# International HR

# HRM in a Global Environment

HRM functions needs to adjust themselves as companies expand to operate in the global economy. Specifically, HRM has to:

• Align HRM processes with global requirements
• Adopt a global mindset
• Enhance its own capabilities to be an adequate business partner in acting on global business opportunities

# Global Expansion Trend

• Foreign countries provide businesses with new markets
• Operate with lower labour costs; e.g. with job outsourcing

# Employees in an International Workforce

• Home country: The country in which an organization's headquarters is located
• Host country: A country (other than the home country) in which the organization hosts a facility
• Third country: A country that is neither the home country or a host country
• Expatriates: An employee who takes assignments overseas

# Levels of Global Participation

• Organizations begin by serving customers in the domestic marketplace
• Companies enter foreign markets as they see demand from customers from other countries
• They become international when they set up one facility overseas
• They become multinational when they set up multiple facilities
• They become global when they start using global cultural differences as a competitive advantage rather than a challenge

# Factors Affecting HRM in International Markets

# Culture

• Most important for HRM
  • Often determines the other three influences
    • Laws often based on what a culture perceives as "right" or "wrong"
    • Influences what people value -> economic system and investment efforts
  • Determines effectiveness of various HRM practices

Hofstede's Framework for Assessing Cultures

• Individualism/collectivism: Strength of relationship between individual and other individuals within the society.
• Power distance: How the culture deals with unequal distribution of power and defines a "normal" level of inequality.
  • Small power distance -> attempt to eliminate inequality
• Uncertainty avoidance: How cultures handle unpredictable situations.
  • High uncertainty avoidance -> preference for structured situations
• Masculinity/femininity: Emphasis on traditionally masculine or feminine practices.
  • Masculine culture emphasizes achievement/money-making/assertiveness/competition.
  • Feminine culture emphasizes relationships/service/care for the weak.
• Long-term/short-term orientation: Whether focus of cultural values is on the future or the past/present.
  • Long-term orientation -> emphasis on saving and persistence
  • Short-term orientation -> promote respect for past traditions and for fulfilling social obligations
• Indulgent/restraint: Whether the cultures encourages satisfying gratification of human drives (i.e. is it fun?)
  • Indulgent -> encourage having fun
  • Restraint -> impose strict social norms

Compensation differs between individualistic and collectivist cultures.

• Performance-based rewards may be seen as more appropriate for individualistic cultures
• Collectivist cultures would have a "flatter" pay structure

# Education and Skill Levels

• Education and skill levels vary for each country
• Higher income countries generally have greater educational spendings
• Companies look for countries whose labour markets allow them to find suitable employees
  • Low education counries -> low skill, low wage jobs
  • High pool of trained workers -> high skill jobs

# Economic System

• Affects recruiting
• Different countries have different pay structures
• Generally, socialist countries have higher tax rates
• Companies paying two individuals the same rate may result in one individual taking home less than another

# Political-Legal System

• Host country laws directly impacts various HR requirements
  • Compensation has to abide by minimum-wage laws
  • Selection may be impacted by diversity laws
  • Other laws like maximum work hour time, vacation pay, time off etc.

# Workplace Planning

Workplace planning in the global economy revolves around deciding where and how many employees are needed for each international facility.

• Main consideration is cost and availability of qualified workers
  • With high numbers of immigrants, even domestic firms must consider international factors
  • Places like China and India were popular because of low labour costs, but increasing demand has driven up labour prices
  • Outsourcing (contractors specifically) is more popular
  • Country laws
    • Canada allows freedom for employer to hire for peak needs
    • Other countries, such as European countries, have stricter restrictions

# Selecting Employees in a Global Market

Organizations can fill foreign positions with either home-country nationals, host-country nationals or third-country nationals.

• Host country nationals
  • Understand values and culture of local workforce
  • Cheaper
  • May not be as qualified
• Home country nationals
  • Expensive
    • Sometimes have to transport families
    • Requires additional training
  • Families may not be permitted by host-country
  • Technical skills may outweigh cons
• Third country nationals
  • Broad experience
  • International outlook
  • Multilingual
  • May not have cultural fit

Nevertheless successful candidates should abide by the following critera:

• Competency in employee's area of expertise
• Ability to communicate verbally and nonverbally in foreign country
• Flexible, tolerant, and sensitive to cultural differences
• Suppport from family

# Foreign Assignment

Employees who undertake foreign assignment go through phases.

• Honeymoon: Euphoria/excitement as employee experiences new culture
• Culture shock: Discomfort with realization on cultural differences
• Recovery: Understanding of cultural differences
• Adjustment: Return to comfort as adjustment to cultural differences

Generally organizations find it difficult to convince employees to take on a foreign assignment.

• Some organizations compromise with virtual expatriats: people who manage foreign operations without relocating

# Training and Developing a Global Workforce

• Training and development programs should be effective for all participating employees
• Employer needs to provide training to aid in adapting to cultural differences in host countries

Training to prepare an individual for a foreign assignment is called cross-cultural preparation.

• Training is necessary for all three phases
  • Departure: Language instruction and orientation on host country culture
  • Assignment: Combination and formal program to ensure easy adaptation
  • Return: Updates on home country workplace

# Compensating an International Workforce

# Pay Structure

• Different countries provide different pay structure norms
• Companies face a dilemma between choosing how much to pay expats
  • Higher pay than local average may suggest unfairness for others
  • Same pay as local average makes it difficult to persuade employees to do foreign assignments
• Laws may enforce specific types of compensation like meal allowances or holiday bonuses

# Incentive Pay

• Incentive pay is treated different in different countries
• Employers may add incentives for working in high-risk areas
  • Direct compensation -> simply award pay bonus
  • Other measures -> security and latest information

# Selecting Expats

A successful expat has high cross-cultural competence and must be able to adequately adapt.

• Ability to maintain a positive self image and feeling of well being
• Ability to foster relationships with host country individuals
• Ability to perceive and evaluate the host country's environment accurately

# Preparing Expats

# Training

Employees preparing for foreign assignments require various types of information.

• Cross-cultural training
  • Develop awareness of host country culture
  • Information on appropriate behaviour in a business setting
• Practical matters
  • Housing, schools, recreation, etc.
• Career development
  • How assignment aligns with career goals
  • Potential assignments on return

Preparation process should continue after departure, e.g. with coaches/mentors, to aid when challenges arise.

# Compensation

Organizations use balance sheet approach -> adjust compensation to match home standard of living plus compensation for any hardships.

Total compensation package typically consist of four components:

• Base pay: Typically in line with home country standard
• Tax equalization allowance: Bonuses to compensate for differences in taxation rates
• Benefits and services: Cover added costs such as health, education, moving, storage, housing, etc.
• Incentives: Any additional compensation to make the foreign assignment more attractive for the employee

# Helping Expats Return

Repatriation: Process of preparing expatriates to return home from a foreign assignment.

• Main issues with reentry:
  • Reverse culture shock
  • Decline in standard of living
• Expats more likely to stay with companies that allows them to use their international experience

# Competitive Advantage

The workforce should be a core part of a company's competitive advantage (CA).

• Basic conditions for a CA
  • Difficult for competitors to imitate
  • Valued in marketplace
  • Ideally sustainable
• Three classifications for CA
  • Position
    • Market-based, acquired by first-movers
  • Resources
    • Brand value -> Gucci
    • Patents -> Intel
  • Capabilities
    • Dynamic -> generation of new resources/positions
    • Typically related to intangibles
    • Examples
      • Apple -> Innovative design
      • Toyota -> Car development takes 3 years vs 5 years