ASEAN Integration and International Human Resource

Management Dr. Virgel C. Binghay

WHAT IS ASEAN ECONOMIC COMMUNITY?

ASEAN Economic Community

Brunei LaosCambodia Singapore*Indonesia* Philippines* Malaysia* Thailand*Myanmar Viet Nam

3 PILLARS OF THE ASEAN COMMUNITY

ASEAN POLITICAL SECURITY COMMUNITY

ASEAN ECONOMIC COMMUNITY

ASEAN SOCIO-CULTURAL COMMUNITY

An ASEAN single Market and Production Base

Where there will be FREE FLOW:

GOODS

SERVICES

HUMAN CAPITAL (Skilled Labor)

CAPITAL INVESTMENTS

INFORMATION

Fast Growing Region The region consists of 10 countries, a significant consumer market of 620 million people,

estimated GDP growth of 5% in 2013. It is forecast to slow slightly to 4.7% in 2014.

ASEAN Charter is self-imposed roadmap for economic integration. The ASEAN Economic Community (AEC) is scheduled to achieve its integration goals by 2015, from the original 2020.

HOW READY IS THE PHILIPPINES FOR THE ASEAN

INTEGRATION?

WHAT IS COMPETITIVENESS ?( WEF 2013)

Set of INSTITUTIONS, POLICIES, and FACTORS that determines the level of productivity of a country which sets the sustainable level of prosperity earned by an economy.

PRODUCTIVITY determines the rate of return from physical, human, or technological investments in an economy

The WEF Human Capital report has 9 indicators for talent:

1. Country capacity to attract talent2. Country capacity to retain talent3. Ease of finding skilled employees4. Pay related to productivity5. Capacity for innovation6. Index of Economic Complexity7. Firm level technology absorption8. Scientific and technical journal articles (per 1k people)9. Median age of the working population

Based on the World Economic Forum’s Human Capital Report 2013

Comparative Country Rankings on Talent:Philippines vs. ASEAN

How does the Philippines compare to the rest of SEA in terms of

talent?

Except for 2 indicators, the Philippines consistently ranked in the bottom half of ASEAN countries!

Country capacity to attract talent Last (8th) in SEA!

Country capacity to retain talent 7th in SEA

Ease of finding skilled employees 4th in SEA

Pay related to productivity Last (8th) in SEA!

Capacity for innovation 5th in SEA

Index of Economic Complexity 4th in SEA

Firm level technology absorption 3rd in SEA

Scientific and technical journal articles (per 1k people)

5th in SEA

Median age of the working population 6th in SEA

“INNOVATE or DIE “

WHAT CAN HR PRACTITIONERS DO?

CREATE AND IMPLEMENT COMPELLING

EMPLOYEE VALUE PROPOSITION

TO ATTRACT, RETAIN, MOTIVATE/ ENGAGE TALENTS

International Human Resource Management

the process of managing people in international settings

Scyllion defined IHRM as “the HRM issues and problems arising fro the internationalization of business, and the HRM strategies, policies and practices which firms pursue in response to the internationalization process.

IHRM is the management of HR in business operations in at least two nations.

Differences Between IHRM & Domestic HRM

IHRM Domestic HRM

Address a broad range of HRM activities

Address narrow range of HRM activities

HR issues relate to employees belonging to more than one nationality

HR issues relate to employees belonging to single nationality

Greater involvement of HR manager in the personal life of employees.

Limited involvement of HR manager in the personal life of employees

Differences Between IHRM & Domestic HRM

IHRM Domestic HRM

Greater exposure to risks in international assignments

Has to manage several external factors such as government regulations of foreign country

Changes in emphasis as the workforce mix of expatriates and locals vary

Limited risks in domestic assignments

Limited external factors to deal with

Reasons for Growing Interest in IHRM

Globalization of business

Effective HRM is determinant of success in international business

Movement to network organizations from traditional hierarchical structures

Significant role in implementation and control of strategies

Types of International Organizations

International Corporations

Multinational Corporations

Global Corporations

Transnational Corporations

International Corporations

Domestic firms that builds on its existing capabilities to penetrate overseas market

Example: Honda, General Electric, P & G

Multinational Corporations

MNCs have operating units (subsidiaries) located in foreign countries

Subsidiaries function as autonomous units

Decisions made by people from a wider range of cultures

Least-cost and standardized products and services

Worldwide lines of business

Values of the headquarters

Examples: Shell, Philips, Xerox

Global Corporations

Maintains control over its worldwide operations (subsidiaries) through a centralized home office

They treat the entire world as a single market

Example: Matsuhita

Transnational Corporations

Global competition

Identical products are distributed worldwide

Research and development

Firms become less hierarchically structured

Provides autonomy to independent country operations but bring these operations into an integrated whole through networked structure.

They combine the local responsiveness of an MNC and the efficiency of a global corporation

Transnational human resource strategies are being developed

Example: Ford and Unilever

Hofstede’s Dimensions

Individualism vs. Collectivism

Power Distance

Uncertainty Avoidance

Masculinity vs. Femininity

Long-term Orientation

Differences

Language (e.g. spoken, written, body)

Different labor laws

Different political climate

Different stages of technological advancement

Different values and attitudes e.g. time, achievement, risk-taking

Roles of religion e.g. sacred objects, prayer, taboos, holidays, holidays, etc

Educational level attained

Social organizations e.g. social institutions, authority structure, interest groups, interest groups, status systems

IHRM Practices

International staffing

Pre-departure training for international assignments

Repatriation

Performance management in international assignments

Compensation issues in international assignments

Human Resource Planning

Involves decisions about where and how many employees are needed for each international facility

Decisions about where to locate include considerations such as cost and availability of qualified workers

Considerations must be weighed against financial and operational requirements

Other location decision involves outsourcing

International Staffing

A selection program for international assignments involves assessing prospective candidates on certain criteria thought to be associated with assignment effectiveness.

In order to have successful program there needs to be broad range of prospective candidates from which to choose criteria effectiveness and valid procedures

Criteria for Selection of Employees for Foreign Assignments

Competency in employee’s area of expertise

Ability to communicate verbally and non-verbally in the foreign country

Flexibility, tolerance of ambiguity, and sensitivity to cultural differences

Motivation to succeed and enjoyment of challenges

Willingness to learn about the foreign country’s culture, language, and customs

Support from family members

Competencies

Competencies Competencies

Empathy Communication skills

Feasibility Tolerance to differences

Patience Humor

Openness Resourcefulness

Reliability Sensitivity

Confidence Teaching skills

Emotional Stability Ability to handle alcohol

Competencies

Competencies Competencies

Curiosity Adaptability

Positive regard for others Tolerance for ambiguity

Acceptance of assignment Language skills

Desire to be abroad Interest in host culture

Non-ethnocentrism Professional/technical competence

High motivation Relational abilities

Courtesy Family situation

International Staffing

Refers to the process of selecting employees for staffing international operations of an MNC

MNC can be staffed using three different sources:

- Home Country or Parent Country National (PCN)

- Host Country Nationals (HCN)

- Third Country Nationals (TCN)

PNC

Employees of an organization who are citizens of the country in which the headquarters of the company is located

Advantages & Disadvantages of Using PNCs

Advantages Disadvantages

Familiarity with home office, goals, practices

Easy organizational control and coordination

International exposure to promising managers

PNCs special skills & experiences

Difficulty in adapting to foreign country

Excessive cost of selecting, training & maintaining expatriates

Promotional opportunities limited for HCNs

May try to impose inappropriate HQ style

Compensation differences for HCNs & PCNs

HCN

Employees of an organization who are the citizens of the country in which the foreign subsidiary is located

Advantages & Disadvantages of Using HCNs

Advantages Disadvantages

Familiarity with the situation in host-country

Lower hiring costs Locals motivated due to

promotional opportunities Responds well to localization of

subsidiary’s operations No language barrier HCNs stay longer in positions

Difficulty in exercising effective control over the subsidiary’s operations

Communication problems with home office personnel

No opportunity for home country’s nationals to gain international experience

Limited career opportunity outside the subsidiary

TCN

Employees of an organization who are the citizens of the country other than the country where the organization is headquartered and the country that is hosting the subsidiary

Advantages & Disadvantages of TCNs

Advantages Disadvantages

Salary and benefit requirements lower than that of PCNs

May be better informed about host country environment

Truly international managers

Host country government may resent hiring TCNs

May not return to their country after assignment

Host country’s sensitivity with respect to nationals of specific countries

Approaches to Staffing Subsidiaries

Ethnocentric

Polycentric

Regiocentric

Geocentric

Ethnocentric Approach

Foreign subsidiary has little autonomy. All strategic decisions are made at the headquarters. PCNs staff key positions at quarters as well as the foreign subsidiary

Appropriate during early phases

Centralized HR

Pay based on local market for employees; home country for PCNs

Polycentric Approach

Staff foreign subsidiaries of the firm with HCNs and headquarters consist of PNCs

PNCs occupy key positions at corporate HQ

Decentralized HR

Pay based on local market

Training given added importance

Regiocentric Approach

Variation of staffing policy to suit particular geographic areas

Provides “stepping stone” for a firm wishing to move from an ethnocentric or polycentric approach to a geocentric approach

Geocentric Approach

Staff may be PNCs, HCNs or TNCs

Ability and not nationality is the key to staffing

Compensation based on value-added

Training and development emphasized

Underlying principle of a global corporation

Pre-departure Training for International Assignments

To make it easier for the employee to assume job responsibilities and be effective in the foreign country as soon as possible

To facilitate cultural adaptation as quickly and as effectively as possible

Four Elements of Training & Development Program

Language Training

Cross-cultural Training

Managing Personal & Family Life

Management Development & Strategy

HCN Training

Gaining knowledge about parent organization

Technical know-how specific to organization

Role of the subsidiary in the MNC

General awareness of the parent country cultural norms

Delivering Training in Other Countries

Clarify what overseas training is supposed to achieve

Consider international differences among trainees when developing the training plan

Overseas trainers should meet same quality standards as training at headquarters

Be clear about standards for confidentiality and intellectual property

Know local laws that affect training programs

Performance Management in International Assignments

Performance is the combination of several factors:

Compensation package

Task assigned to the expatriate

Headquarter’s support

Environment

Cultural assignment

International Performance Management

Constraints while operating in host countries need to be considered

Physical distance, time differences & cost of reporting system add to the complexity

Performance Management Across National Boundaries

When establishing performance management methods in other countries, organizations have to consider:

Legal requirements

Local business practices

National cultures

Performance Management Across National Boundaries

Differences may include:

Which behaviors are rated

How and the extent to which performance is measured

Who performs the rating

How feedback is required

International Compensation

Devising an appropriate strategy to compensate expatriates

Minimizing difference in pay between parent, host & third country nationals

Issues relating to the re-entry of expatriates into the home country

Compensating International Workforce

Market pay structures differ substantially across countries in terms of both pay level and the relative worth of jobs

This creates a dilemma for global companies:

Should pay levels and differences reflect what workers are used in their own countries?

Should pay levels and differences reflect the earnings of colleagues in the country of the facility, or earnings at the company quarters?

Compensating International Workforce

Compensation decisions affect a company’s costs and ability to compete

Challenge of competing with organizations in low-wage countries can be very difficult

Decisions about benefits must take into account the laws of each country involved, as well as employees’ expectations and values in those countries

Compensating Managers in International Assignments

Components of expatriate compensation

Home leave and travel allowances

Children’s education allowance

Currency differential payments

Relocation allowance

Housing allowance

Cost of living adjustment

Payment to protect negative tax consequences

Expatriation premium

International Labor Relations

Labor relations on an international scale involves differences in laws, attitudes, economic systems, and differences in negotiation styles

Organizations establish overall policies and goals for labor relations, overseeing labor agreements, and monitoring labor performance

The day-to-day decisions about labor relations are usually handled by each foreign subsidiary

International Industrial Relations

Handling industrial relations problems in a subsidiary

Attitude of parent company towards unions in a subsidiary

Expatriate Failure

Premature return of expatriates to their home country

Reasons:

Inability to adjust to host country culture leads to culture shock

Personal and emotional problems

Difficulties with the environment

Inability to cope with larger international responsibilities

Other family reasons

Repatriation

It is the process of bringing an expatriate home after he/she has completed the international assignment

Can cause re-entry shock or reverse culture shock

Reasons:

1. Posting period over

2. Children’s education

3. Not happy with overseas assignment

4. Failure to do a good job

Major Complaints of Repatriation

Loss of status

Loss of autonomy

Lack of recognition of the value of the experience

Lack of career direction

Repatriation

Process:

1. Preparation

2. Physical relocation

3. Transition

4. Readjustment

Strategies for Successful Repatriation

A strategic purpose for repatriation

A team to aid the expatriate

Home country information sources

Training and preparation for the return

Support for expatriate and family

Repatriation

Organizations can follow three practices:

Create knowledge and develop global leadership skills

Ensure that candidates have cross-cultural skills to match their technical abilities

Prepare people to make the transition back to their home offices

Changes in Emphasis

Need for PCNs and TCNs decrease as more trained locals become available

Resources reallocated to selection, training & management

Questions for HR Professionals

Do we have a strategy for becoming an international firm?

What type of managers will we need to be successful?

How can I find out about the way HRM is conducted in other countries (laws, trade unions, labor market)

What will be the impact of cultural norms on our HR policies?

How will we choose whether to send expatriates or use local employees?

How do we move people to different locations?

How do we manage transfer of knowledge across borders.

Effective IHRM Implementation

Ascertain the current and intended nature of international operations in the organization.

Determine the extent to which HR policies and practices should be standardized or localized in accordance with overall organizational strategy

Assess the extent to which local cultural, social, political, economic and legal factors will impinge on any attempts to apply standard HR policies if integration is a key factor in organizational strategy

Ensure a computerized database of global human resources is used if integration is desired

Work with senior management team to identify the competencies required to achieve global organizational objectives

Effective IHRM Implementation

Work with national HR and line managers to formulate IHR policies and practices which will embed a transnational mindset in the organization

Conclusion

As organizations have gone global in their operations, the impact of cultural differences as well as workforce issues have caught the attention of the HR managers. As the world becomes boundary less, the ability to work in cross cultural environment becomes a valuable asset for any executive.

Understanding, managing, and even exploiting these cultural differences could well spell the difference between success and failure in several business situations.

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