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Chapter 3Chapter 3

IHRM: Sustaining International IHRM: Sustaining International Business OperationsBusiness Operations

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Chapter ObjectivesChapter Objectives

Issues related to various approaches to staffing foreign operations;

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

The aim of this chapter is to establish the role of HRM in sustaining international business operations and growth. We will cover the following:

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Chapter Objectives Chapter Objectives (cont.)(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

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Approaches to StaffingApproaches to Staffing Factors affecting approaches to Factors affecting approaches to

staffingstaffing General staffing policy on key positions

at headquarters and subsidiaries Constraints placed by host government Staff availability

EthnocentricPolycentricGeocentricRegiocentric

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Ethnocentric 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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PolycentricPolycentricEach 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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GeocentricGeocentric 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 & hiring.

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Geocentric Staffing Requirements

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RegiocentricRegiocentric Reflects a regional strategy and

structure;

Regional autonomy in decision making;

Staff may move outside their countries but only within the designated region, rather than globally;

Staff transfers between regions are rare (Asia to Europe)

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Ethnocentric ApproachAdvantages: To ensure new

subsidiary complies with overall corporate objectives and policies

Lack of qualified host country nationals

Assignments as control

Disadvantages:Limits the promotion opportunities of HCNs, leading to reduced productivity and increased turnover among the HCNsTakes Longer time for PCNs to adapt to host countries, leading to errors and poor decisions being madeHigh costConsiderable income gap, high authority, is viewed unjustified by HCNs.

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Polycentric ApproachPolycentric ApproachAdvantages:

Employment of HCNs eliminates language barriers, avoids adaptation of PCNs, reduces the need for cultural awareness training programsEmployment of HCNs allows a multinational company to take a lower profile in sensitive political situationsEmployment of HCNs is less expensiveEmployment of HCNs gives continuity to the management of foreign subsidiaries (lower turnover of key managers)

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Polycentric ApproachPolycentric ApproachDisadvantages:

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 countryPCN managers have limited opportunities to gain international experience

Host government may dictate that key managerial positions are filled by its nationals.

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Geocentric ApproachAdvantages: Increases the ability

of the firm to develop an international executive team globally

Overcomes the federation drawback of the polycentric approach

Support cooperation and resource sharing across units

Disadvantage:Host government may use immigration controls in order to increase HCNs employmentExpensive to implement due to increased training and relocation costsLarge numbers of PCNs, HCNs, and TCNs need to be sent across bordersReduced independence of subsidiary management

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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, since local subsidiaries are staffed almost totally by HCNs.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

Staff’s career advancement still limited to regional headquarters, not the parent country headquarters

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Parent-Country Nationals

Advantages Organizational control

and 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.

Disadvantages Promotional

opportunities 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 NationalsHost-Country Nationals

Advantages Language and other barrier

eliminated Reduced hiring costs Continuity of management Government policy may

require hiring HCNs Possible increased morale

because of increased career potential

Disadvantages Hiring of HCNs may

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

requirements may be lower than for PCNs.

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

Disadvantages Transfers must consider

national animosities. Host government may

resent hiring TCNs. TCNs may not want to

return to their own countries after assignment.

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Reasons for International Reasons for International AssignmentsAssignments

Position filling, e.g. Skills gap, launch of new endeavor,

technology transfer Management development

Training and development purposes, assisting in developing common corporate values

Organizational development Here strategic objectives of the

operation come into play: Need for control, transfer of knowledge,

competence, procedures and practices

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Types of International Types of International AssignmentsAssignments

Short term: up to 3 monthsShort term: up to 3 months Troubleshooting Project supervision A stopgap until a permanent

arrangement is found Extended: up to 1 yearExtended: up to 1 year

May involve similar activities as short-term assignments

Long termLong term Varies from 1 to 5 years The traditional expatriate assignment

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Non-standard Non-standard AssignmentsAssignments

Commuter assignmentsRotational assignmentsContractual assignmentsVirtual 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.

Non-standard Assignments Non-standard Assignments (Cont’d)(Cont’d)Commuter AssignmentCommuter Assignment International Commuter

assignments are defined as ones where the employee commutes from home country to a place of work in another country, usually on a weekly or bi-weekly basis, while the family remains at home.

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Concerns about using CommutersConcerns about using Commuters

As (PricewaterhouseCoopers, 2000) reports pointed out:

There are real concerns about the viability of commuter arrangements over an extended period of time due to the build up of stress resulting from intensive travel commitments and the impact on personal relationship

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Rotational AssignmentRotational AssignmentEmployee commutes from the

home country to a place of work in another country for a short, set period followed by a break in the home country.

For instance, Oil companies rigs…

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Contractual AssignmentsContractual Assignments CA are used in the situations where

employees with specific skills vital to an international project are assigned for a limited duration of 6-12 months.

Research & Development (R&D) is one area that is using multinational project teams and lends itself to short term contractual assignments.

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Virtual AssignmentsVirtual AssignmentsWithin VA employees are

not relocate to a host location but manages from home base, international responsibilities for part of the organization in another country.

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Factors Influencing Virtual Factors Influencing Virtual AssignmentsAssignments

Role conflict, dual allegiance (loyalty) and Role conflict, dual allegiance (loyalty) and identification issues identification issues Between the person Between the person in the home location and the virtual in the home location and the virtual group in the foreign location. i.e. how group in the foreign location. i.e. how much time should be devoted to the much time should be devoted to the ‘virtual’ ‘virtual’ work responsibilities versus the work responsibilities versus the ‘real’ ‘real’ workwork

Interpersonal relations Interpersonal relations Much of the work Much of the work is done through electronic media, is done through electronic media, cultural misunderstanding can increase, cultural misunderstanding can increase, and needs high skills of using electronic and needs high skills of using electronic equipments, so face to face meeting equipments, so face to face meeting could still be requiredcould still be required 26

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Roles of an ExpatriateRoles of an ExpatriateAgent of direct controlAgent of socializationNetwork builderBoundary spannerLanguage nodeTransfer of competence

and knowledge

Roles of an ExpatriateRoles of an Expatriate

Agent of direct controlAgent of direct control

The use of staff transfers can be regarded as a bureaucratic control mechanism, where the primary role is that of ensuring compliance through direct supervision.

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Roles of an Expatriate Roles of an Expatriate (cont’d)(cont’d)

The expatriate as an agent of socializationThe expatriate as an agent of socializationThis role is related to the use of corporate

culture as an informal control mechanism.

There is an implicit expectation that expatriates assist in the transfer of shared values and beliefs.

However there has been little empirical investigation as to how effective expatriate have been as agent of socialization

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Roles of an Expatriate Roles of an Expatriate (cont’d)(cont’d)

As a Network BuildersAs a Network BuildersInternational assignments International assignments

are viewed as a way of are viewed as a way of fostering interpersonal fostering interpersonal linkages that can be used linkages that can be used for control and for control and communication purposes.communication purposes.

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Roles of an Expatriate Roles of an Expatriate (cont’d)(cont’d)

Expatriate as boundary spannersBS refers to activities, such as gathering

information, that bridge internal and external organizational contexts.

Expatriate act as a boundary spanners because they can collect host-country information, act as representatives of their firms in the host country and can influence agents.

For instance attending social gathering at a foreign embassy…..

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Roles of an Expatriate Roles of an Expatriate (cont’d)(cont’d)

Transfer of competence and Transfer of competence and knowledgeknowledge

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The Role of Non-The Role of Non-expatriatesexpatriates People who travel internationally yet are not

considered expatriates as they do not relocate to another country. That is, non- expatriate are international business travelers, persons for whom a large proportion of their role involves constant international visits to foreign markets, subsidiary units… Also known as 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 Visits to deal with host country government

officials, suppliers…

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A Glamorous LifeA 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 (foreign) nature

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But a High Level of But a High Level of Stress!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.

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Chapter SummaryChapter Summary

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.)

This chapter has expanded on the role of IHRM in sustaining international business operations. We have:

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Chapter SummaryChapter Summary (cont.)(cont.)

Discussed the various types of international assignments: short, extended and long-term (traditional); and non-standard 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 organization’s perspective. (cont.)

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Chapter Summary Chapter Summary (cont.)(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.