Three factors that need to be in place in order for PM to be effective in an international business environment are 1) having a clear vision and strategic plan for the organization in all aspects and global facets of the business; 2) leadership and management are all on the same page regarding performance management regardless of socio-economic differences; and 3) knowledge of the laws of the country an organization is doing business in. The measures needed to ensure that the performance management program are compliant with all the relevant laws would include making certain that performance standards are clearly defined and explained to all prospective employees; ensuring that procedures are uniform for all employees within a specific job category; allowing employees the opportunity to correct any performance deficiencies prior to taking corrective action; making certain that the program has an appeals process for disgruntled employees; providing in-depth training for all raters; minimizing bias in assigning ratings, making certain performance evaluations/appraisals provide thorough ratings including examples of performance based on firsthand knowledge instead of hearsay, and finally the performance management system should have built-in safeguards to detect system biases and abuses (Aguinis, 2013).
Three factors that could have a negative impact on PM for an international business are: 1) inconsistent performance goals, assessments, training, mentoring, promotional opportunities, and rewards; 2) forcing an international operation to accept the Western concept of performance management without taking into account cultural differences; and 3) lack of adequate global performance management training of managers. It is imperative that the parent company's strategic goals are mirrored in the performance targets of its international operations, and a decision needs to be made as to whether the process requires standardization and applied worldwide or locally adapted (Evans, 2002, Hellqvist, 2011).
Understanding cultural diversity in a global economy is key to implementing a PM system in a foreign country. Simply transferring HR policies and practices from a domestic firm to its foreign counterpart will have a deleterious effect on the success and outcome of the system (Mercer, 2007).
The Western concept of PM may not be complementary to other cultures. For example, Chinese employees may avoid taking initiative for fear of being punished. The Chinese culture is more inclined to illicit team-oriented appraisals rather than focus on individual assessments (Evans, 2002, Hellqvist (2011). Chinese employees value benefits much more than learning and development opportunities, while just the opposite holds true for workers in the U.S. and Sweden. In the Japanese society, openly discussing an employee's work performance can result in humiliation and loss of face. In this Asian culture, constructive criticism needs to be more indirect. Japanese employees place greater emphasis on base pay and value incentive compensation more than other countries, such as the U.S. In other cultures, such as India, it is disrespectful for a subordinate to openly disagree with his or her supervisor. These are just a few examples of why cross-cultural training for managers is vital, otherwise, attempts to implement a global PM system will be fruitless (Cascio, 2006; Hellqvist, 2011).