Chapter 3

IHRM: Sustaining International

Business Operations

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Chapter Objectives
The previous two chapters have concentrated on the global
environment and organizational contexts. We now focus on
the ‘managing people’ aspect. The aim is to establish the
role of HRM in sustaining international business operations
and growth. We will cover the following:
 Issues related to various approaches to staffing
foreign operations;
 Reasons for using international assignments:
position filling, management development and
organizational development;
(cont.)
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Chapter Objectives (cont.)
 Various types of international assignments:
 Standard assignments: Short-term, extended, and
longer-term;
 Non-standard arrangements: Commuter, rotator,
contractual, and virtual.
 The role of expatriates and non-expatriates
(international business travellers) in
supporting international business activities
 The role of the corporate HR functions

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Approaches to Staffing
 Factors affecting approaches to staffing
 General staffing policy on key positions at
headquarters and subsidiaries
 Constraints placed by host government
 Staff availability
Ethnocentric
Polycentric
Geocentric
Regiocentric

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Ethnocentric
 Strategic decisions are made at
headquarters;
 Limited subsidiary autonomy;
 Key positions in domestic and foreign
operations are held by headquarters’
personnel;
 PCNs manage subsidiaries.

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Polycentric
 Each subsidiary is a distinct national
entity with some decision-making
autonomy;
 HCNs manage subsidiaries who are
seldom promoted to HQ positions;
 PCNs rarely transferred to subsidiary
positions.

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Geocentric
 A global approach - worldwide integration;
 View that each part of the organization
makes a unique contribution;
 Nationality is ignored in favor of ability:
 Best person for the job;
 Color of passport does not matter when it
comes to rewards, promotion and
development.

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Geocentric Staffing Requirements

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Regiocentric
 Reflects a regional strategy and structure;
 Regional autonomy in decision making;
 Staff move within the designated region,
rather than globally;
 Staff transfers between regions are rare.

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

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

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Geocentric Approach
Advantages:
 Ability of the firm to
develop an
international executive
team
 Overcomes the
federation drawback of
the polycentric
approach
 Support cooperation
and resource sharing
across units
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Disadvantage:
Host government may use
immigration controls in
order to increase HCNs
employment
Expensive to implement
due to increased training
and relocation costs
Large numbers of PCNs,
HCNs, and TCNs need to
be sent across borders
Reduced independence of
subsidiary management
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Regiocentric Approach
 Advantages:
Allow interaction between
executives transferred to
regional headquarters from
subsidiaries in the region
and PCNs posted to the
regional headquarters
Provide some sensitivity to
local conditions
Help the firm to move from
a purely ethnocentric or
polycentric approach to a
geocentric approach
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 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.
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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.
15
Host-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
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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
16
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.
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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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Determinants of IHRM Approaches
and Activities

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Reasons for International
Assignments
 Position filling, e.g.
 Skills gap, launch of new endeavor,
technology transfer
 Management development
 Training and development purposes, assisting
in developing common corporate values
 Organizational development
 Need for control, transfer of knowledge,
competence, procedures and practices
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Types of International Assignments
 Short term: up to 3 months
 Troubleshooting
 Project supervision
 A stopgap until a permanent arrangement is found
 Extended: up to 1 year
 May involve similar activities as short-term
assignments
 Long term
 Varies from 1 to 5 years
 The traditional expatriate assignment
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Non-standard Assignments
Commuter assignments
Rotational assignments
Contractual assignments
Virtual assignments

Some of these arrangements assist in overcoming

the high cost of international assignments but are
not always effective substitutes for the traditional
expatriate assignment.
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Factors Influencing Virtual Assignments

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Roles of an Expatriate
A Simple Management Network
 Agent of direct control
 Agent of socialization
G E
 Network builder B
 Boundary spanner C D
 Language node
 Transfer of competence
A F
and knowledge
Informal contacts between
managers within a MNE

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The Role of Non-expatriates
 People who travel internationally yet are
not considered expatriates as they do not
relocate to another country
 Road warriors, globetrotters, frequent fliers
 Much of international business involves
visits to foreign locations, e.g.
 Sales staff attending trade fairs
 Periodic visits to foreign operations

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A Glamorous Life
 International business travelers cite the
positives as:
 Excitement and thrills of conducting business
deals in foreign locations
 Life style (top hotels, duty-free shopping,
business class travel)
 General exotic nature

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But a High Level of Stress!
 Home and family issues
 Frequent absences
 Work arrangements
 Domestic side of position still has to be
attended to
 Travel logistics
 waiting in airports, etc.
 Health concerns
 Poor diet, lack of sleep, etc.
 Host culture issues
 Limited cultural training
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 Various Roles of Corporate HR
Centralized HR Decentralized HR Transition HR
Companies Companies Companies
 Large well-resourced  Small HR  Medium-sized HR
HR departments departments departments
 Key role: Managing all  Key role: Managing  Key role: Management
high-grade management elite corporate and development of senior
positions worldwide managers managers and expatriates
 Key activities:  Key activities:
 Key activities:
Planning international Influencing operating
Persuading divisional
assignments and units to support
managers to release key
performance international
staff using informal and
management globally, assignments,
subtle methods, strategic
identifying high-potential supporting
staffing.
staff decentralized HR
Source: Based on H. Scullion and K. Starkey, in Search of the Changing Role of the Corporate Human Resource Function in the
International Firms, International Journal of Human Resource Management, V 11, N 6 (2000) pp. 1061-1081.

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The Role of the Corporate HR
Function
 Can we manage our people like a global
product, e.g., the feasibility of:
 The concept of a global internal labor
market
 Standardization of work practices and
HR activities
 What HR matters require central control
and what can be decentralized?

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Chapter Summary
This chapter has expanded on the role of IHRM in
sustaining international business operations. We have:
 Looked at the various approaches to staffing
international operations – ethnocentric, polycentric,
geocentric and regiocentric – examining their
advantages and disadvantages and factors that may
determine the choice of these options.
 Considered the reasons for using international
assignments: position filling, management
development and organization development.
(cont.)
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Chapter Summary (cont.)
 Discussed the various types of international assignments:
short, extended and long-term (traditional); and 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 (cont.)
 Recognized that non-expatriates are also critical to
international business operations. International
business travellers present their own challenges,
such as the effect of frequent absences on family and
home life, the possible negative health effects and
other stress factors. The management of such
individuals, however, does not appear to fall within
the domain of the HR department.
 Looked at the role of the corporate HR function as
the firm grows internationally, building on sections
from Chapters 1 and 2.
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