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HUMAN RESOURCE MANAGEMENT IN INTERNATIONAL ORGANIZATIONS

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HUMAN RESOURCE MANAGEMENT IN INTERNATIONAL ORGANIZATIONS

    HUMAN RESOURCE MANAGEMENT IN INTERNATIONAL

    ORGANIZATIONS

     *Sonja Treven

Received: 08. 09. 2001 Review

    Accepted: 15. 11. 2001 UDC: 658.3

    In the paper, the author first presents various approaches to the management and

    recruitment of employees in subsidiaries that the company has established in

    different countries. Then, she turns her attention to the basic functions of

    international human resource management, among them recruitment and selection

    of new employees, development and training of employees, assessment of work

    efficiency, as well as remuneration of employees. As the expatriates are often

    given special attention by their work organizations, she concludes the paper with

    the description of the additional challanges occurring in the management of these

    employees.

    1. INTRODUCTION

    In Slovenia, with a population of only two million, we have a lot of organizations doing business successfully, not only in the domestic but also in

    the international environment. Lek, one of our two pharmaceutical companies;

    Fructal, which produces juices from various kinds of fruit; SCT, the road

    construction company and Mura, which produces men’s and women’s clothes,

    are some examples of our most prominent firms.

    In those, as well as in similar organizations that function in the global environment, they can use different approaches to managing employees. How

    they find employees, pay, train, and promote them varies with culture. They

    usually attempt to treat their employees equitably, yet in a culturally appropriate

    manner.

     * Sonja Treven, PhD, Assistant Professor, University of Maribor, School of Economics and

    Business, Razlagova 20, 2000 Maribor, Slovenia, Phone: 386 2 2290244, E-mail:

    sonja.treven@uni-mb.si

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    S. Treven: Human resource management in international organizations

    When the organization sends its employees to some other country, it takes over the responsibilities besides the basic functions of human resource

    management. For example, the functions of staffing, training and development

    are especially emphasized in this organization. They do not deal merely with the

    selection of the best employees for work in foreign countries but also have to be

    aware of the needs of the whole family that will accompany the employee to the

    new cultural environment. A lot of individuals taking on international

    assignments are unsuccessful since their spouces or families can not adjust to

    their new surroundings. Hence, it is necessary to organize training in the foreign

    language for the employee and his family some months before departure.

    Everything necessary for the journey, including visas, have to be provided for

    on time. It is also necessary to prepare their residence in the new surroundings,

    as well as to assure health services and enrolment into schools for the children

    of the employees.

    2. APPROACHES TO MANAGING AND STAFFING

     SUBSIDIARIES

    Companies can apply one of the three different approaches to managing and staffing their subsidiaries (Francesco, Gold, 1998):

    1. Ethnocentric. The home country practice prevails with this approach.

    Headquarters from the home country makes key decisions, employees from

    the home country hold important jobs, and the subsidiaries follow the home

    country resource management practice.

    2. Polycentric. Each subsidiary manages on a local basis. A local employee

    heads a subsidiary because headquarters’ managers are not considered to

    have adequate local knowledge. Subsidiaries usually develop human

    resource management practices locally.

    3. Geocentric or global. The company that applies the global integrated

    business strategy manages and staffs employees on a global basis. For

    example, Electrolux (the vacuum cleaner company) has for many years

    attempted to recruit and develop a group of international managers from

    diverse countries. These people constitute a mobile base of managers who

    are used in a variety of facilities as the need arises.

    In the ethnocentric approach, the cultural values and business practices of the home country are predominant. Headquarters develops a managing and

    staffing approach and consistently applies it throughout the world. Companies

    following the ethnocentric approach assume the home country approach is best

    and that employees from other parts of the world can and should follow it.

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    S. Treven: Human resource management in international organizations

Managers from headquarters develop practices and hold key positions in the

    subsidiaries to ensure consistency.

    Advantages Disadvantages ? Lower labor costs ? Makes it difficult to balance local

    demands and global priorities ? Demonstrates trust in local

    citizenry ? Leads to postponement of difficult

    local decisions until they are ? Increases acceptance of the

    unavoidable, when they are more company by the local community

    difficult, costly, and painful than ? Maximizes the number of options

    they would have been if available in the local environment implemented earlier ? Leads to recognition of the

    ? May make it difficult to recruit company as a legitimate

    qualified personnel participant in the local economy

    ? May reduce the amount of control ? Effectively represents local

    exercised by headquarters considerations and constraints in

    the decision-making process

Figure 1. Advantages and disadvantages of using local employees to staff international

    subsidiaries (Gomez-Mejia, Balkin, Cardy, 1995)

    Advantages Disadvantages ? Cultural similarity with parent ? Creates problems of adaptability to

    company ensures transfer of foreign environment and culture

    business/management practices ? Increases the ?foreigness? of the

    ? Permits closer control and subsidiary

    coordination of international ? May involve high transfer and

    subsidiaries salary costs ? Gives employees a multinational ? May result in personal and family

    orientation through experience at problems

    parent company ? Leads to high failure rate ? Establishes a pool of ? Has disincentive effect on local-internationally experienced management morale and

    executives motivation

    ? May be subject to local

    government restrictions

Figure 2. Advantages and disadvantages of using expatriate employees to staff

    international subsidiaries (Gomez-Mejia, Balkin, Cardy, 1995)

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    S. Treven: Human resource management in international organizations

    The polycentric approach is in direct opposition. In the company that applies this approach, the assumption is that each country is different from all

    the others and that the subsidiaries in each country should develop locally

    appropriate practices under the supervision of local managers. With the

    geocentric approach, organizations try to combine the best from headquarters

    and the subsidiaries to develop consistent world-wide practices. Manager

    selection is based on competency rather than nationality.

    As Figures 1 and 2 show, there are both advantages and disadvantages to using local nationals and expatriates in foreign subsidiaries.

    Most companies use expatriates only for such key positions as senior managers, high-level professionals, and technical specialists. Since expatriates

    tend to be very costly, it makes little financial sense to hire expatriates for

    positions that can be competently filled by foreign nationals. In addition, many

    countries require that a certain percentage of the work force be local citizens,

    with exceptions usually made for upper management.

    3. MAJOR FUNCTIONS OF INTERNATIONAL HUMAN

     RESOURCE MANAGEMENT

    International human resource management involves five functional areas we will discuss in detail in this section: 1. recruitment and selection, 2.

    development and training, 3. performance evaluation, 4. remuneration and 5.

    labor relations. Since expatriate employees are often treated differently than

    other employees, the problems arising with it will be presented in the next

    section.

    3.1. Recruitment and selection

    Recruitment and selection are the processes through which an organization takes in new members. Recruitment involves attracting a pool of qualified

    applicants for the positions available. Selection requires choosing from this pool

    the candidate whose qualifications most closely match the job requirements.

    In companies that function in a global environment we have to distinguish different types of employees. Traditionally, they are classified as one of the

    three types:

    1. Parent country national. The employee’s nationality is the same as the

    organization’s. For example, a Slovenian citizen working for a Slovenian

    company in Macedonia.

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    2. Host country national. The employee’s nationality is the same as the

    location of the subsidiary. For example, a Macedonian citizen working for a

    Slovenian company in Macedonia.

    3. Third country national. The employee’s nationality is neither that of the

    organization nor that of the location of the subsidiary. For example, an

    Albanian citizen working for a Slovenian company in Macedonia.

    Since staffing as the function of international human resource management becomes increasingly more complex, these classifications do not cover all

    employees (Briscoe, 1995). For example, within the European Union, citizens

    of member countries can work in other member countries without a work permit.

    Hence, how to classify a German citizen working for a French company in

    France is not clear.

    Briefly, classification of employees might seem to us unimportant. However, such mode of thinking is not adequate since in many organizations an

    employee’s classification is tied to remuneration, as well as benefits and

    opportunities for promotion.

    In an international organization, the managing and staffing approach strongly affects the type of employee the company prefers. In a company with

    an ethnocentric approach, parent country nationals usually staff important

    positions at headquarters and subsidiaries. With a polycentric approach, host

    country nationals generally work in foreign subsidiaries while parent country

    nationals manage headquarters positions. An organization with a geocentric

    approach chooses the most suitable person for a position, regardless of type.

    In its approach to recruitment and selection, an organization considers both headquarters’ practices and those prevalent in the countries of its subsidiaries.

    Local culture always influences recruitment and selection practices, and in

    some countries, local laws require a specific approach. For example, in

    international manufacturing and processing facilities in Mexico, companies

    recruit with a sign announcing job openings outside the facility or by employees

    introducing family members who are looking for jobs. Another example is

    Hungary, where government attempts to combat unemployment have led to the

    requirement that an organization must get permission from the Ministry of

    Labor before hiring an expatriate.

    In choosing the right candidate, a balance between internal corporate consistency and sensitivity to local labor practices is a goal. Different cultures

    emphasize different attributes in the selection process depending on whether

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    they use achievement or ascribable criteria. When making a hiring decision, people in an achievement-oriented country consider skills, knowledge, and

    talents. Although “connections” can help, companies generally only hire those with the required qualifications. In an ascribable culture, age, gender, and family background are important. An organization selects someone whose

    personal characteristics fit the job.

    3.2. Development and training

    The overall aim of the development function is to provide that adequately trained personnel in a company are capable to fulfil their goals, as well as to contribute to better performance and growth with their work (Armstrong, 1996). The development of employees can be treated as a special field of human

    resource management that includes planned individual learning, education,

    organization development, career development and training.

    At the international level, human resource development professionals are responsible for: 1. training and development of employees located in

    subsidiaries around the world, 2. specialized training to prepare expatriates for assignments abroad, and 3. development of a special group of globally minded managers.

    Creation and transfer of international human resource development programs may be carried out in two ways:

    1. centralized and

    2. decentralized.

    With a centralized approach, training originates at the headquarters and corporate trainers travel to subsidiaries, often adapting to local situations. This fits the ethnocentric model. A geocentric approach is also centralized, but the training develops through input from both headquarters and subsidiaries staff. Trainers could be sent from various positions in either the headquarters or subsidiaries to any other location in the company.

    In a decentralized approach, training is on a local basis, following a polycentric model. When training is decentralized, the cultural backgrounds of the trainers and trainees are usually similar. Local people develop training materials and techniques for use in their own area.

    To maximize training effectiveness, it is important to consider how trainees

    learn most effectively. Cultural factors have a strong impact on training

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practices in different parts of the world. For example, in North America, where

    power distance is small, the relationship between the trainer and trainees tends

    toward equality. The trainer and trainees use first names, and the trainees feel

    free to challenge or question what the trainer says. In Malaysia, where power

    distance is large, a trainer receives greater respect. Students use his surname and

    title, and he is an expert that students rarely challenge.

    As global competition increases, it is increasingly important for successful companies to have a group of managers with a global perspective. Companies

    must identify managers with global potential and provide them with various

    training and development opportunities. For example, having one or more

    international assignment(s), working on cross-national teams and projects, and

    learning other languages and cultures contribute to making a manager more

    globally minded. In addition, an organization should include not only parent

    country nationals, but also host country nationals and third country nationals in

    this group (Treven, 2001).

    3.3. Performance evaluation

    In companies, the performance evaluation is most frequently carried out for administration or development intentions (Cleveland and others, 1989). For

    administration purposes, performance evaluation is called for when the

    decisions on work conditions of employees, promotions, rewards and/or layoffs

    are in question. Development intention of performance evaluation is oriented to

    the improvement of the work performance of employees, as well as to the

    enhancement of their abilities on the ground of the adequate training program

    and advising employees regarding behavior in the work environment.

    In Western multinational companies, performance appraisals are usually done yearly and use a standarized evaluation form. Sometimes, the organization

    also requires supervisions to discuss the results of the appraisals with each

    employee.

    Performance evaluation is challenging for any organization. At the international level, the complexity is greater because the organization must

    evaluate employees from different countries working in different subsidiaries.

    The need for consistency across subsidiaries for performance comparisons

    conflicts with the need to consider the cultural background of employees to

    make the evaluation meaningful. For example, in Mexico, an individual’s public

    image is important, and public criticism of an employee might be justification

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    for leaving a company. Consequently, the delivery of a balanced performance review, including both strengths and weaknesses, requires tact and delicacy.

    As with other functions, the approach to performance evaluation depends

    on the organization’s overall human resource management strategy. A company with an ethnocentric approach is likely to use the same performance evaluation process used at the headquarters for its subsidiaries. Some companies translate evaluation forms into local languages, whereas others use the original language everywhere. A company with a polycentric approach develops local procedures within each country. Finally, a company with a geocentric approach uses the same performance evaluation system worldwide, but it has universal applicability. Developing a global system is the most challenging.

    3.4. Remuneration and benefits

    Remuneration of employees has a key role in acquiring new employees and

    is important for employees as well as for the employers. Pay is the basic resource of living of the employees, while benefits cover better health care, the possibility of spending holidays in the company’s holiday facilities at a favourable price and also other advantages. The decisions the employers make concerning remuneration are a factor that has an impact on the expenses of their company as well as on the ability of selling the products at a competitive price in the market (Treven, 1998). The decisions about remuneration may also enhance the ability of the employer to compete for employees on the labor market. The rewards he warrants make the standing personnel either want to keep their jobs or quit.

    In developing an international system of compensation and benefits, an

    organization has two primary concerns. The first is comparability (Briscoe, 1995). A good compensation system assigns salaries to employees that are internally comparable and competitive within the marketplace. For example, the salary of a senior manager is usually higher than that of a supervisor, and each position should receive an amount within the local market range. The international organization must also consider the salaries of people who may transfer from other locations. The second major concern is cost. Organizations strive to minimize all expenses, and payroll is one of the largest.

    Renumeration and benefits are closely tied to local labor market conditions,

    even when an organization takes an ethnocentric or geocentric approach. The availability of qualified local people to fill positions, prevailing wage rates, the use of expatriates, and local laws interact to influence the level of renumeration 184

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and benefits. For example, if there are few applicants available for positions, the

    renumeration for those positions generally increases. To reduce expenses, the

    international human resources manager might then consider bringing in an

    expatriate.

    A company usually develops a policy, which could apply globally, to offer

    salaries and benefits representing a specific market level. For example, a large

    successful multinational company that emphasizes the quality of its products

    and employees could have a global policy to pay the highest wages everywhere

    it operates. Another company could offer top salaries in the country where it

    does research and development, yet pay average wages in the country where it

    manufactures.

    3.5. Labor relations

    The labor relations function identifies and defines the roles of management

    and workers in the workplace. The concept of labor relations varies greatly in

    different parts of the world. In the United States, for example, labor relations

    are often a formal relationship, sometimes antagonistic, between labor and

    management defined by a union contract. In Japan, the relationship between

    management and unions is cooperative, and management often appoints union

    leaders (Hodgetts, Luthans, 1994).

    In many countries, the government regulates labor relations practices.

    Consequently, in this function, more than other human resources management

    functions, an organization may have to be polycentric. However, even though

    labor relations are local level issues, it is good corporate strategy to coordinate a

    labor relations policy across subsidiaries.

    4. MANAGEMENT OF EXPATRIATES

    One of the most challenging tasks for any company operating

    internationally is to manage its expatriates. The statistics showing their

    efficiency on that matter are not encouraging. For example, the failure of U.S.

    expatriates (the percentage who return prematurely, without completing their

    assignment) is to be in the 20 40% range. In Japan, the failure rate is less than

    5% for their expatriates. One of the reasons for the difference is that Japanese

    expatriates receive far more orientation and language instruction than U.S.

    expatriates do.

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    4.1. The reasons for expatriate failure

    In international companies, it is important to understand the reasons behind

    expatriates’ high failure rates so that preventive measures can be taken. Six factors account for most failures, although their relative importance varies by firm (Gomez-Mejia, Balkin, 1987). These are: career blockage, culture shock, lack of cross-cultural training, an overemphasis on technical qualifications, a tendency to use international assignments as a way to get rid of problem employees, and family problems.

    4.2. Cross-cultural adjustment

    Expatriates and their families need time to become familiar with their new

    environment and to become comfortable living there. When they arrive, the newness of the experience is exciting. A few months later, when they have had more experience with the culture, expatriates might begin to feel frustrated or confused as they try to make sense of their new living situation. This feeling is “culture shock.” As expatriates get comfortable and understand more about the culture, usually three to six months after arrival, the culture shock will wear off, and they will experience a more normal feeling (Adler, 1997).

    4.3. Expatriate reentry

    After the expatriate completes his assignment and returns home, he must

    adjust in the same way as when going abroad. The work, people, and general environment are no longer familiar. The expatriate and his company are usually unprepared to deal with this situation. The disorientation experienced by a returning expatriate is known as reverse culture shock.

    The expatriate gains valuable information and experience from an

    international assignment, but for many organizations this is lost because of the failure to manage expatriate reentry successfully. By one estimate, about 25 % of returning expatriates leave the company within a year after returning (Black, Gregersen, and Mendenhall, 1992).

    4.4. Selection of expatriates

    The choice of employee for an international assignment is a critical

    decision. Since most expatriates work under minimal supervision in a distant location, mistakes in selection are likely to go unnoticed until it is too late. To choose the best employee for the job, management should:

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