Task 1: International HR Strategies: The Derivation of Policy
Overview:
Chapter discusses the issue how to staff various forms of overseas operations. Review the discussion in the chapter on the issues affecting decisions about the use of expatriates, the upfront training costs, the cultural orientation costs, and the high level of assignment failure.
Consider the information provided in the case and take positions on each question posed.
Learning Objectives:
After completing this exercise, you should be able to
1. Understand some of the complexities of international HRM.
2. Provide recommendations for decisions related to staffing and compensating international operations.
3. Outline the key issues that should be considered in dealing with expatriates and repatriates.
Procedure:
Part A: Individual Analysis
Step 1. Read the attached background material on LeBert Graphics provided in Exhibit 2.1.1.
Step 2. Assume the role of consultant to the vice president of HR and respond to the issues he has raised. Prepare concise, written responses for each issue and point out any contingencies that should be considered. Answer the questions presented on Form.
Task 2: International HR Strategies: The Derivation of Policy
William O’Dell, vice president for human resources at LeBert Graphics (LG), a fast-growing software development firm headquartered in Boston’s Route 128 technology belt, was visiting the firm’s first overseas subsidiary, LeBert Graphics Bangalore, Ltd. (LGB). The visit had been going well, but a recent lunch with his good friend, Ashok Rao, had left him troubled. Rao was one of many Indian expatriates who had migrated to the United States in the 1980s. He had been with LG for a number of years and had recently accepted an assignment to return to his hometown to head up the firm’s new development lab. O’Dell was thankful to have him there—not just because of his development skills, but because he hoped he would serve as a cultural broker between headquarters and local employees. During lunch, Rao noted how the city had changed. Rao had decided not to return to Bangalore after college in the United States because of the lack of opportunities. Now the city was booming, and computer software was the driving force. Neighbors in the technology park where LG had located included Siemens Components and Hitachi Asia.1 The nature of the industry had changed too. Initially, foreign firms had employed Indian workers for basic programming. Although cheap, these employees did not always have the training or skill levels seen in their American counterparts. No longer. There were still large pools of these competent, but not exceptional employees. Recruiting for the new operations, however, he found many of the applicants had technical skills that would equal those of any of their Boston staff. These were the employees they needed for the software development operations. The market had changed in other ways too. Today, the best of these software engineers had more options. Because of a worldwide shortage, there were a host of firms looking for skilled engineers. An engineer could work for the local operations of a foreign firm, on temporary assignment basis in the United States or Europe, or could find a place in one of the many local, start-up firms.3 Some had great success starting their own software firms in the United States. While the same range of opportunities might not exist for those with more basic skills, the growth in foreign investment and start-ups in Bangalore also gave these employees many attractive options locally. At first, the conversation appeared casual, the reminiscences of an old friend. However, Rao also had mentioned a conversation he had overheard in which one of the brightest engineers in the development unit had complained to a coworker that although he was a principal engineer on a joint Boston–Bangalore project, his American counterpart was receiving over four times his salary. On reflection, O’Dell was convinced that Rao had been attempting to draw his attention to an issue that was important to some of the Indian staff. O’Dell’s initial reaction had been, “Of course, that’s why we located in Bangalore in the first place.” Technology skills were abundant and pay rates for software engineers were a fraction of those in Boston. Moreover, the pay levels reflected the fact that productivity in the programming unit was not always up to U.S. standards. On reflection, he realized that the issue was much more complex. On one hand were the economics. Cost savings not achieved now might be lost forever. Manufacturing firms that had moved operations to low-cost, offshore sites often had found that the benefits were partly illusory. Wages were low, but at times so was productivity. Employees were often willing, and with appropriate training, supervision, and equipment, productivity levels would rise. However, as these employees became more productive, they also became more attractive to other employers. Moreover, as the economy in these regions developed, there was often a shift in the exchange rate. Salaries rose locally, but because of exchange rate effects, they rose even more in U.S. dollars. Firms using contractors might shift to another, lower-cost site. Such shifts could be disruptive, however, and were even more difficult when the firm had invested directly in the overseas location. It would be simpler, O’Dell thought, if the firm were in Bangalore for the short term. LG’s interests in Bangalore had changed dramatically over the past year, however. LG had been using an Indian subcontractor to outsource basic programming for years. Individual pay levels had not concerned them directly. The Indian firm handled all issues related to recruitment, performance evaluation, and compensation. Recently, LG had decided both to bring the programming inhouse (by acquiring the Indian firm) and to open a software development lab.
Contributed by Brenda E. Richey, Associate professor and Chair, Department of Management, International Business and Entrepreneurship, Florida Atlantic University.
1Ristelhueber, R. (April 1997). Bangalore builds a high-tech future. Electronic
Business Today, 23(4), 20.
2Stremlau, J. (November 1996). Bangalore: India’s Silicon City. Monthly Labor
Review, 119(11), 50–51.
3Leung, J. (June 1996). Brains fuel technology: Boom town. Asian Business,
32(6), 28–34.
Bernardin: Human
Resource Management: An
Experiential Approach,
Fourth Edition Appendix B: Chapter Exercises 2.1 International HR Strategies: The Derivation of Policy © The McGraw−Hill Companies, 2007 460 APPENDIX B Chapter Exercises
The decision to move the operation in-house reflected a desire for greater control. It would allow greater emphasis on quality, especially after they trained the programmers to more closely meet the company’s special needs. The decision to open the software development lab represented an even more dramatic shift. The new lab operation could take advantage of the rapidly developing skills of the Indian engineers, particularly in “hot jobs” for which there was a worldwide shortage. Moreover, the fast-growing Asian markets held real potential for LG. This required the development of programs that met the special needs of their Asian customers. At first the technology would originate in Boston, but substantial local adaptation was required. Later, the lab should stand alone in developing programs for the region and possibly the world market. These efforts required day-to-day interaction and teamwork between engineers at both locations. Soon the projects would require short-term transfers of personnel between facilities.The discussion reminded him of a project he had left on his desk before the trip: developing a compensation plan for the revamped India operations.
The project had not focused on compensation levels, but it had raised related questions. What type of compensation package was appropriate? Should they follow local custom as to vacations and leave? Should the generous stock option and pension plans, available to employees in Boston, be extended to these operations? Custom and government regulation varied substantially from one nation to the next. In some nations, pensions were part of a government social security system; in others they were provided by firms. In some nations they were not required at all. Even something as simple as “monthly pay” differed: In Singapore a typical compensation package paid the employee by the month for 13, instead of 12, months.4 These were just a few of the differences O’Dell had run across in research for the project. The list could go on forever. No wonder compensation systems, like other aspects of human resource management, traditionally had been one of the most “local” aspects of a multinational’s operations. Local wage scales were used, and the firms tended to follow local custom in regard to vacations, pensions, and other aspects of the compensation package. But with engineers of similar skill levels working together on a daily basis, how long would these distinctions be possible? Might some of these engineers be hired in the United States? Would LG offer different packages based on the facility they were assigned to? How would that affect recruiting? And what about the engineers transferred to Boston for six months: should they receive a different package while on tour? For the programmers doing more routine work, the issues might not be as complex but were still important. Considering the cost of the training planned for the Bangalore staff, it was vital to keep these employees on board and motivated despite the many opportunities open to them.
While the focus was on India for now, the firm also had considered opening subsidiary operations in Russia and Brazil. His project was the first step in an effort to decide the extent to which the firm’s performance review and compensation plans should be integrated globally. The issue did not just concern the employees abroad. At home, some concern had been expressed about the long-term outlook. Software engineers were hot now, but in 10 years would the salaries reflect a lower, global scale? And would all the jobs be overseas? The opportunities abroad were exciting but had brought their share of headaches.
Question 1: How does culture affect the role of pay as a motivating force for workers? Would this issue be raised differently in the United States?
Question 2: What would be the advantages and disadvantages of using the existing LG compensation package in India? How might it differ from a more typical Indian package? What additional information would O’Dell need to make this decision?
Question 3: What other human resource issues might O’Dell need to be concerned about? Prepare a list and explain how they might interact.
Question 4: How do these issues relate to the strategic choices that the firm has made? Does the analogy to a manufacturing firm seem appropriate?