Global Human Resource Management

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Global Human Resource ManagementAccounting in
the International Business
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Human Resource Management

• HRMRefers to the activities an organization
  carries out to use its human resources
  effectively.
• Four major tasks of HRM
• Staffing policy
• Management training and development
• Performance appraisal
• Compensation policy

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The Strategic Role of International HRM

• In this chapter we will see that success also
  requires HRM policies to be congruent with the
  firms strategy.
• For example, a transnational strategy imposes
  different requirements for staffing, management
  development, and compensation practices than a
  localization strategy.

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The Role Of Human Resource in Shaping
Organization Architecture
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Staffing Policy

• Staffing policy
• Selecting individuals with requisite skills to do
  a particular job
• Tool for developing and promoting corporate
  culture
• Types of Staffing Policy
• Ethnocentric
• Polycentric
• Geocentric

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Ethnocentric Staffing Policy

• A ethnocentric staffing policy is one in which
  all key management positions filled by
  parent-country nationals.
• ExJapanese South Korean firms

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Ethnocentric Staffing Policy

• Advantages
• Overcomes lack of qualified managers in host
  nation
• Unified culture
• Helps transfer core competencies
• Disadvantages
• Limits advancement opportunities for host-country
  nationals.
• Cultural myopia
• ExMitsubishi Motors

8
Polycentric Staffing Policy

• A polycentric staffing policy recruits
  host-country nationals to manage subsidiaries
  while parent-company nationals occupy key
  positions at corporate headquarters.
• Ex??????
• Mcdonalds

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Polycentric Staffing Policy

• Advantages
• Alleviates cultural myopia
• Inexpensive to implement
• Disadvantages
• Limits opportunity to gain experience of host
  country nationals outside their own country
• Can create gap between home and host country
  operations
• Federation
• ExUnilever

10
Geocentric Staffing Policy

• A geocentric staffing policy seeks the best
  people for key jobs throughout the organization,
  regardless of nationality.
• Ex??

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Geocentric Staffing Policy

• Advantages
• Enables the firm to make best use of its human
  resources
• Equips executives to work in a number of cultures
• Helps build strong unifying culture and informal
  management network
• Disadvantages
• National immigration policies may limit
  implementation
• Expensive to implement due to training and
  relocation
• Compensation structure can be a problem

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Comparison of Staffing Approaches
13
Expatriate Managers

• Expatriate citizens of one country working in
  another.
• Ethnocentric policythe expatriates are all home
  country nationals who transferred abroad.
• Geocentric policythe expatriates need not be
  home country nationalsthe firm does not base
  transfer decisions on nationality.
• Inpatrites expatriates who are citizens of a
  foreign country working in the home country of
  their multinational employer
• ExAcer

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Expatriate failure

• Expatriate failure premature return of the
  expatriate manager to his/her home country

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Reasons for Expatriate Failure
US multinationals Inability of spouse to adjust Managers inability to adjust Other family problems Managers personal or emotional immaturity Inability to cope with larger overseas responsibilities
European multinationals Inability of spouse to adjust
Japanese Firms Inability to cope with larger overseas responsibilities Difficulties with the new environment Personal or emotional problems Lack of technical competence Inability of spouse to adjust
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Expatriate Selection

• Reduce expatriate failure rates by improving
  selection procedures.
• An executives domestic performance does not
  (necessarily) equate to his/her overseas
  performance potential.
• Employees need to be selected not solely on
  technical expertise, but also on cross-cultural
  fluency .

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Four Attributes that Predict Success
Self-Orientation Possessing high self-esteem, self-confidence and mental well-being
Others-Orientation Ability to develop relationships with host country nationals Willingness to communicate
Perceptual Ability The ability to understand why people of other countries behave the way they do Being nonjudgmental and flexible in management style
Cultural Toughness Relationship between country of assignment and the expatriates adjustment to it
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Training and Management Development
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Training of expatriates

• Lesson

20
Training of expatriates

• Development

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Training of expatriates

• Training and development
• Global competition
• Cross-company

TRAINING
DEVELOPMENT
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Training of expatriates

• Reasons of failure
• Expatriate not adapted to the environment
• Family
• Solution ? training
• Cultural training
• Language training
• Practice training

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Training of expatriates

• Cultural training
• Increasing the familiarity to the environment
• Ease the conflict between the different cultural
• Language training
• English maybe not the only
• New language helps a lot

24
Training of expatriates

• Practice training
• Life style
• Expatriate group

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Repatriation

• Problems
• Where?
• What?
• Issue the first or the last process?

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Management development and strategy

• Development programs designed to increase the
  overall skill levels of managers through
• Ongoing management education
• Rotation of managers through a number of jobs
  within the firm to give broad range of
  experiences
• Ends
• Integration ? performance

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Performance appraisal
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Appraisal

• Problems
• Bias
• Host country
• Home country
• Guideline
• Reduce the bias that caused by different cultural
  misunderstanding

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Compensation
30
Compensation

• Issues
• Pay executives in different countries according
  to the standards in each country or equalize pay
  on a global basis
• Method of payment

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Compensation in Various Countries
32
Expatriate Pay

• Typically use balance sheet approach
• Equalizes purchasing power to maintain same
  standard of living across countries
• Provides financial incentives to offset
  qualitative differences between assignment
  locations

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The Balance Sheet Approach
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Components of Expatriate Pay

• Base Salary
• Same range as a similar position in the home
  country
• Foreign service premium
• Extra pay for work outside country of origin
• Allowances
• Hardship, housing, cost-of-living, and education
  allowances
• Taxation
• Firm pays expatriates income tax in the host
  country
• Benefits
• Level of medical and pension benefits identical
  overseas

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International Labor Relations
36
International labor relations

• Key Issue
• Degree to which organized labor can limit the
  choices of an international business
• Aims to foster harmony and minimize conflicts
  between firms and organized labor
• Concerns of Organized Labor
• Strategy of Organized Labor
• Relationship between firms and organized labor

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Concerns of organized labor

• Better fees, safety and conditions
• Bargaining power
• Attempts to import employment practices and
  contractual agreements from multinationals home
  country

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Strategy of organized labor

• Attempts to establish international labor
  organizations
• Lobby for national legislation to restrict
  multinationals
• Attempts to achieve international regulations on
  multinationals through such organizations as the
  United Nations

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Relationship between firms and organized labor

• Centralization vs. decentralization

40
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• Accounting in the International Business

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Introduction

• the language of business
• International business are confronted with a
  number of accounting problems that do not
  confront purely domestic business.
• IASB
• International Accounting Standards Board

42
Country Differences in Accounting Standards

1. Different countries have different accounting
   systems.
2. In many European countries , government
   regulations require firms to publish detailed
   information about their training and employment
   policies .

43
Factors influence the development of a countrys
accounting system

1. The relationship between business and the
   providers of capital.
2. Political and economic ties with other countries.
3. The level of inflation.
4. The level of a countrys economic development.
5. The prevailing culture in a country.

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Relationship Between Business and Providers of
capital

• United States and the Great Britain
  Both have well-developed stock and bond markets.
• Switzerland, Germany, and Japan, a few large
  banks satisfy most of the capital needs of
  business enterprises.

45
Political and economic ties with other countries

1. The U.S. system has influenced accounting
   practices in Canada and Mexico, and since passage
   of NAFTA.
2. The accounting systems of EU members such as
   Great Britain, Germany, and France have been
   quite different, but under EU rules, they are now
   converging on IASB norms.

46
Inflation Accounting

1. Many countries accounting is based on the
   historic cost principle.
2. If inflation is high, the historic cost principle
   underestimates a firms assets.
3. 1980 current cost accounting

47
Level of Development

• Developed nations tend to have large, complex
  organizations.
• Accounting problems are far more difficult than
  those of small organizations.

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CULTURE

• Uncertainty avoidance refers to the extent
  to which cultures socialize their members to
  accept ambiguous situations and tolerate
  uncertainty.

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case

• Enron The Smartest Guys in The Room
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National and International Standards

• Accounting standards
• Rules for preparing financial statements
• Auditing standards
• Rules for performing an audit

51
Lack of Comparability

• National differences in accounting and auditing
  standards
• RD costs (U.S. Spain)
• Depreciation (German British)
• Gross profit of 1.5 million, net profit of
• 34,000 in the U.S.
• 260,600 in Britain
• 240,600 in Australia

52
Lack of Comparability

• Transnational financing
• Raise capital for the sale of stocks or bonds in
  another country
• Transnational investment
• Invest in stocks or bonds of a firm in another
  country

53
Lack of Comparability

• Transnational financial reporting
• Lack of comparability between accounting
  standards in different national can lead to
  confusion
• Financial position looks significantly different
• Have difficulty identifying the firms true worth

54
International Standards

• Companies raise money from providers outside
  national borders
• Providers are demanding consistency in financial
  results
• Facilitate the development of global capital
  markets

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International Standards

• Financial Accounting Standards Board (FASB)
• Writes generally accepted accounting principles
  (GAAP)

• International Accounting Standards Board (IASB)
• International Accounting Standards Committee
  (IASC)
• To issue a new standard, 75 of the 14 members
  must agree.

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International Standards

• Under an agreement reached in 2002, IASB and FASB
  will increasingly work together
• IASB
• Develop accounting standards for firms seeking
  stock listings in global markets
• FASB
• Join force with accounting standard steers in
  Canada, Mexico, and Chile

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• Adopt of IASC accounting principles in the 1990s
• Increase interest by foreign investors
• 1994 financial statements in accordance with IASC
  guidelines and restarted its 1992 results
• In 2000, attract U.S. investors
• In 2002, adopt full U.S. accounting principles in
  addition to IASB principles

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Multinational Consolidated Financial Statements

• Economically, all the companies in a corporate
  group are interdependent
• Only assets, liabilities, revenues, and expenses
  with external third parties are shown in
  consolidated financial statements
• Required to keep own accounting records and
  financial statements

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Parent Foreign Subsidiary
Cash 1,000 250
Receivables 3,000 900
Payables 300 500
Revenues 7,000 5,000
Expenses 2,000 3,000

• Subsidiary owes parent 300
• Subsidiary pays parent 1,000 in royalties for
  products licensed from parent.

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Eliminations Eliminations Eliminations Eliminations Eliminations Eliminations
Parent Subsidiary Debit Credit Consolidated
Cash 1,000 250 1,250
Receivables 3,000 900 300 3,600
Payables 300 500 300 500
Revenues 7,000 5,000 1,000 11,000
Expenses 2,000 3,000 1,000 4,000

• Subsidiary owes parent 300
• Subsidiary pays parent 1,000 in royalties for
  products licensed from parent.

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Currency Translation
Foreign subsidiaries will prepare their financial
statements in the currency of their locating
country
When multinational prepares consolidated
accounts it must convert all statements into the
currency of its home country
The Current Rate Method
The Temporal Method
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The Current Rate Method

• We use current exchange rate to consolidate
  financial statements,it is incompatible with the
  historic cost principle although this may seem
  logical.
• For example

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The Temporal Method

• The Temporal Method translates assets valued in a
  foreign currency into the home-country currency
  using the exchange rate that exists when the
  assets are purchased.
• There is a problem in Temporal Method
• Exexchange rate seldom remain stable for long
  (JapanU.S.)

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Balance sheet
Americas Japanese
subsidiary
January 1, 2004
Yen Exchange Rate U.S. Dollars
Cash 10000000 1100(?????) 100000
Owners equity 10000000 1100(?????) 100000
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Balance sheet
Americas Japanese
subsidiary
March 1, 2004
Yen Exchange Rate U.S. Dollars
Fixed assets 5000000 195(?????) 52632
Inventory 5000000 190(?????) 55556
Total 10000000 108188
Owners equity 10000000 1100(?????) 100000
8188
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Current U.S. Practice
No.1 U.S. based multinational firms must follow the requirements of Statement 52,which issued by the FASB in 1981
No.2
No.3
Self-sustaining?autonomous
Foreign subsidiary
Integral to the activities of the parent company
Functional currency local currency
Self-sustaining?autonomous
Integral to the activities of the parent company
Functional currency U.S. currency
68
Accounting Aspects of
Control Systems 1/2

• There are three main steps for corporate
  headquarter to control subunits

Head office and subunit management jointly
determine subunit goal for the coming year
Throughout the year,the head office monitors
subunit performance against the agreed goals
If a subunit fails to achieve its goals,the head
office intervenes in the subunit to learn why
the shortfall occurred,taking corrective action
when appropriate
69
Accounting Aspects of
Control Systems 2/2

• Accounting System plays an important role in
  measuring subunits performance
• Usually headquarters and subunit managers discuss
  new budget for next year.
• (Using AIS examined)
• The most important to evaluate subunits
  performance is the subsidiarys actual profits
  compared to budgeted profits

70
Exchange Rate Changes and Control SystemsThe
Lessard-Lorange Model

• To deal with exchange rate problems,Lessard and
  Lorange point out three exchange rates

The Initial Rate the spot exchange rate when the
budget is adopted
The Projected Rate The spot exchange
rate Forecast for the end of the budget period
The Ending Rate the spot exchange rate When the
budget and performance are being compared
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Rate Used Translate Actual Performance for
Comparison with Budget
Initial (I) Projected (P)
Ending (E)
(I) (P) (E)
Rate Used for Translating Budget
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Transfer Pricing

• A product (including service) might be designed
  in one country,some of it components manufactured
  in a second country,and then sold worldwide.
• The price at which such products or services
  transferred is referred to as the transfer price
• (ExA French subsidiary of U.S. parent)

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Case-transfer pricing in China
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A French subsidiary of U.S. parent
Before Change After 20 Percent in Transfer Price Increase in Transfer Price
Revenues per unit 230 230
Cost of component per unit 100 120
Other costs per unit 100 100
Profit per unit 30 10
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Separation of subsidiary Manager Performance
Subsidiarys performance return of investment other indicators of profitability
Managers performance Managers will have different performance according to different environment (execonomic?political?social conditions ) ,thus we can not evaluate them as the same with subsidiarys performance
For examplemanager of a subsidiary in an adverse
environment that has an ROI of 5 percent may be
better than the manager of a subsidiary in a
benign environment that has an ROI of 20 percent
Suggestwe suggest that when we evaluate a
subsidiary and managers performance,we have to
separate them because of different environment
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QA
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• Thank you for your attention!!