Other issues such as kidnaping and corruption would make HR policies and procedures differ among countries in which each subsidiary is based.

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1 Textbook: How Intercountry Differences Affect HRM: To a large extent, companies operating only within Canada s borders have the luxury of dealing with a relatively limited set of economic, cultural, and legal variables. However, a company that is operating multiple units abroad does not operate in an environment of such relative homogeneity with respect to HRM. For example, minimum legally mandated holidays may range from none in the United States to 5 weeks per year in Luxembourg. In addition, although there are no formal requirements for employee participation in Italy, employee representatives on boards of directors are required in companies with more than 30 employees in Denmark. Other issues such as kidnaping and corruption would make HR policies and procedures differ among countries in which each subsidiary is based. Intercountry Differences: Cultural Factor: o Wide-ranging cultural differences from country to country demand corresponding differences in HR practices among a company s foreign subsidiaries. The first step is understanding the differences in underlying cultural values in different societies. o For example, societies differ in power distance: an inequality in some countries (such as Mexico and Japan) than others (such as Sweden.) Abuse of managerial power in the form of bullying and harassment is widely tolerated in Japan. o Societies also differ when it comes to individualism vs. collectivism the degree to which ties between individuals are normally loose rather than close. o In more individualistic countries such as Canada, individuals look out for themselves and their immediate families. However, in more collectivist countries such as China, and individual s identity is very strongly linked to their extended family group, and sometimes even to their work group. o Such intercountry cultural differences have several HR implications. They suggest the need for adapting HR prices, such as training and pay plans, to local cultural norms. They also suggest that HR staff members in foreign subsidiary should include host-country citizens. A high degree of sensitivity and empathy for the cultural and attitudinal demands of coworkers is always important when selecting expatriate employees to staff overseas operations. Such sensitivity is especially important when the job is HRM and the work involves human jobs like interviewing, testing, orienting, training, etc. Economic Systems : o Differences in economic systems among countries also translate into intercountry differences in HR practices. o In free enterprise systems, the need for efficiency tend to favour HR policies that value productivity, efficient workers, and staff cutting where market forces dictate. Moving along the scale toward more socialist systems, HR practices tend to shift toward preventing unemployment, even at the expense of sacrificing efficiency. For example, in communist Vietnam, workplace culture involves a siesta after lunch for workers, and managers spending a lot of time out of the office enhancing personal and social relationships. Legal Systems : o Labour laws vary considerably across the world.

2 o When it comes to employee termination, the amount of notice with pay to be provided, continuation of benefits, notification of unions, and minimum length of cervices to qualify for severance payments vary significantly and can in some cases have a major impact on labour costs. o Health and safety laws vary from non-existent to which tightens liability of senior management for health and safety offences. Labour Cost Factors : o Differences in labour costs may also produce differences in HR practices. In order to maintain the competitive advantage of lower labour costs in China, the concept of investing in employees through training and development is seen as an unnecessary cost. High labour costs can require a focus on efficiency and on HR practices (like pay for performance) aimed at improving employee performance. Industrial Relations Factors: o Industrial relations, and specifically the relationship among the workers, the union, and the employers, vary dramatically from country to country and have an enormous impact on HRM practices. o In Germany, codetermination is the rule. Here, employees have the legal right to a voice in setting company polices. In this and several other countries, workers elect their own representatives to the supervisory board of the employer, and there is also a vice-president for labour at the top management level. o Likewise, in many other countries, the state interferes little in the relations between the employers and unions. o In China, company unions fall under the administration of the local Communist Party committee, which often shares long-term goals with the company. Thus unions seldom play an effective role in labour disputes. Summary: o Intercountry variations in culture, economic systems, labour costs, and legal and industrial relations system complicate the taste of selecting, training, and managing employees abroad. These variations result in corresponding differences which make the job of expatriate managers much more complex and difficult than when at home. International assignments thus run a relatively high risk of failing unless these differences are taken into account when selecting, training, and compensating international assignees. Selection for Global Assignments: International managers can be expatriates, locals, or third-country nationals. Most managerial positions are filled by locals rather than expatriates in both headquarters and foreign subsidiary operations. Advantages for using locals: o There are several reasons to rely on local, host-country management talent for filling the foreign subsidiary s management ranks. Many people simply prefer not to work at a foreign country, and in general the cost of using expatriates is far greater than the cost of using local management talent. Also, there may also be a fear that expatriates, knowing that they are posted to the foreign subsidiary for only a few years, may overemphasize short-term projects rather than focus on perhaps more necessary long-term tasks. Disadvantages: o There are also several reasons for using expatriates either parent-country or thirdcountry nationals- for staffing subsidiaries. The major reason is technical competence. (Unable to find locals with the required technical qualifications.)

3 Global Staffing Policy: Multinationals also increasingly view a successful stint abroad as a required step in leadership development. Control is another important reason. Multinationals sometimes assign expatriates from their headquarters staff abroad on the assumption that these managers are more steeped in the firm s policies and culture and more likely to unquestioningly implement headquarters instructions. Company thinks that if they send their own people, they don t have to babysit them as much because they already know all the rules and policies. They re not likely to disobey or question the instructions. Three types of international staffing policies: Ethnocentric staffing policy is based on the attitude that home-country managers are superior to those in the host country, and all key management positions are filled by parent-country nationals. o Advantages: Lack of qualified host-country senior management talent A desire to maintain a unified corporation culture and tighter control The desire to transfer the parent firm s core competencies to a foreign subsidiary more expeditiously. (Ex. A specialized manufacturing skill) o Disadvantages: Polycentric staffing policy is based on the belief that only host-country managers can understand the culture and behaviour of the host-country market, and therefore foreign subsidiaries would be staffed with host-country nationals and its home-office headquarters with parent-country nationals. o Advantages: Reduce the local cultural misunderstandings that expatriate managers may exhibit. Less expensive to staff with locals than foreigners. Transfer expenses, double the income taxes for two countries, and other expenses such as schooling for children, annual home leave, etc. o Disadvantages: Geocentric staffing policy assumes that management candidates must be searched for globally, on the assumption that the best manager for any specific position anywhere on the globe may be found in any countries in which the firm operates. o Advantages: This allows the global firm to use its human resources more efficiently by transferring the best person to the job, wherever he/she may be. It can also help build a stronger and more consistent culture and set of values among the entire global management team. Team members here are continually interacting and networking with one another as they move from assignment to assignment around the globe and participate in global development activities. o Disadvantages: Too expensive and too time consuming to search around the globe for candidates. Maintaining Global Employees:

4 Careful screening is just the first step in ensuring that the foreign assignee is successful. The employee may then require special training and, additionally, international HR policies must be formulated for compensating the firm s overseas managers and maintaining heathly labour relations. Orienting and Training Employees for Global Assignments: Cross-cultrual training is very important for creating realistic expectations, which in turn are strongly related to cross-cultural adjustment. A four-step approach to cross-cultural training is often used. o Level 1: Training focuses on the impact of cultural differences and on raising trainees awareness of such differences and their impact on business outcomes. Even transfers to the US from Canada can involve cultural shock. o Level 2: Training focuses on attitudes and aims at getting participants to understand how attitudes (both negative and positive) are formed and how they influence behaviour For example, unfavourable stereotypes may subconsciously influence how a new manager responds to and treats his or her new foreign employees. o Level 3: Training provides factual knowledge about the target country o Level 4: Provides skill building in areas like language and adjustment and adaption skills. The depth of the training is of the utmost importance. If firms are going to provide cross-cultural training, it needs to be in-depth and done with care. For example, language training must include nonverbal communication awareness, as it varies so widely across the world. International Compensation: The whole area of international compensation management presents some tricky problems. Compensation programs throughout a global firm must be integrated for overall effectiveness, yet differentiated to effectively motivate and meet the specific needs of the various categories and location of employees. On the other hand, there is certain logic in maintaining company-wide pay scales and policies so that divisional marketing directors throughout the world are all paid within the same narrow range. This reduces the risk of perceived inequities and dramatically simplifies the job of keeping track of disparate country-by-country wage rates. However, most multinational companies have recognized the need to make executives pay decisions on a global level, and executive pay plans are gradually becoming more uniform. Also, the practice of not adapting pay scales to local market can present an HR manager with more problems than it solves. The fact is that living in Tokyo is more expensive than living somewhere else. If these cost-of-living differences are not considered, it may be almost impossible to get managers to accept assignments in high-cost locations. One way to handle the problem is to pay a similar base salary company-wide and then add on various allowances according to individual market conditions Compensation professionals also face the challenge of designing programs that motivate local employees in each country as well as internationally mobile employees of all nationalities. Some multinational companies deal with this problem for local mangers by conducting their own annual compensation surveys.

5 Others use a global career progression framework that includes the flexibility to accommodate local practices and still maintain organization-wide consistency. 3 Types of Approaches to Compensation: The Balance Sheet Approach o The most common approach to formulating the pay is to equalize purchasing power across countries. o The basic idea is that each expatriate should enjoy the same standard of living that he/she would have had at home. The employer estimates the cost of major living expenses such as housing would be in the expatriate s home country, and the cost of each in the host country. Any differences are then paid by the employer. o Involves building the expatriate s total compensation around 5 or 6 separate components. Example: Base salary will normally be in the rage as the manager s homecountry salary. In addition, there might be a mobility premium. This is paid as a percentage of the executive s base salary, in part to compensate the manager for the cultural and physical adjustments that he or she will have to make. Allowances are also given to compensate the adjustment. Variable Pay o As organizations around the world have shifted their focus to individual performance differentiation, there has been a rise in the prevalence of individual performance rewards. o Across the globe, over 85% of companies offer at least one type of broad-based variable pay programs. In addition, variable pay spending in emerging and high-growth markets has come to match the levels in more mature markets. o Broad-based variable pay has gone global and is now an integral part of the compensation landscape for management and professional employees in every region. There has been a convergence in variable plan eligibilyt to encompass general staff as well. International EAPs o EAPs are going global, helping expatriates to take care of their mental health, which is often affected by the stressful relocation process. o The proactive approach is to contact employees before departure to explain the program s services; then about three months after arrival, families are contacted again. o By this time, they have usually run into some challenges from culture shock and will welcome some assistance. The expatriates and their families have then established a connection with the EAP to use for ongoing support. o Problems, such as homesickness, boredom, depression, are all common reactions to culture shock. Employees on short-term assignment without their families can experience extreme loneliness. Treatment for psychiatric illnesses varies widely around the world, as do the conditions in government-run mental health institutions, and consultation with an EAP professional having extensive cross-cultural training may be critical in ensuring that appropriate medical treatment is obtained. Performance Appraisal of Global Managers o Stipulate the assignment s difficulty level o Weight the evaluation more towards the on-site manager s appraisal than toward the home-site manager s distant perceptions of the employee s performance o If the home-site manager does the actual written appraisal, he/she should use a former expatriate from the same overseas location to provide background advice during the appraisal process

6 o Modify the normal performance criteria used for that particular position to fit the overseas location to provide background advice during the appraisal process o Modify the normal performance criteria used for that particular position to fit the overseas position and characteristics of that particular local o Attempt to give the expatriate manger credit for relevant insights into the functioning of the operation and specifically the interdependencies of domestic and foreign operations. International Labour Relations o Firms opening subsidiaries abroad will find substantial differences in labour relations practices among the world s countries and regions. For example, Wal-Mart, which has successfully resisted unionization in most of the world, had to accept unions in many of its stores in China. o Some important differences between labour relations practices in Europe and North America include the following: Centralization. In general, collective bargaining in Europe is likely to be industry-wide or regionally oriented, whereas North American collective bargaining generally occurs at the enterprise or plant level. Employer organization. Because of the prevalence of industry-wide bargaining, the employer s collective bargaining role tends to be performed primarily by employer associations in Europe; individual employers in North America generally represent their own interest when bargaining collectively with unions. Union recognition. Union recognition for collective bargaining in Europe is much less formal than in North America. For example, in Europe there is no legal mechanism requiring an employer to recognize a particular union; even if a union claims to represent 80% of an employer s workers, another union can try to organize and bargain for the other 20%. Content and scope of bargaining. North American labour-management agreements tend to focus on wages, hours, and working conditions. In European agreements tend to be brief and simple and to specify minimum wages and employment conditions. Worker participation. Worker participation has a long and relatively extensive history in Europe. In many countries, works councils are required. A works council is a committee in which plant workers consult with management about certain issues or share in the governance of the workplace.