Human Resources in the Global Market

Table of Content

1. Executive Summary

2. Strategic Human Resource Management and the International Markets
2.1 Introduction
2.2 International Human Resource Management
2.3 The importance of HRM for firms operating in international markets

3. Recruitment and selection
3.1 Expatriate failure
3.2 Factors in expatriate selection

4. Training and development
4.1 Definition and overview of traditional training and development
4.2 The effect of Globalisation on Human Resource Management
4.3 Training and development and international assignments

5. Workplace Conflict and Negotiations
5.1 Classifications of conflict and conflict management
5.2 How to handle conflict / picking the right style:

6. Performance management in International HRM
6.1 Multinational Performance Management
6.2 International employees and Performance Management
6.3 Performance appraisal of international employees
6.4 Appraisal of HCN employees

7. Industrial relations and employment law
7.1 International Industrial Relation
7.2 Collective Bargaining
7.3 Industrial Relation History
7.4 International Human Resource Management Strategies for entering into the Global Market

8. References

1. Executive Summary

The aim of this paper is to point out the increasing importance of Human Resource Management especially from internationally operating companies’ point of view. Furthermore, it will be pointed out what International Human Resource Management is and why it is necessary for Multi National Companies (MNCs) to concern about this topic. In addition, challenges and requirements of HRM will be illustrated and highlighted.

This work will furthermore portray the recruitment and selection process as well as the necessity of training and development within global companies. It will describe the workplace conflict and deal with subjects such as industrial relations and employment law.

Recruitment and selection in International Human Resource Management is crucial; finding the right people to fill key positions can determine a company’s international operation. Furthermore, it is extremely costly for the company if the expatriate fails. The performance of an expatriate is often determined by factors like (in)ability to adjust to foreign culture, the length of the assignment, willingness to move and work-related factors. What should be considered when selecting an expatriate are therefore criteria like technical ability, cross-cultural suitability, family requirements, country requirements as well as language and company requirements. However, recruitment and selection are only the first step for international Human Resource Management.

Training can be defined as the process of teaching new or present employees the basic skills they need to perform their jobs. Development covers two different perspectives: management development, i.e. any attempt made by a company to improve their current or future management performance by imparting knowledge and organizational development, which can be seen as a way to increase the stock of knowledge, skills and abilities within the organisation.

When one deals with International Human Resource Management, international assignments are seen as the main way of improving management and organizational development as there is a need for the company to train the staff selected to perform the international assignment. When training their staff for international assignments, every company should be aware that the training period should enhance and focus mainly on cultural awareness, as the lack of it is the main reason for the failure of such assignments.

Conflict presents a major challenge for the International Human Resource Manager. It is crucial that conflicts are managed in such a way that the organisation as a whole can benefit of its resolution. This requires that managers attempt to solve these problems from a macro-point of view and that they are able to identify the right problem before they attempt to solve it. After the manager has identified the causes and origins of the conflict between parties s/he has 5 styles at his/her disposal to solve it. The selection of these styles depends on the situation and the point of view of the manager. Ultimately, the IHR manager tries to create an atmosphere where employees can function optimally and effectively.

Performance management emphasizes the communication of organizational goals by integrating them into departmental and, individual-level goals. Conflicts on the international level might arise when evaluating the different targets and not consider the diverse circumstance variables as the understanding of quality, the political environment or the absence of ‘face-to-face’ contacts. For expatriate managers a cross-cultural training should be provided and the support from headquarters guaranteed. For performance appraisal (a practice used to evaluate an individual employee's past performance) in the international context, the combined use of hard, soft and contextual goals is suggested.

International Industrial Relations are a very important component to International Human Resource Management. This is due to the fact that Industrial Relations are the law behind the main function of Human Resource Management. Industrial Relations are the legal aspect of employing and maintaining an employee or employer. It dictates what an organization can or can not do when employing an employee, maintaining an employee and how to fire an employee. It deals with the contracts, hours, wages, bonuses, terms and conditions. Therefore, for an organization to successfully enter into the global market it is imperative that an organization has a human resource department to ensure that the organization abides by and implements and differences in the legislation of employment law to ensure that they do not get into trouble with the employees, law and commission.

2. Strategic Human Resource Management and the International Markets

2.1 Introduction

Today people, employees, are the most valuable asset for a majority of companies. It is not the machinery or computers, but people and knowledge that create competitive advantages. Markets are global and competitive and the number of companies doing business abroad increases every day. So does the need for international Human Resource Management. While on the one hand, technological improvements in some industries increase the threat for workers that their human working power becomes replaced by new and effectively working machines, the far-reaching and non-stoppable rise of the Information and Communication Technology requires well educated and developed labour on a large scale all over the world. Therefore, the level of interest in International Human Resource Management issues has risen remarkable during the past decades. The increasing need of globally acting companies for high qualified working power is furthermore demonstrated by the improvement of the spread of international business. “According to the United Nations Conference on Trade and Development there were 65.000 multinational operating companies with 850.000 subsidiaries worldwide in 2003”^[1].

2.2 International Human Resource Management

Simply expressed, the goal of Human Resource Management (HRM) is to deploy the right person in the right place inside the company. However, HRM includes much more than just selecting the best potential employee to fill a job vacancy. Managing human resources also implies to analyse job requirements and to plan the changes in the company’s workforce as well as to estimate such changes well in advance, to help prevent future layoffs and to decrease affiliated costs. Of course, one of the main duties of Human Resource Managers is to recruit and select job candidates and to introduce them to the firm’s corporate culture. Here it is important to familiarize the new employee with the company’s goals, to help find his/her role within the corporation and to define the individual’s function as clearly as possible. There should be a growing commitment between the employee and the firm, and the members of staff should identify themselves with the firm, they are working in. Furthermore, strategic Human Resource Management includes the training and developing of current and new employees, the organization of wages and salaries and the regulation of incentives and benefits.

In short, the responsibility of a company’s Human Resource Management department is to search and find the most appropriate employees, to help them improve, to make sure that they stay inside the company and to bring out the best in them.

International Human Resource Management, moreover, faces the challenge of handling all the mentioned functions within a global scope. It has to deal with the three categories of employees of an international firm^[2]:

- host-country nationals
- parent-country nationals and
- Third-country nationals.

This requires an overall understanding and tolerance of different cultures and the competency to allocate human resources strategically within global regions. The International Human Resource Manager additionally has to know how to go about adapting management practices to circumstances abroad. Furthermore, s/he must be familiar with the changing nature of management and organisations when operating in the global market.

2.3 The importance of HRM for firms operating in international markets

When a company decides to extend its business into other countries, it will face an integrated system of behaviour patterns that are characteristic to the members of a given society, which is new for the company. It has to deal with unaccustomed systems of attitudes and feelings as well as with foreign customs and languages. Besides that, the company will be confronted with attitudes towards entrepreneurship, consumption, social organisation etc., which are different than the ones in the home country. All these facts make it particularly important for a multinational company to operate with proper human resources, with employees who understand the markets and fields in which they work. As Dessler points out in his book “Essentials of HRM”, many managers have been successful even with inadequate plans, organisations or controls because they were able to hire the right people for the right jobs^[3].

An additional decision of the IHRM department in choosing a multinational manager is whether to send him/her over from the home country (expatriate managers), or to hire a manager in the host country. This is especially important, as implementing such a decision successfully will decrease the relatively high risk of expatriate failure. Expatriate failure is the untimely return of the expatriate manager to his/her home country. The costs of such failures are huge. According to Mc. Graw Hill Companies Inc., estimates in this field have shown that such costs are three times the expatriate’s annual salary plus the cost of relocation^[4] .

Even though subsidiaries are often managed by nationals of the foreign countries, key positions are usually held by managers from the home country and strategic decisions are usually made at the headquarters. It is therefore a task for each multinational company to decide to which extent the subsidiary should obtain autonomy. After this decision is made, it is the IHRM’s challenge to decide which positions and to which proportions these positions should be occupied by local nationals or by expatriates.

International HRM, moreover, helps a firm to improve its cross-cultural communication skills, as one of the duties of IHRM is to provide the employees with the process skills to work effectively across cultural and communication boundaries. Additionally, the IHRM department maintains host-government relations. While developing and implementing corporate strategies was traditionally the role of the company’s operating managers, the Human Resource managers nowadays become more and more involved in this section of corporate decisions, especially in multinational companies. A reason for this development is that when entering new markets, a firm has to build committed, international work teams to strengthen organizational competitiveness in the new target markets. The formation of such teams is the international human resources department’s duty.

3. Recruitment and selection

When a company goes international, so does the human resource management and its activities. Depending on the operation mode and at which stage in the internationalisation process the company is, the need for having host-country and/or parent-country nationals differs. A licensing arrangement might only involve a limited commitment of staff, while a wholly-owned subsidiary might require a lot of experienced and technical staff^[5]. Most literature focuses on the latter, which often means that staff is moved across borders to work within foreign operations – these employees are called expatriates^[6].

3.1 Expatriate failure

As mentioned above, the goal of Human Resource Management is to hire the right people for the right positions. Recruitment and selection of these is there fore essential, especially when operating abroad, where different cultures play a major role. The recent years’ focus on International Human Resource Management is a result of expatriate failures among multinational companies. Failures are the premature return of an expatriate. These failures are very expensive for the company, directly as well as indirectly. Costs to airfares, relocation, salary and training for a replacement are what is called direct costs, but the company might as well loose market share, key customers or parts of its network when an expatriate fail. These are the indirect costs.

Research shows that there are several factors influencing the performance of an expatriate,

where especially the inability to adjust to the foreign culture is the most important. This includes not only problems with the language or different ways of living, but also difficulties for the family of the expatriate getting settled in and adjusted to a new environment. Other factors influencing the performance of employees abroad, and in the end the decision whether to stay or not, are the length of assignment, the willingness to move and work-related factors like job autonomy or support from the company.

3.2 Factors in expatriate selection

The examples mentioned above are all examples of what can go wrong when recruiting expatriates. The solution is a proper selection process and appropriate selection criterion. Selection is defined as the process of gathering information for the purposes of evaluating and deciding whom to employ in particular jobs.^[7] Generally there are six criteria involved in the selection for an expatriate^[8]:

- Technical ability
- Cross-cultural suitability
- Family requirements
- Country/cultural requirements
- Language
- Company requirements

Technical ability is very important to ensure that the person chosen for a specific task abroad actually has the competencies required and is able to perform well. The cross-cultural suitability is essential as well, as this is often the reason for expatriate failures. Having the ability to understand the culture and to adapt to it, to show diplomacy and having a positive attitude towards different ways of living tells a lot about the person. This criterion is rather difficult to measure. For example, the ability to build relations and networks is important for being an expatriate, but in applications or interviews this is difficult to reveal.

Family requirements can be an important selection criteria as well, because often it is not just the choice of one person for the job, but the choice of a couple. Research shows that there is a high correlation between the adjustment of the spouse and the adjustment of the expatriate^[9]. Just as it shows that if the spouse has a favourable attitude towards an international assignment, it is positively related to the adjustment of the partner.

If we move to the criteria at the macro level, certain country or cultural requirements must be taken into account, like countries with instability, war or other political risks. The expatriate must understand and cope with the political, legal and social systems even though they are different from what s/he is used to. Some regions, for example, do not accept female managers and some do not want to issue work permits for the spouse, which might affect the adjustment in the long run. The requirements of the company are important as well. Their strategies about mode of operation, the length of the assignment and the nature of the job all affect the selection process. Finally the ability to speak the local language is considered an important selection criterion as well, as it can create major barriers to communication if it is absent.

The criteria mentioned above are usually involved in selecting an expatriate for an international assignment. Not all are equally used though. An analysis from 2002 shows that 72% of the responding companies select expatriates based on the most easily measured criteria; technical ability; how well can a person fill out the position. This seems natural, but if the other selecting criteria are not used, a situation may arise where the technical knowledge can not be transferred to the local employees.

Another issue that is becoming a barrier for expatriation these days is dual-career couples. Many families are based on two incomes and two careers, and if the spouse is reluctant to give up his/her own job, the mobility and willingness to accept a job abroad is declining. In fact, this is the most common reason among western firms for expatriates rejecting an international assignment^[10]. In Asian firms this reason was hardly ever mentioned, instead the reasons for turning down an expatriation were concern for children or parents in this group.

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^[1] Dowling, P. and Welch D., International HRM, 2004, p. ix)

^[2] Morgan, P.V., International HRM, 1986, p. 44

^[3] Dessler, G., Essentials of HRM, 1999, pp. 2

^[4] http://www.cis.wayne.edu/cibs/MKT7460/Chpt18.ppt, downloaded 26th Oct 2004

^[5] Dowling, Welch: International Human Resource Management, p. 49, 4th edition, Thomson

^[6] Dowling, Welch: International Human Resource Management, p. 5, 4th edition, Thomson

^[7] Schuler, Huber: Personnel and Human Resource Management, 5th edition 1993, West Publishing Co.

^[8] Dowling, Welch: International Human Resource Management, p. 98, 4th edition, Thomson

^[9] Dowling, Welch, Schuler: International Human Ressource Management, p. 87, 3rd edition, South-western Publishhing

^[10] Dowling, Welch: International Human Resource Management, p. 107, 4th edition, Thomson