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Chapter 12:PLAN SECTION 7: HUMAN RESOURCES
CHAPTER 12
Plan Section 7: Human Resources
MANKIND ARE ANIMALS THAT MAKE BARGAINS, NO OTHER ANIMAL DOES THIS. – ADAM SMITH
ALL COMPANIES ENGAGE IN HUMAN RESOURCE MANAGEMENT . Human resource (commonly referred to as HR) management includes such tasks as employee recruitment and selection, training, compensation, review and promotion and termination of the employment relationship. Management of human resources is a key function at any business level. Global human resource management has been cited as one of the critical planning and success factors for companies embarking on any strategy of foreign expansion. Given the cultural and legal differences that exist among countries, this is an area where conflicts can easily arise. In fact, poorly managed global human resources have often contributed to the failure of international operations. This issue should be addressed well before a company launches its overseas expansion activities and is seen as a critical factor in an international business plan.
General Information
The business plan should give the reader a good understanding of the human resources of the company, including: ■ The number of employees involved in major functional areas ■ Compensation methodology ■ Job descriptions ■ Terms of key employment contracts or agreements ■ Structure of the work force, including union relationships and relative level of employee skills and morale ■ Employee benefit plans
In many international business plans, the discussion of human resources is little more than a recital of statistics, including the number of employees in each functional area. A better practice is to describe how the company intends to recruit, assess and reward a strong team of dedicated and talented managers and employees. This is particularly important if the company is in an industry experiencing tremendous competitive pressures or fast growth. Employees with specialized talents in such companies will be targets for other companies’ recruitment efforts. If possible, an attempt should be made to compare the personnel practices of the company to those of its competitors.
If the company has only a few employees, the business plan should generally focus on how it intends to find and employ qualified personnel as the company continues to grow. One of the key considerations in this area is a compensation and incentive program that the company is offering or intends to offer to its employees. This includes:
■ Opportunities to purchase stock in the company (where applicable) ■ Benefits, including health care insurance ■ Incentive bonus programs
As the work force expands, however, the company must take a much broader view of personnel matters. In such situations, the plan additionally should cover the company’s policies on: ■ Training and education ■ Employee communications ■ Performance measurement ■ Morale ■ Managing employee turnover
Human resources are a significant aspect of any business that hires and trains employees, builds and relies on employee loyalty and demands job efficiency. In the global arena, the provision for, and an understanding of, human resources becomes even more imperative. Now, relations between managers and staff stretch across significant distances, time zones and a cultural, moral, religious and educational morass. Unfortunately, companies often neglect or give minimum treatment to human resources in their global business plans, when in fact development of a human resource strategy could mean the difference between success and failure. Accordingly, as you construct your plan, be certain to address the following concerns:
■ HUMAN RESOURCE MANAGER AS PART OF THE TEAM
Unfortunately, most people with the title of “manager” believe themselves to be proficient at managing human resources. Actually, only a small percentage of managers handle this key issue properly. What existing human resource expertise does your company currently have? Have you consulted them as part of the planning process? Have you made them part of your global operations team? If the answer to the last two questions is “No,” you had better make amends quickly.
■ SELECTION AND REVIEW OF PERSONNEL
Have you determined appropriate criteria for the selection and review of the personnel who are to be involved in the management and operation of international activities? From what employment pool will you seek personnel— local residents of the foreign country, nationals of your own home country or nationals of an independent third country? Is nationality or residency going to be a factor in your selection, and if so, why? Have you selected managers to handle operations in foreign markets who are particularly sensitive to the specific environmental factors in the marketplace? If such managers are not available, have you made provision to hire managers with the necessary expertise or to train managers? Does your plan provide procedures for ensuring that your chosen personnel have the necessary market-specific knowledge and skills (e.g., language)?
Finding the right people to work in a global-oriented organization can be a challenge, particularly when recruiting must take place around the world. Before
making a final decision about entering a new foreign market, consideration must be given to how local employees will be found and retained. Also, determine whether and how employees from other parts of the organization will be relocated to the new market.
The selection criterion to be applied in hiring employees for foreign markets will most likely be somewhat different than in the case of domestic employees. For example, the requisite social and cultural skills places a premium on finding employees that have the necessary maturity and stability to deal with strange environments, large amounts of travel and the stress of launching a new business operation. Technical skills, including familiarity with the company’s technology and communications systems, are also very important. Employees must be willing to go through the required training necessary for effectiveness in the foreign market, including the acquisition of new language skills. Finally, employees must have the social skills to get along with local workers as well as with managers and colleagues elsewhere in the organization. In the case of managers, this includes the diplomacy and tact needed to mediate misunderstandings that may arise in the foreign country and communication glitches within the global organization. Advance planning can help to ease workplace tensions and uncertainties in the face of employee relocation and company reorganization. This will be an even more sensitive issue if family members are to accompany the staff members assigned to the foreign venture.
■ ONGOING TRAINING
Does your plan cover ongoing training for employees in the foreign operations and for new employees? Have you provided a methodology for educating new employees by which they will become fully versed in the company’s products, in activities in the home market, as well as operations in the foreign markets?
Training is important in any organization and the need to budget for educational programs in global businesses is particularly important. By way of example, a company may choose to rely on a recruiting strategy where employees for the project are chosen primarily from the existing home country staff.
Consequently, significant amounts will need to be spent on language classes and intercultural training. The latter focuses on the skills required for home country staff to understand and appreciate the cultural norms, expectations and communication styles that apply in the host country. This may require training from consultants and educators with specific experience in the new country.
■ LOCAL CUSTOMS AND PRACTICES
Have you carefully analyzed local customs and practices relating to compensation and performance reviews? Does your plan allow for compensation arrangements that are acceptable in the foreign country as compared to your home market? Will the benefit packages and company standards and policies have meaning to employees in new foreign markets? Does your plan include a means of presenting new benefit concepts to employees in foreign countries where labor and cultural practices differ from your home country? Have you considered whether your own company may need to modify its own compensation policies to allow for common practices overseas?
Compensation issues can be quite complex and challenging for a global organization. Management needs to take into account local conditions as well the
relative parity of compensation arrangements for similar jobs in different countries throughout the entire company. Main areas to consider include base salaries, benefits and tax laws.
BASE SALARIES
Parity and competitiveness are two key factors in setting the base salaries for employees in a global organization. Management should always attempt to be fair and consistent in the treatment of employees throughout the organization and make a special effort to be sure that employees performing like activities are dealt with equitably. In addition, the salary system should be flexible enough to avoid disincentives to movement to other locations within the global organization based solely on compensation. Finally, the base salary in each country should be competitive with comparable firms in the area.
BENEFITS
Compensation includes not only salaries, but also various financial and nonfinancial benefits. For example, employees in the United States are used to receiving medical and dental insurance and opportunities to receive an ownership interest in the company through the issuance of stock options. In other countries, benefits can take the form of extended vacations and holiday periods. Employees relocating from one country to another country may receive an allowance for moving expenses and adjustments in their base salaries specifically tied to changes in the cost-of-living between the two countries.
While benefits and expense allowances are fairly common around the world, their content and importance will vary from country to country. In developing a human resources plan for operations in a new country, management should consider the following questions and issues: ■ What benefits are typically provided to employees in the country and how might they differ from benefits offered elsewhere in the organization? ■ What legal restrictions and requirements are imposed on benefits in the new country? ■ What benefits already offered to employees elsewhere in the organization might be attractive to employees in the new country? ■ Should differences in the benefits available in various countries be offset by adjustments in base salaries?
While reviewing benefits-related issues, consideration should also be given to pension plans and other retirement benefits. The company’s role in postemployment support of its workers varies among countries and will depend on local custom and the scope of any national social security programs. In any event, management must carefully review the local practices and regulations in each country and consider how the requirements of a specific country might fit into the overall plans of the organization.
TAXATION
Each jurisdiction has its own set of tax laws and regulations, and countries often have numerous tax treaties with other nations that attempt to reconcile potential issues that might arise concerning dual jurisdiction over a taxpayer. For
example, a Japanese citizen who is posted to work at a subsidiary in Germany may, in theory, be subject to tax on any wages earned in both Japan and Germany. However, the tax treaty between the two nations, and specific country laws, will determine the amount of tax owed and the country to which the tax will be paid. Otherwise, workers would never agree to any foreign posting out of fear of double taxation.
Countries also may have different rules regarding taxation of various types of employee compensation. For example, while the United States has created special tax-driven incentives for companies to provide stock options to their employees to allow them to share in growth of the value of the business, other countries may have no preferences in that area and/or may treat options less favorably than other types of payments (see ADVISORY on this topic in previous chapter). As such, research is required before any attempt can be made to adopt any type of integrated compensation scheme for a global organization. ADVISORY: Managers and staff sent on overseas projects need to be well looked after during their expatriate assignments. They will not only have the day-to-day stress of work but the additional worry of operating in a strange culture. Problems experienced by their spouses and children will add to stress. Budgetary and support needs should be considered during the planning phase. Many a worthwhile international project has been scuttled by “expat” burnout or family-related issues that could have been avoided. Regular communication and easily accessed support act as the perfect preventative measure.
