International Human Resource Management and

Organization

Chapter 1

1. The Strategic Role of Human Resource Management in a

global world

Outline of Chapter 1

• The Management Process

• Strategic Planning and Strategic Trends

• HR’s Strategic Role

• International HRM

After Studying This Chapter You Should Be Able To:

• understand the fundamentals of the Management Process and the role of HR

• understand that HR is context-driven• define strategic HR and give

an example• describe HR-challenges in international

management• know the main topics of international HR and the

differences to domestic HR

1.1. The Management Process

Def

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ons

Def

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Line managers are authorized to direct the work of subordinates.

Staff managers are authorized to assist and advise line managers in accomplishing their basic goals.

Authority is the right to make decisions, to direct the work of others, and to give orders.

The Management Process• Organizing

– Giving Tasks– Establishing Departments– Delegating Authority– Establishing channels of Authority

and communication– Coordinating

• Planning– Establishing Goals and

standards– Developing Rules and

procedures– Developing Plans and

forecasting.

• Staffing– Recruiting– Selecting – Performance standards– Compensation– Evaluating performance– Counseling – Training and developing – Job Analysis

• Leading– Getting the job done– Morale– Motivation

• Controlling– Setting standards – Comparing actual performance to standards– Corrective action

HR means performance

• Can HR have a measurable impact on a company’s bottom line?

• Better HRM translates into improved employee attitudes and motivation

• Well run HR programs drive employee commitment

Human Resource Management is the process of acquiring, training, appraising, and compensating employees and attending to their labor relations, health and safety, and fairness concerns.

Defin

ition

Defin

ition

Is There a “One Best HR Way”?

• HRM is contingent on the companies special situation (strategy, life cycle, products etc.)

• But: All companies can benefit from– Employee motivation and commitment

– Results oriented appraisals and compensation

– Well trained staff

– Foster good relationships and communication

– Professional global executives

HRM is Important to all Managers.Don’t Let These Happen to You!

• Hire the wrong person

• High turnover

• Poor results

• Useless interviews andconferences

• Court actions

• Salaries appear unfair

• Poor training

• Unfair labor practices

1.2. Strategy and HRMDefi

nitio

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Defini

tions

Vision

Mission

Strategy

HRM-Strategy

Strategy is the company’s long-termplan for how it will balance its internal strengths and weaknesses with its external opportunities and threats (SWOT) to maintain a competitive advantage.

Vision: „A best case scenario of where the companywill be in the future“, the kind of company, top managementis trying to create

A mission defines a company‘s business and a clear view of what the company is trying to accomplishfor its customers

HRM strategies are the courses of action HR uses to help the company achieve its strategic aims.

Strategy and Strategic HR

Clarify the businessstrategy

Realign the HR functions and keypeople practices

Create needed competenciesand behaviors

Realization of businessstrategies and results

Evaluate and refine

Corporate Strategy

BusinessStrategy

BusinessStrategy

BusinessStrategy

FunctionalStrategies

Dave Ulrich’s Role Model.

Strategic HR – Siemens Basic HR Strategy

• A living company is a learning company• Global teamwork is the key to realizing

potential and using human resources• Redefine management to meet

globalization challenges• Stakeholder value: achieving a

balance of interests• A climate of mutual respect

1.3. International HRM

Outline• What drives

Globalization?• What favors

localization?• New Challenges

for HR? • Perlmutters*-IHRM (=International Human Resource

Management)-Approaches

What is a international, a multinational, a global company?

*Perlmutter is a well known scientist who named these approaches

Group Work (1)

• What favors Globalization? What are the driving forces for Globalization?

• What favors Localization? Which businesses need local adaptation? Which forces slow down or prevent Globalization?

• Implications of increasing globalization for HR?

New HR-Challenges Differences between domestic and international HRM

1. More HR activities2. The need for broader perspective, higher

complexity3. More involvement in employees personal

lives4. Changes in emphasis as the workforce mix of

expats and locals varies5. Risk exposure6. More external influences 7. The different practices of employment in

different countries

Perlmutter‘s MNE-approaches

• Ethnocentric Strategy:Strategic decisions are made at headquarters. Key positions are held by headquarters management.

• Polycentric Strategy:Each subsidiary is a distinct national entity with substantial decision-making autonomy.

• Geocentric Strategy: Each part of the MNE makes a unique contribution regardless if headquarters or subsidiary. Nationality is ignored in favor of ability.

HR-Strategy: Centralized or decentralized?

• Global HR-Concepts

• Regional HR-Concepts

• Local HR-Concepts

Criteria's:•Efficiency•Strategy •Corporate Culture•Best practices•Local and cultural requirements

Where and how can central services add value?

1.4. Summary

• Management Process and the Context to HR

• HRM-Strategy: The linking of HRM with strategic goals and objectives in order to improve business performance and develop organizational cultures that foster innovation and flexibility

• Globalization and its consequences

• New Challenges for HR

• Perlmutter-Approach

2. The Organizational Context

We’ve got the kit, we’ve got the cash – it’s people that will make the difference!

But you have to know how to organize, lead and empower

your people.

After Studying This Chapter You Should Be Able To:

• understand how strategy influences organization

• understand the relationship between HRM and organizational aspects

• to see the main advantages and disadvantages or problems of different organization forms

• explain the stages a firm typically goes through as it grows internationally and how each stage affects the HR function?

• understand how the HRM function can assist in the firm’s international growth strategy?

2.1. Wrap-Up: Fundamental Organizational Designs (1)

VP Production VP HRM

Product-Manager B

Product-Manager A

VP Marketing

Product ionMan.Prod. A

Production Man. Prod. B

VP Product BVP Product A

CEO EagleStar

Functional Organization

Production Man. Prod. A

Production Man. Prod. B

Product Manager A

HRM Man. Product A

CEO EagleStar

ProductManager B

HRM Man. Product B

Product Organization

Wrap-Up: Fundamental Organizational Designs (2)

CEO EagleStar

Production Marketing HRM

Manager Product B

Manager Product A

Matrix OrganizationFunctional Managers

Wrap-Up: Fundamental Organizational Designs (3)

• Process-Based Horizontal Structure

• Project Organization

• Network (virtual) Structure

• Team-Based Structures

• Autonomous Internal Units

Organizational Structures in the 21st century

Diversity

FlatterSmallerQuickernetworked

Flexibility

Demographic ChangeCultural Change

Globalization

Hyper Competition

Knowledge

Transportation tech

Communication tech

Technology

Complexity

Pace of Innovation

Group work (2)

2. A. How would you describe an organization? What are typical organizational Parameters (and/or control mechanisms)?

2. B. International expansion: Which organizational structures (or organizational strategies) may help a company entering foreign markets or growing its international business? Possible HR-Implications?

2.2. Structures crossing Country Borders

Exporting

SalesSubsidiary

ForeignProduction

Network ofSubsidiaries

Licensing, Management- Contracts

Subcontracting

Source: Dowling u.a., International Human Resource Management (also following charts)

Stages of internationalization

Export Department

P rod u c tionM an ag er

F in an ceM an ag er

D om es tic S a les E xp ort S a les

M arke tin g / S a lesM an ag er

H RM an ag er

M an ag in g D irek to r

Sales Subsidiary

M arke tin g /S a les

E xp orts S a les S u b s id ia ry

E xp ortM an ag er

H u m anR esou rces

P rod u k tion e tc .

M an ag in g D irec to r

International Division

H u m anR esou rces

B oard m em b er

D om es tic D ivis ion(P rod u c t A )

D om es tic D ivis ion(P rod u c t B )

E xp ortin g -D ep artm en t

P rod u c tion F in an ce H u m anR esou rces

S u b s id ia ryC ou n try A

S u b s id ia ryC ou n try B

In te rn a tion a lD ivis ion

B oard m em b er

Global Product Division

P rod u c tion M arke tin g

P rod u c t A

E u rop e

H u m anR esou rces

M arke tin g

A m ericas A s ia

P rod u c t B P rod u c t C

C orp ora teP rod u c tD ivis ion

H u m anR esou rces

C E OHeadoffice

Global Area Division

E u rop e

M arke tin g H u m an R esou rces P rod u c t A

P rod u c t B

P rod u c t C

A m ericas A s ia H u m anR esou rces

F in an ce

C E O

The shift to a global company

• No national borders and mental boundaries in delivering, sourcing products, services, resources: The world is one market

• HR: Recruitment across national borders, worldwide strategy and policies, integrated management development, increased sophistication in locating certain HRM-practices

• Results: Relatively fewer expatriation, increased use of TCN, cross-cultural composition of corporate boards and top management, international corporate culture

2.3. Organizational Dimensions

• Organizational Philosophy or Culture

• Organizational Policies

• Organizational Structure

• Organizational Systems

Defini

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Organ

izatio

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Organ

izatio

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Cul

ture

Cul

ture

Unique pattern of shared assumptions and values that shape the behavior, activities and communication of people in the organization

7-S-Modell (Pascale/Athos)

Structure(H)

Superordi-nate Goals

(W)

Staff(W)

Systems(H)

Style(W)

Strategy(H)

Skills(W)

Example: Google’s organizational culture

• Few management structure, informal: “a fun place to work”, team-oriented culture

• Amazing perks: massage therapy, snacks, gourmet lunches, work-out gyms, pool-tables…

• 20% of work-time on self-directed projects, flexible work hours• Open communication, open doors, lunch hour discussions• Recruiting only from top-ranking universities (most important:

intelligent and smart people)• Qualities sought: broad knowledge, expertise in computer science and

mathematics, excellent communication and organizational skills, passionate about their work and great colleagues

• Recruitment ads in movie theatres, employee referral program, contests with prize money

• Encouraging innovation and creativity (internal web page for tracking new ideas, open discussion of ideas, everybody spends a fraction of the working time on R&D)

Changing Organizational Culture• Culture is resistant to change because it is made up of relatively stable and

permanent characteristics

• Strong cultures are particularly resistant to change

• Understanding the Situational Factors - makes cultural change more likely• dramatic crisis occurs• leadership changes hands• organization is young and small• culture is weak

• How Can Cultural Change Be Accomplished?• requires a comprehensive and coordinated strategy

– unfreeze the current culture– implement new “ways of doing things”– reinforce those new values

• change, if it comes, is likely to be slow• protect against any return to old, familiar practices and traditions

2.4. Melting organization and culture: Mergers & Acquisitions (M&A):

Opportunities and risks of M&As from an HR-Perspective?

Rank Why mergers fail Negative Impact

1 2 3 4 5 6

Incompatible cultures Inability to manage target Unable to implement change Synergie non-existent or overestimated Did not forecast foreseeable events Clash of management styles / egos

5,60 5,39 5,34 5,22 5,14 5, 11

Note: Survey of Forbes 500, assessed on a scale of 1 to 7, where 7 is high

HR-Tasks

• HR-Due Diligence before acquiring!

• Integration strategy and plan• Permanent communication • Integration workshops, teambuilding, cooperation• Asses qualification and personality, decide who will get the

manager positions• Adjustment of HR-instruments• Manage undesirable employee fluctuation (20-50% of

middle and top manager leave the company within one year)

M&A Dismissals

When merging or acquiring another firm:– Avoid the appearance of power and domination

– Avoid win–lose behavior

– Be businesslike & professional in all dealings

– Have positive a feeling about the acquired company

– The confidence, productivity, and commitment of those remaining affected by how dismissed are treated

Corporate culture and M&A

• Merger means encountering different cultures Can we learn from other cultures? Culture shock: New corporate values, structures, systems

• Costs of culture collision? No culture-management: Fight instead of Integration?

• Strategies: - Culture removal (dismissals, downsizing)- Culture separation- Culture adjustment and integration

• Cultural impacts of staffing decisions?

• How to mobilize valuable (corporate or client) internal experience and knowledge?

Eon as an Example of a successful Post-Merger- Management by HRM

• Visioning event

• Critical processes

• Town hall meetings with all HR groups

• Resulted in changes to several processes

• Organizational design event

• Implementation

2.5. Summary• Influence of organizational designs to Management and

HR

• Organizational parameters

• International expansion and adequate structures

• Organizational culture (corporate culture) and interdependencies to the structural design

• Structures of a global company

• Cultural Change: Challenge for HRM

• We can Create a Culture of Involvement & Participation and committed teams

• HRM-implications of Mergers & Acquisitions

3. Global Staffing: Recruitment, Placement and Retention

Outline of Chapter 3

• Recruitment Process• International staffing policies• Culture Shock • Selection and Assignment• Failures and Problems• Selecting Host- and

Third-Country Nationals• Repatriation and Retention

After Studying This Chapter You Should Be Able To:

• Understand the need of employment planning and the recruitment process

• Discuss the main inside and outside sources of candidates in an international context

• Explain international staffing and how to improve international assignments through selection

• Understand the culture shock phenomenon

• Know about the importance of a successful repatriation and employee-retention

3.1. Introduction: The Recruitment process

• Goal: Locate and attract good quality applicants and to make valid, reliable, and cost-effective decisions about whom to select

• You can never turn a farm horse to racing horse!

• Which factors will good quality applicants influence to apply?

Steps in Recruitment and Selection Process

Applicants complete application form

Selection tools like tests screen out most applicants

Supervisors and others interview final candidates to make final choice

Employment planning and forecasting

Recruiting builds pool of candidates

Job specifications as basis for recruiting

Products of a job analysis are Job Descriptions or Job Specifications

Defini

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•Determine and specify predictors or requirements necessary for successful performance•Define what you mean by success on the job

•Job Analysis: Analyze and write down the duties and skill requirements of a job and the kind of person who should be hired for the job by collecting the following types of information: work activities, a list of a job’s “human requirements” (education, skills, personality), reporting relationships, machines, tools, equipment, and work aids; performance standards; job context.

We will soon consider some predictors for being successful in an international surrounding!

Finding Internal Candidates

• Succession planning: ensuring a suitable supply of successors for future senior jobs

• Succession Planning includes:– Determine projected need– Audit current talent– Planning career paths– Career counseling– Accelerated promotions– Performance related training– Planned strategic recruitment

• Advantages and Disadvantages of Inside candidates?

Outside Hiring

• College recruiting • Internships• Referrals• Executive Recruiters

(Headhunters) • Online executive

recruiting firm• Internet recruiting

3.2. Employee Testing and Selection

Employee testing and selection is the use of various tools and techniques to select the best candidates for the job. These tools cover the selection process, basic testing techniques, background and reference checks, ethical and legal questions in testing, types of tests, and work samples and simulations.

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Why is selecting the right employees so important ?

Laws often bar discrimination with respect to race, color, age, religion, sex , disability and national origin. Better don‘t ask special questions in some countries!

General Selection Procedures

Use of structured interviews varies widely by country

10.3%

12.1% 17.1%

22.9 %

29.2 %

33 %

34.6%

37.5%54.8 %

59.1%

3.3. International Staffing

Ethnocentric

Approach41% 31% ()

Polycentric Approach

37% 38%

Geocentric Approach

22% 31%

()

International Staffing Strategy: 1990 vs. 2000

Value Systems and Staffing Policies:Ethnocentric, polycentric, geocentric

Group-Work (3)

3.A. What are possible Advantages and Disadvantages of using PCN’s abroad (ethnocentric approach)?3.B. What are Advantages and Disadvantages of using HCN’s (polycentric approach)?3.C. What are Advantages and Disadvantages of using TCN‘s? 3.D. What are Advantages and Disadvantages of the „geocentric (global)“ approach?3.E. What is Expat failure? Possible reasons for failure? Direct and indirect costs of failure for the company and the expatriate?3. F. How to retain good local Manager (HCN) in the MNE?

3.4. Culture Shock

• Adjustments to work and environment• New and old rules, “unspoken rules”

and expectations • You have no way of knowing (violating rules)• You will not always know how to calculate or evaluate

appropriate behavior• Sufferings without apparent origin (strange own behavior)

Everyone experiences culture shock somewhat differently

It is a known process with known symptoms

Stages of cultural shock

0 1 2 3 4 5 6 7 8 9 10 11 12 Number of Months In Country

The Honey-moon

Disinte-gration

Reinte-gration

Become Functional

Creative Independence

3.5. Selection and Assignment

• A selection model

• Predictors of success

• Expatriation and Assignment to a foreign post

• Reservations to Expatriation

What’s coming up in the next hour?

Selection Model for international Managers:

Mendenhall and Oddou• The self-oriented dimension (self-

preservation, self-enjoyment, mental hygiene)

• The perceptual dimension (expertise in understanding why host nationals behave the way they do)

• The other-oriented dimension (degree to which the Expat is concerned about host-national co-workers and desires to affiliate with them)

• The cultural-toughness dimension (if degree of cultural disparity is high, only applicants with high scores should be considered)

Selection of international Managers

Important Predictors of Success• Family situation tops the list• Flexibility/adaptability screening was high on

results• Traits that predict success in adapting to new

environments (extra-cultural openness)• Previewing what changes an international assignee

can expect• Job knowledge and motivation

Study Results: Most important prerequisites for success abroad

Study Amrop/Harvard 1996• Personal leadership traits ( 96 %)• Technical knowledge and skills (68%)• Specific country knowledge (68%)• Involvement in local culture (51%)• Regular Contact with HQ (51%)

Study PWC 1999- Technical competence (96%)- Leadership competence – ability to communicate (74%)- Career record (67%)- Language ability (60%)- Motivation for foreign assignment (60%)- Openness (57%)- Cultural sensitivity (54%)

Reasons not to accept a foreign assignment (PWC 1999)

• Concerns about family (76%) • Difficulty finding spouse employment,

career of the partner (59%)• Fear about promotion on return,

disadvantage for own career (34%)• And....- Conflict in culture values- Inadequate compensation - Fear of losing touch with mainstream- Problems with the hardships of special locations

Duration of assignment (2001, German companies)

0% 10% 20% 30% 40% 50%

Up to 1 year

Up to 2 years

Up to 3 years

4 years and more

Foreign Assignments(Growth rate 1997-1999)

20%

23%

37%

44%

49%

54%

0% 10% 20% 30% 40% 50% 60%

Permanent transfer

Long-term assignments

Commuter assignments

Virtual assignments

Business trips

Short-term assignments

3.6. International Assignment Failure

International assignment failure can cost hundreds of thousands International assignment failure can cost hundreds of thousands of eurosof euros

Why International Assignments fail? • Personality• Person’s intentions• Family pressures• Lack of cultural skills• Other non-work conditions like living and housing

conditions, and health care

Improving Failure Rates/ Solutions

• Provide realistic previews

• Have a careful screening process

• Improve orientation

• Provide good benefits

• Test employees fairly

• Shorten assignment length

Group-Work (4)

4. A. Repatriation: Another culture shock? Which problems might arise?

4.B. How should the expat prepare for repatriation?

4.C. What are the main topics or challenges for HRM regarding repatriation? What (aspects) should be covered in formal repatriation programs?

3.7. Repatriation

Planning

Preparation

Physical Relocation

Transition

Readjustment

What to do??

Problems of Repatriation

• Reverse culture shock • Leaving the firm prematurely• Career Anxiety: Mediocre or makeshift jobs,

finding former colleagues promoted• Devaluing the International Experience• Coping with new Role Demands• Loss of Status and Pay• Effect on Partner’s Career • Social Factors

Exit after repatriation?

• An average of 20-30% of people returning fromlong term ( over one year) overseas assignment leave their employer within the first year home.

• High overall costs for company and expats • Reasons for the lack of repatriate programs (Harvey-Study, 1989):

*Lack of expertise in establishing a program (48%)*Cost of program to train repatriates (36%)*No perceived need for repatriation training by top management (35%)

• Repatriation problems seem to be not dramatic, or visible, or identifiable. A repatriate exiting the organisation can become just another statistic – contrary to the more exciting incidence of Expat-failure!

RepatriationSolutions

• Shorten time abroad – have written agreement

• Assign a sponsor

• Provide career counseling

• Keep communications open

• Develop reorientation programs

• Have returnees advise future expatriates

3.8. Retention

• Employees should be seen as valuable assets which need permanent motivation to thrive

• High fluctuation costs (direct and indirect costs, problems with clients)

• Know-how-outflow

• Work climate suffers

• Image problems

Global competition, Changing environment

downsizing, job changes, mobility, lifelong learning, motivated people

Increasing importance to keep and develop the good performing people

Key question: In these times of rapid change how do you get the employees to keep the company’s best interest at heart if the company doesn’t seem to or is unable to care about what’s good for the employee? With other words: How to get committed employees when the employer cannot guarantee job-stability and the employees may be permanently confronted to organizational changes, outplacement etc. ??

High flexibility, quick reaction and proaction and permanent adaptation to changing world and change

EmployabilityConcept

Instruments of retention (and motivation!)

payments benefits

Personnel developmentTask,

Organization, Strategy

immaterial

Group-relatedindividual

material

Basic payPay for performance

Special paymentsParticipation models

pensionssupportLoans

kindergarten

Professional and personal development

careerOverseas assignments

job enrichment

CompetenciesWorking timesProject workWork climate

What about the boss?

3.9. Summary• Steps in recruitment and selection process • Internal sources of candidates• Outside sources of candidates• Hiring locals or using expatriates• Culture shock• Prerequisites for success abroad • Why expats fail• Repatriation and Retention

4. Managing Performance and Appraising

Outline of Chapter

• Some basics of appraisals and the role in managing performance

• The appraisal process and its functions

• Some new tools of appraisal• Performance management in a

competitive world• Expatriate performance and

appraisal

After Studying This Chapter You Should Be Able To:

• describe the appraisal process and its functions• explain and discuss the pros and cons of at least

four innovative performance appraisal methods• explain and illustrate the Performance

Management Process• describe the factors influencing managers

performance overseas• discuss the specialties of Performance Appraisals

in an international environment

4.1. Basics of Appraisals

• Why Appraise Performance?

• Steps in Appraising Performance

• Who does the Appraisal?

• The Development Plan• Succession Plan

Outline

OutstandingUnsatisfactory

Why Appraise Performance?

• Appraisals provide information for promotion and salary decisions

• Provides opportunity to review an employee’s work related behavior with the goal of correcting deficiencies

• Is part of the career-planning process• Appraisals help manage and improve your firm’s

performance

Steps in Appraising Performance

Define the Job

Appraise Performance

ProvideFeedback

Set WorkStandards Compare

performanceto the standard

Discussprogress &make plans

The evaluation of an employee’s current and past performance relative to performance standards

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Def

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Who Does the Appraising?

RatingCommittee

Peers

You

Subordinates

Extremely Poor Poor Average Good Extremely Good

Customers

Your boss

The Development Plan or Appraisal Interview

Development Plan: an interview in which the supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths. Adequate preparation and effective implementation are therefore essential.

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4.2. New Developments in Appraisals

• Forced Distributions• Upward Evaluation • 360o Appraisals• TQM Oriented Appraisals

OutstandingUnsatisfactory

Outline

Forced Distribution – High Performance Insight

0

5

10

15

20

25

30

Low Low-avg

Avg High-avg

High

Low

Low-avg

Avg

High-avg

High

Merck began using this rating method for exempt employees when it found other methods resulted in 80%

of employees rated a 4 or higher on a 5 point scale.

Soon: Role game:

“ Forced Distribution with HVB”

Risks of introducing a forced distribution system

• Fits possibly to an individualistic culture ..in a team-culture there is a risk of tension in groups or contra productive results

• Harms harmony, there will be losers, • May have detrimental effects to personnel development

(connection between appraisal and wages), delivers no information for Training & Development

• Risk potential between manager and employee, demotivation• In an international context: Who will grade HCN’s? A PCN?• How big is the difference between the best and the “worst”?• Underlying assumption of a normal distribution is not correct

Upward feedback

• What is Upward feedback? Why?• In which culture do you expect to find this method?• Which preconditions (for a success of this feedback)

should be fulfilled?• How effective is upward feedback in improving

supervisor performance?

360o Appraisals

• 360o assessments evolved from upward feedback appraisals

• Ratings are collected “all around” an employee• Peers, supervisors, subordinates, customers,

suppliers, other departments complete surveys on an individual

• Great deal of paperwork

4.3. Performance Management Approach

Performance management - managing all elements of the organizational process that affect how well employees perform

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Encompasses goal setting, worker selection & placement, appraisals,

compensation, training, & career management

Multinational´sInternationalizations

Strategies and Goals

Subsidiary Goals

JobAnalyses

Job Goals and

Standards

PerformanceAppraisal

Management by Objectives

MBO refers to a organizational 6 step goal setting and appraisal programSet the

organization’sgoals

Set thedepartmental

goals

Discussdepartmental

goals

Defineexpected

results

Performancereviews

Providefeedback

New Trends in Performance Management ?

• Skepticism about an overall motivating effect of appraisals: Excellent interview and counseling skills required

• Performance Management is more than a Review of Performance: It must be supplemented by an integrated cooperative objective-setting and a development planning process

• Goals should be flexible to reflect changing conditions• Ongoing discussion and feedback by “coaches” who are not

focused to judge their employees but to help them achieve success (e.g. through training, better resources)

• Upward appraisals and forms of ranking systems gain ground

Group-Work (5)

5.A. Which special Factors may (adversely) affect performance abroad (goal attainment)?

5.B. Technicalities (specialties) of Performance Appraisals in an international context (Which criteria? Who are the partners? Which form? Frequency? etc.)

5.C. Role Game: Forced Distribution with HVB4 Groups according the assignment

• Compensation package• Task / Role• Headquarters Support• Host Environment• Cultural adjustment • Different management styles• Who conducts the Performance Appraisal?• Performance Appraisal Practise (standardized or

customized, frequency )

4.4. Expatriate performance and appraisal

Factors influencing Expatriate performance and appraisal:

Example: Performance appraisalsin Western MNE’s in China

Cultural Features Face Group orientation Hierarchy Relationship

Evaluation Criteria Broad Evaluation Criteria, related to task (not to very specific and ambitious objectives), to moral, group behavior, specific job descriptions

Sources of appraisal Self-evaluation and opinions by peers and subordinates (“democratic process”)

Objective setting Easy and one-way objectives (avoid a possible loss of face if the goals are not achieved)

Performance Review Little criticism and feedbacks, no intensive discussion, limited interpersonal feedback, language barriers, low upward feedback, few reactions on downward feedback, more open when close manager-subordinate relationship

Training and Development Plan

Expect ready-made training/career development plans

4.5. Summary of Chapter

• People want & need feedback – an appraisal gives them that feedback

• Clarify the performance you expect in advance

• Appraisals help in managing performance by providing concrete and non-threatening basis for analysis of employee’s work-related performance

• We’ve seen tools like: Forced Distributions, 360o Appraisals, Upward Evaluation, TQM Oriented Appraisals

• Performance and appraisal in an international surrounding is a challenging task

5. Training and Development

Outline of Chapter 5

• Introduction: Training and Development Process

• Expat preparation, tools and instruments

• Cultural Awareness Programs

• Managerial Development and Training

• Development of a cadre of international Managers

• HCN-Training

After Studying This Chapter You Should Be Able To:

• discuss how to prepare, to train and develop employees for international posts

• give some arguments for attendance of cultural-awareness-seminars

• describe some on- and off-the job training methods

• illustrate some Career management practices

• explain how a company may build up a pool of international managers

5.1. Introduction: Training and Development Process

Needs analysis

Instructionaldesign

Validation

Implement

Evaluation &follow-up

Training and Development: Group-Work (6)

6.A.: The international company: Why training and development? In which areas? Possible problems?

6.B.: How can the HR-Department prepare an employee for an international assignment? Are there any Criteria for the right instrument?

6.C.: Why train the HCN’s? Possible benefits?

6.D.: How to develop a cadre of international Managers? Ways and instruments?

6.E.: How to build teams across borders? What’s your advise?

5.2. Expat preparation

• Why preparation?• Why often no predeparture training?• What Special Training Do Overseas

Candidates Need?• Understanding attitude formation

• Impact of cultural differences

• Factual knowledge about target country

• Language and adjustment/adaptability skills

Tools and Instruments

• Cultural Awareness Programs • Management and Technical Training • Language Courses• Look-and-sea trips• Practical assistance • Communication with returned or current expats• Organization of social events • Job for spouse

Cultural Awareness Training and Assignment Performance

Contextual and situational factors•time available•duration and nature•cultural toughness

Individual Differences•Effectiveness expectations•Outcome expectations•Individual abilities

Skill Develop-ment•self dimension•relational•perceptional

CulturalAwarenessTraining

Motivation

RetentionAttention Reproduction

Incentives

Performance Management System

Adjustmentand

performance

Source: Adapt.from Dowling et.al, Tung et.al, Mendenhall et.al

Cultural Awareness Programs

• Recognize own culture

• Compare behaviors of the host-country with our culture

• Sensitivity for the host-culture

• Promotion of intercultural competence

• Enhance performance

Targets of cross-cultural training

Quality criteria for cross-cultural training’s?

Training For Special Purposes

• Diversity training

• Global business training samples include:– Executive etiquette for global transactions– Cross-cultural technology transfer– International protocol and

presentation– Business basics for the

foreign executive

Look-and-see trips

* Assess suitability for and interest in the assignment

* Introduce expatriate candidates to the business context in the host location

* Encourage more informed predeparture preparation

* Gather information for the decision * Exposure to the expatriate-community

Targets:

Language training

• The role of English as the language of world business

• Host-country language skills and adjustment

• Knowledge of the corporate language

Training Trends for Expatriates

Trends in expatriate training and development:• Use of continuing cross-cultural training• Use returning managers as resources for new

assignees• Software and internet programs like Bridging

Cultures for cross-cultural training

5.3. Managerial DevelopmentManagement development is any attempt to improve managerial performance by imparting knowledge, changing attitudes, or increasing skills with an aim to enhance the future performance of the company itself.

Three principal steps: 1. Assessing the company’s strategic needs 2. Appraising the managers’ performance, skills and

potential3. Developing the managers

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The changing role of the managerB

enef

its

of g

loba

l Int

egra

tion

“The Boss”

Chief Supervisor

CustomerOriginator

FacilitatorCoordinator

Conductor

Managerial Training

• Job rotation • Coaching/understudy approach • Action learning• The case study method• Games• Seminars• University programs• Role playing• Behavior modeling - 4 steps

Career Development

• Management must provide development opportunities, feedback, and career-oriented appraisals

• Careers are no longer viewed as an upward linear progression but reinvented constantly as work environments change

• Globalization is a great challenge and step for career development

Company’sneeds

Employee’slong-terminterests

Humanresourceactivities

The Employer’s Role

• Posting job openings• Formal education• Career-oriented

performance appraisals• Management counseling

• Application of HR instruments (portfolio, training)

• Succession planning• Lateral development

Career management practices include:

5.4. Development of a cadre of international Managers

• Developing a small cadre of international employees

• International Trainee-Programs (Bosch)

• Short-term and long-term development assignments

• International job rotation

• Externally provided training programs (INSEAD in France provides educational opportunities)

• Field trips to investigate business opportunities, international project work

• International meetings, teamwork, management seminars

• No career without having worked in an international subsidiary (Unilever)

Selection-Development-Assignment-Process

Pool of employees for an international

career

Portfolios

PersonnelPlanning /Vacancies

Recruiting and Selection Process

Specific TrainingPredeparture T.

InternationalAssignment

ReassignmentRepatriation

InternationalPostings

IndividualProfile

Training, Develop-ment of international

skills and abilities

Global Executive Development

• Candidates backgrounds

• Family situations

• Brief candidates on all relocation policies

• Comprehensive training

• Provide a mentor

• Establish a repatriation program

HCN-Training is important

• Why train the HCNs?

• Effects of training HCN

• Poaching of trained HCNs

• “Inpatriation”: HCNs as Expats

5.5. Summary

• Expat Preparation: Training tools and instruments

• We saw a number of special purpose training methods

• Management and career development• Global executive Development• Building a pool of internationally experienced

managers• Why HCN is important

6. Compensation

Outline of Chapter 6

• Incentives: Tools and components

• Strategy and Manager Compensation

• Long-Term-Incentives• International Rewarding: Trends

and Examples• Expatriates Compensation:

Objectives, Components, Methods, Taxation

After Studying This Chapter You Should Be Able To:

• discuss the various incentives for employees and management

• discuss the pros and cons of short and long-term incentives

• describe the main trends regarding international compensation for executives

• explain why many incentive plans fail• describe the main objectives, components

and methods as well as the pros and cons of Expat-compensation approaches

6.1. Incentives: Tools and Components

• Merit pay or a merit raise is any salary increase awarded an employee based on individual performance

• Usually granted exempt employees

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Lump sum raises

• Lump sum raises are not cumulative; traditional raise is

• Lump sum can be a bigger motivator

Lump sum award matrix based on individual and organization performance

The Annual Bonus

A bonus is aimed at motivating short term performance with three issues to consider when awarding them:– Eligibility – based on job level and salary– Fund size – use a formula– Individual awards – based on performance

Incentives for Professionals

• Determining this type of incentive is challenging • Professionals are well-paid and driven• Keep highly motivated professionals by using:

• Stock options and profit sharing

• Improved pension plans

• More training and education

• Home offices

Gainsharing• Multiple measures: Productivity, cost savings, performance,

product damage, customer complaints, shipping errors, safety, and attendance

• Committed managers and workers• Employee involvement• Straightforward formula• Eight basic steps:

Establish plan objectivesChoose performance

measuresUse a fundingformulaMethod for

distributing shareof gains

Payout must belarge enough to

motivateChoose form of

payoutDecide bonusfrequency

Developan involvement

system

6.2. Manager Compensation

1. When designing a compensation plan, first define strategic context: Meet unique company and strategic needs

2. Long-term incentives have a profound impact on strategic success

3. Shape components into balanced plan

4. Legal and tax effective

5. Install a review and evaluation process

Incentives for Managers and Executives (Example)

15%

15%

10%

60%

SalaryShort termLong termBenefits

33%

38%

21%

8%

SalaryShort termLong termBenefits

Incentives breakdown for a mature company

Incentives breakdown for a startup company

Types of Incentive Plans

• Individual

• Team

• Employee group

• Profit sharing

• Variable pay

• Performance plans

Manager’s Performance Plan or Bonus

• Split it with part based on individual performance rest on corporate performance

• Never give outstanding performers too little

• Never give poor performers normal or average awards

• Use a (performance) plan where executives do not prosper unless the company does

• Make executives have some risk to garner their reward – a multiyear bonus

International Trend to Long Term Incentives (LTI)

• Stock options

• Stock appreciation

• Phantom stock

• Performance plans

• Deferred plans

Stock Options

• A stock option is the right to purchase a stated number of shares of a company stock at a preset price at some time in the future

• A restricted stock option is an option grant which has constraints on its use (e.g. realizing the option only after 3-5 years or only eligible when still working in the company)

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Example: Manager gets today 10.000 options to buy the company stocks (at a price of $ 25 for one share in three years time). Price of the stock today: $ 22. After three years the stock price is $ 38. The manager realizes his options: He changes his 10.000 options into 10.000 shares by paying $250.000. He may sell the shares in exactly the same moment and gets the actual market price: 10.000 shares times $ 38 = $ 380.000. So the difference is his additional income: $130.000!

Implementing Incentive Plans (1)

• Use common sense• Incentive linked to strategy• Effort linked to reward• Easily understood• Set effective standards• Standard is a contract

Implementing Incentive Plans (2)

• Get support

• Use accurate measurement

• Long and short view

• Consider corporate culture

• Comprehensive commitment oriented approach

Why Incentive Plans Can Fail

• Performance pay can’t replace good management

• You get what you pay for

• Pay is not a motivator

• Rewards undermine intrinsic motivation

• People work for more than money

• Rewards rupture relationships

• Rewards can unduly restrict performance

• Rewards may undermine responsiveness

6.3. Trends in international rewarding

• Less Merit-Increases (incremental yearly increases)

• Trend towards variable performance-related reward

• More long-term Incentives

• Equity participation by stock options for managers

• Relative and absolute compensation differences between (Top-) Management and blue-collar workers widen

• Non-monetary Components (i.e. training, development) grow in importance (higher contribution to intrinsic motivation)

Incentive Plans in Practice - Insight

• FedEx’s pay plan illustrates how firms use innovative incentive plans to boost quality and productivity

• Uses quarterly pay reviews• Has a strong emphasis on pay for performance

Merit ProgramPro PaySuperstarprogramProfit sharing

MBO/MIC and PBO/PICBravo zulu

voucherGolden falcon

award

International Compensation: Group-Work (7)

7.A. Cash or Stock-Options? What is a better motivator?

7.B.What Compensation-package would motivate you to accept an international assignment? What would you tell or ask your employer?

7.C. What are the advantages and disadvantages of “the going-rate-approach” (you as an expat are paid like a local)?

7.D. What are the advantages and disadvantages of “the balance-sheet-approach” (you as an expat are paid in a way that will allow you to keep your normal standard of living = principally you get what you earned in your home-country)

6.4 Expatriates Compensation

• Objectives

• Key Components

• Compensation Strategies:-The Going Rate Approach-The Balance Sheet Approach

• Taxation

• Trends and Management Compensation

Outline

6.4.1. Objectives

Consistency with the overall strategy, structure and business needs

• Attract and retain staff for international postings• Facilitation of the transfer of international employees

in the most effective manner• Due consideration to equity and ease of administration• Cost efficiency• Plans must consider various factors:

– Tax treatment– Regulatory environment– Foreign exchange controls

And the goals for the Employee?

Company Objectives

Determining Equitable Wages

• Lots of compensation data available• Some companies rely on own surveys,

especially for Cost-of-living allowance (COLA)• Services: Organization Resource Counselors, Hay

Consultants, Anderson Consulting, Lufthansa, Statistisches Bundesamt, Big-Mac-Index (The Economist).

6.4.2. Key Components• Base Salary

• Foreign Service or Mobility Inducement

• Hardship Premium or Hardship allowances

• Other Allowances (COLA, Housing, Home leave, Education, Relocation)

• Benefits

• Non-monetary rewards

6.4.3. The Going (or Market-) Rate Approach

• Based on local market rates• Relies on survey comparisons

-local nationals-Expatriates of same nationality-Expatriates of all nationalities-in the same industry or general labor market

• Compensation based on the selected survey comparison

• Base pay and benefits may be supplemented by additional payment for low-pay countries

Advantages?Disadvantages?

6.4.4. The Balance Sheet (or Build-up-) Approach

• Maintenance of home-country living standard, plus financial inducement

• Home-country pay and benefits as benchmark

• Adjustments to home package to balance additional expenditure in host country

• Financial incentives added to make the package attractive

Balance Sheet Approach• 60-80% of all MNE’s use it• Has 4 main home-country

expense groups:– Income taxes– Housing– Goods and services– Discretionary expenses

• Expatriate receives base pay + additional for each group

Advantages-Disadvantages?

Sample balance sheet approach

Example for Balanced Sheet A.Employee: Rainer Schön Position: Marketing Manager Country: Japan Reason for change: New Assignment Effective date of change: 1 June 2004 Item Amount € p.a.

Of this Amount Paid in € p.a.

Paid in local currency Yen p.a.

Base salary 100.000 Cost of living allowance 35.000 Overseas premium (20%) 20.000 Hardship allowance (30%) 30.000 Housing addition (15%) 15.000 Tax deduction (5%) -5.000

30.000 20.000 30.000 15.000 - 5.000

17.500.000 8.750.000

TOTAL 195.000 90.000 26.250.000

Cola Index = 150 Authorised/Date Exchange Rate = 250

6.4.5. Other approaches

• The ”better of home-or-host approach” : The idea behind this is that no expatriate should have to live at a lower than a local or home level.

• The international approach tries to create an equitable system among all international employees. It’s especially useful for highly placed executives who will be moving from location to location.

6.4.6. Taxation

• Tax implications can be tricky • May be responsible for both US and

foreign taxes• Tax Equalization: firms withhold an

amount equal to the home-country tax obligation of the PCN, and pay all taxes in the host country

• Tax Protection: employee pays up to the amount of taxes he would pay on compensation in the home country

• Laissez-faire

6.5. Summary

• Incentives influence short and long-term behavior

• Compensation plans should be based on strategy and clear objectives: Beware of pitfalls!

• Worldwide performance-related pay and long term incentives are gaining ground

• There are various Expat compensation approaches and some important key components

Well done

7. Business and Ethics

After Studying This Chapter You Should Be Able To:

• describe some ethical topics in international business

• name some universal values and applications of these values

• describe managers role in ethical matters

• explain a company code of conduct

• recap fundamentals of the PUMA Ethical Concept

• write down important implications for the HR function

Outline of Chapter 7

• What are the problems?• Common universal values? • International Agreements?• Examples for Company

Codes• Grease and Bribery• Implications for HR?

7.1. Ethics in Business

• Public sensitivity to unethical behavior has increased. Why?

• Deciding on the correct ethical norms is difficult when legitimate interests are concerned

• Values in the culture influence ethical attitudes (e.g. workforce interest vs. stakeholder)

• Different cultures apply different criteria in making ethical decision

• What is a “good corporate citizen”?

Common universal values

• Ethical Relativism• Ethical Absolutism• Ethical universalism

Core human values, shared between western and eastern philosophical traditions: •Good citizenship•Respect for human dignity•Respect for basic human rights•Fairness and Equity•Disapproval of theft and bodily harm

Applications of core human values within MNE’s ?

• Adequate workplaces• Health and safety standards • Payment of basic living wages• Equal employment opportunities• No child labor• Training and education• Allowing workers to organize and forming

unions

7.2. Manager‘s role in ethical matters

• Identifying the real ethical dilemmas staff encounter

• Stimulation discussion, including the views and problems of expatriate and HCN staff on dilemmas, possible solutions, standards, support..

• Contributing to the development of ethical codes and setting appropriate examples

• Code communication and explanation

Corporate code of conduct• Public statement of the firms values and guiding

principles.

• 90% of all US-Fortune 500 firms have codes of conduct. A common difficulty is their enforcement.

• In the USA ethics is seen more in terms of rules and laws universal approach, whistle-blowers (Japan: traitor!) enjoy legal protection.

• In Europe more skepticism about legal rules, company check lists, individual responsibility

• Which content? Pros and Cons?

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Bribery

• Most frequent ethical problem encountered by international managers

• B. involves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage

• How B. can be distinguished from so-called gifts or ”grease” payments or extortions

• B. undermines public confidence in markets, adds to the cost of products and may affect the safety and economic well-being of the general public.

7.3. Example: Levi Strauss

• 1993 retreat from China because of human rights violation

• 1995 retreat from Myanmar (and threat to Bangladesh), between 30 and 50 thousand children were dismissed by (human unworthy) local clothing companies and then enslaved by small firms and families (Oxfam-Report 1995)

Puma AG7.4.Example

“The Code of Conduct is the most important principle of PUMA’s social policy as well as our most substantial instrument of control. PUMA’s Code of Conduct is displayed and accessible at all of PUMA’s production sites worldwide.We at PUMA AG declare our strict adherence to the respect of Human Rights. As such, we share with our partners a commitment to high ethical standards and guarantee the following Code of Conduct : • No employment of minors. For this purpose, we consider a minor as one who is below 15 years of age, or the minimum age mandated by the applicable law, or the age for completing compulsory education, whichever of the three is higher. • A workplace that promotes the health and safety of the workers as well as the protection and preservation of the environment. • A normal workweek according to local labor law, up to a maximum of 48 hours, with a limit of 12 extra/overtime hours, including one day off for every seven days worked, as well as overtime compensation policies that are in accordance with local law. • Compensation that is respectful of basic needs and all benefits mandated by law. • Respect and equality, regardless of race, creed, age, sex, social origin, political views, sexual orientation, or position. • A work place where there is dignity and respect, free from any form of forced labor, harassment, abuse or corporal punishment. • Freedom of association and the right to join unions or other work or industry related associations as well as the right to collective bargaining in accordance with local law.”

PUMA Code of Conduct

Audits with PUMA

“The main tool to ensure that our stringent social standards are upheld is the S.A.F.E. Audit. Regular audits are conducted at all of PUMA’s direct suppliers and licensees to ensure that the requirements of our Code of Conduct and our S.A.F.E. Manual are met.

The S.A.F.E. Audits usually take place prior to production and involve standard questionnaires on social, environmental, health and safety issues; a review of relevant business documents such as payrolls, time records or personal files; a complete factory walk-through as well as interviews with randomly selected workers in a friendly atmosphere and in the absence of the factory management. Union representatives are invited to participate in this procedure where possible.

By carrying out audits at all our direct suppliers, as well as documenting the audit results, we hold our manufacturers accountable for their social performance and at the same time evaluate the social footprint of PUMA.”

The S.A.F.E.-Concept as an ongoing Process

Code ofConduct

Audit

CorrectiveActionPlan

Re-audit

Training

S.A.F.E.Manual

Declarationof Principles

Continuous Improvement

7.5. Implications for the HR function

• Minimize the exposure of employees to corruption by appropriate codes of conduct

• Training programs and negotiation skillsto handle problem situations

• Employees should understand the differencebetween corrupt bribery payments, gifts, andallowable facilitation payments

• Align performance appraisal, promotion and compensation systems• Selecting staff operating across national borders who are best able

to cope with the ethical dilemmas• Appointment of an ethics ombudsperson to whom staff could apply

for guidance

7.6. Summary

• Corporate ethics is an increasing “business”• Common global values• How we can translate values into corporate

regulations• Corporate code of conduct• Puma’s S.A.F.E.-Concept• Implications for HR-function and

HR’s responsibilities

Thank you for your attention!