COURSE: GLOBAL BUSINESS MANAGEMENT

MGT610

DR. DIMITRIS STAVROULAKIS

PROFESSOR OF HUMAN RESOURCE MANAGEMENT
DEPT OF ACCOUNTING
TEI OF PIRAEUS
 Unit 9. International Human Resource Management

Training Material: Ch 14 of: Cullen, J.B. & P.K. Parboteeah

(2010): International Business. London: Routledge.
I don't want any yes-men around me. I want
everybody to tell me the truth even if it costs
them their jobs.”
Samuel Goldwyn
US (Polish-born) movie producer
 HRM vs. IHRM
Several functions of HRM are the same with IHRM (job analysis,
human resource planning, training & development), but even
these have to be extended in order to adapt to international
requirements. HRM is much more important to the MNC than to
the conventional firm. HRM is a complex function itself and the
global dimension complicates further the situation:
 Crucial issues are at stake with regard to overseas staffing.
 Compensation policies differ significantly among countries.
 Performance appraisal systems focus on different factors across
countries.
 Equal employment legislation may be rigorously pursued in
specific countries, but may be marginal in others.
 Labor unions function in entirely different modes across
countries. Japanese auto makers were baffled by the variety of the
UK trade unions they had had to negotiate with in the 90s.
 Expatriate manager (expat): A person working in a sub away
from home country. In international sales, expats may be best
when products are highly technical or when selling requires
extensive knowledge of company/product line.
 IHRM Functions (cont)
 IHRM is much broader than expat management, since it covers
the overall worldwide management of the MNC human resources
(Brewster & Hilary, 1999).
 MNC subs have developed sophisticated human resource systems,
in particular concerning career development, fringe benefits &
perks, pensions & healthcare, while local firms often focus mostly
on collective bargaining.
 Nevertheless, despite the necessity to develop global staff,
empirical research among 326 MNCs has shown that HR was the
weakest among business functions (Coleman, 2002).
 Strategic preparation of global leaders has become a major
component of IHRM. In essence, IHRM must design HR processes,
including global training and management development, so as to
ensure that the “global whole” is greater than the sum of its
domestic parts (Briscoe & Schuler, 2004, 282).
Factors Affecting the Scope of HRM:
Globalization/Localization
 International Staffing
International staffing fulfils the following functions:
 To fill positions in countries of low social capital with qualified
personnel from abroad.
 To share and transfer knowledge across MNC units.
 To develop global managers by exposing qualified personnel to
diverse cultural environments. In most MNCs international
assignments are, at least indirectly, associated with promotion.
 To transmit the company culture to units abroad.

 Staffing deals with the selection of employees to fill org positions.

At a first level, individuals who have the knowledge and skills
that respond to job descriptions are preferred.

 In most MNCs, however, more is demanded: Selected individuals

have to fit to the corporate culture. In GE for example, only
persons whose lifestyle, values, and beliefs are compatible to the
GE culture are hired.
 Staffing & Socialization Policy
 Turnover costs are extremely high in MNCs. To ensure that
candidates will stay with the company, job requirements are
presented to them beforehand as much tougher than in reality.
Morgan Stanley advised MBA applicants to discuss tough work
requirements with family before accepting the job.
 “Carbon has to be compressed: It either becomes a diamond, or it
peters away”. Or put it another way, if some people have to leave,
let them leave now. This is how many MNCs think about their
newly-hired MBAs.
 “Compression” occurs during the socialization & acculturation
period. Morgan Stanley, McKinsey, IBM, P&G, among others,
submit the newly hired MBAs to exhaustive tests for several
weeks, including weekends, before posting them to the “trenches”
(tough positions demanding talent & skills).
 Philips runs a hard entry program named “Organization Cohesion
Training”.
 Unilever’s entry program is called straight-forwardly
“Indoctrination” (brain-washing ?)
 Team-building exercises.
 The Seven Spirits of Matsushita
 Founder Konosuke Matsushita developed in 1932 a grand, 250-
year vision, broken into 25-year sections. Each January he linked
the annual objectives with the company vision and culture. This
vision was titled “Seven Spirits of Matsushita”:
 Service through Industry
 Fairness
 Harmony and Cooperation
 Struggle for Progress
 Courtesy and Humility
 Adjustment and Assimilation
 Gratitude

 Newly-hired employees spend a big portion of their first 6 months

studying in-depth the seven spirits. They learn to transform this
abstract philosophy to everyday behavior and operational
decisions.
Staffing Policies
 Ethnocentric [International & Global ] Staffing Policy

The ethnocentric approach to staffing fills key management

positions with parent-country nationals. Very popular in the past,
but still holds on (P&G, Matsushita, Toyota, Samsung).
 Research in Japanese MNCs showed that only 29% of subs had
presidents who were not Japanese.

 Firms pursue an ethnocentric policy because:

 There is a lack of qualified candidates in the host country.
 It is the best way to maintain a unified corporate culture.
 Value can be created by transferring core competencies to a
foreign operation via parent country nationals. Transfer of
innovative practices has to be supported by experts from home.
 Disadvantages of the ethnocentric staffing policy:
 Limits advancement opportunities for locals, stifles motivation
and may cause resentment and tension.
 Can lead to "cultural myopia“. Parent company loses contact
with the host country culture with negative implications on
marketing & management.
.
 Polycentric (Multinational) Policy
The polycentric approach recruits mostly host country nationals
to manage subs in their own country, and parent country
nationals for positions at headquarters.

 Advantages:
 Makes sense for firms pursuing a localization strategy.
 Addresses the problem of cultural myopia.
 May be less expensive to implement than an ethnocentric
policy, due to the high cost of expats.

 Disadvantages:
 Host country nationals have limited opportunities to gain
experience outside their own country. Therefore, it is difficult
for them to proceed beyond their own sub and to compete for
HQ key positions.
 Barriers in knowledge, competencies and culture may be raised
between subs and HQ. Therefore, a federation of largely
independent units is likely to be created. This form of
organization may hamper the transfer of innovative practices.
.
 Polycentric Policy (cont)
o Moreover, this org form is difficult to change, e.g.:
 In the case of Unilever, “little kingdoms” had opposed
vehemently attempts of the HQ to limit their autonomy and to
coordinate centrally.
 Philips had to confront fiercely independent national
management teams. The term “Dutch mafia” was assigned by
local managers to Dutch executives who were assigned key
positions in Phillips subs (mafia implies that one cannot rise to
the top of the gang if not being Italian).
 In order to tackle this problem, Philips created a top-level World
Policy Council, comprising key managers of strategic markets.
Throughout this Council, Philips managed to ensure support to
HQ decisions, which otherwise would be unacceptable to host
country managers.
 Geocentric (Transnational) Policy
The geocentric approach seeks the best people for key positions,
regardless their nationality.
 Advantages:
 Consistent with building a strong unifying culture and informal
management networks.
 Enables the firm to utilize best its human resources
 Builds a cadre of international executives with a global
mindset, who feel at home working in diverse cultures.
 Disadvantages:
 Might be limited by immigration laws. Many countries,
including the USA, scrutinize thoroughly the foreigners who
enter the country in order to fill strategic positions.
Documentation may be time-consuming and expensive.
 Is expensive to implement due to high costs of training and
relocation.
 Risk of executive failure is higher, therefore rigorous selection
methods have to be applied.

.
 Regiocentric Policy
Individuals from the world region are selected for key positions in
subs. In broad terms, region is not restricted to geographic terms,
but may expand to language and cultural proximity of countries
(c.f. psychic distance, e.g. UK is “nearer” to USA than to Czech
Republic).
 Advantages:
Serves best the development of competent regional managers, who
address best the demands of the region.
Regional managers are familiar with cultures of specific regions
(e.g. Southern Europe), and simultaneously possess a remarkable
international experience.
 Disadvantages:
A strong “regional division culture” may be at odds with the
company culture. Barriers may rise between the HQ and largely
independent regional divisions.
Regional managers may prove dysfunctional in cultures outside
their region (e.g. a Latin American in Middle East), a fact that
might hamper their advancement to the top of their company.
Compensation policies
 International payment systems
 Through an efficient payment system, MNCs have to:
-Safeguard and motivate competent personnel. MNCs often have
to adopt a leader strategy in order to attract and retain the best.
-Enhance productive and cooperative behavior of employees
-Facilitate managers’ mobility between subs.
-Offer attractive compensation packages and perks according to
countries’ standards & culture. E.g. share options, which are
most popular in the USA, UK, Canada & Australia, may be
unwelcome in Greece, Italy, and Portugal.
-Moderate, but not reform deeply-rooted beliefs e.g. about the
payment of women, or of lower classes.
-Integrate contingencies such as inflation and currency rates.
-Distinguish strategically important subs.
-Create a sense of equity among employees
- Ensure transparency and understanding of compensation
schemes. This might backfire, however, as when employees from
Bulgaria learned what their counterparts in Germany receive.
Complaints among employees about well-paid colleagues in EU.
 Strategic flexibility of international payment systems
 Milkovich & Bloom introduced a model of strategic flexibility,
demonstrating employees’ compensation structure:
 Core compensation set provides motivation for a uniform
company mindset and commitment to global customers, e.g.
competitive cash rewards, flexible employment within the MNC
(involving international workforce interaction & “flexible” job
security), career-building oppts, family benefits etc.
 Craft compensation components include both legally mandated
and socially preferred rewards, provided that local managers have
the authority to offer them. For example, in Germany vacation
leave is prescribed to endure 20 days, but most employers offer 30
days. In China employees prefer subsidization of their housing
and mortgage loans. In the US provision of healthcare is a
controversial issue, but in the EU it is universally guaranteed.
 Choice compensation set involves elements that can be picked
by employees themselves, according to the value perceived and
within a total cost limit (cafeteria-style compensation plan). E.g.
younger employees might refrain from pension plans, while
mothers may prefer flexible working hours. Scandinavian
managers may prefer credit cards to bonuses due to taxation.
 Cultural considerations on compensation policy
 In countries notorious for kidnapping executives (Colombia, Ecuador),
rewards have to provide for such an eventuality.
 Social benefits, e.g. the desirable life employment in Greece and Japan
may have to be compromised with comparatively lower rewards. In
Europe there exists a stronger sentiment in favor of maternity and
paternity than in the USA.
 In strong Uncertainty Avoidance countries (Greece, Turkey, Portugal)
insecurity has to be tackled through standard and uniform salaries,
while in weak UA countries (UK, USA, India, Malaysia) performance-
based payment is indicated.
 In strong Individualist countries (Canada, Netherlands) individual
customized rewards may be appropriate, while in Collectivist countries
(China, Japan), group-based rewards may be welcome.
 In Masculine countries (Mexico, USA, UK) hard money is preferred, while
in Feminine countries (Scandinavian) emphasis is stressed on Quality of
Work Life.
 In strong Power Distance countries (India, Middle East) distinction in
payment reflects distinction in status, while in low PD ones (Ireland, N.
Zealand) profit-sharing and gain-sharing plans are more popular.
Training & Development
 Training & Development in global business
 Training has to be successfully delivered because it is costly, and
a training failure (e.g. on advanced technology) would seriously
impair the sub performance. Widespread use of English has
largely facilitated training processes.
 In underdeveloped countries business training has to
complement formal education.
 Mode of training depends on the MNC’s approach to
internationalization (ethnocentrism etc).
Particular training styles are appropriate according to country
culture (Hofstede’s dimensions):
 In countries with high UA (Greece), highly structured material
and passive learning techniques are indicated. In countries with
low PD & UA, brainstorming, panels, and simulations are most
welcome.
 The cultural dimension of training
Companies that wish to sustain a strong company culture apply
more or less uniform training styles around the world.
Nevertheless, cultural differences have always to be addressed:
 The Brazilian sub of Johnson Wax had to be exempted from a
training course on team-building. Brazilians are so much devoted
to teamwork, that such a course would be redundant and
possibly insulting.
 Transmission of a strong parent culture may backfire, as in the
case of GE and CGR (a recent French buyout). GE attempted to
assimilate the French through training seminars, where the
French were obliged to wear GE T-shirts and to stick GE posters
in their offices. The French were deeply insulted and about 1.500
employees left.
 In Asian cultures, training is highly authoritative. Students do not
ask questions, and instructors do not ask students’ opinions.
Class participative techniques may fail in this context.
 Training policies
 IBM has allocated its training activities in 5 regional centers
covering 132 countries. Each regional division has customized
activities in small clusters, even in separate countries, which
offer highly sophisticated packages. Small countries have only a
few trainers, but the HQ education division in the USA employs
more than 2,000 persons.
 3M has established semi-autonomous training divisions in each
of the 52 host countries, but the HQ in Dusseldorf coordinate
training divisions all over Europe.
 Unilever has established an innovative training center in London,
called “Four Acres”, where managers all over the world are sent in
order to build contact, to establish relationships, to acquire
cultural skills and to promote networking. About 300-400
managers attend the Four Acres every year. There the company
identifies and keeps track of its most competent managers, to be
carefully nurtured and further developed. According to an
executive, “this experience initiates you in the Unilever club and
the clear norms, values, and behaviors that distinguish our
people … we can spot a Unilever manager anywhere in the world”
Training Policies
 Corporate Universities
They comprise a strategic umbrella for developing and educating
employees, prospective managers, even suppliers and customers,
in order to meet an organization’s business strategies.
Corporate training aims at:
 Developing corporate citizenship.
 Building core workplace competencies among employees.
 Well-known business training centers: The Wal-Mart U, the GM
Technical College, the Goldman-Sachs U, the Intel U, the Disney
Institute, the Ritz-Carlton Leadership Training Center, the HSBC
Leadership Academy, the Hamburger U.

 Scientific Journal: “The Corporate University Review”

The “Hamburger U” (1961) aims at instilling corporate values and

teaching related business skills. Trainees come throughout the
entire food chain (franchisees, staff, country managers etc).
 Hamburger University
Instead of a dorm, students stay at the Hyatt Lodge. About 46
accredited courses are offered. More than 5,000 students from
more than 119 countries graduate annually. The facility contains
a 300-seat auditorium, 3 kitchen labs, 12 interactive training
rooms, 13 teaching rooms. The title is called hamburgerology and
the graduation ceremony includes naming the valedictorian.
 Fast food “the McDonald’s way” - Curriculum
• Restaurant operations, food preparation
• Crew selection, training and team building
• Marketing and promotion
• Restaurant management, corporate citizenship & ethics
• Asset management & quality control
• Leadership & effective supervisory skills
Elements of the McDonalds strong culture:
 An ordinary (non-franchise) employee in the USA may place a
call to the CEO and be called back within 24 hours.
 East Ball Bakery (a bun supplier who struck a handshake deal
with Ray Kroc in 1955) still has no formal contract.
 Hamburger University

Hong-
Kong
London

Illinois Munich

Sydney
 Comparative research on HRM practices among MNCs and
big local firms in Greece (Barbara Myloni, 2002)
 Although both clusters of firms applied advanced selection tools
(psychometric tests, multi-level interviews), subs were more likely
to apply a combination of methods.
 Greek firms focused more on formal qualifications, while subs
valued also personality traits (initiative, responsibility etc).
 Subs emphasized more on training (customized & based on
training needs).
 Subs were likely to offer a more variable compensation package
(bonuses, share options).
 Rewards were considerably higher in subs, but also the payment
gap (highest vs. lowest salary) was much wider.
 Fringe benefits among Greek firms included mostly child care
and career-breaking. Subs offered more extra pension schemes
(subs: 62%, Greek: 24%).
 Evaluation in Greek firms was conducted by the supervisor, while
in subs a sophisticated 360 degree appraisal was applied.
Favoritism in appraisal was higher among Greek firms.