managers have limited opportunities to gain international experience Resource allocation and strategic decision making will be constrained when headquarter is filled only by PCNs who have limited exposure to international assignment
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Geocentric Approach
Advantages:
 Ability of the firm to

Disadvantage:
Host government may use immigration controls in order to increase HCNs employment Expensive to implement due to increased training and relocation costs Large numbers of PCNs, HCNs, and TCNs need to be sent across borders Reduced independence of subsidiary management
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develop an international executive team  Overcomes the federation drawback of the polycentric approach  Support cooperation and resource sharing across units

Regiocentric Approach
 Advantages:
Allow interaction between executives transferred to regional headquarters from subsidiaries in the region and PCNs posted to the regional headquarters Provide some sensitivity to local conditions Help the firm to move from a purely ethnocentric or polycentric approach to a geocentric approach

 Disadvantages:
Produce federalism at a regional rather than a country basis and constrain the firm from taking a global stance Staffs career advancement still limited to regional headquarters, not the parent country headquarters

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Parent-Country Nationals
Advantages
 Organizational control and

Disadvantages
 Promotional opportunities

coordination is maintained.  Rising stars are given international experience.  PCNs may be the best people for the specific job due to special skills and experience.  An assurance that the subsidiary will comply with company objectives & policies.

of HCNs are limited.  Time and performance costs associated with adaptation to the host country.  PCNs may impose an inappropriate HQ style.  Compensation for PCNs and HCNs may differ.

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Host-Country Nationals
Advantages
 Language and other barrier    

Disadvantages
 Hiring of HCNs may

eliminated Reduced hiring costs Continuity of management Government policy may require hiring HCNs Possible increased morale because of increased career potential

encourage a federation of national rather than global units  HCNs have limited career opportunity outside the subsidiary  Control and coordination of HQ may be impeded  Hiring HCNs limits opportunities for PCNs to gain foreign experience
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Third-Country Nationals
Advantages
 Salary and benefit

Disadvantages
 Transfers must consider

requirements may be lower than for PCNs.  TCNs may be better informed than PCNs about host-country environment.

national animosities.  Host government may resent hiring TCNs.  TCNs may not want to return to their own countries after assignment.

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Determinants of IHRM Approaches and Activities

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Reasons for International Assignments

 Position filling, e.g.


Skills gap, launch of new endeavor, technology transfer Training and development purposes, assisting in developing common corporate values

 Management development


 Organizational development  Need for control, transfer of knowledge, competence, procedures and practices
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Types of International Assignments

 Short term: up to 3 months
  

Troubleshooting Project supervision A stopgap until a permanent arrangement is found May involve similar activities as short-term assignments Varies from 1 to 5 years The traditional expatriate assignment
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 Extended: up to 1 year


 Long term
 

Non-standard Assignments
Commuter assignments Rotational assignments Contractual assignments Virtual assignments
Some of these arrangements assist in overcoming the high cost of international assignments but are not always effective substitutes for the traditional expatriate assignment.
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Factors Influencing Virtual Assignments

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Roles of an Expatriate
 Agent of direct control  Agent of socialization  Network builder  Boundary spanner  Language node  Transfer of competence
A Simple Management Network

B C

G D

and knowledge

Informal contacts between managers within a MNE

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The Role of Non-expatriates

 People who travel internationally yet are

not considered expatriates as they do not relocate to another country



Road warriors, globetrotters, frequent fliers

 Much of international business involves

visits to foreign locations, e.g.

 

Sales staff attending trade fairs Periodic visits to foreign operations

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A Glamorous Life
 International business travelers cite the

positives as:
  

Excitement and thrills of conducting business deals in foreign locations Life style (top hotels, duty-free shopping, business class travel) General exotic nature

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But a High Level of Stress!

 Home and family issues  Frequent absences  Work arrangements  Domestic side of position still has to be attended to  Travel logistics  waiting in airports, etc.  Health concerns  Poor diet, lack of sleep, etc.  Host culture issues  Limited cultural training
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Various Roles of Corporate HR

Centralized HR Companies
 Large well-resourced

Decentralized HR Companies
 Small HR

Transition HR Companies
 Medium-sized HR

HR departments
 Key role: Managing all

departments
 Key role: Managing

departments
 Key role: Management

high-grade management positions worldwide

 Key activities:

elite corporate managers

 Key activities:

and development of senior managers and expatriates

 Key activities:

Planning international assignments and performance management globally, identifying high-potential staff

Influencing operating units to support international assignments, supporting decentralized HR

Persuading divisional managers to release key staff using informal and subtle methods, strategic staffing.

Source: Based on H. Scullion and K. Starkey, in Search of the Changing Role of the Corporate Human Resource Function in the International Firms, International Journal of Human Resource Management, V 11, N 6 (2000) pp. 1061-1081. IBUS 618 Dr. Yang 27

The Role of the Corporate HR Function

 Can we manage our people like a global

product, e.g., the feasibility of:

The concept of a global internal labor market  Standardization of work practices and HR activities


 What HR matters require central control

and what can be decentralized?

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Chapter Summary
This chapter has expanded on the role of IHRM in sustaining international business operations. We have:
 Looked at the various approaches to staffing

international operations ethnocentric, polycentric, geocentric and regiocentric examining their advantages and disadvantages and factors that may determine the choice of these options.  Considered the reasons for using international assignments: position filling, management development and organization development.
(cont.)
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Chapter Summary (cont.)

 Discussed the various types of international assignments:

short, extended and long-term (traditional); and nonstandard forms such as commuter, rotational, contractual and virtual assignments.  Examined the various roles of the expatriate: as an agent for direct control, as an agent for socialization, as network builders, as boundary spanners and as language nodes. These various roles of the expatriate help to explain why expatriates are utilized and illustrates why international assignments continue to be an important aspect of international business from the organizations perspective.
(cont.)
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Chapter Summary (cont.)

 Recognized that non-expatriates are also critical to

international business operations. International business travellers present their own challenges, such as the effect of frequent absences on family and home life, the possible negative health effects and other stress factors. The management of such individuals, however, does not appear to fall within the domain of the HR department.  Looked at the role of the corporate HR function as the firm grows internationally, building on sections from Chapters 1 and 2.
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