International human resource management is one of the important functions of international business. HRM refers to the activities an organization carries out to use its human resources effectively. These activities include staffing policy, performance evaluation, management training and development, compensation policy. Researches had suggested a strong fit between human resources practices and strategy is required for high profitability. This essay focuses on the function of HRM in the international business context, especially concerns on staffing policy based on the three strategies and the role of expatriates played in international business.
Research has identified three types of staffing policies in international business. An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. Firms pursue ethnocentric staffing for several reasons. First, the firm may believe the host country lacks qualified individuals to fill senior management positions. Moreover, the firm may see an ethnocentric staffing policy as the best way to maintain a unified corporate culture. Third, if the firm is trying to create value by transferring core competencies to a foreign operation, it may believe that the best way to do this is to transfer parent-country nationals to the foreign subsidiary. This is compatible with an international strategy because international firms are trying to create value by transferring core competencies from home to foreign subsidiaries. However, the ethnocentric policy is now on the wane in most international business for two reasons. First, it limits advancement opportunities for host-country nationals. This can lead to resentment, lower productivity, and increased group turnover among that group. Second, an ethnocentric staffing policy can lead to ‘cultural myopia’, the firm’s failure to understand host-country cultural differences that require different approaches to management. The adaptation of expatriate managers can take a long time, during which they may make major mistakes.
Compared to ethnocentric approach, a polycentric staffing policy recruits host-country nationals to manage subsidiary. In some areas, a polycentric approach is a response to the shortcoming of an ethnocentric approach. One advantage of adopting polycentric approach is to alleviate cultural myopia. Host-country managers are unlikely to make mistakes arising from cultural misunderstandings to which expatriate managers are vulnerable. Therefore, the polycentric policy may be effective for firms pursuing a localization strategy as it focus on local responsiveness. A second advantage of polycentric approach is that it may be less expensive to implement, reducing the costs of value creation. Expatriate managers can be very expensive to maintain. In the case of ABB in China, to response to the local condition and be sensitive to important cultural objectives such as Chinese “guanxi”, ABB hires local Chinese employees who know their local markets and have contacts with government officials. Nevertheless, a polycentric approach has its drawbacks. Host-country nationals have limited opportunities to gain experience outside their own country. As in the case of an ethnocentric policy, this may cause resentment. Perhaps the major drawback, however, is the gap that can form between home- and host-country managers. Language barriers, national loyalties and a range of cultural differences may isolate the corporate headquarters staff from the foreign subsidies. The result can be a “federation” of independent units with minimal links to headquarters.
A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. This policy has a number of advantages. First, it enables the firm to make the best use of its human resources. Second, it enables the firm to build a cadre of international executives. Creation of such a cadre may be a first step toward building a strong unifying corporate culture and an informal management network, both of which are required for global standardization and transnational strategies. In addition, the multinational composition of the management team that results from geocentric staffing tends to reduce cultural myopia and to enhance local responsiveness. Thus, other things being equal, a geocentric staffing policy seems the most attractive. ABB is typified by a culturally diverse set of managers with a mixture of managerial ideas, derived from the different managers’ national backgrounds, different values, and different methods of working. Its identity is supported by an elite cadre of 500 global managers, which the top management shifts through a series of foreign assignments. Their job is intended to knit the organization together, to transfer expertise around the world, and to expose the company’s leadership to differing perspectives. However, some problems limit the firm’s ability to pursue that policy. Many countries want foreign subsidiaries to employ their citizens. Therefore, national immigration may limit the implementation. A geocentric staffing policy also can be very expensive to implement. Training and relocation costs increase when transferring managers from country to country. Compensation structure for global managers can be a problem.
In the context, two of the staffing policies – the ethnocentric and the geocentric – rely on extensive use of expatriate managers. Expatriates are citizens of one country who are working in another country. The key reasons for using expatriates are position filling, management development and organization development. The use of expatriate can be regarded as a bureaucratic control mechanism, where the primary role is that of ensuring compliance through direct supervision. Global firms such as P&G and Samsung originally followed it. It can be important in ensuring subsidiary compliance, enabling strategic objectives for local operations to be achieved. Second, the role of expatriate is related to the use of corporate culture as an informal control mechanism. There is an implicit expectation that expatriates assist in transfer of shared value and beliefs. This is especially important to firms pursuing global or transnational strategy that strong organizational culture is needed to facilitate coordination and cooperation. Third, expatriates are considered boundary spanners because they can collect host-country information, act as representatives of their firms in the host country and can influence agents. Lastly, expatriates assist in transferring competence and knowledge. It is important to management and organizational development, and for realizing location economies, experience effects and multidirectional transfer of core competencies under transnational strategy.
However, the success of using expatriates cannot be achieved easily. Lots of difficulties associated with expatriate who carries international assignment, these may include difficulties with new environment, inability of manager or spouse to adapt, inability to cope with larger overseas responsibilities, alienation or lack of support from headquarters, family problem and the like. Therefore, to increase the effectiveness of expatriates, management development is intended to develop the manager’s skills over his or her career with the firm. A manager might be sent on several foreign postings over a number of years to build her cross-cultural sensitivity and experience. Cultural training, language training, and practical training all seem to be required for the true global managers. Cultural training seeks to foster an appreciation of host-country’s culture; language training can improve expatriate’s effectiveness and build rapport with local employees; practical training ease into day-to-day life of the host-country. In a sense, the success of the expatriate is largely attributed to appropriate selection and training programs, it is also a result of intelligent planning by the human resource management. The effective HR activities may include develop an effective performance appraisal system, a compensation structure with a standardized international base pay (e.g. the use of balance sheet approach, which aims to equalize purchasing power so employees can enjoy the same living standard in foreign postings that they had at home), and a policy accompanying expatriates’ future career development and the like.
To sum up, broadly speaking, an ethnocentric approach is compatible with an international strategy, a polycentric approach is compatible with a localization strategy, and a geocentric approach is compatible with both standardization and transnational strategies.
