The Development of a Competent Global Manager - Term Paper Example

The Development of a Competent ‘Global Manager’ Represents a Significant Challenge for International Companies Table of Contents Introduction 2 International Performance Appraisal and Performance Management 4 Appraisal Techniques of MNCs in International Organisations 8 Conclusion 11 References 12 Bibliography 16 Introduction The performance appraisal in an organisation has an affect on the corporate culture. A company can achieve great results by renovating their existing performance appraisal procedures (Grote, 1996). It helps them to establish standards and identify employees who are not performing up to the standards and measure both qualitative and quantitative performance of employees (Sandler & Keefe, 2003). Organisations are increasingly becoming global and this is imposing a challenge to the organisation in terms of managing their human resource. Human Resource Management in an international organisation involves a combination of activities that maintain, develop and attract an effective workforce required to achieve the company’s objectives (Mathis & Jackson, 2007). International human resource management (IHRM) deals with managing the expatriates and deals with how the expatriates adjust to the foreign culture and the management of a diverse workforce (Cieri & Et. Al., 2005). Organisations need to put in place an effective performance appraisal system to develop the global and expatriate managers. Global performance appraisal is a strategic process that helps the multinational corporations to continuously improve their global operations through their employees by matching up to certain pre set objectives. International Performance Appraisal (IPA) sets the basis for compensation, rewards and promotions (Shen, 2010). The subsidiaries of the MNCs have different employees of different nationalities which makes performance appraisal a critical task. Employees in the subsidiaries are the Parent Country National (PCN), Third Country nationals (TCN) and the Host Country National (HCN). TCN and PCN together are known as expatriates. Parent Country Nationals are the citizens of the country to which the organisation belongs and they have the same cultural background as the employees in their corporate headquarters. They do not have any knowledge about the host country’s culture, social and political conditions (Denisi & Griffin, 2005). Host Country Nationals are the residents of the host country in which the company operates and they are aware of the local culture, social and economic conditions (Denisi & Griffin, 2005). Third Country Nationals are people who neither belong to the parent country nor to the host country. They bring diversity in the organisation and the organisation benefits from their experience (Denisi & Griffin, 2005). Hiring a mix of these nationals enables greater integration, control and mobilisation of knowledge. The different knowledge base of the different nationals creates competitive advantage for the organisation. However, it also poses considerable challenge in terms of performance management. The performance appraisal of the expatriates is a difficult task. International Performance Appraisal and Performance Management An MNC is not uniform across all of its subsidiaries and hence various environmental contingencies have to be considered in relation to the various subsidiaries. These contingencies are the psychic distance between the parent and the host country, entry mode and the role of the subsidiaries (Colakoglu & Et. Al., 2009). There are various staffing models that are considered while filling up positions in the subsidiaries. In the geocentric staffing model companies employ the most competent person irrespective of the country the employee belongs to (Denisi & Griffin, 2005). Regiocentric is a geographic strategy and a subset of the geocentric approach whereby employees remain within a particular geographic region even if they have to move out of the country and the managers enjoy regional autonomy (Schuler & Et. Al., 2010). In the ethnocentric staffing model PCN are employed to fill up the higher level positions (Denisi & Griffin, 2005). In the polycentric staffing model HCN are employed with the belief that the company will benefit from their local knowledge (Denisi & Griffin, 2005). The ethnocentric and geocentric staffing models require integration and transfer of knowledge inside the host country unit to enable better performance of the subsidiary. The staffing strategy adopted has an impact on the performance of the subsidiary (Colakoglu & Et. Al., 2009). The diverse business strategies of the organisation and the dynamic global environment create the need for strategic human resource management. It has become necessary to strategically manage the human resource of the organisation with the aim that they fit into the global environment and perform well. The operation of MNCs involve two dimensions namely multiculturalism and geographic dispersion. These two aspects are balanced by adopting a mix of centralised and decentralised approach since both have their benefits. Strategic human resource involves strategies to fit the human resource with the business strategy of the organisation. Global strategy involves similar operations across all the business units. There is complete control of the headquarters and this centralised approach makes it imperative to develop uniform performance evaluation criteria all throughout the subsidiaries of the MNC (Caliguiri, 2006). In this strategy local responsiveness is more important and global integration is not required. The decentralised approach makes them develop performance evaluation criteria depending on the host country. The performance evaluation is aligned with the subsidiary’s strategy (Caliguiri, 2006). In these organisations there is immense pressure both for local responsiveness and for global integration and therefore, performance evaluation takes into consideration the global as well as the local perspectives (Caliguiri, 2006). The success of multinational corporations depends to a large extent on the performance of expatriate managers. Performance appraisal of the expatriate manager is a crucial task and there is possibility of conflict between the subsidiary manager and the headquarters. Subsidiary managers should set clear targets and establish clear criteria for performance measurement to avoid the conflict (ICMR, 2010). The psychic distance between the parent and the host country because of the cultural differences, language, social and political condition makes managing the subsidiary a difficult task. It is for this reason that companies tend to hire more PCNs in the subsidiaries. PCN (Parent Country National) create an informal communication network in the organisation and build social capital in the corporation. They have dual commitment both to the subsidiary and to the organisation as a whole. The PCN enables the subsidiary to have greater knowledge of happenings in the MNC (Colakoglu & Et. Al., 2009). Subsidiaries no longer exist in isolation with strong control of the headquarters. There is greater integration and relative autonomy of the subsidiaries. There is at times conflict of interest between the headquarters and the subsidiaries which makes managing international operations a huge challenge (Boussebaa, 2009). The international performance appraisal is generally carried out by both the HCN and the PCN. HCN and PCN have conflicting opinions and perspectives. There are several biases that may take place when a PCN conduct the performance appraisal (Washington, n.d.). The geographical distance makes it difficult for the PCN to carry out the evaluation in an effective manner. The evaluation becomes biased and appropriate evaluation criteria cannot be set (Washington, n.d.). It is difficult for the PCN to understand the global business scenario and evaluate performance in the context of the international scenario and he may fail to understand the business challenges that exist in the global environment (Washington, n.d.). The PCN is forced to rely only on data while making the evaluation. He is able to judge the performance only on the basis of quantitative data and not qualitative data (Washington, n.d.). The HCN may have certain biases while conducting the performance appraisal and he may not be able to trust the foreign national and may always doubt his intentions. This kind of bias can affect the performance appraisal (Washington, n.d.). Performance management of expatriate employees is more difficult than domestic employees. The performance of the expatriate employees depends on the compensation, tasks and job roles, cultural adjustments, support from the headquarters and the host environment (Newlands & Hooper, 2009). When expatriate employees are posted to a new location their major concern is their compensation. Companies should decide on the compensation based on the host country’s living cost and they also need to ensure that employees are comfortable in the new setting. The compensation is determined by the forces in the labour market like the demand and supply of competent managers, government regulations, living standards and tax codes. Expatriate managers often receive differential compensation to adjust the differences in values of currencies. If the assignment is of a short duration then the salary is adjusted according to domestic currency and if it is a long term assignment then it is adjusted according to the foreign country standards. Several benefit packages are also provided to expatriate managers. Standard benefits include vacation allowances and health insurance and special benefits include education, housing, club membership, medical treatment and travelling allowances. The expatriate has to face certain problems when he takes up the job in the foreign country. The tasks and job roles are often defined in the context of the home country of the expatriate manager and he may be not able to understand his job role in foreign environment (Newlands & Hooper, 2009). The expatriate and his family may face difficulty in adjusting to the foreign culture. The MNC has to ensure that he acclimatises himself and acculturation takes place. Unless he gets adjusted with the culture of the foreign country he cannot perform his best at his job (Newlands & Hooper, 2009). The host environment also poses challenges due to a combination of several factors namely social, economic, legal, technological and physical factors (Newlands & Hooper, 2009). Appraisal Techniques of MNCs in International Organisations There are several issues involved in expatriate performance appraisal. The data that may be available for carrying out the evaluation may not be reliable. The international environment is complex and dynamic. It is difficult to carry out performance appraisal in a volatile environment. The geographical distance and the different time zones often make the appraisal difficult. The local culture also has a significant impact on the appraisal (Cob, n.d.). MNCs may carry out appraisal of their employees using the home appraisal system or local appraisal system. These appraisals are carried out once a year to ensure better performance management of the expatriate employees. Appraisal of expatriates may be carried out using home appraisal system and local appraisal system may be used for TCN and HCN. HCN are made to conduct appraisal because they can help in devising a suitable appraisal system and they help in the acculturation process. Employees are also allowed to carry out self-evaluation. Peer’s appraisal is also used because they work in close proximity with the expatriate and 360 degree appraisal removes the problem of the bias of raters. Cultural sensitivity is required while carrying out international performance appraisal (Shen, 2010). Performance appraisal in multinational organisations involve appraisal by the immediate manager. In the international context performance appraisal helps to identify training and development needs. A narrative report is prepared by the manager annually about the employee’s work quality and the output. Measurement techniques like simple rankings, behavioural checklist, and comparison with objectives, ratings and critical incidents are used. The appraisal is mostly based on the appraisal practices of the host country. There are certain cultural issues involved in using standardised performance appraisal methods. Language poses a problem while deciding on evaluation criteria and during discussion with the host country nationals. The MNC may face problem in the developing countries where performance appraisal constraint exists in the form of ‘face saving’. In the authoritarian societies employee involvement in appraisals is also difficult (Brewster & Harris, 1999). The main challenge involved is in maintaining global consistency and local fit. MNCs realise the fact that performance appraisal requires local adaptation. The factors that are considered in international appraisal are the extent to which formal and specific appraisal methods, group performance and extrinsic rewards are provided importance. Managers from different cultures perceive different appraisal methods as appropriate (Harzing & Ruysseveldt, 2004). The performance evaluation criteria should be easy to understand and should motivate the manager irrespective of their culture and nationality. MNCs may either set hard goals or soft goals. Hard goals are quantifiable goals and can be measured through return on investments, profits and market share. Soft goals are based on relationship or traits and it includes relationship with customers, effort, cooperation, initiative communication skills and leadership skills. MNCs have three choices in deciding the criteria for expatriate managers; these are local standards, integrative standards and home standards. The performance expectation should be effectively communicated to the expatriates. MNCs often exempt the expatriates from management duties and appraisal to enable them to acclimatise in the new environment. The appraisal forms should be customised according to the understanding of the HCN and the PCN and it should be ensured that the appraisal is conducted in a non-biased manner (Shen, 2010). On the basis of the discussions in the paper it can be said that performance appraisal can be improved in the subsidiaries of the multinational enterprises by setting clear evaluation criteria. The problems of biased evaluation by the HCN or the PCN can be avoided if expatriates carry out a self evaluation. Conclusion In the present global environment, international performance appraisal is a major challenge to multinational corporations. An effective performance appraisal is essential to ensure the global performance management. Performance appraisal of the expatriate managers is a difficult task. Global performance of multinational corporations can improve only if the expatriate managers perform well. Companies have to establish clear performance criteria for the managers. They have to ensure that expatriate managers get a supporting environment to improve their global performance. They should be supported in every manner so they adjust with the local culture and adapt themselves with the local environment. Global managers can be PCN, TCN and HCN and the evaluation criteria of each differ. Companies use various staffing models to fill up the positions in their foreign subsidiaries. Each post is filled up with PCN, TCN or HCN depending on the job requirement of the particular position. International performance appraisal is very different from domestic appraisal and MNCs have to keep these things in mind while deciding on the performance evaluation criteria. The performance of the expatriates depends on various factors like the compensation they receive, the clarity of the job roles, the host environment and cultural adjustment. The performance appraiser should be selected very carefully. Generally performance appraisal is carried out through a joint effort of both HCN and PCN. This removes the possibility of biased evaluation of the expatriates and ensures an honest evaluation. Thus, effective performance appraisal ensures that global managers perform successfully in the global environment. References Boussebaa, M., 2009. Struggling to Organize Across National Borders: The Case of Global Resource Management in Professional Service Firms. SAGE. Brewster, C. & Harris, H., 1999. International HRM: Contemporary Issues in Europe. Routledge. Caligiuri, P. M., 2006. Performance Measurement in a Cross National Context. Working Paper Series in Human Resource Management. [Online] Available at: http://chrs.rutgers.edu/pub_documents/PerformanceMeasureinCrossNationalContext2.pdf [Accessed December 28, 2010]. Cob, No Date. Challenges of Expatriate Performance Appraisal. International Human Resource Management. [Online] Available at: http://www.google.co.in/url?sa=t&source=web&cd=2&ved=0CCYQFjAB&url=http%3A%2F%2Fwww.cob.sjsu.edu%2Fboyaci_n%2FSlides%2Fch11.ppt&rct=j&q=challenges%20in%20expatriate%20performance%20appraisal&ei=trEZTezFC4nprAenh4jgCw&usg=AFQjCNF4J9L4N0TD-YNhUgV5CQrtNrXBSA&sig2=hjzf8WN5zuFiqBMjpS8dDQ&cad=rja [Accessed December 28, 2010]. Colakoglu, S. & Et. Al., 2009. Towards a Conceptual Framework for the Relationship Between Subsidiary Staffing Strategy and Subsidiary Performance. Routledge. Cieri, H. D., 2005. Introduction. The Challenge of International Human Resource Management: Balancing the Duality of Strategy and Practice. 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Performance Appraisal Phrase Book: The Best Words, Phrases, and Techniques for Performance Reviews. Adams Media. Shen, J., 2005. Effective International Performance Appraisals: Easily said, Hard to Do. Compensation & Benefits Review. Schuler, R. S. & Et. Al., 2002. International Human Resource Management: Review and Critique. International Journal of Management Reviews. Washington, No Date. Performance Appraisal. Human Resource Management. [Online] Available at: http://www.google.co.in/url?sa=t&source=web&cd=10&ved=0CGIQFjAJ&url=http%3A%2F%2Ffaculty.washington.edu%2Fgiambatt%2Fibus300%2Fppt%2FHRM%2520Ch.16.ppt&rct=j&q=performance%20appraisal%20challenges%20in%20MNC%20site%3Aedu&ei=T6oZTcDSCMHsrQeMlonMCw&usg=AFQjCNGK2sIBel8-DMnWQ6z5JoU2aB9Y4g&sig2=gAuvxoS00aWWFjPGpZKdZQ&cad=rja [Accessed December 28, 2010]. Bibliography Downling, P. J. & Et. Al., 2008. International Human Resource Management. Palgrave Macmillan. Stahl, G. K. & Bjorkman, I., 2006. Handbook of Research in International Human Resource Management. Edward Elgar. Read More