American Companies Seeking to Go Global Can Face Big HR Hurdles

News Updates

The sluggish U.S. economy is prompting more American corporations to look overseas to find new markets and boost profits. But these companies should plan carefully before they open overseas offices and hire local workers to staff them, human resources experts warn.

That’s because the business of human resources—finding qualified workers, hiring them, and providing salary and benefits—can vary greatly from country to country, experts say. And unless companies have a sound human resources strategy ready before leaping into a foreign country, they could fail.

“When you move offshore, there are certain cautions you must take, and you must have your wits about you,” said William Rothwell, SPHR, a professor at Penn State University and president of Rothwell & Associates, Inc., a human resources consulting firm in State College, Pa.

HR experts say more companies than ever before have offices spread around the globe. However, a number of HR questions arise when a company plans to open an overseas branch, hire foreign workers, and formulate a globalized HR strategy. For example, should the work be done by HR officials at headquarters, or should a company open new human resources offices in the foreign country? Should a company hire consultants to handle local hiring and personnel services?

To get these answers, the Society for Human Resource Management (SHRM) turned to HR professionals who have expertise working abroad. They included Rothwell; Paul Belliveau, senior principal consultant for Infosys, a global information technology and consulting firm and a member of SHRM’s Technology and HR Management Special Expertise Panel; and David Dowdy, managing director and owner of TripleD GmbH, a Munich-based company that helps foreign companies that want to open in Germany navigate labor laws and regulations.

Here is their advice:

Get Good Hiring Advice on the Ground: Dowdy said that when large American companies move to Germany, they often use consultants and headhunters to conduct human resources work. Once the subsidiaries are up and running, these offices do their HR work. He advised other companies to take such an approach. “Generally, the worldwide personnel manager from the parent company hires a consulting firm to start the hiring process,” he said. “It always makes sense for several people to come over from the United States to explain what the company is about, [what kinds of] products, strategy, et cetera. As time goes by, local people can take over replacing the U.S. personnel.”

Make Sure the HR Consultants You Hire Can Deliver: When hiring U.S. or foreign consultants to do human resources work in foreign countries, make sure they give you good references, and check their background and work record thoroughly, Rothwell said. Be sure they are up on local employment laws, regulations and customs and can explain them clearly. They should be able to give you the bottom line on how much it will cost to do business in the country. Don’t ignore this advice or it could cost you money, he warned. That is because there are unscrupulous people waiting to dupe foreigners who come to their countries to do business, he said. “People in other countries can sometimes talk a good game, but that does not always mean they can deliver,” Rothwell said.

Size Matters:  If you are a smaller company, it might be more economical to do all human resources work from the home office, Belliveau said. But if you are a larger company, it could make more sense to open regional HR offices so you can respond to challenges more quickly.

Know Local Customs: Salary and vacation laws vary from country to country, but local customs can have a big impact on HR strategies, Belliveau said. For instance, in some parts of Asia, it might be taboo to give workers individual performance appraisals because Asian cultures in general prize team effort and appraisals are often done by group, he said. Dowdy goes one step further and provides intercultural training for his U.S. clients so they understand European culture and business etiquette. “This is extremely important. … I have seen where major business deals have fallen through because Americans did not understand Europeans,” he said.

Grow Local HR Talent: It can cost $500,000 to transfer an American HR professional to a foreign office to run the shop, Rothwell said. Companies might want to consider global HR certification to groom foreign HR staff.

Outsource Some Foreign HR Services if You Can: It might be possible to outsource payroll, benefits and some other HR services in foreign countries. However, this is not possible everywhere.

“A good example is Vietnam, which is really one of the world’s fastest-growing economies,” Rothwell said. “But when I was there last summer I talked to them about outsourcing HR and they said it was impossible—there was no outsourcing.”

Greg Wright is a former financial reporter for Dow Jones News Service and Knight-Ridder Financial News, and a Congressional and technology writer for Gannett News Service/USA Today.