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PART SIX Global Issues in Human Resources Management CHAPTER 17 Managing Human Resources in a

PART SIX

Global

Issues

in

Human

Resources

Management

CHAPTER 17 Managing Human Resources in a Global Business
CHAPTER
17
Managing Human Resources
in a Global Business

LEARNING OUTCOMES

AFTER STUDYING THIS CHAPTER. YOU SHOULD BE ABLE TO

EXPLAIN how global movement of labour has an impact on HRM in Canada.

DESCRIBE the influence of intercountry differences on the workplace.

EXPLAIN how to improve global assignments through employee selection.

DISCUSS the major considerations in formulating a compensation plan for international employees.

DESCRIBE the main considerations in repatriating employees from abroad.

EXPLAIN the role and influence of international talent on Canadian organizations.

DISCUSS

challenges

face

holders

talent in Canada.

and

in

IDENTIFY

the

ensuring

immigrants

role

of

successful

to

Canada

multiple

stake­

integration

of

REQUIRED PROFESSIONAL CAPABILITIES (RPC)

Contributes

to

an

environ­

ment

that

fosters

effective

working relationships

Researches, analyzes, and reports on potential people issues affecting the organization

Provides support and expertise to managers and supervisors with respect to managing people

Keeps current with emerging HR trends

Chapter 17 Managing Human Resources in a Global Business 467

THE GLOBALIZATION OF BUSINESS AND STRATEGIC HR

workforce mobility The focus on

managing the recruitment, reloca­ tion. and retention of employees

who complete work-related tasks and activities outside of the core or primary head office or region of the

company.

expatriate Employees who are citizens of the country where the parent company is based who are sent to work in another country.

immigrant A person residing in Canada who was born outside of Canada (excluding temporary foreign workers. Canadian citizens born outside of Canada and those with student or work visas).

In the 21st century, workforce mobility programs focus on managing the recruitment, relocation, and retention of employees who complete work-related tasks and activities outside of the core or primary head office or region of the company. These programs are enabled by technological advancements, global­ ization, tight labour markets, and customer demands and have a direct impact on company profits. Research by Runzheimer International shows that organi­ zations can improve profitability by 1 to 4 percent simply by making workforce mobility management a strategic priority and by managing mobility programs in a more integrated way. This is because disjointed management of mobil­ ity programs often results in employee confusion, aggravation, frustration, and disengagement. 1 The globalization of business is now the norm. European market unification is ongoing and the economies of Brazil, Russia, India, and China are burgeon­ ing. Huge Canadian companies like Noranda, Alcan, and Molson have long had extensive overseas operations, but today the vast majority of companies are find­ ing that their success depends on their ability to market and manage overseas operations. Thousands of Canadian corporations with international operations are now relocating employees overseas on a regular basis. These employees, called expatriates, are citizens of the country where the parent company is based who are sent to work in another country. Canada is also increasingly influenced by globalization within our borders. According to Statistics Canada, an immigrant is a person residing in Canada who was born outside of Canada (excluding temporary 7 foreign workers, Canadian cit­ izens born outside of Canada, and those with student or working visas). Roughly one in every five persons residing in Canada is foreign born. In addition, most of the labour force growth over the last decade has been attributable to immigration, and immigrants continue to be a critical component of Canada’s workforce. Thus, the impact of globalization on the human resource management land­ scape of Canada includes both Canadians working internationally and interna­ tional members (mainly immigrants) working in Canada. This chapter reviews both elements of global HRM.

HOW INTERCOUNTRY DIFFERENCES AFFECT HRM

To a large extent, companies operating only within Canada’s borders have the luxury of dealing with a relatively limited set of economic, cultural, and legal variables. However, a company that is operating multiple units abroad does not operate in an environment of such relative homogeneity with respect to HRM. For example, minimum legally mandated holidays may range from none in the United States to five weeks per year in Luxembourg. In addition, there are country-specific regulations that affect employees; as an example, there are no formal requirements for employee participation in Italy, but in Denmark, employee representatives on boards of directors are required in companies with more than 30 employees. Another troubling issue is the need for tight security and terrorism awareness training for employees sent to countries with an increased risk of kidnapping of foreign executives. 3 The point is that managing the HR functions in multina­ tional companies is complicated enormously by the need to adapt HR policies

468 Part 6 Global Issues in Human Resources Management

and procedures to the differences

is

adaptation. 4

some

based. The

following

are

Cultural Factors

among countries in

intercountry

which

each subsidiary

demand such

differences that

Wide-ranging cultural differences from country to country demand corresponding differences in HR practices among a company’s foreign subsidiaries. The first step is understanding the differences in underlying cultural values in different societies. Major studies have clarified some basic dimensions of international cultural differ­ ences. For example, societies differ in power distance—the extent to which the less powerful members of institutions accept and expect that power will be distributed unequally. The institutionalization of such an inequality is higher in some countries (such as Mexico and Japan) than in others (such as Sweden and the Netherlands). Societies also differ when it comes to individualism versus collectivism—the degree to which ties between individuals are normally loose rather than close. In more individualistic countries, such as Canada and the United Stares, individuals look out for themselves and their immediate families. However, in more collectivist countries, such as China and Pakistan, an individual’s identity is strongly linked to their extended family group, and sometimes even to their work group. Interestingly, the one-child policy in China has resulted in a younger generation that is much more individualistic, known for job-hopping and lack of company loyalty, 6 A recent major worldwide study of cultural dimensions found that societies differ in their attitudes to gender egalitarianism. Global competition has pro­ duced an interesting change in male-dominated mining operations in Australia, as described in the Workforce Diversity' box.

w/otmMtraa diversity

 

Mummy Crew in Monster Trucks

 

Mining companies in Australia are finding that women often make better drivers than men. They take fewer risks, and are more careful behind the wheel of the mas­

sive dump trucks that they operate. Coupled with the skills they acquire over time, what this means is that they reduce the wear and tear on the huge truck tires that are costly to replace in the industry. As Billy Adams writes, in a 2007 article for the Sunday Morning Post titled “Women rule in monster trucks,” such expensive equip­ ment requires “a skilled pair of hands at the controls.”

There

are

only

a

handful

of

companies in the world

that make

mine

tires,

so

they have a captive market

and are in a position to sell their products at a pre­ mium. A single tire costs at least AUD$50 000 (approx­ imately CAD$50 900), with an average lifespan of just

5500 hours. Mining companies already spend a lot of

money on road maintenance to get the most out of their

truck

tires,

so

the

gentler

way

in

which

their

female

employees handle their heavy equipment makes it last longer, resulting in significant cost savings.

The industry would not have known this if it weren’t for the chronic shortage of
The
industry
would
not
have
known
this
if
it
weren’t
for
the
chronic
shortage
of
skilled
workers
in
recent
decades.
According
to
Adams'
article,
the
Minerals
Council
of
Australia
estimated
that
by
2015,
the
mining
industry
would
need
to
find
70
000
employees
on
top
of
the
120
000
that
are
already
in
jobs.
This
is
easier
said
than
done.
So
some
years
ago,
a
forward-thinking
company
in
northern
Queensland
introduced
six-hour
day
shifts
that
last
between
nine
and
three
o'clock,
recruiting
a
new
wave
of
female
workers
who
came
to
be
known
as
the
“Mummy
Crew.”
Every
morning
a
bus
would
drop
their
children
off
at
school
then
take
the
moms
to
work
at
the
mine.
It
was
a
success
story
where
management
believed
the
new
employees
had
changed
the
workplace
dynamics,
and
where
existing
employees
began
to
find
fewer
discrimination
issues,
finding
the
company
to
be
a
more
pleasant
place
for
everyone.

Source: Based on B. Adams, “Women Rule in Monster Trucks," Sunday Morning Post (December 23, 2007), p. 10.

Chapter 17 Managing Human Resources in a Global Business 469

Such intercountry cultural differences have several HR implications. First, they suggest the need for adapting HR practices, such as training and pay plans, to local cultural norms. They also suggest that HR staff members in a foreign subsidiary should include host-country citizens. A high degree of sensitivity and empathy for the cultural and attitudinal demands of co-workers is always important when selecting expatriate employees to staff overseas operations. Such sensitivity is especially important when the job is HRM and the work involves “human” jobs like interviewing, testing, orienting, training, counselling, and (if need be) terminating.

Economic Systems

Differences in economic systems among countries also translate into inter- country differences in HR practices. In free enterprise systems, for instance, the need for efficiency tends to favour HR policies that value productivity, efficient workers, and staff cutting where market forces dictate. Moving along the scale toward more socialist systems, HR practices tend to shift toward preventing unemployment, even at the expense of sacrificing efficiency. For example, in com­ munist Vietnam, workplace culture involves a siesta after lunch for workers, and managers spend a lot time out of the office enhancing personal and social relationships. 7

Legal Systems

personal and social relationships. 7 Legal Systems A worker walks past a broken electricity

A

worker

walks

past

a

broken

electricity

transformer

in

Lagos,

Nigeria.

Despite

having

one

of

the

world's

great

energy

reserves,

corruption

and

mismanagement

have

left

Africa's

oil

giant

chroni­

cally short of electricity.

Labour laws vary considerably around the world. China, for instance, continues to update its labour laws, which now include many similarities to those in the west.

Discrimination is prohibited on most of the grounds commonly found in western countries, with the exception of age. However, enforcement of labour laws is haphazard. 8 When it comes to employee termination, the amount of notice with pay to be provided, continuation of benefits, notification of unions, and minimum length of service to qualify for severance payments vary significantly and can in some cases have a major impact on labour costs. 9 Health and safety laws vary from non-existent in many African states to Britain’s new Corporate Manslaughter and Corporate Homicide Act, which tightens liability of senior management for health and safety' offences. 10 In other countries like China, worker health and safety laws exist but are largely

unenforced. 11

Labour Cost Factors

Differences in labour costs may also produce differences in HR practices. To maintain the competitive advantage of lower labour costs in China, the concept of investing in employees through training and development is seen as an unnec­ essary cost. High labour costs can require a focus on efficiency and on HR practices (like pay for performance) aimed at improving employee performance.

470 Part 6 Global Issues in Human Resources Management

Industrial Relations Factors

Industrial relations, and specifically the relationship among the workers, the union, and the employer, vary dramatically from country to country and have an enormous impact on HRM practices. In Germany, for instance, co­ determination is the rule: that is, employees have the legal right to a voice in setting company policies. In this and several other countries, workers elect their own representatives to the supervisory board of the employer, and there is also a vice-president for labour at the top management level. 13 Conversely, in many other countries, the state interferes little in the relations between employers and unions. In China, for instance, company unions fall under the administration of the local Communist Party committee, which often shares long-term goals with the company. Thus, unions seldom play an effective role in labour disputes. 14

seldom play an effective role in labour disputes. 1 4 Researches, analyzes, and reports on potential

Researches, analyzes, and reports on potential people issues affect­ ing the organization

Summary

In summary, intercountry variations in culture, economic systems, labour costs, and legal and industrial relations systems complicate the task of select­ ing, training, and managing employees abroad. These variations result in corresponding differences that make the job of expatriate managers much more complex and difficult than when at home. International assignments thus run a relatively high risk of failing unless these differences are taken into account when selecting, training, and compensating international assignees.

GLOBAL RELOCATION

The number of expatriates working abroad is continuing to increase. One survey showed that the number of expatriates doubled between 2005 and 2008. The number of “global nomads” (employees who continuously move from country to country on multiple assignments) has also increased. 1 ' In addition, there has been a gradual increase in the number of female expatriates, who have long been underrepresented in the expatriate ranks. 14 Expatriates may be not only invalu­ able but also irreplaceable in the near future as the global labour pool contracts in most western countries as well as Japan and China. 17 Overall, relocation policies are becoming more flexible, as the majority of all services are provided on a case-by-case basis. 18 Family issues rank as the number one concern when it comes to employee relocations, and many employees are reluctant to accept expatriate assignments for this reason. 15 Employees who are considering an international assignment will also want to know how working and living in another country will affect their compensation, benefits, and taxes, and what kind of relocation assistance they will receive. From a practical perspective, some of the most pressing chal­ lenges are techniques used to recruit, select, train, compensate, and provide family support for employees who are based abroad, such as the following:

Tips

FOR THE FRONT LIHE

1.

Candidate

Chapter 17 Managing Human Resources in a Global Business 471

identification,

assessment,

and

selection.

In

addition

to

the

required technical and business skills, key traits to consider for global assignments include cultural sensitivity, interpersonal skills, and flexibility.

2. Cost projections. The average cost of sending an employee and his or her family on an overseas assignment is reportedly between three and five times the employee’s pre-departure salary; as a result, quantifying total costs for a global assignment and deciding whether to use an expatriate or a local employee are essential in the budgeting process.

3. Assignment letters. The assignee’s specific job requirements and remunera­ tion, vacation, home leave, and repatriation arrangements will have to be documented and formally communicated in an assignment letter. 20

4. Compensation, benefits, and tax programs. There are many ways in which to compensate employees who are transferred abroad, given the vast dif­ ferences in living expenses around the world. Some common approaches to international pay include home-based pay plus a supplement and desti­ nation-based pay.

5.

Relocation assistance. The assignee will probably have to be assisted with such matters as maintenance of a home and automobiles, shipment and storage of household goods, and so forth. The average cost of a permanent international relocation for a Canadian employee is between $50 000 and $100 000. 21

6.

Family

support.

Cultural

orientation,

educational

assistance,

and

emer­

gency provisions are just some of the matters to be addressed before the family is moved abroad.

The last two issues relate to the heightened focus on the spouse and fam­ ily, who are vitally important in today’s climate of relocation refusals because of concerns about a mother-in-law’s homecare, the children’s education, a spouse’s career, and the difficulty of adjusting to new surroundings while juggling family responsibilities at the same rime as focusing on the new job. Although the typical expatriate has traditionally been a male with a non­ working spouse, dual career families are now the norm. Major work-life bal­ ance relocation challenges thus include career assistance for the spouse and education and school selection assistance for the children. 22 Cross-cultural and language training programs will also probably be required. Policies for repatriating the expatriate when he or she returns home are another matter that must be addressed. Sending employees abroad and managing HR globally is complicated by the nature of the countries into which many firms are expanding. Today’s expatriates are heading to China (now the most likely destination for a for­ eign assignment) and other emerging economies. 23 Strategic HR involvement in the design and implementation of a global expansion strategy is required right from the start. Extensive research may be required with regard to local hiring practices, the availability of skilled labour, and employment regula­ tions. Drivers of employee engagement vary across countries, but one com­ pany (DHL) found that an engagement strategy based on communication drove spectacular growth in their emerging markets division, as described in the Strategic HR box.

472 Part 6 Global Issues in Human Resources Management

STRATEGIC

HR
HR
 

Employee Engagement Program Drives Business Results at DHL

standards. This was the key to our success in these emerging markets.” The emerging markets division now contributes some 200 000 customers to the com­ pany’s 4.2 million across the globe.

method under which all messages within the emerg­ ing markets division of DHL could be delivered across

the entire workforce. It created the "Mission Possible”

movie, as it considered film to be one to the few media capable of translation across a culturally diverse region.

turing DHL senior managers delivering their messages. All staff were “agents” taking part in a mission to make the emerging markets division the fastest growing and

packs” containing the tools they needed to complete their mission.

"Mission

Possible”

was

directly

responsible for

additional revenue of

€316

million

in

12

months.

The emerging markets division saw 18 percent annual growth using "Mission Possible” as its internal focus. The campaign was subsequently taken forward into

other regions of the DHL group.

Employees form the backbone of any successful organi­ zation. Valued members of staff can make, or break, a company’s success, so it is essential that employers do their best to keep them happy. However, one of the most effective ways to create and maintain staff satisfaction is arguably one of the least practiced: Communication is the key to employee engagement. On a practical level, internal communications help employees understand a company’s vision, values, and culture, while on a more subliminal level, good internal communication is one of the most effective ways to build strong relationships and forge a sense of fulfillment.

 

DHL’s

emerging

markets

division

was

one

of

the

first

to

realize

this.

Started

as

a

separate region

in

2000,

the

division

serves

93 countries across a

14-hour

time

zone.

The

countries

are

grouped by area:

Russia

and

the

Commonwealth

of Independent States;

southeast

Europe

and

north

Africa;

the

Middle East,

sub-Saharan

Africa,

and

Turkey.

“By

aligning these

countries

according

to

similar

needs,

issues,

poten­

tial

and

expectations,

we

made

our

venture

into new

territory

more

manageable,"

said

David

Wild,

general

manager

at

DHL

United

Arab

Emirates.

“However,

we

 

were

determined

to

be

aware

and

to

acknowledge

that

all

the

countries

are

diverse

in

culture,

language, and

 

Why Expatriate Assignments Fail

expatriate assignment failure

 

Global mobility management is important because the cost of expatriate assignment failure—early return from an expatriate assignmentcan reach a million dollars. 24 There is some evidence that the rate of early departures, at least, is declining. This appears to be because more employers are taking steps to reduce expatriates’ problems abroad. For example, they are selecting expatriates more carefully, helping spouses to get jobs abroad, and providing more ongo­ ing support to the expatriate and his or her family. As another example, some companies have formal “global buddy” programs. Here, local managers assist new expatriates with advice on things such as office politics, norms of behav­ iour, and where to receive emergency medical assistance. 26 Discovering why expatriate assignments fail is an important research task, and experts have made considerable progress. Personality is one factor. For example, in a study of 143 expatriate employees, extroverted, agreeable, and emotionally

Early

return

of

an

expatriate

from

a

global assignment.

 

Research

INSIGHT

Chapter 17 Managing Human Resources in a Global Business 473

stable individuals were less likely to want to leave early. 27 Furthermore, the per­ son’s intentions are important. For example, people who want expatriate careers try harder to adjust to such a life. 28 Non-work factors like family pressures usually loom large in expatriate failures. In one study, managers listed, in descending order of importance for leaving early, inability of spouse to adjust, manager’s inability to adjust, other family problems, manager’s personal or emotional immaturity, and inability to cope with larger overseas responsibility. 25 Managers of European firms emphasized only the inability of the manager’s spouse to adjust as an explana­ tion for the expatriate’s failed assignment. Other studies similarly emphasize the effects of a dissatisfied spouse on the international assignment. Canadian companies have reported low failure rates for expatriates rela­ tive to other countries, particularly the United States, which has a failure rate of 40 to 50 percent. 51 Canadians may be more culturally adaptable than their American counterparts because they are already familiar with bilingualism and multiculturalism. In fact, Canadian executives are in demand across the globe. The country’s diverse ethnic makeup has produced a generation of business leaders who mix easily with different cultures. 32 Many employers have tried to eliminate issues that lead to expatriate assignment failures by shortening the assignment length and having the family remain at home. Expatriate assignments have traditionally been for terms of three to five years, but recently there has been a trend toward short-term global assignments instead of permanent relocations. A recent survey, by global con­ sulting firm KPMG, found that short-term assignments of less than 12 months are almost as prevalent as long-term assignments (more than five years), 34 as shown in Figure 17.1. Short-term assignment alternatives include frequent extended business trips with corresponding time spent back at home, short-term assignments of between three months and a year with frequent home leave (once every 12 weeks on

FIGURE 17.1
FIGURE 17.1

Prevalence of International Assignment Types

and a year with frequent home leave (once every 12 weeks on FIGURE 17.1 Prevalence of

474 Part 6 Global Issues in Human Resources Management

average), and rhe dual household arrangement, where the employee’s family remains at home and the employee sets up a small household for himself or herself in the foreign country. Often, firms neglect to prepare employees for "short-term assignments in the same way they do for the long-term variety, which leads to problems such as lack of cross-cultural awareness, extreme loneliness, and feeling undervalued on returning to the home office. Companies that pro­ vide strong support to expatriate employees stand a higher chance of success. 36

CONSIDERATIONS IN GLOBAL HRM

Provides support and expertise to

and

respect to managing people

managers

supervisors

with

Canadian Employee Relocation Council

Transition Dynamics

The Expatriate Group

ethnocentric staffing policy

Policies that align wit the attitude that home-country managers are superior to those in the host country.

polycentric staffing policy

Policies that align with the belief that only host-country managers

can understand the culture and behaviour of the host-country market.

geocentric staffing policy Policies

that

aligned

with

the

belief

that

the

best

manager

for

any

specific

position anywhere on the globe may be found in any of the countries in which the firm operates.

Careful screening is just the first step in ensuring that a foreign assignee is suc­ cessful. The employee may then require special training and, additionally, inter­ national HR policies must be formulated for compensating the firm’s overseas managers and maintaining healthy labour relations.

Global Staffing Policy

There are three international staffing policies. An ethnocentric staffing policy is based on the attitude that home-country managers are superior to those in the host country, and all key management positions are filled by parent-country nationals. At Royal Dutch Shell, for instance, virtually all financial controllers around the world are Dutch nationals. Reasons given for ethnocentric staff­ ing policies include lack of qualified host-country senior management talent, a desire to maintain a unified corporate culture and tighter control, and the desire to transfer the parent firm’s core competencies (for example, a specialized manu­ facturing skill) to a foreign subsidiary more expeditiously.

A polycentric staffing policy is based on the belief that only host-country

managers can understand the culture and behaviour of the host-country mar­ ket, and therefore foreign subsidiaries should be staffed with host-country nationals and its home office headquarters with parent-country nationals. This

may reduce the local cultural misunderstandings that expatriate managers may exhibit. It will also almost undoubtedly be less expensive. One expert estimates that an expatriate executive can cost a firm up to three times as much as a domestic executive because of transfer expenses and other expenses such as schooling for children, annual home leave, and the need to pay income taxes in two countries.

A geocentric staffing policy assumes that management candidates must be

searched for globally, on the assumption that the best manager for any specific position anywhere on the globe may be found in any of the countries in which the firm operates. This allows the global firm to use its human resources more efficiently by transferring the best person to the open job, wherever he or she may be. It can also help to build a stronger and more consistent culture and set of values among the entire global management team. Team members here are continually interacting and networking with one another as they move from assignment to assignment around the globe and participate in global develop­ ment activities.

Chapter 17 Managing Human Resources in a Global Business 475

Selection for Global Assignments

International managers can be expatriates, locals (citizens of the countries where they are working), or third-country nationals (citizens of a country other than the parent or the host country'), such as a British executive working in a Tokyo subsidiary of a Canadian multinational bank. 37 Expatriates represent a minority

of managers; most managerial positions are filled by locals rather than expatri­

ates in both headquarters and foreign subsidiary operations. There are several reasons to rely on local, host- country management talent for filling the foreign sub­ sidiary’s management ranks. Many people simply prefer not to work in a foreign country, and in general the cost of using expatriates is far greater than the cost of using local management talent. The multinational corporation may be viewed locally as a “better citizen” if it uses local management talent, and indeed some governments actually press for the local­ ization of management. There may also be a fear that expatriates, knowing that they are posted to the foreign subsidiary for only a few years, may over­ emphasize short-term projects rather than focus on perhaps more necessary long-term tasks. There are also several reasons for using expatriates—either parent-country or third-country nationalsfor staffing subsidiaries. The major reason is technical

competence. In other words, employers may be unable to find local candidates with the required technical qualifications. Multinationals also increasingly view

a successful stint abroad as a required step in leadership development. Control

is another important reason. Multinationals sometimes assign expatriates from their headquarters staff abroad on the assumption that these managers are more steeped in the firm’s policies and culture and more likely to unquestioningly implement headquarters’ instructions.

Orienting and Training Employees for Global Assignments

Cross-cultural training is very important for creating realistic expectations, which in turn are strongly related to cross-cultural adjustment. 38 A four-step approach to cross-cultural training is often used. Level 1 training focuses on the impact of cultural differences and on raising trainee awareness of such dif­ ferences in terms of their impact on business outcomes. Even transfers to the United Stares from Canada can involve culture shock. Level 2 training focuses on attitudes and aims at getting participants to understand how attitudes (both negative and positive) are formed and how they influence behaviour (for exam­ ple, unfavourable stereotypes may subconsciously influence how a new man­ ager responds to and treats his or her new foreign employees). Level 3 training

provides factual knowledge about the target country, while Level 4 training pro­ vides skill building in areas like language and adjustment and adaptation skills. The depth of training is of the utmost importance. If firms are going to provide cross-cultural training, it needs to be in-depth and done with care. For example, language training must include nonverbal communication awareness, as it varies

so widely across the world.

476 Part 6 Global Issues in Human Resources Management

476 Part 6 Global Issues in Human Resources Management Orientation families) to avoid "culture shock" and

Orientation

families) to avoid "culture shock" and better adjust to their new surroundings.

and

training

for

international

assignments

can

help

employees

(and

their

In addition to cross-cultural training, lead­ ership development opportunities are often an important learning component of expatriate assignment. 40 At IBM, for instance, such devel­ opment includes the use of a series of rotating assignments that permits overseas manag­ ers to grow professionally. At the same time, IBM and other major firms have established management development centres around the world where executives can go to hone their skills. Beyond that, classroom programs (such as those at the London Business School, or at INSEAD in France) provide overseas execu­ tives with the opportunities that they need to hone their functional and leadership skills.

International Compensation

The concept of international compensation management can present some unex­ pected and complicated problems. Compensation programs throughout a global firm must be both integrated (to maximize overall effectiveness) and differentiated (to effectively motivate and meet the specific needs of the various categories and locations of employees). On the one hand, there is logic in maintaining company- wide pay scales and policies so that, for instance, divisional marketing directors throughout the world are all paid within the same narrow range. This reduces the risk of perceived inequities and dramatically simplifies the job of keeping track of disparate country-by-country wage rates. However, most multinational companies have recognized the need to make executive pay decisions on a global level, and executive pay plans are gradually becoming more uniform. 41 As shown in Figure 17.2, the majority of global assignment compensation (60 percent) is aligned to pay expatriates according to compensation levels in their own country.

FIGURE 17.2
FIGURE 17.2

Approaches to Compensation for Global Assignments, 2011

to compensation levels in their own country. FIGURE 17.2 Approaches to Compensation for Global Assignments, 2011

Chapter 17 Managing Human Resources in a Global Business 477

On the other hand, the practice of not adapting pay scales to local markets can present an HR manager with more problems than it solves. The fact is that living in Tokyo is many times more expensive than living in Calgary, while the 3 y&kt of living in Bangalore, India, is considerably lower than living in Toronto. 42 If these cost-of-living differences are not considered, it may be almost impossible to get managers to accept assignments in high-cost locations. One way to handle the problem is to pay a similar base salary companywide and then add on vari­ ous allowances according to individual market conditions. 43 Compensation professionals also face the challenge of designing programs that motivate local employees in each country 7 as well as internationally mobile employees of all nationalities. Some multinational companies deal with this problem by conducting their own annual compensation surveys. Others use a global career progression framework that includes the flexibility to accommo­ date local practices and still maintain organization-wide consistency. 44

balance sheet approach A method

of formulating expatriate pay based on equalizing purchasing power across countries.

The Balance Sheet Approach

The most common approach to formulating expatriate pay is to equalize purchas­ ing power across countries, a technique known as the balance sheet approach. The basic idea is that each expatriate should enjoy the same standard of living that he or she would have had at home. The employer estimates what the cost of major expenses like housing would be in the expatriate’s home country and the equivalent cost of each in the host country. Any differencessuch as higher housing expenses—are then paid by the employer. In practice, this involves building the expatriate’s total compensation around five or six separate components, as shown in Figure 17.3. For example, base salary will normally be in the same range as the manager’s home- country salary. In addition, however, there might be a mobility premium. This is paid as a percentage of the executive’s base salary, in part to compensate the manager for the cultural and physical adjustments that he or she will have to make. 4 There may also be sev­ eral allowances, including a housing allowance and an education allowance for the expatriate’s children.

Variable Pay

As organizations around the world have shifted their focus to individual per­ formance differentiation, there has been a rise in the prevalence of individual performance rewards, although the widespread use of team awards remains in a few Asian countries. 46 Across the globe, over 85 percent of companies offer at least one type of broad-based variable pay program, as shown in Figure 17.4. Target bonuses for management and professional employees, as a percentage of base salary, have become quite similar globally. Although broad-based variable pay was a lot less common in the past, it has now gone global and is an integral part of the compensation landscape for management and professional employees in every region.

International EAPs

Employee assistance programs (EAPs) are also going global, helping expatriates take care of their mental health, which is often affected by the stressful relo­ cation process. A worldwide survey found that more than half of expatriates

478 Part 6 Global Issues in Human Resources Management

FIGURE 17.3
FIGURE 17.3

Balance Sheet Approach

Net Compensation Package in Singapore by Home Country of Expatriate

Management level (IPE 56): Standard

Sheet Approach Net Compensation Package in Singapore by Home Country of Expatriate Management level (IPE 56):
Sheet Approach Net Compensation Package in Singapore by Home Country of Expatriate Management level (IPE 56):
FiGURE 17.4
FiGURE 17.4

Chapter 17 Managing Human Resources in a Global Business 479

Overall Prevalence of Broad-Based Variable Pay Programs

Overall Prevalence of Broad-Based Variable Pay Programs are weighed down by added stress caused by longer

are weighed down by added stress caused by longer hours, extended workdays/ workweeks, and cultural differences, among other factors. Two-thirds feel the strain of managing the demands of work and the well-being of family. 4 ' The proactive approach is to contact employees before departure to explain the pro­ gram’s services; then, about three months after arrival, families are contacted again. By this time, they have usually run into some challenges from culture shock and will welcome some assistance. The expatriates and their families have then established a connection with the EAP to use for ongoing support. 48 Problems such as homesickness, boredom, withdrawal, depression, com­ pulsive eating and drinking, irritability, marital stress, family tension, and conflict are all common reactions to culture shock. Employees on short-term assignment without their families can experience extreme loneliness. Treatment

for psychiatric illnesses varies widely around the world, as do the conditions

Part 6 Global Issues in Human Resources Management

in government-run mental health institutions, and consultation with an EAP professional having extensive cross-cultural training may he critical in ensur­ ing that appropriate medical treatment is obtained. 49

Performance Appraisal of Global Managers

Several issues complicate the task of appraising an expatriate’s performance. The question of who actually appraises the expatriate is crucial. Local manage­ ment must have some input, but the appraisal may then be distorted by cultural differences. Thus, an expatriate manager in India may be evaluated somewhat negatively by his host-country bosses, who find the use of participative decision making or other behaviours on the part of the expatriate to be inappropri­ ate in their culture. However, home-office managers may be so geographi­ cally distanced from the expatriate that they cannot provide valid appraisals because they are not fully aware of the situation that the manager actually faces. Therefore, problems can arise if the expatriate is measured by objective criteria, such as profits and market share, but local events, such as political instability, undermine the manager’s performance while remaining “invisible” to home-office staff. Suggestions for improving the expatriate appraisal process include the following: 50

1. Stipulate the assignment’s difficulty level. For example, being an expatriate manager in China is generally considered to be more difficult than working in England, and the appraisal should take such difficulty-level differences into account.

2. Weight the evaluation more toward the onsite manager’s appraisal than toward the home-site manager’s distant perceptions of the employee’s performance.

3.

If, however (as is usually the case), the home-site manager does the actual written appraisal, he or she should use a former expatriate from the same overseas location to provide background advice during the appraisal process. This can help to ensure that unique local issues are considered.

4.

Modify the normal performance criteria used for that particular position to fit the overseas position and characteristics of that particular locale. For example, “maintaining positive labour relations” might be more important in Chile, where labour instability is more common, than it would be in Canada.

5.

Attempt to give the expatriate manager credit for relevant insights into the functioning of the operation and specifically the interdependencies of the domestic and foreign operations. In other words, do not just appraise the expatriate manager in terms of quantifiable criteria, like profits or market share. His or her recommendations regarding how home-office/foreign- subsidiary communication might be enhanced and other useful insights should also affect the appraisal.

International Labour Relations

Firms opening subsidiaries abroad will find substantial differences in labour relations practices among the world’s countries and regions. For example, Walmart, which has successfully resisted unionization in most of the world,

Chapter 17 Managing Human Resources in a Global Business 481

had to accept unions in many of its stores in China. 51 In Eastern Europe, unionization rates have plummeted since the fall of the Iron Curtain resulting in a competitive advantage, with wages averaging only one-third of those in Western Europe. 52 Some important differences between labour relations practices in Europe and North America include the following:

Tips

FOR THE FRONT LINE

Centralization. In general, collective bargaining in Europe is likely to be industry-wide or regionally oriented, whereas North American collective bargaining generally occurs at the enterprise or plant level.

Employer organization. Because of the prevalence of industry-wide bargain­ ing, the employer’s collective bargaining role tends to be performed primarily by employer associations in Europe; individual employers in North America generally (but not always) represent their own interests when bargaining col­ lectively with unions.

Union recognition. Union recognition for collective bargaining in Europe is much less formal than in North America. For example, in Europe there is no legal mechanism requiring an employer to recognize a particular union; even if a union claims to represent 80 percent of an employer’s workers, another union can try to organize and bargain for the other 20 percent.

Content and scope of bargaining. North American labour-management agree­ ments tend to focus on wages, hours, and working conditions. European agreements tend to be brief and simple and to specif)' minimum wages and employment conditions.

Worker participation. Worker participation has a long and relatively exten­ sive history in Europe. In many countries, works councils are required. A works council is a committee in which plant workers consult with man­ agement about certain issues or share in the governance of the workplace. 54

REPATRIATION

repatriation The process of moving the expatriate and his or her family back home from the foreign assignment.

Repatriation is the process of moving the expatriate and his or her family back home from the foreign assignment. Sometimes, repatriation can be more dif­ ficult than going abroad. 55 Up to half of expatriates leave their organization following a repatriation, usually because they are not able to use their newly developed skills and capabilities in their roles on their return. 56 Their expert knowledge and international expertise often ends up with the competition. Several repatriation problems are very common. One is the expatriate’s fear that he or she has been “out of sight, out of mind” during an extended foreign stay and has thus lost touch with the parent firm’s culture, top executives, and those responsible for the firm’s management selection processes. Indeed, such fears can be well founded: Many repatriates are temporarily placed in mediocre or makeshift jobs. Ironically, the company often undervalues the cross-cultural skills acquired abroad, and the international posting becomes a career-limiting, rather than career-enhancing, move. Many are shocked to find that the executive trappings of the overseas job (private schools for the children and a company car and driver, for instance) are lost on return, and that the executive is again just a small fish in a big pond. Perhaps more exasperating is the discovery that some of the expatriate’s former colleagues have been more rapidly promoted while he

482 Part 6 Global Issues in Human Resources Management

or she was overseas. Even the expatriate’s family may undergo a sort of reverse culture shock, as the spouse and children face the often daunting task of picking up old friendships and habits or starting schools anew on their return. 5 Progressive multinationals anticipate and avoid these problems by taking a number of sensible steps: 58

Tips

FOR THE FRONT LINE

1. Writing repatriation agreements. Many firms use repatriation agreements, which guarantee in writing that the international assignee will not be kept abroad longer than some period (such as five y'ears) and that on return he or she will be given a mutually acceptable job.

2. Assigning a sponsor. The employee should be assigned a sponsor/mentor (such as a senior manager at the parent firm’s home office). This person’s role is to look after the expatriate while he or she is away. This includes keeping the person apprised of significant company' events and changes back home, monitoring his or her career interests, and nominating the person to be considered for key openings when the expatriate is ready' to come home.

3. Providing career counselling. Provide formal career counselling sessions to ensure that the repatriate’s job assignments on return will meet his or her needs.

4. Keeping communication open. Keep the expatriate “plugged in” to home- office business affairs through management meetings around the world and frequent home leave combined with meetings at headquarters. Only 18 percent of companies in a 2006 Watson Wy'att global survey had a global communication plan in place to keep employees around the world informed about what the company was doing.

5. Offering financial support. Many' firms pay real estate and legal fees and help the expatriate to rent or in some other way to maintain his or her residence so that the repatriate and his or her family can actually return “home.”

6. Developing reorientation programs. Provide the repatriate and his or her family with a reorientation program to facilitate the adjustment back into the home culture.

7. Building tit return trips. Expatriates can benefit from more frequent trips to the home country to ensure that they keep in touch with home-country norms and changes during their international assignment.

MANAGING GLOBAL WORKERS WITHIN CANADA

The successful integration of immigrants and foreign workers into the Canadian labour market is increasingly becoming of interest to organizations, Canadian public policy makers, and HR professionals alike. The issues of underemploy­ ment of immigrants and foreign workers is especially critical today, given the aging workforce, the rate of immigration to Canada (almost one in every five persons residing in Canada is foreign born), and our dependence on immi­ grants to maintain our labour force size. Additionally, the labour and talent scarcity further fuels the need for successful integration and utilization of immigrants in the Canadian labour force. In 2010, the top six source countries of immigrants to Canada were China, the Philippines, India, the United States, the United Kingdom, and France. 59

Research

Chapter 17 Managing Human Resources in a Global Business 483

Canadian employers note that hiring immigrants increases the employer’s language skills, generation of new ideas, and enhances the company’s reputation. 60 Research has found that diverse groups make higher-quality decisions, generate INSIGHT more creative ideas, use more creative problem-solving techniques, and have the potential for higher rates of productivity. 61 A survey of human resources profes­ sionals found that 91 percent of respondents felt that diversity initiatives help the organization maintain a competitive advantage, largely through enhanced corporate culture, employee morale, retention, and recruitment. 62 Immigrant workers in Canada can face unique challenges that hinder full employment or integration into the workforce. In 1980, recent male immigrants to Canada who were employed earned, on average, 85 cents for every dollar that Canadian-born males earned; by 2005, the ratio dropped to 63 cents for every dollar. 6 In addition, unemployment rates among new immigrants (those who have been in Canada for less than five years) are significantly higher than rates of those born in Canada or immigrants who are have been in Canada for longer periods of time (see Figure 17.5). A survey by Statistics Canada found that 70 percent of newcomers said they had encountered problems or barriers in the job-finding process. The results can be broadly categorized into a lack of Canadian work experience, poor transfer­ ability of foreign credentials, and a lack of literacy skills in either of the official languages (English or French; see Figure 17.6). The unemployment level and challenges of employment represent only part of the obstacles of immigrant and foreign workforce integration in Canada. Another significant challenge is the underutilization of immigrant skills because they are being hired for positions that they are overqualified to perform. Statistics Canada has reported that the percentage of long-term immigrants who had suc­ cessfully completed a university degree and who only found jobs with low edu­ cational requirements (such as clerks, truck drivers, salespeople, cashiers, and taxi drivers) rose steadily between 1991 and 2006. The resulting skills mismatch puts pressure on HR departments to find the right talent needed for a position, on the organization to provide more extensive training and development pro­ grams, and on society as a whole because of the lost value of experience and knowledge acquired by its members. 64

FIGURE 1 7.5
FIGURE 1 7.5

Unemployment Rates of Population Ages 25 to 54 and by Educational Attainment. 2030

 

All education

No

degree,

High school

Post-secondary

University

certificate

certificate or

 

levels

or diploma

graduate

diploma

degree

Born in Canada

6.1

 

12.9

7.1

5.6

3.5

Landed immigrants

9.5

 

14.9

10.1

8.9

8.6

Immigrants, 1 anded 5 or less years earlier

14.7

 

18

16.2

14.3

14.4

Immigrants, 1 anded 5 to 10 years earlier

9.5

 

16.1

11.9

9.1

8.2

Immigrants, 1 anded more than 10 years earlier

8.1

 

14

8.9

7.7

6

Source: Statistics Canada 2011.

484 Part 6 Global Issues in Human Resources Management

FIGURE 17.6

|

Immigrant Job Search Difliculties in Panada. 2005

Immigrants and Employers Agree on the Main Obstacles to Employment

 

Immigrant

Job

Managers Expecting to Hire

Seekers

Percent of Immigrants reporting problems in finding employment / Percent of Managers expecting problems hiring

70%

72%

forei^i-trained workers

 

Most Commonly Cited Problems

 

Lack of Canadian Work Experience

 

26%

46%

Transferability of Foreign Credentials

24%

52%

Lack of Official Language Skills

22%

66%

Barrier 1: Lack of Canadian Experience

Work experience helps individuals develop skills in communication, work pat­ terns, and team work that are recognized and valued by organizations. It can help people identify career paths and requirements of desired positions. It can shape perceptions of the world of work and set expectations of the employer. It can also provide an opportunity' for individuals to network with others, which can assist their future job search efforts. A barrier to the successful employment of immigrants is identified as the lack of Canadian experience. Understandably, most employers look for familiar references when assessing candidates, such as experiences and companies that they recognize on resumes or during interviews. Often immigrants feel like they are in a Catch-22 situation where they cannot secure a job without the proven Canadian experience, and they cannot acquire the Canadian experience without securing a job. This situation is deepened because of a lack of recognition for foreign work, which is consistently discounted in the Canadian labour market.^ 5 As immi­ grants enter the Canadian workforce, research on earnings shows low, or even zero, returns (monetary recognition) for their foreign work experience. 66 When only their Canadian work experience is taken into account, immigrants’ earn­ ings are similar to those of the Canadian-born with the same years of Canadian experience, regardless of how many years of international experience the immi­ grant had prior to joining the Canadian workforce. These results suggest a sig­ nificant inability to transfer and recognize skills and experiences immigrants acquired in their country of origin to the Canadian labour market, representing a lost value to the immigrant.

Tips

FOR THE FRONTLINE

Chapter 17 Managing Human Resources in a Global Business 485

Almost two in every three new immigrants fail to find employment in the same field in which they' were employed in their native country. For example, before arriving in Canada, only 10.2 percent of men and 12.1 percent of women were employed in sales and service-related occupations. Six months after arrival in Canada, 24.9 percent of men and 37.3 percent of women were employed in these occupations.*’' Options to help overcome challenges associated with lack of Canadian expe­ rience and devaluation of foreign experience include the following: 68

1.

Educate employers, recruiters, and hiring managers to develop skills needed to recognize and effectively interpret skills from different countries.

2.

Provide clear statements in job descriptions as to the extent and nature of work experience required to complete job requirements. Offer candidates an opportunity to demonstrate the skills in a simulated or field setting.

3.

Use apprenticeships effectively. Some trades mandate apprenticeships (for example, in Ontario there are 20 trades with a mandatory apprenticeship component), whereas others are voluntary. This creates an option where apprenticeships can be used to develop and evaluate the skills of foreign- trained workers. Alternatively, some provinces (like Alberta) allow immi­ grants with significant foreign experience in a trade the opportunity to write an exam to receive certification.

4.

Partner

with

industry-based

assessment

centres

(for

example,

Workplace

Integration of Skilled Newcomers in the Trades, Internationally' Educated Engineer Qualification Bridging Program) to develop bridging programs to integrate foreign experience of immigrants.

At the same time, immigrants to Canada have a responsibility toward learn­ ing about Canadian workplace norms and customs and presenting their experi­ ences or qualifications to Canadian recruiters in a clear and effective way'. There must also be an awareness of Canadian laws and regulations. There are many ways organizations can help with this, as discussed in the Global HRM box.

GLOBAL HRM
GLOBAL
HRM
Successful Integration of Immigrants in Canada There are many examples of innovative, forward-thinking companies that
Successful Integration of Immigrants in Canada
There are many examples of innovative, forward-thinking
companies that have developed initiatives to aid in the
successful integration of immigrants into their work­
force. The result is a competitive advantage and ability
to recognize and recruit strong talent.
RBC
requires
recruiters
and
managers
to
be trained
in
cross-cultural
awareness
to
help
interpret
and
understand
past
experiences
related
to
the
job.
This
represents
a
two-way
mutual
understanding
approach to recruitment.
Assiniboine
Credit
Union
assumes
an
organic
approach
by
training
managers
and
employees on

THH

diversity and cultural awareness, offering a mentor- ship or buddy program, and regularly soliciting and
diversity and cultural awareness, offering a mentor-
ship or buddy program, and regularly soliciting and
communicating feedback from the programs, which
then aids in modifying the programs.
Manulife
offers
paid
internships
(of
4
to
12 months)
and
formalizes
the
process
by
having
clear
indica­
tions
of
who
is
eligible
for
the
programs
offered
(must
be
in
Canada
less
than
three
years,
have
at
least three years of foreign experience, and so on).

Source: Based on G. Larose and G. Tillman, “Valorizing Immigrants' Non-Canadian Work Experience," {Ottawa, ON:

Work and Learning Knowledge Centre, 2009}.

486 Part 6 Global Issues in Human Resources Management

Barrier 2: Poor Transferability of Foreign Education or Training