The importance of international human resources can be seen not only in what the leaders of global firms say (the famous “our people are our greatest resource”), but also in what they do and the time and resources invested in developing policies, systems, and practices to effectively manage people globally. It is now customary that human resource factors are evaluated within a firm’s international strategic decisions, such as in due diligence before an acquisition (e.g. the integration of national cultures, the relative competencies of the host national workforce, the availability of talent in the foreign country).

The investment in international human resources is also evidenced in the training programs designed to help employees from many countries improve their language skills, their effectiveness on multicultural teams, their intercultural communications, and intercultural negotiations, among many others. Similarly, human resource management executives in multinationals are often members of the top management executive teams at headquarters and within the foreign subsidiaries of the global firm. Moreover, the issues related to managing the global workforce are increasingly important for line managers. In many companies today, line managers are evaluated according to how well they attract, develop, motivate, and retain the talent within their reporting unit.² As these examples demonstrate, multinational companies are clearly aware of the importance and role of international human resource management as a key factor for global success.

Strategic human resource management is defined as the manner of attracting, motivating, developing, and retaining the talent necessary for an organization to attain its objectives.³ Let’s consider this definition in the context of multinational organizations. By “multi-nationals” we mean simply all those organizations that operate in two or more countries. (We will sometimes use “multinationals” interchangeably with the phrase “global firms” or “international companies.”) Multinationals can be large corporations such as Exxon, General Electric, or Toyota as well as small enterprises with just a single foreign subsidiary or offshoring operations.

Regardless of its size, each branch of a multinational must operate in its respective subsidiary country, adhering to each country’s laws, while understanding the local cultural norms and sociopolitical realities for doing business. A firm opting to ignore these differences will be disadvantaged compared to other companies that are better able to understand the differences and adapt, when necessary, to compete for resources, market share, and, of course, talent within the local environment. At the same time, a multinational company is a single entity and its activities must be coordinated, in whatever way coordination is best suited, to enjoy benefits of its global scale and of scope.⁴ Global firms are highly complex, with continued concurrent strategic pressures to be both integrated globally and responsive locally. These parallel pressures for global coordination or integration and local responsiveness are at the heart of the challenge when considering global business strategies. No two companies will have identical approaches to the strategic business decisions, or subsequent human resources decisions, along this global versus local continuum.

Related case studies conducted in multinationals that are highly admired and valued by the business community (e.g. those that mention Microsoft or General Electric) show that behind the success of many such companies lie well-managed global human talent and an effective strategic human resource management function. This should not be surprising, however, as a multitude of empirical studies have demonstrated the value of human capital and its impact on business outcomes. The authors who have led in this area of research, Brian Becker and Mark Huselid, summed up their findings by saying that based on four national surveys and observations on more than 2000 firms, their judgment is that the effect of a one standard deviation change in the company’s high-performance HR system will increase 10-20 % of a firm’s market value.⁵ Better management of human resources, in other words, yields a better bottom line.

If we try to identify commonalities among the organizations that base their success on human resources, we may be tempted to look for a list of “best practices” (i.e. a specific manner of attracting, retaining, and motivating employees) that are present in all these firms. These efforts, however, often lead to frustration because the human resource management practices that work very well for some firms, and are key to their success, are ineffective in others. For example, in the 1990s, when Microsoft was rising to its zenith, it made a strong point of engaging in excellent human resource practices, such as recruiting from top universities, establishing powerful systems of monetary incentives, promoting competition through the use of employee comparison rating methods, and striving for continuous learning by means of novel and innovative projects.⁶ These human resource practices, however, are not the dominant practices found at Intel, even though human resource management was also an essential factor in Intel’s success. With a different focus from Microsoft, Intel put its emphasis on human resource practices such as management by objectives, structured problem solving, and running meetings efficiently.⁷

If not specific best practices, per se, what then defines effective human resource management? While differing in strategic execution, there are several fundamental principles upon which human resource management must be built if an organization aspires to compete, in part, on their outstanding human resources. These principles are simple to formulate, but not so simple to follow or convert into a potential source of competitive advantage. (After all, if they were easy to put into practice, they would be within reach for everyone and consequently would yield few advantages.⁸) Some of these principles are shared among firms (irrespective of whether they have any foreign subsidiaries), but others are specific to firms operating globally. Let’s begin by analyzing the general principles important for strategic human resources, irrespective of geography.

Involve line managers in managing human talent. Supervising individuals effectively is an essential and critical management task. In fact, as managers move up the organizational chart, their most important tasks often revolve around seeing the big picture (or setting a strategic vision), communicating it effectively, and getting their people to align their efforts behind it. The manner in which one seeks to attract, retain, and motivate employees in order to attain the organization’s objectives is a job too important to be delegated to one functional area, the human resource function, alone. Line managers need to set vision and influence their human talent to engage their efforts in alignment with that vision - while human resources professionals (and the HR function in general) supply the guidance and tools for line managers to accomplish this goal.⁹ Both sides, line managers and HR professionals, need to evaluate how the available human resources facilitate or impede the success of the organization’s strategies, as well as acting as an example and model of the behaviors necessary for the organization to succeed.

This principle of shared responsibility is as valid for domestic businesses as it is for international ones. The only difference is that the challenges for line managers and human resources professionals of managing talent globally are far more complex in multinational firms, given that they need to include a wider variety of employees (e.g. headquarters employees, host country or local employees, expatriates or international assignees), a wider variety of practices (e.g. HR practices developed by headquarters and by subsidiaries), more diverse stakeholders (e.g. headquarters’ leaders, subsidiaries’ leaders, host country or local employees, national governments), additional situational factors (e.g. culture, legislation, logistics) and, as we will see in the remainder of this chapter, additional objectives and principles. This greater complexity must be taken into consideration when planning how line managers and HR professionals will manage the corporation’s global talent.

Maximize employee contributions. As the previous principle suggests, supervising individuals is an essential task of all line management, guided by human resource professionals. Which activities and decisions represent the core of how managers and HR professionals need to manage talent strategically? The essential HR activities and decisions have been classified into three categories:¹⁰

These three decisions and subsequent HR activities need to be managed in a way that will maximize employee contributions so that the organization can attain a competitive advantage. From these three activities, it follows that the task of managing talent is not limited to merely attracting talent. In fact, recent studies have shown that the “star” workers (i.e. individuals with exceptional talent), when they move to another organization, make a much more modest contribution than the hiring organization had hoped when they attracted the star in the first place.¹¹ The contributions of individuals do not depend solely on the knowledge, skills, and abilities that they bring to the organization when they are hired, but also (among other things) on the way in which their tasks are assigned, how they are motivated to expend effort, and how their competencies are developed.¹² Managers need to be held responsible for all of these activities with respect to managing their human talent.

In today’s competitive environment, a worthwhile employee contribution consists of doing “something more than standard work from day to day.” That is, employees contribute when they are doing things that achieve a higher level of performance and effort, that bring out the best in the organization, and that are flexible. Unfortunately, if we give employees merely ordinary working conditions, we should not expect to get from them extraordinary contributions. Therefore, if we want to fully leverage the contribution and talents of our employees we need to invest more in them: provide them with better training, opportunities for development, better compensation and incentives, and so forth. In short, the organization needs to implement a norm of reciprocity,¹³ which is a social norm according to which those whom we treat well will respond in kind. Under this norm, individuals realize a maximum contribution when the organization makes them feel important, when they feel involved, when they are listened to, and when they are given opportunities to improve and to participate in successful projects.¹⁴

A superior workplace environment is precisely one that is governed by this norm of reciprocity, and this holds true for domestic organizations as well as for multinationals. The only difference is the number and type of components that enter into transactions in each case. For example, in many Latin American countries, women are more committed when they work in multinationals than when they work in domestic firms.¹⁵ This is because multinational employers give them something (i.e. better equality in the workplace) that the domestic Latin American employers deny them; as a result, these women respond with more dedication, engagement, and emotional commitment to their organizations.

Align HR practices with the context of the organization. To maximize employee contributions is a goal to which the organization needs to aspire, but the concrete path to arrive at this goal needs to be dictated by the context of each organization. In Table 2.1 we have compiled several factors which are typically cited in the literature as conditional for HR activities and decisions.

The context factor that has received the most attention in the literature is strategy. Different strategies require different tasks, competencies, behaviors, and performance norms by their employees and HR practices that are well aligned with business strategy are those that promote the desired strategic outcomes. For example, in the 1980s Morgan Stanley accomplished a cultural change to empower cooperation between its different business units, a very difficult objective in an industry with highly individualistic values and business units that had been traditionally very autonomous and independent. To facilitate this change, Morgan Stanley identified the capabilities and behavioral norms that it wished to promote in its employees, such as teamwork.¹⁶ What they did next was to revise and align their HR practices with these outcomes, including practices such as placing a high value on the ability to work in teams in their selection processes, instituting peer ratings in their performance evaluations, and linking employee compensation to the organization’s results. It is important to note that if instead of wanting to promote cooperation the organization had wanted to find ways to stimulate competition between employees, their HR practices would have needed to be very different.