Stages of Internationalisation of Business ? Management Philosophy/Approaches to IHRM ? Competencies Required in International Managers • Recruitment and Selection by Multinationals ? ? ? ? International Labour Market Sources Selection Procedure of Expatriates Expatriate Success Factors Adaptability to cultural change • Expatriate Training and Development ? ? ? ? ? Need for training to Expatriate Cultural Integrator Cultural Awareness Training Types of Cross Cultural Training Cultural Assimilators • Organising Multinational Structures ?
Stages of Structural Evolution of Multinationals ? New Types of Multinational Structures ? Role of Human Resource • Compensation Management ? ? ? ? Factors Influencing Compensation Programmes Paying Expatriates Approaches to Expatriate’s Compensation Cultural Impact and Compensation Policy • Performance Management in International Organisations ? ? ? ? Performance Management and its link with other HR processes Multinational Performance Management Performance Management of Expatriates Variables that Influence Performance of Expatriate • Organisational Ethics ? ? ? Ethics Ethical Issues Facing Multinationals What can Organisations do to foster Ethical Behaviour Good Corporate Citizen Introduction to International HRM Definition General : “Procurement, allocation, utilisation and motivation of Human Resources in International business. ” P Morgan: Two groups of variables that affects basic HR process 1st – Types of employees 2nd – Political, economic, legal environment, labour laws and practices prevailing in different countries Accordingly IHRM can be defined as an interplay between these two group of factors.
But in other model, one more group is added i. e. multinational’s operational philosophy. Difference between IHRM and Domestic HRM • • • • • • • • • • Responsible for a greater number of functions and activities Broader knowledge of foreign county employment law Closely involved with employees lives Cope with more external influences Exposure to problems and liabilities Management of differential compensation Diversity management More liasoning activities More coordination and travel More risk management
Difference between Domestic and International Managers • • • • • • • • Global mindset Communication skills Conflict management skills Oriented towards a process of continual change International experience Political, economical and social sensitivity and knowledge of many countries Knowledge of culture shock and how to minimise it Leadership and team building skills Types of International employees 1) 2) 3) 4) Foreing parent expatriates Host Country nationals Third Country expatriates of foreign parent Third Country expatriates of new venture
Issues in IHRM • • • • • Managing international assignments Employee and family adjustment Selecting the right person for a foreign assignment Culture, communication and gauge Language and communication Barriers to effective global HRM • • • • • Variations Perception of HR Attitude and actions of headquarters towards HR Resistance to change Cultural differences in learning and teaching styles Understanding Culture Elements of Cultures • • Values form the bedrock of a culture Norms ?
Folkways – actions of little more significance, the way people are expected to behave ? Mores – Central to the functioning of a society and to its social life Cultural traits – unique aspects of individual cultures Enculturation – the process of acquiring cultural traits Diffusion – the process through which cultures change Acculturation – traits borrowed over short term become permanently adopted Assimilation – immigrants or other newcomers adopt the culture of society in which they have settled • • • • •
Factors encouraging convergence of Cultures • • • • • • Improvements in transport and communications Globalization of media Similarities in the tastes and consumption patterns of young people The operation of multinationals across the world Consumers’ willingness to accept fresh ideas and try new products Adoption of similar technologies in several countries Factors encouraging change of culture • • • • • • • Rising living standards Urbanization of population Immigration and emigration Economic and political destabilization Improvement in the education system Opening of foreign trade Introduction of new technologies
Determinants of Culture • • • • • • Religion – a system of shared beliefs and rituals that are concerned with the realm of the sacred. What is important for management is how religion shapes the attitude of a society towards work and entrepreneurship. Social Structure – It is the degree of relative importance to individualism or group that differentiates different cultures. Social Mobility – The extent to which individuals can move out of the caste or class in which they are born. Language – It distinguishes one culture from another.
Education – Learning and sharing cultural values happens through the education system. Aesthetics – the things such as designs, forms, colours, shapes, sound, conveying the concept of beauty and good taste. These are reflected in the music, art and architecture of a society. Importance of cultural sensitivity for global business and diplomacy • • • • • • • • Communicate effectively with customers, suppliers, business associates in other countries and with foreign employees Conduct egotiations and understand body language of other parties Predict trends in social behavior likely to affect the firm’s foreign operations Realize social responsibility in various countries Predict impact of cultural differences on consumer reactions to advertisements Foster relationship between union and employees Understand local govt. policies Conduct efficient meetings in different meetings and encourage employee participation
Impact of culture on management approaches • • • • • • • • Centralized vs decentralized decision making Safety vs risk Individual vs group rewards Informal vs formal procedures High vs low organizational loyalty Cooperation vs competition Short term vs long term horizon Stability vs innovation Cross Culture Business Communication and Behaviour Deal Focus VS Relationship Focus Deal Focus Culture Task oriented DF find RF dilatory, vague and inscrutable Open to do business with strangers.
They straight away talk business and get down to facts. DF value direct, frank, straightforward language Relationship Focus Culture People Oriented RF find DF as pushy, aggressive and offensively blunt. Prefer to deal with family, friends and persons who can be well known and trusted RF favours an indirect, subtle, roundabout style. They give priority to maintaining harmony and avoid saying anything that may cause embarrassment or loss of face.
Country wise distribution DF: German, North America, Australia and New Zealand Moderately DF: UK, SA, Brazil, Mexico, Hong Kong and Singapore RF: Arab World, Africa, Latin America and Asia Formal VS Informal Formal Culture Organized in steep hierarchies which reflects major differences in status and power Formal way of addressing people and maintaining proper protocol are ways of showing respect to people.
Country wise distribution Formal: Most of Europe, Asia, Arab, Latin America Informal: Australia, USA, Canada, New Zealand, Denmark, Norway, Israel Informal Culture Egalitarian organization with smaller differences in status and power RF don’t know how to show respect to high-ranking persons from formal cultures. Rigid Time VS Fluid Time Rigid Time Punctuality is critical, schedules are set in concrete, agendas are fixed and business meetings are rarely nterrupted. Country wise distribution Monochronic Business Culture: North America, Japan, German Moderately Monochronic Business Culture: Australia, New Zealand, Singapore, Taiwan, China, South Korea, South Africa, Southern Europe Polychronic Business Culture: Arab World, Africa, Latin America, SE Asia Expressive VS Reserved Culture Expressive Expressive people tend to be uncomfortable with more than a second of silence during conversation.
Country wise distribution Very Expressive Culture: Latin Europe, Latin America Variably Expressive Culture: USA, Canada, Australia, New Zealand, South Asia, Africa Reserved Culture: East and SE Asia, Nordic Europe Business Protocol • Dress Code • Business Cards • Gifts • Form of Address Reserved Reserved cultures feel at ease with much longer silence. Fluid Time Less emphasis on punctuality and not obsessed with deadlines. Meeting within meeting. Cross Cultural Negotiations Need of cross cultural negotiations • Govt. ften imposes restrictions on repatriation of profits and ownership of raw material resources and requires employment of local people and use of indigenous input. MNCs have resources, technology and management skills and they want tax concessions and protection of their patents and technology. Hence the two must interact and negotiate with each other to settle terms. Seeking to enter a market via an agent or distributor Setting up sales network Establishing a joint venture or production facility Licensing a technology or seeking technology transfer Mergers and acquisition • • • • •
Anatomy of negotiation Negotiations involve two levels • Rational decision-making level • Psychological and social level Psychological and social elements are affected by culture, therefore, negotiations are as much to do with psychological as with the rational. Preparation for negotiation • • • • • • • • Taxation and legal data Commercial data Financial and economic data Infrastructure data Labour force data Political data Trade unions Cultural data Parameters of negotiation • • • • • • • When to negotiate When to negotiate Who negotiates Who has the authority to decide Why negotiate How to negotiate How much time is needed for negotiation
Planning for negotiations • • • • • What is the minimum I can accept to resolve the conflict What is the maximum that I can ask for without appearing outrageous What is the maximum I can give away What is the least I can offer without appearing outrageous What answers is the other person likely to have these questions How to conduct successful negotiations • • • • • • • Separate people from the problem Emphasise win-win solutions Find underlying interests Use an objective standard Understand the other party Negotiation as a sequence of events The intangibles Personalities Physical space Time pressure Who has the authority to decide Goals
Importance of Trust This means accepting that they will • Negotiate in good faith • Exchange information that is needed to solve problems • Not resort to unethical behaviour, for example, tapping your communication with HO • Respect the secrecy of information and opinions expressed in confidence • Do their best to convince their members to accept any agreement that they make with you • Do their best to implement the agreement
Guidelines for negotiating in different cultural zones • • • • • • • Japan (China, South Korea, Taiwan, Singapore) – A relationship-focused, formal, monochromic and reserved culture Germany (UK, Denmark, Finland, Netherlands, Czech Republic) – A dealfocused, moderately formal, monochromic and reserved culture France (Belgium, Italy, Spain, Hungary) – A moderately deal focused, formal, variably expressive and monochromic culture Russia (Poland, Romania) – A relationship-focused, formal, polychromic and expressive culture Brazil (Argentina, Mexico and other Latin American Countries) – A relationship-focused, formal, polychromic and expressive culture Saudi Arabia (Egypt, Greece, Other Middle-eastern Countries) – A relationship-focused, polychromic and expressive culture Australia (Canada, USA, New Zealand) – A deal-focused, informal, monochromic and variable expressive culture International Business and IHRM Approaches Stages of Internationalisation of Business • Domestic Firms Many well-known firms were domestic firms.
Companies understand their markets, customers, perfect their technologies and products, and learn to operate business. International Firms A domestic firm begins the internationalisation process when it is involved in direct and indirect exporting, importing, and licensing, franchising, manufacturer’s contract, technical agreements or joint ventures. Multinational Firms Any firms that performs its operations in at least two countries. A firm that owns income-generating assets in more than one country. A manufacturing company that does business in several countries. Control is largely decentralised and it is expected to make decisions on local R & D, production, distribution and marketing. The MNC HQ exercises worldwide financial control.
Transnational Firms Advanced stage of MNC in which nationals of different countries hold shares in Company Strategies focus on the simultaneous attainment of local and experience economies Criteria for assessing the globalisation levels – Share of foreign assets, shares of sales beyond the national boundaries and % of employment of foreign nationals. Global A corporation develops a coordinated system that searches the world to borrow money at the lowest interest rates, purchases raw materials from anywhere at the lowest price, manufactures at the lowest costs, sells at the highest profits and invests in gains for highest return. The world is a single entity for them. Selects best people for management regardless of nationality. It offers globally standardised products that are advanced, functional, reliable and at low price.
It doesn’t completely reject product customisation and differentiation, but adjusts to differences in product preferences only after exhausting all efforts to retain standardisation. Transnational Confederations Primarily organised around technology, design and marketing A small or medium sized company rather than a large company Stages of production performed by subcontractors, rather than by subsidiaries or branches Primarily a managing or marketing company • • • • • Composed of two parts, one that designs and market product worldwide and the other that manufactures the products Management philosophy/approaches to IHRM • Ethnocentric Organisation Home oriented organisation. “This works in my country; therefore, it must work in other countries also. They believe that home country nationals are more intelligent, reliable and trustworthy. All key positions in HQ and international are for Home Country nationals When rewards are distributed, home country nationals receive the lion’s share. Polycentric Organisation Host country oriented. “When in Rome do as the Romans do” Local people know what is best for them. Let’s give them some money and leave them alone as long as they make us a profit. Home Country nationals at HQ and local nationals at respective local subsidiary. HQ keeps check through financial and posting of key persons. Regioncentric Organisation Regionally oriented organisation Eg.
Japanese subsidiary will manage its Asian operations and a French subsidiary will manage European operations “Regional insiders know what neighbouring countries want” Regional HQ will be responsible local R & D, local executive selection ,cash management, brand policy, capital expenditure. HQ will manage world strategy, country analysis, Intercompany loan, long term financing, selection of top management Geocentric Organisation World oriented “All for one and one for all. We will work together to solve problems anywhere in the world. ” The entire organisation focuses on worldwide and local objectives. They integrate diverse regions through global decision making, making possible flow of ideas between countries, allocate resources on a global basis, erase geographical boundaries and globalise functional and product line.
Reward system motivates managers to surrender national biases and work for worldwide objetives. • • • Competencies required in international managers • • • • • • • • • Knowledge of One’s own country A global perspective Global mindset Knowledge of other country Understanding of international business environment Understanding international business partners Knowledge of Customers Knowledge of the silent and spoken international language Knowledge of business etiquettes of the host country Recruitment and Selection by Multinationals International Labour Market Sources • Parent Country Nations (PCNs) PCNs are managers who are citizens of the Country where the MNC is headquartered.
The reasons for using PCNs include – The desire to provide the company’s more promising managers with international experience – The need to maintain and facilitate organisational coordination and control – The unavailability of managerial talent in the host country – The company’s view of the foreign operation as short lived – The host country’s multi-racial population – The belief that a parent country manager is the best person for the job. Host Country Nationals (HCNs) HCNs are local managers hired by MNCS The reasons for using HCNs – Familiar with the culture, language – Less expensive, know the way things done, rules of local market – Hiring them is good public relation Third Country Nationals (TCNs) TCNs are managers who are citizens of countries other than the one in which the MNC is headquartered or the one in which it is assigned to work by the MNC. The reason for using TCNs – These people have the necessary expertise – They were judged to be the best ones for the job. • •
Selection procedure of Expatriates • Use of selection test • Technical Ability • Cross cultural requirements Following traits are identified s predictors of expatriate success – Cultural empathy – Adaptability – Diplomacy – Language ability – Positive attitude – Emotional stability and maturity • • Family requirements Multinational requirements – Management philosophy or approach – The mode of operation involved – The duration of assignment • The amount of knowledge transfer inherent in the expatriate’s job in foreign operation Language skills Expatriate Success factors • • • • • • Willing and motivated to go overseas Technically able to do the job Adaptable Good interpersonal skills and be able to form relationship Good communication ability Supportive families
Adaptability to cultural change • • • • • • • • Work experience with cultures other than one’s own Previous overseas travel Knowledge of foreign language Ability to integrate with different people, cultures, and type of business organisation The ability to sense developments in the host country and accurately evaluate them The ability to solve problems within different frameworks an from different perspectives Sensitivity to subtle differences of culture, politics, religion and ethics in addition to individual differences Flexibility in managing operations on a continuous basis, despite of lack of assistance and gaps in information An adjustment model Two major types of adjustments that an expatriate must make when going on an overseas assignment. • Anticipatory adjustment Carried on before he leaves for the assignment It is influenced by following factors – predeparture training – pervious experience In-country adjustment Takes place on site It is influenced by following factors – Ability to maintain a positive outlook in high pressure – Jobs as reflected by the role he plays in managing, authority he has to make decisions, newness of work-related challenges and the amount of role conflicts • –
Organisation culture Non work factors – toughness with he faces new cultural experience, family adjustment with new country Socialisation factor – to know what is what and who is who Expatriate Training and Development Need for Training to Expatriate • • • • Cost of expatriate failure is very high To build a team of internationally oriented, committed and competent personnel Minimize personal problems such as politeness, punctuality, tactfulness, orderliness, sensitivity, reliability, tolerance and empathy Improve overall management style Pre-departure Training- Emphasises on cultural awareness and business customs of the country of posting to cope with unexpected events in a new country. Post-departure Training – helps in minimising culture shock and depression that usually sets in a new country and culture.
Cultural Integrator • An individual who is responsible for ensuring that the operations and systems are in accordance with the local culture. • He advises guides and recommends action needed to ensure this synchronisation. • Even though expatriate are trained before being sent abroad, they are still not totally prepared to deal with the day-to-day cultural challenges because they lack field experience. • He is responsible for handling problems between the subsidiary and host cultures. • He may be from parent country or host country who has intimate knowledge of the company’s culture and can view operations from both sides. • He can only advice ore recommend a course of action.
Management philosophy and training • Ethnocentric companies will provide all training at the HQ. • Polycentric companies will rely on local managers to assume responsibilities for seeing that the training function is carried our wherever appropriate. • Geocentric companies organise training courses in different parts of the world, where a particular function is best carried out. • Regiocentric companies organise training courses in different countries of the region. Cultural Awareness Training • There are five types of pre-departure training o Area studies that include environmental briefing and cultural orientation o Cultural assimilators o Language training o Sensitivity training and o Field experience • • • • •
To decide the rigour and level of training, following factors are important o degree of interaction required in the host culture o similarities between home and host cultures If interaction is low and similarities are high, then training should be on task and job related issues rather than culture related issues. If interaction is high and similarities are low, then training should be on cross cultural skill development as well as task. Preliminary visits o average duration will be about one week o A well planned overseas trip for candidate and spouse provides a preview to access their suitability for job, introduction to host country management, accommodation required, and schooling facilities available.
Language training Types of cross cultural training • Environment briefing about geography, climate, housing and schools • Cultural orientation to familiarise with cultural institutions and value system of host country • Cultural assimilators to provide intercultural encounters • Language training • Sensitivity training to develop attitudinal flexibility • Field experience to make expatriate familiarise with the challenges of assignment Cultural Assimilators • It is a programmed learning technique that is designed to expose members of one culture to some of the basic concepts, attitudes, role perceptions, customs and values of another culture. These assimilators are developed for one culture where the candidate is currently working and the other culture is where he is proposed to be posted. • Type of assimilators o The trainee read a short episode of cultural encounter and choose an interpretation of has happened and why. o Critical incidents: to be identified as a critical incident, a situation must meet at least of the following conditions: An expatriate and a host interact in the situation The situation is puzzling or likely to be misinterpreted by the expatriate The situation can be accurately interpreted if sufficient knowledge about the culture is available • The situation is relevant to the expatriate’s task or mission requirements
Organising Multinational Structures Stages of Structural Evolution of Multinationals • Stage 1 – Export o An export or import or franchising arrangement o Company appoints an export manager who reports to chief of marketing and all operations concerning export and imports are controlled by the home office Stage 2 – Initial Division Structure o At this stage, company creates an export division at the corporate home office and the export division head directly reports to CEO. o As international sales increases, the local government exert pressure to set up manufacturing facilities. This prompts the company to set up a subsidiary. o Each subsidiary will be responsible for operations within its own geographic area.
Subsidiary manager reports directly to the export division head o The role of subsidiary manager is To transfer of managerial and technical know-how to subsidiary Communicate, coordinate and implement corporate policies Assist corporate office by keeping HQ informed of political, economic development, opportunities and threats in its market. Liaising with local government Stage 3 – Global Product/Area/Functional Structure o When companies start acquiring and allocating resources on the basis of global opportunities and threats, global structures are necessary either on product, geographical area or functional patterns ? Global Product Division: – In this structure, the company treat each of its major products as distinct SBUs.
The logic behind this structure is that products and services of the company should be sufficiently distinct in product technologies, requiring different marketing skills to deal with different types of customers and markets. – Each product division is treated as a separate profit centre. – The corporate HQ will maintain control in terms of budgetary constraints, approval of certain decisions like launching of new product, total profit and contribution. – Benefits It improves client satisfaction because product responsibility and contact points are clear Helps to integrate marketing, production and finance globally on product basis It provides a direct link from customers to policy makers and directs R & D efforts into new products • • Disadvantage Duplication of personnel within each division Neglecting areas with long-range potential o Global Area Division – In this structure, MNC prefers to divisionalise the foreign operations on the basis of geographical unit. –
This structure is useful when economic and political environment in different countries is fast changing product range is not too broad common resources can be shared, product lines are in the maturity stage – Disadvantage Lack of centralised management and control R & D is ignored o Global functional Structure – Not very common except in mining and construction fields – The operations are divided worldwide on the basis of function. – Marketing, finance, operations and HRM functions directly report to corporate functional chief. Stage 4 – Global Matrix Structure o When a MNC is trying to integrate its operations in more than one dimensions, like product as well as area, or customers and technology, it resorts to the matrix structure. o Both product and area division share joint responsibility. o In this structure, there is a pressure from horizontal matrix managers for equal allocation of resources; however the vertical managers are supposed to balance this by organisational priorities and other long term consideration o Advantage Better quality decisions Better customer focus or response to local needs o Disadvantage Coordination becomes difficult Dual reporting can cause frustration and confusion Matrix forces managers to spend time on meetings Information logjams due to proliferation of communication
New types of Multinational Structure • Heterarchy o A MNC might have a no of different kinds of centres apart from the traditional centre HQ o The argument is that competitive advantage does not necessarily reside in any one country o E. g. Centralised R & D in a particular subsidiary o Control is less reliant on the top-bottom mechanism of previous hierarchical modes and more reliant on mutual cooperation and coordination, organisation culture and widely shared awareness of central goals and strategy. • Transnational o It is characterised by an interdependence resources and responsibilities across all business units regardless of national boundaries. The transnational copes with large flows of components, products, services, resources, people and information among its subsidiaries, while simultaneously recognising the specialised resources and capabilities of each business unit. o It demands a complex process of coordination and cooperation involving strong cross-unit integrating devices, a strong corporate identity, and a well developed worldwide management perspective. Networked Firm o Subsidiaries have developed into significant centres for investment, activities and influence, and cannot be regarded as at the periphery. o Interaction between HQ and each subsidiary is likely to be dyadic, taking place between various actors at many different organisationa level and covering different exchanges, the outcome of which is important for effective global performance. Such MNCs are loosely coupled political systems rather than tightly bonded homogenous, hierarchical systems. o One subsidiary may act as a nodal unit linking a cluster of satellite organisation. Thus one centre can assume responsibility for other units in its country or region. Keiretsu o It is a large often vertically integrated group of companies that cooperate and work closely with each other. o E. g. Mitsubishi o These companies are bound together by cross-ownership, longterm business dealings, interlocking directorates and social ties. • • Role of Human Resource – plays a key role in control and coordination process • The key means for vital knowledge generation and diffusion is through personal contact.
Organisation needs processes to facilitate contacts. • Staffing decisions are very crucial. Very high importance should be given to communication and interpersonal relationship ability in selection process. • Staff transfer • Visit of the CEO to different countries. Compensation Management Factors Influencing Compensation Programmes • • • • • • Compensation decisions are strategic decisions and play a key role It should be consistent with overall strategy, structure and business needs of MNC It must attract and retain the best staff It must facilitate the transfer of international employees in a cost effective manner. It should give due consideration to equity and ease at administration.
It requires the knowledge of employment and taxation laws, customs, cost of living index, environment and employment practices, the knowledge of labour markets and industry norms, foreign currency fluctuations. Paying Expatriates: unique problems • Discrepancies in pay between PCN, HCN and TCN • The need to vary expatriate compensation depending on the life cycle of the expatriate’s family • Compensation issues related to re-entry into the parent country organisation Approaches to Expatriate’s Compensation • Going Rate Approach o Base salary remains linked to the salary structure of the host country. o Required information is obtained through compensation surveys and published information. This approach is favoured by polycentric organisation o
Advantage Equality with local nationals and expatriates of different nationals Simple approach Attract the nationals of PCN and TCN if location is a high-pay country o Disadvantage Transfer from a developed country to a developing country Fighting for getting