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Chapter 20

International Human Resources

If you are planning for a year, plant grain. If you are planning for a decade, plant trees. If you are

planning for a century, plant people.

—Chinese proverb

Objectives To discuss the importance of human resource management To explain the types of expatriates To profile the staffing frameworks used by MNEs To assess how MNEs select, prepare, compensate, and retain expatriates

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Chapter Opening Photo

CASE: Globalizing Your Career

International MNEs have been moving people around for centuries, capturing the benefits of putting the right person

into the right job at the right place at the right time at the right pay. Now, it’s more important than ever that they do

so. In a borderless marketplace, market patterns and strategic actions in one country can determine the fate of a

company on the far side of the world. Globalization, by spurring trade, capital, and investment flows, has expanded

the hundreds of thousands of existing subsidiaries and added tens of thousands of new units in fast-emerging

markets. Each unit requires executives that navigate economic complexities, cultural ambiguities, and political

challenges, all the while improving the MNE’s global efficiency and optimizing its local responsiveness. Declared

GE’s Jeffrey Immelt, "A good global company does three things: It’s a global sales company—meaning it’s number

one with customers all over the world, whether in Chicago or Paris or Tokyo. It’s a global products company, with

technologies, factories, and products made for the world, not just for a single region. And, most important, it’s a

global people company—a company that keeps getting better by capturing global markets and brains."1

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Changing career standards push you to globalize your career track. Market trends, company strategies, and

executive performance collectively indicate that success requires you go global. From Afghanistan to Zimbabwe and

all countries in between, leadership demands a global mindset. “You have to have an intuitive sense of how the

world works and how people behave,” says Paul Laudicina, vice president of A. T. Kearney. Observed Daniel

Meiland of Egon Zehender International, an executive search firm:

"…the world is getting smaller, and markets are getting bigger. In my more than 25 years in the executive

search profession, we’ve always talked about the global executive, but the need to find managers who can

be effective in many different settings is growing ever more urgent. In addition to looking for intelligence,

specific skills, and technical insights, MNEs are also looking for executives who are comfortable on the

world stage."

The Expatriate

MNEs use expatriates—people whose companies send them to live and work in another country—to run foreign

operations. Some MNEs, such as FedEx and J&J, use only a few; others, like Royal Dutch Shell and Wipro

Technologies, use many. Unfortunately, few standards advise MNEs on why, when, and where they should use

“expats,” to say nothing of selecting the right one, developing the right predeparture program, designing the right

compensation package, and determining the right way to reintegrate them into the home company when they

complete their tour of duty.

The benefits of success and costs of failure press MNEs to manage their human resources. Honeywell, for

example, begins developing potential expatriates years before they might head abroad. It briefs candidates on their

cross-cultural skills and prescribes training paths that deal with likely points of culture shock. Says its vice president

of HR, “We give them a horizon, a perspective, and, gradually, we tell them they are potentially on an international

path. We want them to develop a cross-cultural intellect, what we call ‘strategic accountability.’” To this end,

Honeywell might advise an employee to network with experienced expatriates, study another language, or explore

areas where he or she might struggle while living abroad.

The pace of globalization, particularly for MNEs in emerging economies like India, China, and Brazil,

accelerates this process. Some managers even begin identifying people before they hire them. Sanjay Joshi, chief

executive of global programmes at India’s Wipro Technologies, notes, "A big part of our recruiting is telling people

that they will get a chance to work abroad." This appoach, he believes, improves the quality of new hires while

fortifying the company's growing cadre of expatriates.2

New Places and New Ways

Chart 20.1 lists the top benefits of working abroad. Reaping these rewards does not come easily, but successful

expatriates testify to the merits of the quest, describing how the experience changed their perception of business.

Many note that working abroad pushed them, sometimes reluctantly, sometimes eagerly, to look at situations

differently. Explained Galina Naumenko, of PwC Russia, an international assignment “spurs global networking

among employees, gives them an understanding of different cultures, and gets them thinking about alternative ways

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of approaching problems and solving them.” Added Michael Cannon-Brookes, head of strategy for IBM’s Growth

Markets, “You get very different thinking if you sit in Shanghai or São Paulo or Dubai than if you sit in New York.” 3

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Escaping political/government intrusion in home country

Finding love for a life partner

Healthcare--quality and access

Better environment for my children

Cost-of-living

Less crime

Tax efficiency

The weather

Making new friends/networking

Financial wealth

Career development

Better quality of life

Personal development--life experience, broaden horizon

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Chart 20.1: Top Benefits of Becoming an Expatriate

Source: HSBC Bank International.

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Working internationally compels employees to develop richer management repertoires. Consider Joan Pattle, a

Microsoft marketing manager who worked at headquarters in Seattle before accepting a post as product leader in

Great Britain. Her U.K. job came with much wider responsibilities: “At home, my job was very strictly defined. I

basically had to know everything about managing a database. But when I got to London, I was also in charge of

direct marketing and press relations. I was exposed to a much broader set of experiences.” Similarly, Laura

Anderson, a spokesperson for Intel, explained that an assignment in Hong Kong improved her sense of the

company’s business. In fact, several Asian media relations encounters opened her eyes. “For me,” she said, “it was a

tremendous growth experience.”

New Problems and New Stresses

Notwithstanding the glamour and riches, expatriate living is not for everyone.The inability to adapt, no matter the

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intent to do so, is the primary cause of nearly half of failed foreign assignments. Simply put, living and working

abroad can be risky. Cultural clashes, language difficulties, murky business practices, and harsh environments rule

out anything beyond a short-term visit for many executives. Other problems arise when a company asks an

executive to transfer to second- or third-tier cities in less preferred countries. The gap between life at home versus

“over there” often fans professional, family, and personal problems. Many expats struggle with the foreign culture.

Difficulty understanding and respecting differences, no matter how mundane, spiritual, or philosophical, lead to

expensive failures. To top it off, international business travel “is perhaps the most dangerous form of travel. Tourists

wouldn’t consider flying into a Colombian war zone for a week, yet folks from oil, computer, pharmaceutical,

agricultural and telecom MNEs do it regularly.”4 Once there, just frequenting good hotels and restaurants with

colleagues makes them prime targets.

Coming Home

Floating around the world today are so-called "expat lifers." Moving from assignment to assignment, whether with

the same company or others, they plan never to return home. The vast majority, however, eventually do—pack the

bags, bid farewell to colleagues, board the plane, return to a hero’s welcome. A snap, right? Not so. In many cases,

everything but the hero’s welcome happens. As Tom Schiro of Deloitte & Touche observed, “Some MNEs just send

somebody overseas and forget about them for two years.”

Communication with the home unit helps preempt problems. Likewise, careful career planning makes a big

difference when it’s time to return home. Following a four-year assignment in Tokyo, Bryan Krueger returned to a

promotion to president of Baxter Fenwal North America. When he had left for Tokyo, his company had not

guaranteed him a promotion upon his return, so while he was away he kept up-to-date with the goings-on at

headquarters. Krueger credited his smooth return to his intensive networking. During his stint in Tokyo, he returned

to the United States four to five times a year to see colleagues. As he explains, “I was definitely proactive. Anyone

who is not is doing himself a disservice. I made a conscious effort to stay in touch, and it paid off.”

Not all expats share such success stories. A survey of repatriated executives who had successfully completed

their overseas assignment found that more than a third held temporary assignments three months after returning

home, nearly 80 percent felt their new job was a demotion from their foreign assignment, and more than 60 percent

felt they did not have opportunities to transfer their international expertise to their new job. Some tolerate these out-

comes, others don't. In 2010, nearly 40 percent left their company within one year of returning from abroad, while

another 25 percent left between the first and second years.5

Risks and Returns

The choice to work abroad has a high upside and a steep downside. On balance, the former tips the scale. The allure

of such an assignment has become so compelling that we see growing numbers of expat-lifers. While overseas, an

expatriate can be well-paid, have big responsibilities, and achieve prestige. A penchant for living abroad makes an

international career irresistible, effectively creating so-called “global nomads” who travel from one country to the

next. For example, after stints in Singapore and London, a Morgan Stanley expat in India muses, “I still don’t want

to go back to the United States. It’s a big world—lots of things to see.”

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Then again, there are the career implications. MNEs regularly tout a foreign assignment as a meaningful

development experience that prepares managers for broader responsibilities. As the reasoning goes, it accelerates

career progression, improves skills and expertise, fosters cultural awareness, increases confidence in overcoming

challenges, and enhances creativity through exposure to new ways of doing things. Until recently, however, the odds

were on a neutral or negative career outcome. MNEs were typically slow to reward a manager’s successful

international experience with an expanded leadership role.

Trends, Conditions, and Standards

Globalization changes this outlook. Already, it has led to supply shortages of talented executives. MNEs

worldwide report difficulty finding skillful candidates, investing more time interviewing and hiring, and worrying

more about rivals poaching their high performers. By changing the game, globalization changes performance

standards, with more MNEs regarding international experience as the cornerstone of a high-profile career. At Procter

& Gamble, 39 of the company’s top 44 global officers have had a foreign assignment, and 22 were born outside the

United States. Said P&G’s HR director, global awareness and experience are “ingredient[s] you must have if you

aspire to be a global player in the long term.” P&G expects its leaders to be both innovative and worldly; they

cannot rise to the top without running operations in a foreign market and managing a product around the world.6

Globalization spurs MNEs like Samsung, Infosys, AstraZeneca, and Dow Chemical to see multinational experience

as essential as multifunctional and multiproduct experiences in developing high-performance executives targeting

the upper echelons. Data confirm this trend. Nearly 33 percent of FTSE 100 companies have a foreign national as

CEO, and just under 70 percent have had a foreign assignment. Among the Fortune 100, the figures clock in at 10

percent and 33 percent, respectively.7

In summary, environmental trends, market conditions, and workplace standards urge aspiring executives to heed

Daniel Meiland’s caution: “If you look ahead five to ten years, the people with the top jobs in large corporations,

even in the United States, will be those who have lived in several cultures and who can converse in at least two

languages. Most CEOs will have had true global exposure, and their MNEs will be all the stronger for it.” CRN

INTRODUCTION

Indisputably, successful MNEs have insightful strategies, great supply chains, sharp financial systems, and the like.

Ultimately, though, success is a function of the people who start and sustain the company. The challenge of putting

the right person into the right job in the right place at the right time for the right compensation takes us to the front

lines of international business. From opening markets to returning home, international business careers take any

number of directions. At the center is the individual facing challenges that often lead to surprising opportunities. The

contest between challenges and opportunities is the spirit of a career in international business.8

Concept Check 1

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WHAT IS HRM?

Human resource management (HRM) shepherds an organization’s most valued assets—its people. Opening and

operating a business, whether micronational or multinational, requires finding people to implement the strategy,

motivating them to perform well, upgrading their skills so they can move on to more challenging tasks, and,

ultimately, retaining them.9 HRM directs these functions.

Here we elaborate these issues, building on themes introduced in Chapter 11 and applied since to principal

business functions and operating activities. We evaluate HRM from the perspective that successful MNEs staff their

operations with people who leverage core competencies while reconciling pressures for local responsiveness and

global integration. This perspective emphasizes that HRM activities, like discrete activities in the company’s value

chain, perform best when managers link them to the strategy of the firm (see Figure 20.1).

Margin Note 1

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FIGURE 20.1 Factors Influencing HRM in International Business

Pick Up from DRS 13, page 751

Caption: Successful MNEs consistently demonstrate that managing human resources, like managing finances,

marketing efforts, and supply chains, is best set by the requirements of its strategy. In this case, it is a matter of

putting the right person in the right job in the right place at the right time for the right compensation--with the

standard of "right" determined by its strategy.

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HRM and the Global Company HRM is far more difficult for the MNE than its domestic counterpart. Besides

dealing with situations in the home market, an MNE adjusts its HRM practices for the political, cultural, legal, and

economic differences in foreign markets. For example, leadership styles and management practices vary from

country to country, causing difficulties between people at different units—say, headquarters and a local subsidiary.10

The differences can turn great managers at home into ineffective ones overseas, as their personal struggle to adapt

erodes company performance. Similarly, labor markets vary in the mix of workers, costs, productivity, and

regulations. Regarding the latter, local labor laws often require that MNEs change their workplace standards.

Adjusting labor management practices complicates decision-making. Finally, dual career and family obligations,

among other issues, make it tough to convince executives to take a foreign assignment. Consequently, MNEs

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continually evaluate how to staff international operations, fine-tuning the mix of recruitment, training,

compensation, transfer, and retention programs that persuade and prepare executives to work abroad.

Margin Note 2

One may wonder why MNEs and executives put up with the aggravations noted above. The short answer is that

the megatrend of globalization demands doing so. The long answer is that in the face of globalization, navigating

these challenges creates competitive advantages and sustains the MNE’s profitability. Both answers highlight the

mandate for HRM: Develop the methods to build, develop, and retain the cadre of managers that will lead the

company.11 Below we discuss ways of doing so, profiling how HRM organizes the selection, development,

compensation, and retention of international managers.12

STRATETGIZING HRM

Anecdotes suggest and research confirms a powerful relationship between HRM processes, management

productivity, and strategic performance.13 Chapter 11 reported that GE's CEO believes success in becoming global is

“truly about people, not about where the buildings are. You’ve got to develop people so they are prepared for

leadership jobs and then promote them. That’s the most effective way to become more global.” As we saw in our

opening case, he adds that “a good global company” is “a global people company," one that is as interested in world-

class brainpower as it is in world markets.

No matter the scale or scope of the international operations, superior human resources sustain high

productivity, competitive advantage, and value creation. The Human Capital Index, synthesized from the practices

of 2,000 MNEs in Asia, Europe, and the United States, found that superior HRM positively correlated with a firm’s

financial returns, and was a leading indicator of increased shareholder value.14 MNEs with superior human capital

practices, on average, created more shareholder value than those with run-of-the-mill practices. The default thesis

had been that superior financial outcomes lead MNEs to develop superior HRM practices. In actuality, the analysis

revealed the reverse: Superior HRM was a key determinant of corporate financial performance and a more powerful

driver of financial performance. Others report similar effects, finding that the interaction between a firm’s strategy

and its HRM practices accounts for more variation in strategic performance than HRM in isolation.15

The relationship between superior HRM and high productivity, competitive advantage, and value creation

confirms the significance of people to performance. The power of this relationship transforms HRM. No longer is it

a glorified term for personnel management, concerned with administering routine employee processes and setting

short-term employment policies. Now it is a performance driver, developing the executive talent that steers an MNE

into the brave, new world.

Margin Note 3

Our earlier look at the strategies MNEs follow elaborates this view. Chapter 11 profiled those that are commonly

implemented: the international strategy and its quest to leverage core competencies abroad; the multidomestic

strategy and its quest to maximize the local responsiveness of foreign operations; the global strategy and its quest to

maximize worldwide integration; and the transnational strategy and its quest to optimize all three tasks

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simultaneously. Each imposes unique standards for configuring and coordinating value activities. Hence, each calls

on HRM to find, staff, compensate, and retain the executives that command the requisite skills and outlooks.

Struggling to do so, irrespective of the brilliance of its strategy, undercuts an MNE’s performance. Getting it right

requires integrating strategy and HRM.

Concept Check 2

A Case In Point Looking at the role of HRM in the context of GE's evolution elaborates these ideas. Beginning in

the 1980s, GE focused on globalizing its markets by selling existing products abroad (the international strategy). In

the late 1980s, it began globalizing its material sources to get higher-quality inputs for lower prices in the quest to

minimize costs (the global strategy). In the mid-1990s, it began globalizing its intellect, seeking, learning, and

transferring ideas throughout operations (the transnational strategy).

Each stop along its evolution saw GE reset its HRM philosophy and practices to make sure it developed the

requisite human capital. The key to its international strategy was staffing people who could develop foreign markets

based on its core competencies. The key to its global strategy was staffing people who could optimize location

economics and manage global supply chains. The key to its transnational strategy has been staffing people around

the world who can develop, transfer, and engage ideas no matter the business function or market source. At each

stage in GE’s evolution, HRM aligned executive selection, development, and compensation policies with the

demands of its strategy.

As GE's strategy evolved, so did its understanding of the role of expatriates. Jeffrey Immelt explains, “When I

first joined General Electric [in 1982], globalization meant training the Americans to be global thinkers. So,

Americans got the expat assignments. We still have many Americans living around the world, and that’s good, but

we shifted our emphasis in the late 1990s to getting overseas assignments for non-Americans. Now you see non-

Americans doing new jobs, big jobs, important jobs at every level and in every country.” Today, GE has a cadre of

international managers with the expertise to leverage its core competencies in developing and diffusing ideas around

the world.

GE’s success in international business, like that of many other MNEs profiled throughout this chapter,

reemphasizes HRM's mission: find, staff, compensate, and retain executives with the qualifications needed to

support and sustain company strategy. Done well, HRM supports higher productivity, stronger competitiveness, and

improving profitability. Done poorly, people problems create frustration that undermine performance and ruin

careers.

THE PERSPECTIVE OF THE EXPATRIATE

One can evaluate HRM from many perspectives. Two reasons motivate an executive perspective. First, in the MNE,

the tip of the operational spear is the executive running international operations. Expatriates drive critical tasks of

the company’s strategy; they launch new ventures, build local management expertise, fill local skills gaps, transfer

core competencies, erect technology platforms, and diffuse the organization culture. Second, an executive

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perspective speaks to your likely interest in working internationally. Students routinely ask teachers about the why,

how, when, where, and what of careers in international business. This chapter provides some guidelines,

suggestions, and insights on your career ambitions. Thus, an executive perspective directs our attention to the

principles and practices HRM applies to specify the selection, role, responsibility, development, compensation, and

retention of expatriates.

First, though, some definitions of who is who. There are two broad types of MNE executives: locals or

expatriates. A local is hired by the MNE in his or her home country to staff the local operations; no special

provisions apply to the work contract. An expatriate (or “expat”) is sent to work temporarily in a country other than

his or her legal residence. There are two types of expatriates. One is a home-country national who is a citizen of

the country where the firm is headquartered, such as a Brazilian national running the German operations of his

Brazilian company. The other type is a third-country national, a citizen of another country altogether, such as an

Estonian national running the German subsidiary of an Australian company.

Margin Note 4

Margin Note 5

Concept Check 3

Trends in Expatriate Assignments We are witnessing a burst in worldwide demand for expatriates.16 The emergence

of fast-growing economies has led to opening many new subsidiaries. Western MNEs, besides running their existing

operations, struggle to staff many startup operations in many new markets. Emerging MNEs similarly build

operations in foreign markets. There are approximately 22,000 multinationals based in the emerging world; few of

these existed 10 years ago.17 Each unit of each MNE requires executive talent.

Staffing the latest wave of globalization also refines the idea of who is an expatriate. Unquestionably, the long-

running standard of an expat as someone who leaves the country to work abroad is constant. The precise

classification is no longer quite so static. Historically, an expatriate was posted to a particular host country for a

three- to five-year assignment, with the ultimate plan of returning to the home country. Now, most international

assignments are much shorter. A decade ago, 10 percent or so of international assignments were scheduled for one

year or less; today, 80 percent or more run that short.18 Short-term assignments, besides being more economical than

long-term tours, quickly transfer skills and resources to local subsidiaries.19

Margin Note 6The Young, Old and Restless Traditionally, expatriates were mid-level executives being groomed for higher levels of

responsibility. Essentially, international assignments were midcareer stepping-stones for the MNE’s future leaders.

Now HRM expands its search criteria to include older employees whose children have grown and whose spouses

regard an international assignment positively. In addition, HRM looks to younger employees who are single, more

mobile, and eager to experience life in foreign places.

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Margin Note 7

In term of posting younger managers to international assignments, MNEs increasingly trade performance track

records for long-term potential. For example, PricewaterhouseCoopers offers its Early PwC International Challenge

program (EPIC) to accelerate international assignments for its younger employees. EPIC identifies promising

workers who are interested in living abroad and have been at the firm a few years. Operationally, candidates jump-

start the process by completing an online assessment and consulting PwC's career pages. EPIC encouarges them to

choose their preferred destination, then posts them abroad for two-year assigments with the goal of developing them

for senior leadership roles.20 Thus, candidates can skip a rung or two on the career ladder as well as escape slow-

growth job markets, while HRM identifies high performers who command leadership, entrepreneurial zest, and a

tolerance for uncertainty.

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One of the many who heed the call of opportunity in emerging economies, Mick Xomir, a junior at a U.S. university,

is on the way to a summer internship in Beijing.

Source: Photo by Shiho Fukada for The New York Times; Souce: “American Graduates Finding Jobs in China,”

August 10, 2009.

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Rising Role of Women The gender dimension is similarly evolving. In absolute terms, females comprise roughly 20

percent of expatriates.21 Since 2001, MNEs in the Asia-Pacific region have seen a sixteen-fold increase in women on

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international assignment, MNEs in North America have seen nearly a four-fold rise, and Europe has doubled its

count. Surveys indicate that more than half of MNEs expect the number of female assignees to increase, about a

third believe the number will hold steady, and a handful see it declining. Reasoned an observer, “Going on expatri-

ate placements can be an important step on the career ladder, and women are increasingly interested in taking these

assignments.”22

Growing Scope Of Third-Country Nationals The changing workplace of globalization elevates the role of third-

country nationals.23 MNEs often establish operations abroad in increasingly dissimilar markets—say, from the

United States to Canada to England to India to Singapore to China to Vietnam. Third-country nationals often have

the particular outlook and versatile competencies that are needed to adeptly implement this market sequence. More-

over, the move toward short-term assignments boosts the logistical appeal of third-country nationals—an executive

living in London yet working for a U.S. MNE, for instance, may spend Monday through Friday working in Zurich,

then return home for the weekend. Then, as the need arises for help in the MNE's Stockholm office, she can reset her

commute. Such mobility lets an MNE more easily adapt its strategy, confident it has executives who are well-posi-

tioned to implement it.

Reverse-Expatriates The rising importance of emerging markets adds a new twist to our evolving ideas of

expatriates. Historically, MNEs selected them from the pool of executives in richer countries and sent them to staff

operations in developing countries. Now, well-educated executives from emerging economies, so called “reverse-

expats," are sent straight to the richer countries to accelerate their development, spending anywhere from a month to

a year in some of the MNE’s operations. 24 Once they learn the ropes, they return home, often replacing a

traditionally defined, usually much higher-priced expatriate. Some tweak this option further. Goldman Sachs relies

on its Growth Markets Opportunity Program to hire high-potential Asians and Latin Americans with MBAs from

leading Western universities. It then posts them to its New York or London offices for up to a year before sending

them to leaderhip positions in local operations in Singapore, Hong Kong, China, Brazil, India, and other emerging

economies.25

Margin Note 8Pressures to Economize The global financial crisis has pushed MNEs to rethink the economics of expatriates.

Sending workers abroad, as we discuss later, is quite expensive. More MNEs design short-term assignments, cross-

border commuter assignments, and extended business travel in lieu of traditional “permanent assigments.” Rather

than moving to foreign markets, executives travel far more often to far more places that lie farther from their

homebase. The compelling economics of community expats resets historic standards; some 35 percent of expats

report living in their host country for more than five years, compared to 58 percent in 2009. 26 On related fronts, cost

concerns accelerate deploying third-country nationals in place of executives from the home office. The latter often

demand richer compensation packages and impose higher relocation costs.

Cost concerns also drive MNEs to “localize” assignments. Localization is the the process whereby an expatriate

retains the foreign assignment by accepting the status of a local hire and the corresponding, typically lower, host-

location salary. Effectively, one accepts lower compensation in order to work abroad. IBM's “Project Match” adds

an interesting twist to localization. It offers terminated employees in the United States the option to move to a local

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unit in India, China, Brazil, Nigeria, Russia, or other developing countries provided the candidate had been a

"satisfactory performer" and is "willing to work on local terms and conditions."27 In other words, one has the option

to move abroad and preserve your job but your compensation will be set by pay scales in particular local market.

The One Constant Change in the global environment—whether due to market opportunities or cost pressures—

resets ideas on staffing international operations. More directly, we see the types and mechanics of expat assignments

evolving. Nevertheless, there is a fundamental constant: Running the hundreds of thousands of subsidiaries

throughout the world requires talented, enterprising locals as well as home-country and third-country expatriates. So

keen is the demand that MNEs report historic shortages of expatriate talent and, correspondingly, the increasing

consideration of the young, old, and restless for overseas slots.28 While the global financial crisis may have relieved

some immediate pressure, the accelerating growth in emerging economies will likely pick up the slack. Therefore,

no matter how costly or complex, MNEs face the increasingly vital task of staffing the right person in the right job

in the right place at the right time for the right compensation. Success drives strategy. Failure ruins careers and

jeopardizes profitablity.

STAFFING FRAMEWORKS IN THE MNE

MNEs apply staffing frameworks—basic conceptual structures that help solve complex issues—to guide HRM

decisions. One, these frameworks identify the optimal mix of local workers from the host nation, expatriates sent

from the home country, and third-country nationals. Two, they set selection, training, compensation, and

repatriation guidelines. In broad terms, these frameworks reintroduce our earlier discussion of the notions of

ethnocentrism, polycentrism, and geocentrism.

Margin Note 9

The Ethnocentric Framework Ethnocentrism results when one group places itself at the top of an imagined

hierarchy of relevant groups, thereby regarding others as inferior. The ethnocentric framework signifies the belief

that the principles and practices used by headquarters are superior to those used by rivals in other countries. The

proven success of the company’s way of doing things, goes this thinking, means there is little call to adapt it to

foreign markets.29 Thus, MNEs tend to staff expatriate slots with executives from its home market.

Advantages of the Ethnocentric Framework Table 20.1 lists the benefits of an ethnocentric framework. Notably,

MNEs that link performance to transferring core competencies abroad find value in it. Consider that a firm earns

success in its home market doing something exceptional--what we earlier defined as a core competency. A legacy of

success leads an MNE to see its way of doing business as the superior means of creating value. Logically, an MNE

sees it international success dependent on controlling the transfer and regulating the use of its core competencies.

For instance, India's Wipro Technology employs 54,000 people in 35 countries, more than 11,000 of whom are

expatriates, and more than 90 percent of those being Indian. Wipro posts Indian executives internationally who then

run business development and train local staff in order to spread the Wipro Way throughout the world. “We sprinkle

Indians in new markets to help seed and set up the culture and intensity,” says Sanjay Joshi, chief executive of

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global programs.30

Staffing overseas operations with people from the home country helps an MNE regulate the transfer of its core

competency.31 This is particularly vital when a core competency is difficult to articulate, specify, or standardize,

such as Apple’s product-design and media expertise, Wal-Mart’s information-management and product-distribution

systems, or Honda’s understanding of engine technology. Posting a home-country manager with direct experience in

developing, applying, and protecting the company's core competency to the foreign subsidiary puts it under the

direction of a seasoned, trustworthy manager. The HSBC Group long epitomized this outlook. For generations, most

top executives came from a tight-knit cadre of elite expatriates who, in going from one foreign position to another,

diffuse “the DNA of the organization.”32

Margin Note 10

The mounting importance of protecting ownership advantages spurs an MNE to safeguard its core competency.

With it, the firm prospers; without it, the firm struggles. This stark reality leads headquarters to entrust control of the

company’s “crown jewels” to those who will best protect them: colleagues from the home country. Earlier

discussion of intellectual property explained that safeguards deter but by no means prevent theft. The ethnocentric

framework fortifies defenses, posting home country executives who vigilantly protect corporate assets.

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TABLE 20.1 THE ETHNOCENTRIC FRAMEWORK: PRACTICAL BENEFITS

Command and control Familiarity with the way decisions are made and things get done at

headquarters means that expatriates can be counted on to transfer home-

country procedures to foreign operations.Local talent gaps Shortage of qualified local candidates makes expatriates a direct and

immediate solution to staffing shortfalls.Social integration Posting expatriates symbolically and operationally diffuses corporate

policies and practices. Spreading the faith fortifies the organization's

culture.Local implementation Expatriates offset the tendency for policies and practices to break down

when transferred from the home to the host country.High turnover among locals Expatriates’ lower likelihood of defecting to a local rival reduces the

information leaks and competitive disruption.Management development Expatriates’ hard-earned experience boosts a company’s knowledge and

promotes executive leadership.

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Drawbacks of the Ethnocentric Approach As the adage goes, “Vices are simply virtues taken to extreme.” The same

applies to the ethnocentric framework. Force-fitting foreign operations with a standardized staffing policy risks

pounding circular pegs into square slots. Certainly, an MNE can make its foreign operations mirror the outward

appearance of the home office. Unquestionably, MNEs have compelling rationales when asked why they rely on

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home-country nationals to run foreign operations. Usually, they note there is no shortage of brainpower in a

particular country, just a shortage of people with the right mix of technical skills, experience with the particular

business methods, and professional standards. However, assigning home office executives to foreign operations

does not automatically create a successful "mini-me" subsidiary. Consequently, an ethnocentric framework can

prove detrimental, blinding the MNE to different, possibly better, business methods.

Ethnocentric staffing policies often demotivate local executives. Its implicit assumption—all the smart, capable

people live within a 25-mile radius of headquarters—sends the message that the home office does not value

subsidiary personnel. Unless a foreign assignment is intended to develop unique skills, local employees may resent

the expats who they see as no more qualified than themselves. Unchecked, resentment can lower productivity and

increase turnover as locals see an upper limit on their rise.

Finally, an ethnocentric staffing policy can prove impractical. Host governments, alert to the importance of

developing and employing their nation’s workforce, prefer that subsidiaries hire locals. MNEs’ plea that the unique

nature of their operations prevents their doing so often falls on deaf ears. Governments, as they deem necessary,

impose immigration laws or workplace regulations that prod MNEs to hire locals.

Concept Check 4

The Polycentric Framework Polycentrism is the principle of organization around several political, social, or

economic centers. A polycentric framework sees the effectiveness of the business practices of foreign “centers” as

philosophically and practically equivalent to those in the home “center.” Given that the circumstances of the home

office differ from those of local subsidiaries, and anchored in the larger thesis that neither is intrinsically superior, an

MNE accordingly adjusts its HRM policies. Thus, staffing operating units, from headquarters to foreign subsidiaries,

draws from the local environment—Chinese run the China operations, Mexicans run the Mexico operations,

Austrians run the Austria operations, and so on.

Advantages of the Polycentric Approach Staffing foreign operations with locals has economic, political, and

cultural advantages (see Table 20.2). Johnson & Johnson, a company that applies the polycentric framework,

highlights some of them. With few exceptions, home country nationals run J&J’s subsidiaries. Each unit operates

with substantial autonomy, commanding the freedom to act as it sees best given local market conditions. Thus

liberated, each foreign unit acts as a small business, entrepreneurial in character and aware that success depends on

its comparatively superior sense in anticipating local customers’ needs and delivering meaningful solutions. More

formally, J&J’s CEO explained that relying on locals to staff local operations “is a tremendous magnet for talent,

because it gives people room to grow and room to explore new ideas, thus developing their own skills and

careers.”33

Margin Note 11

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TABLE 20.2 THE POLYCENTRIC FRAMEWORK: KEY BENEFITS

Economical A local hire, given prevailing workplace standards and wage conditions,

requires less compensation than an expatriate.

Nationalism Host countries—especially those suspicious of foreign-controlled

operations—prefer local managers who champion local objectives.

Management Development Awarding top jobs to local managers helps attract, motivate, and retain

local employees.

Employee Morale Local workers, for numerous social and cultural reasons, prefer to work

for local managers.

Expatriate Failure Expatriate failure is expensive, corrosive, and demoralizing. Ceteris

paribus, locals are less likely to fail, given their familiarity with the local

environment.

Local Innovation Better understanding of local markets gives local managers a keen sense

of innovation opportunities.

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BENEFITS A compelling motivation of the polycentric approach is its implications for the economics of staffing

international operations. Hiring local managers eliminates the exorbitant expense of posting expatriates to local

slots. By and large, it is difficult to pinpoint total cost due to the range of relevant variables. A general rule of thumb

is that the total annual cost of an expat on assignment is three times his annual salary. Indirect administrative

expenses boost this sum. For example, an expat slot generates far more documentation than a comparable domestic

executive slot. Consequently, on average, supporting expatriates requires twice as many HR professionals (1 HR

professional to 37 expats) versus home country executives (1 HR professional to 70 managers).34

These costs are far more dramatic when qualified by the corresponding expense of a local hire. Typically, an

expat costs the employer three to five times as much as an equivalent local worker, after taking into account

financial incentives, relocation costs, cost-of-living allowances, local tax differentials, and so on. The stark

economics of expatriate-versus-home-country-national encourages MNEs to staff operations with the latter. Five

years ago, HSBC Group had more than 1,000 expats out of 312,000 worldwide employees, but its concern for the

higher costs led to local hires; it now has about 380 expatriates, drawn from 33 nations.

Margin Note 12

Host governments typically see local managers as “better citizens” than expatriates, given the belief that

locals will champion national interests over global objectives. Besides such politically astute choices, hiring local

managers boosts employee morale.35 There are also impediments to using expats, such as licensing requirements that

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prevent MNEs from using expatriate accountants and lawyers or visa regulations that put a hard cap on the number

of foreigners who can staff a local subsidiary. Hiring locals neutralizes these constraints.

Finally, proponents of polycentrism reason that local managers are stronger performers given their keener

understanding of local customers, markets, and institutions. When operating outside the United States, for example,

Microsoft tries to hire home country nationals. As its former COO explains, “You want people who know the local

situation, its value system, the way work gets done, the way people use technology in that particular country, and

who the key competitors are.If you send someone in fresh from a different region or country, they don’t know

those things.”36 More philosophically, Bill Gates, Microsoft’s chairperson, reasons that a polycentric policy is a

moral obligation of international business, declaring that when staffing an international office, “It sends the wrong

message to have a foreigner come over to run things.”37

Drawbacks to the Polycentric Approach A polycentric policy requires that an MNE decentralize authority to locals

to run operations, often giving rise to accountability and allegiance difficulties. Accountability issues emerge when

local units depend less and less on the home office for resources. Moreover, as local managers develop skills and

outlooks, they often build thriving local operations. Success supports growing resource independence from the home

office and often powers the transition of the local subsidiary into a quasi-autonomous unit. Unchecked, local

subsidiaries, regarding the global company as a federation of loosely connected and largely autonomous national

operations, pay increasingly less mind to headquarters. For instance, when J&J launched Tylenol in 1960 as an over-

the-counter pain reliever in the United States, the product was available to worldwide units shortly thereafter.

However, the quasi-independent Japanese unit, despite duress from headquarters, did not begin selling it until

2000.38

Likewise, allegiance issues emerge when host-country nationals in charge of a subsidiary remain committed to

local colleagues and their home country instead of to the foreigners running the faraway headquarters. In theory,

local managers balance the competing demands of making sense of events from a local and home office view. In

practice, however, national concerns typically take precedence given the tyranny of immediacy.39

Compounding this situation is a subtle drawback of polycentric staffing—namely, the potential disengagement

of local staff from the parent company. By definition and design, there are a few slots for expatriates in the

polycentric framework; locals have scant opportunities to work outside the home country. This outcome constrains

the international mobility of host-country nationals. As a result, there may be little incentive for local managers to

study business and cultural practices in other markets. Unaddressed, these differences isolate national subsidiaries.

The Geocentric Framework Geocentrism is a world-oriented set of attitudes and values that regards humanity as a

single entity. It does not heed national boundaries, and it sees the blunt division of home-, host-, and third-country

managers as needless. Rather, HRM's task is developing the best people for key jobs throughout the organization,

regardless of their nationality. As GE’s CEO notes, “It’s more important to find the best people, wherever they may

be, and develop them so that they can lead big businesses, wherever those may be.”

Advantages of the Geocentric Framework A geocentric policy develops international executives who move between

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countries and cultures without forfeiting their personal effectiveness.40 This helps MNEs pursue global and,

especially, transnational strategies, both of which rely on exploiting learning opportunities around the world to

generate and leverage ideas. As the CEO of Schering-Plough explains, “Good ideas can come from anywherethe

more places you are, the more ideas you will get. And the more ideas you get, the more places you can sell them and

the more competitive you will be. Managing in many places requires a willingness to accept good ideas no matter

where they come from—which means having a global attitude.”41

Margin Note 13Drawbacks to the Geocentric Framework A geocentric policy is tough to develop and costly to maintain. Certainly,

the notion of a world-oriented set of attitudes and values is intellectually engaging. Too, the resulting multinational

composition of senior management reduces cultural myopia and enhances local responsiveness. Difficulty plagues

adoption, however, given the need for executives to retain a sense of identity in the face of extreme diversity. At one

point, for instance, J. P. Morgan housed managers of more than 50 nationalities in its London office, reasoning that

putting the best people together, regardless of nationality, powered strategic insights.42 Research reports that

working with groups marked by cultural diversity takes on a different vibe than with groups made up of people of

similar ethnicities and nationalities. Often, the mix of different perspectives generates creative breakthroughs.

However, the task of making sense of the various outlooks that potentially bear on a decision can prove

overwhelming. Like the Tower of Babel, geocentrism can erode the sense of common purpose as the clarity of the

task is lost in a hodgepodge of competing perspectives.

The logistics of the geocentric framework are costly. Exposing people to different ideas in diverse places is

expensive. Compensation and relocation costs quickly escalate when transferring high-priced executives from

country to country. Often the higher pay and prestige enjoyed by those comprising the executive vanguard triggers

resentment from those excluded. Current cost sensitivities, aggravated by the global financial crisis, pressure MNEs

to economize. In recourse, they experiment with short-term engagements, commuter relationships, and extended

business travel in lieu of multi-year assignments.

Margin Note 14

Concept Check 5

WHICH FRAMEWORK WHEN?

Table 20.3 summarizes the merits and constraints of the three frameworks. It suggests there is no theoretically

superior approach. Rather, HRM’s task is to optimize staffing policies in terms of the demands of the MNE's

strategy. Earlier we noted that expatriates drive the critical tasks of the company’s strategy; they launch new

ventures, build management expertise, fill local skills gaps, transfer technology, and diffuse organization culture.

Each strategy, whether international, multidomestic, global, or transnational, imposes different requirements to run

these activities. Therefore, HRM’s job is devising the staffing framework that develops the executive resources

required by the MNE's strategy.43 More to the point, a survey of MNEs noted that nearly 90 percent prepared for

global expansion by determining strategic goals and needs. They then assess their pool of potential expatriates,

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looking for the requisite outlooks and skills and filling gaps as needed.44

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Geography Matters Insert

The Changing Geography of Expatriate Assignments and Activities

A generation ago, the bulk of expatriate worked in the developed markets of Japan, United States, and Europe. Cer-

tainly, there were many scattered throughout Africa, Asia, South America, and the Middle East. Generally, though,

these folks worked in primary or extractive industries, such as a petroleum engineer posted to Saudi Arabia to assist

ExxonMobil's drilling operation. Expatriates, by and large, flocked to business centers in Europe, America, and

Japan.

Today, trends indicate that the geography of assignments is changing. First and foremost, Western MNEs are

increasingly reorienting their strategies toward markets that were once far off the beaten path. The rising importance

of emerging economies, particularly in rapidly growing Asia, leads Western MNEs to relocate a larger share of oper-

ations there. In Europe, we see companies such as HSBC, Nokia, and Volkswagen downscaling their European ac-

tivities as they ramp up those in Asia. In the United States, companies such as GE, Microsoft, Wal-Mart, and Cater-

pillar do the same. In the 2000s, U.S. companies cut their workforces in the United States by nearly 3 million while

concurrently increasing employment overseas by 2.4 million. In contrast, during the 1990s they added 4.4 million

workers in the United States versus 2.7 million workers abroad. Asked about the shift, GE's chief executive replied,

"Today we go to Brazil, we go to China, we go to India, because that's where the customers are."45 As multinationals

redeploy their operations, they reset their labor force. Correspondingly, MNEs reorganize their executives, moving

those that had worked in the West to the business centers in the East.

The allure of emerging markets appeals not only to companies. Graduates face slow-growing markets and exec-

utive saturation in mature Western economies. Many realize that they have a better chance of getting promoted, to

say nothing of just getting a job, in Sao Paulo, Shanghai, or Mumbai than in New York, Tokyo, or London. “A lot of

my friends are going to Asia and Latin America to do their internships,” said a student at a leading U.S. business

school. “It may be outside their comfort zone, but they see getting some experience there as helpful, since that’s

where many of the jobs will be.”46

So, rather than patiently waiting for opportunities, students jump-start the process and head straight to markets

they see representing the future. Expectedly, this is particularly true for of graduates with cultural links to those

countries and of Westerners with relevant language fluency. Still, the siren call attracts even those with limited cul-

tural experience and linguistic skills.47 The allure of surging economies, lower costs of living, higher after-tax com-

pensation, and the chance to bypass years of dues-paying entry jobs prove irresistible.

Therefore, as sales, growth, labor, and executives opportunity migrate from the West to faster growing emerg-

ing economies, we anticipate a radical reset of the geography of expatriate assignments and activities. Data already

confirm the trend is underway: China, Brazil, India, and Singapore are the leading destinations for expatriates.48

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MANAGING EXPATRIATES

Developing a cadre of high-performance expatriates requires that MNEs find people who are prepared for an

international assignment, devise ways to motivate them, post them to the appropriate job, and capitalize on their new

skills and refined outlook when they are ready for their next position. Therefore, we turn now to the matters of

expatriate selection, preparation, compensation, and repatriation.

Expatriate Selection

Some people enjoy the thrill of living and working abroad. Our opening case profiled a Morgan Stanley expatriate

who has worked in Britain, Singapore, and India and remains excited about the prospect of seeing the “big world.”

Others, however, prefer not to work abroad. Consequently, few MNEs command a cadre of mobile, economical, and

experienced expatriates. Again, recall how Honeywell screens candidates years before they might go abroad in order

to maximize the probability of success and, more often than not, minimize the odds of failure. CRN

Screening executives to find those with the greatest inclination and highest potential for a foreign assignment is

the process of expatriate selection. Always difficult, it grows increasingly so given talent shortages and expenses of

international assignments.49 Indisputably, there are many potential candidates for an overseas assignment,

particularly as slowing economies make jobs less secure and scarcer. The problem, however, is not the supply of

candidates but the selection of those that will succeed abroad. HR executives, try as they might, cannot consult a

battery of technical indicators that consistently predict the likely performance of a potential expatriate. In extreme

situations, selection is a matter of arbitrary convenience—or, as one executive notes, "There's not a lot of science

there at all…people may just get sent because they're willing to go."50

Margin Note 15

The growing need for expats to run expanding international operations, along with the rising cost of failure,

spur systematic selection processes. The stakes of the decision have expanded assessment to include a candidate's

adaptability to foreign places, people, and processes. HRM considers career, cultural, and psychological measures,

anchored in the company’s staffing framework, to organize expatriate selection. These measures, applied through

objective evaluations and in-depth interviews, screen candidates on many dimensions. Anecdotes and analysis

emphasize technical competence, adaptiveness, and leadership.

Concept Check 6

Technical Competence Asked to rank the important objectives of an international assignment, HR directors

commonly identify the goal to fill a skills gap in foreign operations. HRM reason that the high-performance

executive can quickly transfer management methods, improve operations efficiency, or fine-tune marketing

campaigns when posted abroad. A precondition of selection, therefore, is the executive's functional expertise and

understanding of how to apply it in the foreign operation.51 Consequently, managers often have several years’ of

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work experience before working abroad. The fact that expatriate selections are usually made by line managers based

on a candidate’s operational track record reinforces this tendency. Moreover, many see outstanding technical

competence as an indicator of the self-confidence needed to work well abroad. Overall, HR executives, expats, and

local staff agree that technical competence, usually indicated by past job performance, has been and continues to be

the leading determinant of success in foreign assignments.52 However, this predisposition is changing; recall that

some MNEs are seeking younger employees to staff international slots, trading trade performance records for long-

term potential. Figure 20.2 gives a somewhat extreme take of this outlook.

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Pick up from DRS 13th Edition, page 762.

FIGURE 20.2 Working Abroad—From Home?

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Adaptiveness Success in one’s home country is a necessary but by no means sufficient basis for success abroad.

Effective expatriates are adaptive; thrust into new, unusual situations, they develop the outlook, skills, and poise

needed to thrive. MNEs evaluate a possible expatriate in terms of three adaptive characteristics:

Margin Note 16

Self-Maintenance These qualities, such as personal resourcefulness, are useful when things do not go as planned--

which is not an unlikely situation in the zone of international business. The difficulty in specifying the elements of

resourcefulness show in MNEs' struggles to identify candidates who command it. Like many MNEs, the selection

process at HSBC uses tests, interviews, and exercises to get a sense of a candidate's potential. Still, HSBC evaluates

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several intrinsically intangible indicators. Its CEO explains, “We don’t look so much at what or where people have

studied but rather at their drive, initiative, cultural sensitivity, and readiness to see the world as their oyster. Whether

they’ve studied classics, economics, history, or languages is irrelevant. What matters are the skills and qualities

necessary to be good, well-rounded executives in a highly international institution operating in a diverse set of

communities.”53

Satisfactory Relationships with Host Nationals Living and working in different cultures demands flexibility and

tolerance. Whether known as cultural empathy or others-orientation , this outlook enhances an expat’s interactions

with different people in different places and, importantly, to understand why some go well and others do not. Two

factors play vital roles: the ability to develop sincere, honest friendships with foreign nationals and the willingness

to use, no matter how rudimentarily, the host-country language.

Sensitivity to Host Environments As anyone who has traveled abroad understands, new situations in new settings

challenge one’s values and outlooks. Interpreting how colleagues, customers, and competitors in the local market

see events, rather than unduly criticizing them for dissimilarities, supports strong performance. Interpreting events in

ways that reject stereotypes, preconceptions, and unrealistic expectations help one go far in international business.54

For example, fast-growing markets have attracted many foreign firms and, by extension, their expatriates. More

than a few of the firms hail from a rule of law environment, such as Germany, and move into a rule of man setting,

like China. In the former, the the rules governing business are straightforward directives; in the latter, they are seen,

at best, as flexible guidelines. Said one expat, in "the West, everything is transparent. If you want to obtain a license

to do something, you don’t need to spend money bribing an official or hiring a go-between: You just download the

form from the Internet and apply.”55 Moving from the transparency of Germany to the opacity of China can prove

daunting for those accustomed to following the straight and narrow. The ability to adapt to the ways of the host

country, whether it involves cultures, laws, or simply getting around town, shapes an expatriate's effectiveness.

Leadership The precise job descriptions found in the job bank of the home office inevitably give way to far broader

responsibilities in foreign subsidiaries. Typically, the expat director of a foreign subsidiary lacks the battery of

resources he commanded at the home office. The call to do many jobs simultaneously requires finding ways to

interpret how locals approach the workplace in terms of problem solving, tolerance for uncertainty, use of power,

and consensus building. In addition, the expat will confront different trade rules, investment regulations, and

business practices. Microsoft's Joan Pattle found that working abroad imposed new demands. At home, her job in

marketing meant working in her department with little responsibility for other business functions. Her expatriate

assignment in the United Kingdom pushed her beyond the customary tasks of marketing. The scale and scope of

activities found in foreign posting, therefore, push executives to move from managing an activity to leading a

company. Posting a specialist, such as an engineer or finance office, gurantees they will face a range of technical

and behavioral situations. The efficient adminitration of matters will likely fall short. Effective resolution, HRM

reasons, depends on the expat's leadership. Chart 20.2 elaborates this perspective, highlighting the importance of a

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global mindset and cultural intelligence/sensitivity to succeeding abroad. CRN

Margin Note 17

MNEs increasingly see leadership as a key to expatriate selection and success. To that end, testing and

improving the leadership ability of high-potential executives is a common objective of an international assignment.56

Experience testifies to the usefulness of a foreign assignment in doing so. The records of successful expats indicate

that they did not recoil from the differences they encountered. Rather, they developed the communication,

motivation, self-reliance, risk-taking, and diplomacy qualities we commonly attribute to executive leadership.

Specifically, McKinsey & Co. concluded that whereas technical competence is a given, today’s expatriates “must

have a particular mind-set.When you look behind the success stories of leading globalizers, you find MNEs that

have learned how to think differently from the herd. They seek out different information, process it in a different

way, come to different conclusions, and make different decisions. Where others see threats and complexity, they see

opportunity. Where others see a barren landscape, they see a cornucopia of choices.”57 Consequently, MNEs post

high potential executives overseas, giving them the opportunity to step up to the challenge, battle test their skills,

and improve their global mindset.

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Extroverted Personality

Other

Risk tolerance

Technical skills

Geographic knowledge

Prior global experience

Language skills

Emotional intelligence

Analytical thinking

Decision-making ability

Interpersonal skills

Business acumen

Flexibility

Leadership skills

Strategic thinking

Adaptability to change

Cultural intelligence/sensitivity

Global mindset

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Chart 20.2Key Competencies of Expatriates

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Source: Jeitosa Group International.58

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EXPATRIATE FAILURE

Best-laid plans, as we all know, often go awry. MNEs experience this situation when they select their best and

brightest executives, send them to a foreign market, pay them well, and watch them fail. Expatriate failure,

narrowly defined, is a manager’s premature return home due to poor performance. Broadly defined, it is the

breakdown of the MNE’s expatriate selection process. In both cases, it is an enduring concern among MNEs. In the

1980s, research reported that nearly a third of American managers assigned to advanced countries returned early; the

failure rate was twice that for those sent to developing countries. Today, surveys report that fewer than 7 to 10

percent of expatriates fail to complete their international assignments.59

Margin Note 18

The Costs of Failure The fall in the rate of expatriate failure testifies to the improving sophistication of selection

processes. Still, few see this drop as cause to stop and celebrate. The financial and personal costs of failure, no mat-

ter how infrequent, are destructive. Moreover, some anticipate a surge in the rate of expatriate failure. MNEs’ ex-

pansion into emerging economies puts executives into markets spots that severely test their abilities to deal with

fundamental business, cultural, and lifestyle difference. Already, we see evidence of the challenge. China and India,

today's leading hotbeds of expat slots, top the list of locations with the highest failure rates.60

Concept Check 7

The average cost per failure can be as high as three times the expat’s annual domestic salary plus the cost of

relocation.61 The financial cost can easily reach $1 million when one accounts for the time and money spent in

selection, preliminary visits to the location, and the lost productivity as things fall apart. An incalculable cost is the

personal implications of professional failure to the formerly high-performing executive’s self-confidence and

leadership potential. Finally, a potentially greater cost is the hardship imposed on the spouse and family.62

Assessment and Preparation Sometimes failure is the consequence of poor assignment planning putting the wrong

person in the wrong job at the wrong time with the wrong expectations. Other times it comes as a surprise, as

personal circumstances disrupt what many saw as a sure thing. Both situations spur MNEs to improve their

assessment and predeparture preparation programs. Assessment typically focus on the expatriate’s technical

expertise, ability to cope with greater responsibilities overseas, challenges of the new environment, personal or

emotional problems, and ability of family to adjust to the foreign environment. HRM’s growing sophistication has

reduced the rate of expatriate failure due to inadequate technical expertise. Indeed, rare is the foreign assignment

that fails because HRM misjudged a candidate's technical qualifications.

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The weather

Raising my children

Safety and crime

Managing finances

Dealing with bureaucracy/corruption

Standard of living

Adapting to culture

Healthcare--quality and access

Language barriers

Relocation process

Career prospects

Feeling lonely and missing friends and family

Reestablishing a social life

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Chart 20.3Leading Concerns of Expatriates Ahead of

Moving to their Foreign Assignment

Source: HSBC Bank International.63

Margin Note 19

Improving understanding shifts HRM's attention toward preparing the expatriate. Chart 20.3 ranks the top stress

points prior to departure. Reestablishing a social life, feeling lonely, and missing friends and family top the list.

HRM extrapolates from these long-running concerns that improving cultural sensitivities and skills improves the

odd of successful adjustment and, by extension, a successful expat assignment.64 Today, most MNEs provide

predeparture preparation in the form of cross-cultural training, destination familiarization, and language lessons.

They encourage individuals to understand their own culture and the way it influences their behavior, rather than

focusing on the differences they are likely to encounter. Increasingly, MNEs use CD-based or Web-based programs

to ease preparation. In fact, 35 percent of companies said they provided media-based or Web-based training in 2010

—an all-time high.65 The convenience, efficiency, and cost provide excellent pre-departure preparation as well as in-

country reinforcement. Not matter the tools uses, HRM follows a clear-cut rule: Helping an expat prepare in any or

all ways helps him thrive in the assignment.

A Fundamental Challenge Generally, a foreign assignment is more stressful for the family than for the expatriate.

Consistently, the leading cause of expatriate failure is the inability of a spouse and children to adapt to the host na-

tion. Challenges include the children’s education, family adjustment, and the spouse’s resistance to and regret from

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moving abroad. Increasingly, the struggle of a previously employed spouse to find local employment poses severe

difficulties.66 Expats commonly speak of a recurring dynamic. Abrupt separation from friends, family, and career

isolate the spouse and children. It leads many to look to the expatriate for companionship and reassurance. Job de-

mands, however, result in little time to provide support. Sometimes slowly, sometimes quickly, but almost always,

family stress escalates. Unchecked, the expat's work performance suffers because, “If the family starts to unravel,

the employee will at some time start to unravel too.”67

Margin Note 20As a result, HRM takes a proactive approach in preparing the expat, spouse, and family. HRM monitors fami-

lies’ adjustment process and experiments with ways to minimize family disruption. Executives may be sent on short-

term or “commuter” assignments where they need not uproot their families. Moves to send younger or older expats

speak to this threat; the younger are more likely single whereas the older have grown children and more agreeable

partners.68 In fact, only 47 percent of expatriates had children accompanying them in 2010—an all-time low.69

Preparation Programs

Greater concern for functional performance traditionally led HRM to tailor predeparture programs toward improving

technical skills and administrative competencies. The matter of developing adaptiveness was largely left up to the

individual. A manager interested in an international career would, through her own devices, find ways to travel

abroad, monitor world events, and socialize with people of different ethnicities, cultures, and nationalities.70 When

eventually posted to a foreign assignment, they often performed well. The variability in performance among

expatriates, by consistently highlighting gaps in predeparture training, encourages MNEs to expand preparation

beyond technical capabilities. HRM, as noted above, assess adaptive capabilities, international orientation and

outlook, geographic preferences, or foreign-language qualifications.71 They then tailor preparation to improve an

expat's understanding of a country, raise cultural awareness, and devise practical skills. Honeywell, for instance,

begins training potential expatriates early and focuses on cross-cultural skills, including those necessary for dealing

with culture shock. Let’s take a closer look at each. CRN

Concept Check 8

General Country Understanding The most common predeparture training is an informational briefing about the way

things work in the host country. Transferring specialized knowledge about foreign environments reduces some of

the fear of the unknown. Topics typically include politics, laws, economics, workplace practices, logistic options,

and social situations.72 Some MNEs refresh this training, often through Web-based resources, a few months after the

expat starts the assignment.

Margin Note 22Cultural Sensitivity Cultural training sensitizes expatriates to see the benefits of working with host-country

nationals. It encourages finding merit in different ideas, attitudes, and beliefs. These sensitivities do not come

naturally to all. Hence, preparing expatriates often requires helping them recognize possible prejudices and biases.

Acknowledgement, the reasoning goes, helps them withstand culture shock—a soon-after-arrival dissatisfaction

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with the host culture that, if unaddressed, may deteriorate into homesickness, irritability, arrogance, and disdain.

When Michelle Brown left London for a job in Hong Kong, she looked forward to immersing herself in the new

culture. The move, however, proved daunting. "I suppose I was quite naive, but Hong Kong was a complete culture

shock," she says. "The humidity was insane, the smells made me ill, there was just so much to take in and not all of

it pleasant." Today, an MNE that does not offer formal cross-cultural preparation for international assignments is the

outlier.73 An emerging trend is including families in cross-cultural orientation, which tends to maximize the return

on investment while minimizing the odds of expatriate failure. In any event, developing interpersonal awareness in

the context of cross-cultural sensitivity training tends to make people more receptive to and tolerant of foreign

environments.

Margin Note 21

Practical Skills Practical training aims to familiarize expatriates and their families with the routines of life in the

host country. The sooner they develop a useful pattern of schooling, socializing, and shopping, the higher the odds

of withstanding culture shock. This is easier said than done for many countries. Expatriates report that India, Qatar,

the Russian Federation, and Saudi Arabia top the list in terms of the difficulty of setting up finances, health care,

accommodations, and utilities. South Africa, Canada, Thailand, and Australia are notably easier.74 Expatriates

improve adjustment by consulting former expats on their successes and struggles and, once abroad, socializing with

local community groups and joining expatriate associations.

Exceptions and Anomalies

All things held equal, MNEs tend to under-rather than over-prepare potential expatriates for international

responsibilities. In some circumstances, managers receive cursory predeparture training, often scanning reports and

reviewing resources on the flight to their new home. Usually an MNE will blame this circumstance on the urgency

of the situation, noting there is insufficient time for the expat to take a familiarization trip to the host country, let

alone a comprehensive profile of its history, culture, politics, economy, religion, and business environment.

Typically, the home office fears rapid deterioration in the performance of the foreign subsidiary or the quick fade of

a key opportunity. Hence, it quickly dispatches help, worrying more about technical competency than cultural IQ.

Ultimately, it is important to note that some causes of expatriate failure are intractable simply because some

people do not adjust well to working abroad. The awareness of differences, as one might hear from an expat about to

leave Boston for Bangkok, does not necessarily signify the willingness to adapt to them. Changes in socializing,

logistics, and safety often push people far beyond their comfort zone. Culture shock follows and emotional distress

esclates. Put simply, notwithstanding the glamour and riches or the comprehensiveness of predeparture training, the

expatriate lifestyle is not for everyone. For some, what was an adventure devolves into a sentence.

Point><Counterpoint

Learning a Foreign Language: Is It Still Useful?

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Point > Yes When asked about the importance of employees' foreign-language needs, many respond that such

competency adds professional and personal value.75 Surveys report that managers who learn one or more foreign

languages find new ways to make innovative contributions. Even if they are far from fluent, their willingness to

communicate in the language of the locals builds rapport with colleagues, thereby improving their effectiveness.

Proponents point out that countries have different cultural and business expectations that can only be deciphered

through the local language.

New Networks Foreign language aversion, which many see as signifying cross-cultural illiteracy, excludes one

from influential business networks, complicates relations with local officials, and slow socializing with workmates.76

Working abroad is itself a challenge; language limitations make it further isolating.77 Microsoft’s Joan Pattle noted

that her inability to speak Turkish made her seven-month stint in Istanbul very lonely, explaining, “You can’t really

mix with the locals [or] use local transportation because you can’t read any of the signs.”78 Symbolically, the

effort to speak the local language, no matter how poorly, sends a subtle but essential cultural message. Just making

an effort to say a few words in the native tongue can make a good impression, sending a subliminal message that

“We are equal.”79 Moreover, as anyone who has struggled to learn a foreign language can attest, unexpected benefits

include a good dose of humility and respect for others.

New Ways of Thinking Proponents of foreign language competency maintain that learning another language is a

personally enriching experience. Studying another culture illuminates one's values and outlooks. Understanding

local language and, in the course, local culture clarifies the consequences of globalization. International cooperation

and exchange depend on people who possess foreign-language proficiency. Perhaps most significantly, learning a

foreign language teaches you that there are several ways to express a concept, interpret an abstraction, and make

sense of a situation. Learning a new way of thinking, besides improving exchanges with supplies, buyers, officials,

and stakeholders, sharpens your business skills and refines your global mindset.

New Requirements Even if not for enrichment, some say learning a foreign language will soon be a competitive

necessity. The expanding international links and intercultural connections of a globalizing world make linguistic

skills crucial for getting many jobs and accelerating careers. In the context of the widespread unemployment

resulting from the global financial crisis, any means to differentiate one's competencies, such as that demonstrated

by linguistic skills, creates opportunities.

Inevitably, some respond that the spread of English competency worldwide means those who already speak it

need not worry. Critics note, however, that marketplace trends will punish, not privilege, English-only speakers.

Eventually, they will lose the advantages that once came with being among the small number of native Anglophones

who could speak the most useful language of the business world. Bilinguals or multilinguals will offer the same as

English monoglots but with richer language skills and broader international perspectives. In some parts of the world,

officials have institutionalized incentives to support this movement. For instance, the EU’s official language policy

is “mother tongue plus two,” whereby citizens are encouraged to learn two additional languages. The majority

choose English.

Which One? Ultimately, one wonders, which foreign language should I study? Presently, growth in expatriate

positions is moving rapidly from Western Europe and North America to the booming emerging economies. As

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MNEs struggle to place expatriates in these high-growth markets, proficiency in languages like Mandarin,

Portuguese, or Hindi will translate into job opportunities and salary premiums. Finally, entrepreneurs may look

around their hometown and go for fast-spreading languages such as Spanish, Mandarin, or Arabic.

Counterpoint > No The prevalence of English throughout the world indicates that learning a foreign is nice but

unnecessary. Like it or not, English ably performs in world business, supported by growing numbers who regard it

as a practical alternative to their native language. Indeed, about a quarter of the world’s population speaks some

English, including the 400 million who speak it as their mother tongue and about the same number for whom it is a

second language. When you get down to dollars, only English really matters. It accounts for a much larger share of

world output than that represented by the proportion of native speakers in the world. Though the first language of

only 6 percent of the world’s population, its speakers generate more than 40 percent of world output. Inexorably,

English becomes the world’s lingua franca.

The Preferred Choice Situations in the EU, where more than half the population claims to be reasonably

conversant in English, highlight this trend. Among Europeans born before WWII, English, French, and German are

almost equally common. But 15-to-24-year-olds are five times more likely to speak English as a foreign language

than either German or French. Add native speakers to those who have learned it, and some 60 percent of young

Europeans speak English “well or very well.”80 Many envision developing it further; more than 70 percent in a

survey of 16,000 people living in the EU agreed, “Everybody should speak English.”

We see similar trends elsewhere. In 2005, India claims the world’s largest English-speaking and -understanding

population. It now has the second-largest “fluent” English-speaking population, after the United States, and expects

to have the world’s largest number of fluent English speakers within a decade. Even today, Hindi films, most

advertising billboards, and higher education are in English. Virtually every well-paying job in India require an

understanding of English.81

The Default Choice Although English is not an official language in many countries, it is most often taught as the

second language. In the EU, English is studied by schoolchildren (89 percent), followed by French (32 percent),

German (18 percent), and Spanish (8 percent).82 Nearly 200 million students in China are learning English in school,

and more than a fifth of Japanese 5-year-olds attend classes in English conversation. Countries from Chile to

Mongolia aim to become bilingual in English in the next decade or two. Collectively, with 2 billion people speaking

or studying it today, we are on the verge of a massive diffusion of English competency.83

The Online Choice The prevalence of English is best seen in its predominance on the Internet, where one can

conduct business worldwide using the English interface of one’s preferred browser.84 More than 80 percent of home

pages on the Web are in English. Heavyweight publications, like Der Spiegel and China Daily, around the world

offer English-language websites that list translated news stories and opinion pieces. On a related front, the growing

sophistication of translation software makes foreign language competency a moot point for those who prefer using

their local language on the Internet.

The Only Choice Many companies respond in kind. The Economist reports that just under half of employers rate

language skills as important—a tendency linked to the laborious struggle to master a foreign language. Language

competency ranked well-behind technical competencies, leadership skills, and career development when evaluating

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a potential expatriate; it just edged motivation for working abroad.85 Finally, some say language proficiency is an

easy but ultimately misleading proxy of an expatriate’s potential. As the CEO of Schering-Plough notes, “I’ve met

many people who speak three or four languages yet still have a very narrow view of the world. At the same time,

I’ve come across people who speak only English but have a real passion and curiosity about the world and who are

very effective in different cultures.”86

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Caption: A relatively innocuous situation: a Beijing street sign with Mandarin and English indications. Indeed,

throughout Beijing there are plenty of signs with English translations. To those traveling abroad: good luck finding

Mandarin signs in New York or London.

Source: Daniel Sullivan, Personal Photo

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COMPENSATING EXPATRIATES

If a U.S. company transfers its finance manager who makes $250,000 a year in Miami to Shanghai, where the going

rate is $175,000, what should the manager’s salary be? Alternatively, if a Chinese finance manager is transferred to

the United States, what pay should the company offer? Should it compensate in dollars or yuans? Which set of

fringe benefits should apply? How should it resolve tax policies?

These are a few of the many compensation questions a company faces when it posts expatriates. Managing an

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international workforce requires that HRM resolve differing pay levels, benefits, tax programs, and prerequisites. On

the one hand, HRM must prevent the already high costs of an expatriate assignment from spiraling—MNEs in the

United States spend nearly $1.3 million per expatriate during the course of a typical three-year foreign assignment.87

On the other hand, HRM must pay people enough to motivate them as well as incent the family to move abroad.

All things being equal, compensation can determine the likelihood and success of expatriate assignments. Pay

too little, and people decline to go; if they do go, they regret it. Pay them too much, and costs escalate, returns fall

short, and pay inequities fan dissension. Further complicating the pay-performance link is the weak to nonexistent

correlation between higher pay and improved performance. More often than not, the higher the pay, the longer

expatriate assignments tend to last. Some managers, quite content to prolong a munificent lifestyle, are less than

eager to return home.88

M a r g i n N o t e 2 3The task facing HRM, then, is straightforward: Devise a compensation package that gets people to go abroad,

lets them maintain their standard of living, reflects the responsibility of the foreign assignment, and ensures that

after-tax income will not fall because of the foreign assignment. Developing a solution, however, is not quite so

straightforward. HRM must balance the company’s financial needs with the need for an attractive salary and benefits

package, while ensuring that the package preserves pay equity among peers, promotes parity among expatriate,

competes with packages offered by industry rivals, and can be easily administered. Finally, HRM has to balance its

responsibility to company goals and individual needs with a win-win compensation plan.

Types of Compensation Plans

Many MNEs, especially in the United States, apply the balance sheet approach to managing expatriate

compensation.89 This approach develops a salary structure that equalizes purchasing power across countries so

expatriates have the same living standard in their foreign posting that they had at home, no matter where their

assignment takes them.90 Its fundamental principle is equalization: expatriates should neither overly prosper nor

unduly suffer from being sent abroad. It also outlines how the company provides financial incentives that offset

qualitative differences between assignment locations.

M a r g i n N o t e 2 4

Three common methods of implementing a balance sheet compensation plan are home-based, headquarters-

based, and host-based:

Home-Based Method This method bases expatriates’ compensation on the salary of a comparable job in their home

city, thereby preserving equity with home-country colleagues and simplifying the eventual return. The evolving

dynamics of globalization challenges the home-country balance sheet approach. Initially designed to compensate

employees and families transferred from Western-headquartered MNEs out to the world, it based its cost of living

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indices and support allowances on moves from high-cost countries, such as England and the United States, to

countries like Argentina or Saudi Arabia. Today’s global environment is marked by expatriates of many different

nationalities, different home and host combinations, varying salary levels and transfers to or from headquarters, and

a growing number of transfers between subsidiaries. Hence, MNEs applying the balance sheet struggle to maintain

pay equity and benefit consistency among their evolving expatriate populations.

The home-based method is the most prevalent compensation plan, particularly for expatriates sent abroad from

emerging markets. For example, Chinese expatriates do not enjoy lavish pay and perks. For instance, China

Unicom’s managing director in Europe received his modest Chinese salary plus a small cost-of-living allowance

during his foreign assignment. All combined, they totaled to 30 percent of an entry-level salary.91

Headquarters-Based Method A useful way to tweak the home-based method is to set the expatriate’s salary in terms

of that of a comparable job in the city where the MNE has its headquarters. For example, if a Boston-headquartered

MNE posted expats to its offices in London, Santiago, and Jakarta, it would give each a salary structured in terms of

the going wage in Boston. This plan recognizes the disruption of a foreign assignment and ensures expatriates live as

they had in their home country.

Host-Based Method Sometimes called destination pricing or localization, this provides a way to fine-tune expatriate

compensation by basing it on the prevailing pay scales of the foreign locale. Basically, an expatriate starts with a

salary equivalent to that of a local national with similar responsibilities, then adds whatever foreign-service

premiums, extra allowances, home-country benefits, and taxation compensation have been negotiated. Essentially,

the host-based method pays expats less in order to reduce tension between them and their host-country colleagues.

This also improves the company’s return on its investment. It is not as lucrative for the expat as the other

compensation plans. PwC uses the host-based method for expats involved in its EPIC program. PwC improves its

offers by assisting with immigration, relocation, and language and intercultural training.

Key Aspects of Expatriate Compensation

Table 20.4 illustrates a typical compensation package. Expatriates negotiate their package in terms of a base salary,

a foreign-service premium, various allowances, fringe benefits, tax differentials, and benefits. Let’s review each.92

Margin Note 25

Base Salary An expatriate’s base salary normally falls in the same range as that for a comparable job in the home

country. It is paid either in the home-country currency or in the local currency.

Foreign Service Premium A foreign service premium, often called a mobility premium, is a cash incentive to com-

pensate individuals for the inconvenience of moving to a new country, living away from family and friends, dealing

with the day-to-day challenges of the new culture, language, and workplace practices, and the reality that they will

ultimately have to disrupt their lives upon return. Long-term assignments usually qualify for a mobility premium;

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short-term assignments rarely do. Typically, the premium is expressed as a percentage of annual base salary (be-

tween 5 and 15 percent) and varies depending on whether it is an intra-regional transfer or an intercontinental trans-

fer.

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TABLE 20.4 What Does an Expatriate Cost?

Numbers reflect the following scenario: A Seattle-based company will assign a senior executive to run a wholly

owned subsidiary in Tokyo. In the United States, the executive, who has a working spouse and two children, earns

an annual income of $150,000. This balance sheet profiles the outlay that will be needed to compensate him in his

foreign assignment.

Direct Compensation Costs

Base salary $ 150, 000

Foreign-service premium 25, 000

Goods and services differential 120, 000

Housing 97, 000

U.S. (hypothetical) taxes (38, 000)

Company-Paid Costs

Education (schooling for two children) 30, 000

Japanese income taxes 115, 000

Transfer moving costs 47, 000

Miscellaneous costs (i.e., shipping and storage; home sale or property

management fees; cultural, practical, and language training; preassignment

orientation trip, destination assistance)

85, 000

Working spouse allowance 75, 000

Annual home leave (airfare for four, hotel, and meals) 15, 000

Additional health insurance, pension supplements, evacuation coverage 20, 000

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Tax Differentials Varying tax polices require that MNEs adjust compensation so that expatriates’ after-tax income

does not suffer from taxes imposed by a foreign assignment. Tax equalization is a costly component of expatriate

compensation. If there is no reciprocal tax treaty between the home and host countries, the expat may be legally ob-

ligated to pay income tax to both governments. In such situations, the MNE ordinarily pays the tax bill in the host

country. Practically, companies monitor tax code variations. Commonly, tax authorities regulate issues regarding

filing procedures, financial information, and penalties for noncompliance. An important part of long-term assign-

ments, tax policy is crucial in administering commuter and short-term assignments. For example, Chinese tax au-

thorities stipulate that the expatriate who has spent less than 30 continuous days inside or more than 90 cumulative

days outside China per tax year will not be considered as having been in China for that tax year. Consequently, ex-

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ecutives monitor their time there, tracking arrival and departure dates.

Fringe Benefits Firms provide expatriates the same level of medical and retirement benefits abroad that they

received at home rather than those customarily granted in the host country. However, most MNEs expand these

benefits to deal with local contingencies, such as bearing the cost of transferring ill expatriates or family members to

suitable medical facilities.

Allowances

Sending an executive on an international assignment imposes expensive logistics and considerable stress. MNEs

adjust the total compensation package with a variety of allowances, described below, that help reduce the difficulties

facing the expatriate and family.

Margin Note 26

Cost-of-living Allowance Expatriates receive a cost-of-living allowance (sometimes called a "goods-and-services

differential") so they don't suffer a decline in their standard of living due to the steep expense of a particular city

(London or Lagos) or nation (Switzerland).93 Some companies reduce the cost-of-living differential over time,

reasoning that as expatriates adapt to their environment they should adopt local purchasing practices, such as

substituting items from a neighborhood market in place of imported packaged goods.94

A fair, consistent compensation package reflect the cost of living in the assigned foreign city. HRM designs it

given the prevailing cost of goods and services, including housing, transportation, food, clothing, household goods,

and entertainment in a particular location.95 Setting New York as the benchmark, cost-of-living estimates for 214

cities around the world indicate Luanda, Angola is the world’s most expensive city for expatriates, followed by

Tokyo, Ndjamena (Chad), Moscow, and Geneva. The least expensive were Pakistan’s Karachi and Islamabad,

Nicaragua’s Managua, Bolivia’s La Paz, and Addis Ababa in Ethiopia.96 Table 20.5 reports regional data.

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Table 20.5

Top Five Most Expensive Cities for Expatriates by Region

Americas Asia Pacific Europe Middle East & Africa

Sao Paolo, Brazil Tokyo, Japan Moscow, Russia Luanda, Angola

New York, United States Osaka, Japan Geneva, Switzerland N'Djamena, Chad

Rio de Janeiro, Brazil Hong Kong, Hong Kong Zurich, Switzerland Libreville, Gabon

Havana, Cuba Singapore, Singapore Copenhagen, Den-

mark

Victoria, Seychelles

Los Angeles, United States Seoul, South Korea Oslo, Norway Tel Aviv, Israel

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Housing Allowance Moving from, say, mid-price Salt Lake City to high-price Singapore is a tough sell to potential

expatriates. A housing allowance ensures they will duplicate their customary quality of housing. Housing costs vary

because of crowded conditions that raise land prices as well as shortages of homes that are acceptable to expatri-

ates.97 Westerners pay steep premiums is some parts of Asia to rent accommodations with Western-style bathrooms

and kitchens.98

Spouse Allowance A spouse allowance supports the spouse’s job search and cross-cultural training. In some cases, it

helps offset lost income due to the spouse’s employment loss or separation.99 About a quarter of MNEs provide

trailing spouses with job-search assistance, often through networks with other MNEs. It is becoming increasingly

difficult for previously employed partners to find jobs during foreign assignments. Hitting an all-time low, only 9

percent of spouses, compared to a historical average of 14 percent, were employed both before and during

assignments. 100 Difficulties arise due to economic conditions, locations, and language and cultural differences.

Immigration and visa complications further discourage potential employers.

Margin Note 27

HARDSHIP ALLOWANCES Expatriates assigned to difficult environments or dangerous locations typically qualify for a

hardship allowance. Living in certain settings poses severe hardships, such as harsh climatic or health conditions, or

exposes the expatriate to security threats.101 For instance, expat personnel of many MNEs, given their high profiles,

have been targeted for kidnapping and assault. Hardship allowances or as some call it, combat pay, include ransom

insurance, safety training programs, and alarm systems and security guards.102 Sometimes, expats encounter living

conditions that are substandard to those at home, thus qualifying for a hardship allowance. They may also receive

miscellaneous allowances. Popular options include travel allowances that let an expatriate and family come home

periodically, or education allowances to finance higher-quality schools.

Trends in Allowances Spurred by cost pressures and unstable job markets, MNEs have begun reducing the range

and extent of expatriate allowances. Foreign service premiums, for example, have been phased out by many compa-

nies. Globalization moves many employees to sustain their careers by working abroad, while more individuals see

international assignments as a chance to develop business skills and leadership qualities. These folks are more will-

ing to go abroad for less compensation; in fact, a recent survey found that 81 percent believe that broadening their

horizons and gaining life experience, not financial gain, is the most important benefit of a foreign assignment.103

Consequently, expatiate assignments have “gone from being special and unique, with piles of money thrown at

them, to being an everyday part of the company.”104

Cost-reduction techniques include dropping benefits and allowances (many MNEs with operations in Europe

now treat the continent as if it were one country) and cutting “hardship” allowances for locales that are not as diffi-

cult as they once were, such as an assignment to Prague or Shanghai. Pressure to reduce pay and perquisites will

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continue, driven by cost control and skillful employees from developing countries eager to work worldwide.

Compensation Complications

In addition to more than 1,700 expatriates stationed in more than 50 countries, Unilever has 20,000-plus managers

spread over 90 countries.105 Should it pay executives in different countries according to the prevailing standards in

each? Alternatively, should it equalize pay for each position on a global basis? Legal, cultural, and regulatory factors

complicate compensating managers abroad. Ideally, systematizing pay and benefit programs while removing

inconsistencies makes for fair and equitable compensation plans. Considerable progress has been made in the past

decade; salaries for similar jobs no longer vary substantially among countries.

Margin Note 28

Still, regulatory and cultural differences require tailoring performance-based pay by country and region. In

particular, these situations challenge companies applying a geocentric staffing policy. Global and transnational

strategies depend on developing a cadre of international managers, which more than likely includes different

nationalities. At issue is whether all managers who perform the same job but in different locations are paid the same

salary. For Finland's Nokia, say, this would require compensating its foreign nationals, no matter where they

worked, in terms of Finnish salary levels. If Nokia opts not to develop an equitable arrangement, it will likely result

in underpaid expatriates resenting their higher-paid counterparts.

Firms applying ethnocentric or polycentric staffing policies, though largely immune to these distortions, also

adjust their compensation programs for national differences. If not, then they may pay someone more than necessary

to persuade him to go abroad. Pay disparities for people doing the same jobs weaken the motivation of home- or

host-country managers. Although the company with an ethnocentric or polycentric staffing policy may have few

expatriates today, likely growth in its international activities will make it increasingly cumbersome to administer

foreign compensation packages on a case-by-case basis.

Compensating CEOs Pay practices at the top set standards throughout the company. CEOs in the United States

enjoy the largest and most comprehensive pay packages, both in terms of base compensation and total remuneration.

CEOs in France, Germany, Italy, Switzerland, and the United Kingdom also command higher levels of total

compensation than their peers elsewhere. This model inspires emulation; Asian and Latin American MNEs are

instituting similar pay practices, particularly the use of performance-based pay that ties compensation to business

results.

Margin Note 29

Differences persist. Long-term incentives, such as options on restricted stock, are popular in the United States

but not in Germany. However, German managers often receive compensation that U.S. managers do not, such as

housing allowances and partial payment of salary outside Germany, neither of which is taxable. Similarly, countries

with aggressive personal income tax rates spur employees to ask for pay plans that reduce taxable base salaries in

favor of tax-exempt fringe benefits. Ultimately, as MNEs from more countries become more multinational, they

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compete globally for executive talent. Likewise, local firms must tailor compensation to retain executives.

Therefore, convergence in compensation practices is the order of the day.

REPATRIATION

MNEs apply staffing frameworks that create a cycle of events: expatriate selection, predeparture preparation, a

motivating compensation package design, and a plan to bring the executive back home intact and in good spirits.

The last task, repatriation, defines the process of reintegrating an expatriate into the home company upon

completion of the foreign assignment. Success at each stage in the cycle, not just early on, is vital. Consistent

success supports a self-sustaining cycle whereby returning employees share their knowledge, experiences, and

enthusiasm with colleagues. High-performing executives, seeing the virtues of an international assignment, are more

receptive to the prospect of working abroad.

The repatriation system works for many. Between a quarter to a third of returning expatriates believe their inter-

national experience boosted their career trajectory. Faster promotions and obtaining new positions more easily are

commonly cited benefits. Indeed, nearly one in four expatriates who returns home is promoted in his or her first year

of repatriation.

Margin Note 30

For others, the repatriation system falls short. Promotions are rare and wasted effort is common. A survey of

repatriated executives who had successfully completed their overseas assignment found that more than a third held

temporary assignments three months after returning home, nearly 80 percent believed their new job was a demotion

from their foreign assignment, and more than 60 percent felt they did not have opportunities to transfer their interna-

tional expertise to their new job. A surprising share of these former high flyers move on to other companies. In

2010, nearly 40 percent left their firm within one year of returning from abroad (the 15-year average is 22 percent),

whereas another 25 percent left between the first and second year.106

Explanations for these anomalies commonly cite MNEs’ greater concern for preparing and paying workers for

the foreign assignment than for supporting them upon their return.107 Anticipation, opportunity, and preparation prior

to departure receive attention from a host of support functions. The backside of the cycle is far less prominent and

promising. Returning home can deteriorate into a disappointing part of the assignment. Ironically, companies are

well aware of this deficiency. Most MNEs see repatriation as important, yet just 20 percent conclude they manage it

effectively for the executive or for the company.108

Unquestionably, job placement dominates repatriation concerns. Stress also arises in fitting back in with the

home-country organization, changes in personal finances, and readjusting to life at home.

Margin Note 31Readjustment to Home-Country Organization Going back to one's previous office poses problems for expats on

several levels. Returnees may find that their former peers have been promoted above them; they may enjoy less

autonomy as they return to being a “little fish in a big pond.” Colleagues may question whether they’ve maintained

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cutting-edge market knowledge and technical skills during their “vacation” abroad. They may struggle to rejoin an

office network that might not know quite what to do with them. In such situations, resentment often builds as

executives reason that they have worked hard to progress professionally, sacrificed much for the company, and

rightfully deserve a promotion.

A key cause of tension is the suspicion that "out of sight overseas" turns out to be "out of mind back home." This

fear leads led many fast-tracking executives to decline an expatriate assignment. Effectively, going abroad means

leaving the power center. Explains one executive, “MNEs station people abroad and then forget about them. If

anything, advancement is even more difficult for the expat when he returns to headquarters, having missed out on

opportunities to network with top management.”109 This situation plays havoc in cultures, particularly collectivist

cultures, where face time with the right people is critical to winning promotions. Some may actually interpret a

foreign assignment as pushing them off the fast track by dumping them into a slow, periphery market—say, from

booming Australia to mature Belgium.

More than half of returning expatriates report that their company had been vague about the repatriation process,

their pending jobs, and future career progression. MNEs reply that repatriation puts them between a rock and a hard

place. The expatriate's office cannot just sit vacant. Cost-cutting measures, mergers, or acquisitions changes

company's plans and, by extension, its plans for the expatriate. Likewise, permitting repatriated employees to bump

their “replacements” on return is unfair. Still, expatriates are likely to stay if the company gives them chances to

apply their expertise.110 Increasingly, headquarters pushes them to take more responsibility for their return, often

encouraging them to spend a stint at the home office before finishing their foreign posting.

Changes in Personal Finances Changes in personal finances can be dramatic upon returning home. Most expatriates

enjoy rich benefits during their foreign assignment. Many live in exclusive neighborhoods, send their children to

prestigious schools, employ domestic help, socialize with elites, and still save a good amount. Returning home to a

reasonable compensation plan with far fewer perks and privileges can prove demoralizing.

Personal Readjustment Readjusting to life at home is stressful.111 Troubles emerge as returning expatriates and their

families experience “reverse culture shock.” Both need to relearn some of what they once took for granted.

Meantime, children may struggle to fit into the local school system while spouses may feel isolated or out of touch

with the career or friends they had, once again, left behind.

Concept Check 10

Managing Repatriation

MNEs are not blind to repatriation problems. Ignoring them is not an option. The greater the difficulties that

confront returning expatriates, the greater the difficulty of convincing others to accept international assignments.

Surveys report that three of four MNEs have written repatriation policies, whereas 95 percent have identified new

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jobs within the company for returning expats.112

Some companies, like Dow Chemical, pledge that repatriated employees will return to jobs at least as good as

those they left behind. Others integrate foreign assignments into career planning and develop mentoring programs to

look after the expats’ domestic interests. PwC’s EPIC program relies on several safety nets, promising participants

that "unrivaled support mechanisms" safeguard their careers.113 Prior to an international assignment, EPIC

participants are linked to a mentor at home and a colleague awaiting their arrival overseas to help smooth the

transition. Both share responsibily for supporting the expat’s career development. Similarly, Avaya charges the

manager who originally sponsored an expatriate with the job of helping that protégé find a job upon repatriation.

Certainly, Avaya worries about the expat’s career plan. Cold economics also play a part, given Avaya’s stand that it

has “invested in this person. To leave him overseas or to lose him to another company is a waste of money.”114

Margin Note 32

Nevertheless, statistics show that many expatriates are unhappy upon return. Pressed to pinpoint where

repatriation breakdown begins, they target the difficulty of returning to the right job. One report concludes, “People

who have spent two years working in different ways across varied markets and cultures are not always happy to

return to the same desk and the same prospects. In this vacuum of direction, many have a career ‘wobble,’ then leave

via a recruitment market in which their experience is seen as increasingly valuable.”115

Personal career management, therefore, is as vital to being selected for a foreign assignment as triumphantly

returning home. Recall from our opening case the experience of Bryan Krueger, who accepted a four-year

assignment in Tokyo without guarantee of a promotion when he got home. Krueger was conscientiously “proactive,”

networking avidly, keeping up with events at headquarters, and visiting the home office. Passivity is hazardous;

navigating repatriation requires a keen sense of its positive and negative aspects—before departure, while abroad,

and particularly before coming home.116 CRN

LOOKING TO THE FUTURE Brainpower: Drains, Circulation, or Returns?

As capital, technology, and information grow more mobile among countries and companies, HR development

increasingly explains competitive differences. Consequently, companies’ access to and retention of more qualified

personnel grows more important as they face the challenge of recruiting and retaining highly skilled workers.

Worker populations will grow much faster in emerging economies than in the wealthier countries through 2030

(China being the notable exception). Concurrently, the number of retirees in the wealthier countries will grow as

people live longer and retire earlier. People will also require more education to qualify for better jobs. These trends

indicate that there will be fewer people to do productive work in the wealthier countries. The countries are already

trying to adjust, engaging in a range of education and training programs.117 Still, these programs pose social and

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economic consequences to which MNEs must adapt.

Brain Drain One adjustment might be for wealthier countries to encourage emigration from emerging

economies that struggle to generate enough jobs for their swelling workforce. In Canada, the United States, and

parts of Western Europe, there has been a long-term inward migration, both legally and illegally, of foreign workers

from emerging economies. These movements generate assimilation costs within wealthier countries and, for

developing economies, a brain drain as their highly qualified people migrate to other countries. Some, however,

suggest that emigration benefits everyone by encouraging brain circulation among wealthier and developing

economies.118

As fallout from the global financial crisis has spread, growing unemployment in advanced markets has altered

migration patterns. Concern about creating jobs for locals often devolves into excluding foreigners who aspire to

those positions. This situation is particularly glaring in the American high-tech industry, which has relied

extensively on foreign workers to staff operations in the United States. The industry maintains that the U.S. does not

produce enough scientists and engineers to meet its demand; evidence suggests this is true, given that more than 60

percent of computer science Ph.D. students in the United States are internationals. Nevertheless, facing outcry from

constituents seeking employment as well as nationalistic calls to put Americans to work in America, Congress

imposed rules on immigration of foreign workers into the United States. Most notably, it reset the rules governing

H-1B visas, the necessary visa permission that allows U.S. firms to employ highly qualified foreign workers

temporarily.119 Times of economic downturns typically see unemployed workers blame foreign workers for their

plight. Under this scenario, companies will have to spend more time getting work permits and integrating different

nationalities into their workforces.

Labor-Saving Threats Another potential adjustment in wealthier countries is the continued push toward

adopting robotics and other laborsaving equipment.120 Although this may help solve some of the worker shortages, it

escalates companies’ need for workers who command higher skill levels. Less educated workers will likely face few

prospects for “good jobs,” thereby pushing them to compete with immigrants for lower-paying, less appealing jobs.

Gaps between haves and have-nots may widen within wealthier countries as well as between those countries and

emerging economies. In this scenario, the growing ranks of the have-nots will likely lobby governments to push

companies to shift technological development away from laborsaving priorities.

Brain Circulation A third possible adjustment is accelerating business migration to emerging economies to tap

rich supplies of inexpensive, productive labor. Concurrently, emerging economies may devise ways to support brain

circulation or, if unsuccessful, to halt the process of brain drain. Either approach will shift more entry-level

production jobs from wealthier countries to their emerging counterparts.121 If successful, managers who return to

their countries will likely shift many low-skilled jobs to their home market. Governments in wealthier countries will

then face the problem of underqualified workers facing deteriorating job prospects. 122

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CASE

Tel-Comm-Tek (TCT)123

In May 2010, Mark Hopkins of Tel-Comm-Tek (TCT) India, a company headquartered in the United States,

announced his retirement. At the time, he was the managing director of the Indian subsidiary of TCT. During his

tenure, Hopkins had led the dramatic increase in growth, market share, and profitability of the Indian operation.

Upon his announcement, TCT began searching for his replacement.

TCT: A Brief Introduction

TCT manufactures a variety of small office equipment in 12 countries. It distributes and sells products such as

copying machines, dictation units, laser printers, and paper shredders worldwide, most recently reporting sales in

more than 85 countries. TCT has been in India since the early 1980s. Originally, it lacked its own in-country

operation, relying on local agents to sell and services its products. Increasing sales led TCT India to open a

marketing subsidiary in New Delhi in 1993 (See Map 20.1). Recently, the booming Indian IT industry has boosted

its sales. Forecasts saw this accelerating over the next decade. Headquarters forecast TCT India becoming the center

point of its expanding Asian operations. Collectively, these trends led TCT to expand its Indian operations with the

addition of a manufacturing facility.

--------------------------------------------------------------------------------------------------------------------

MAP 20.1 India

U.S.-based Tel-Comm-Tek, opened an Indian sales office in the capital of New Delhi in 1992 and broke ground on a

manufacturing plant in Bengaluru in 2011.

Source: Central Intelligence Agency, “India,” The World Factbook 2009, www.cia.gov (accessed June 23, 2009).

--------------------------------------------------------------------------------------------------------------------

India: An Emerging Juggernaut

Fast Growth Some see India developing into the world’s next big industrial power. This view has led many MNEs

to increase their Indian operations. For example, IBM, a longtime customer of TCT, increased its Indian staff from a

handful in 1998 to nearly 120,000 employees in 2012. TCT expects India's growth will push its total sales past those

of the United States by 2020.

Improved Infrastructure Reinforcing TCT India’s expansion plan is the evolving Indian transportation

infrastructure. Improvement in highways, railways, and seaports boost the efficiency of product movement both in

and out of the country. Management saw TCT India becoming a vital link in its global supply chain. Presently, it

integrates input suppliers, production, and wholesalers in the United States and Europe. Long-term plans emphasize

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building supply points throughout Asia with India the likely network hub.

Democratic Traditions India’s independence in 1947 institutionalized a democratic tradition of accountability,

transparency, and freedom. From 1947 through 1990, India’s centrally planned economy had led to the infamous

“License Raj,” a situation marked by elaborate licenses, regulations, and bureaucracy. In 1991, India began a

transition toward a free market marked by rising investment, trade, and operating freedom. Its transition, an ongoing

process, has stabilized the economy and boosted India’s attractiveness as a manufacturing site.

India: Laws and Legacies

Outmoded Labor Laws India’s labor laws have been only slightly revised since its independence in 1947. They

impose many obstacles. For instance, it is difficult to fire workers even if a company hits hard times; India's

Industrial Disputes Act, for example, requires any company employing 100 or more workers to get the state’s

permission before firing anyone.124 Permission, as one likely suspects, often requires extensive negotiations and

settlements. Consequently, “companies think twice, 10 times, before they hire new people,” said the CEO of India's

Hero Group.125 Finally, some of India’s labor laws discourage flexibility. MNEs, for example, are prohibited from

allowing manufacturing workers to clock more than 54 hours of overtime in any three-month period, even if workers

are willing to do so.

Anticompetitive Legislation Although fading, a battery of laws restricts MNEs from competing in many Indian

industries. These laws protect the millions of small enterprises operating in villages throughout India. Another

challenge is high tariffs. Put in place long ago to promote domestic production, they still apply to many imports,

including a few that are inputs into products TCT India plans to manufacture.

Corruption India’s business environment poses challenges. Its legal system, although endorsing the rule of law,

struggles with corruption that is driven by its vast bureaucracy--a legacy of its centrally planned economy. Partial

success dismantling the License Raj apparatus has promoted more regulatory transparency. Still, legacies of its

inefficient past endure. High-tech MNEs, in particular, often struggled to enforce their intellectual property rights.

Moving Forward

In late 2011, TCT began building its first factory in Bengaluru, the center of India’s Silicon Valley. The plant will

make entry-level to high-end laser printers. The first production run was set for May 2012. TCT plans initially to

supply the factory with components from its manufacturing facilities in Europe and the United States—at this point,

it could import all with reasonable duties. Eventually, the company plans to make or buy the parts locally.

TCT India initially planned to hire 75 to 90 workers to run its assembly line . TCT anticipates no

problems in hiring a skilled labor force given other MNEs’ success stories. For example, the South

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Korean conglomerate LG looked to staff 458 assembly-line jobs at its new Indian factory. It required

each applicant to have at least 15 years of education—a condition that translates into having both high

school and technical college certification. Seeking a young workforce, LG also decided that no more

than 1 percent of the workers have work experience; some 55,000 people qualified for interviews.

Likewise, as a point of elaboration, some 4 million applied for 25,000 slots at Infosys in 2010.126TCT

has enlisted a U.S. engineering firm to supervise construction of its Bengaluru plant. Upon completion,

TCT will “turn over the key” to the on-site factory director, Gary Kent, a technically experienced U.S.

expatriate sent to run it. Mr. Kent will rely on translators as needed. He will report to TCT’s U.S.

headquarters on production, quality control, and supply chain logistics. He will also report to TCT

India’s managing director in New Delhi (the position made vacant by Hopkin's retirement) on support

activities like accounting, finance, and labor relations. The managing director of TCT India, in turn,

will report to Michael Stephens, direction of TCT’s Asian Regional Office in Singapore. It is

anticipated that in the next three years, Mr. Kent will return to United States upon which the managing

director of TCT India will assume his duties.

Selecting the Managing Director

TCT fills executive vacancies by internal promotion. It uses a mix of home-, host-, and third-country nationals to

staff slots in foreign countries. It rotates managers among its foreign and U.S. locations, believing international

experience is a key facet of leadership.

The Candidates The Asian Regional Office charged a selection committee to nominate the new managing director

for TCT India. The committee identified six candidates:

Tom Wallace A 30-year TCT veteran, Wallace is knowledgeable and experienced in the technical and

sales aspects of the job. He has worked with Mr. Kent in developing supply chain initiatives in the United States.

Although he has never worked abroad, he has toured the company’s foreign operations and recently expressed

interest in an expatriate slot. His superiors typically rate his performance as excellent. Due to retire in about 7 years,

he and his wife speak only English, and have three grown children who live with their own families in the United

States. Presently, Wallace manages a U.S.-based operation that is a little larger than the present size of TCT India.

The merger of his unit with another TCT division will eliminate his current position in six months.

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Brett Harrison Harrison, 44, has spent 15 years with TCT running both line activities as well as

supervising staff. His superiors consider him highly competent and poised to move into upper-level management

within the next few years. For the past three years, he has worked in the Asian Regional Office and has regularly

toured TCT’s Asian operations.

Both he and his wife have traveled to India several times and are familiar with its geography, politics, customs, and

outlooks. The Harrisons know other expatriates in the Bengaluru region. Their children, ages 14 and 16, have vacationed

in India with their parents. Mrs. Harrison is a midlevel executive with a multinational pharmaceuticals company. It

presently does not have an Indian operation. Atasi Das Born in the United States, Das joined

TCT 12 years ago after earning her MBA from a university in New England. At 38, she has successfully moved

between staff and line positions and assumed broader responsibilities in strategic planning. For two years, she was

the assistant director of a product group that was about half the size of TCT India. Her performance regularly earns

excellent ratings. Currently, she works on a planning team based at TCT headquarters.

Upon joining TCT, she stated her goal was to work around the world, noting an undergraduate major in international

management as evidence of her long-term interest. She recently reiterated her interest in international responsibilities,

seeing it as an essential career step. She speaks Hindi and is unmarried. Her parents, who now live in the United States, are

first-generation immigrants from India. A few relatives live in India’s northern states, Kashmir and Punjab.

Ravi Desai Desai, 33, is currently an assistant managing director in TCT Asia who oversees production and sales for

Singapore and Malaysia. A citizen of India, he has spent his 10 years with TCT working in operational slots

throughout Asia. He holds an MBA from the prestigious Indian Institute of Management. Some see him as a likely

candidate to direct the Indian operation eventually. He is married, has two children (ages 2 and 7), and speaks

English and Hindi well. His wife, also a native of India, neither works outside the home nor speaks English.

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Jalan Bukit Seng Seng, 44, is the managing director of TCT’s assembly operation in Malaysia. A citizen

of Singapore, he has primarily worked in Singapore or Malaysia. He has regularly commuted to various TCT

factories, helping to reset production systems and supervising equipment refits. He earned an undergraduate and

M.B.A. degrees from the National University of Singapore. Seng is fluent in Singapore’s four official languages:

Malay, English, Mandarin, and Tamil. His performance reviews are consistently positive, with a periodic ranking of

excellent. Seng is unmarried but has family members in Singapore and Malaysia.

Saumitra Chakraborty At 31, Chakraborty is the assistant to the departing managing director in

India. He has held that position since joining TCT India upon graduating from a small private university in Europe

six years earlier. Unmarried, he consistently earns a job performance rating of competent in operational matters and

exceptional in customer relationship management. Presently, he lacks line experience. He has successfully increased

TCT India’s sales, somewhat owing to his personal connections with prominent Indian families and government

officials, along with his skillfulness in the ways of the Indian business environment. Besides speaking India’s main

languages of English and Hindi fluently, Chakraborty speaks Kannada (the local language of Bengaluru).

QUESTIONS

1. Identify the advantages of each candidate. Identify their liabilities. Rank order the candidates, from high to

low.

2. What challenges might the person you recommend encounter in the position?

3. How might your recommended candidates minimize those challenges?

4. What guidelines do you advise TCT to follow in designing the compensation package?

5. Returning to material covered in Chapter 15--specifically that dealing with the idea of a matrix organization--

do you see any benefit to appointing two individuals to the same post? For example, one individual would

direct internal affairs, while the other would manage external affairs. What might be the likely benefits and

problems with this arrangement?

SUMMARY

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The task of HRM is putting the right person into the right job at the right place at the right time at the

right pay. HRM policies support the MNE's strategy to create value.

Market developments, workforce demographics, globalization, and technology are converging to create

an unprecedented demand for expatriate talent.

Market trends and competitive challenges push MNEs to use short-term assignments, cross-border

commuter assignments, and extended business travel in lieu of traditional “permanent assignments.”

The ethnocentric framework approach fills foreign management positions with home-country nationals.

The polycentric framework uses host-country nationals to manage local subsidiaries. The geocentric

framework seeks the best people for key jobs throughout the organization, regardless of nationality.

Executives transferred from headquarters to local operations are more likely to understand the

company’s core competencies. However, an ethnocentric framework can impose a narrow perspective.

MNEs often employ more locals than expatriate managers because the former understand local

circumstances and require less compensation. In addition, they demonstrate that opportunities are open

to hard-working people as well as respond to national interests.

Selecting an individual for an expatriate position is influenced by the candidate’s technical competence,

adaptiveness, and leadership ability.

MNEs use expatriates to transfer technical competence and home-country business practices, control

foreign operations, develop leadership skills, and diffuse the organization culture.

Training and predeparture preparations include general country orientation, cultural sensitivity, and

practical training. They reduce the odds of expatriate failure. Increasingly, preparations include the

expatriate’s spouse and family.

Expatriate failure, narrowly defined, is the manager’s premature return home due to poor performance.

Broadly defined, it is the failure of the MNE’s selection policies to find individuals who will succeed

abroad.

The primary causes of expatriate failure are difficulty adjusting to new environment and a spouse and/or

family who is/are unhappy with the foreign assignment.

Hardships and cost-of-living differences, among other aspects, moderate an expatriate’s compensation.

Compensation must neither overly reward nor unduly punish the expatriate. Most MNEs use the balance

sheet approach to manage this dilemma. Compensation practices by emerging market MNEs, given their

typically lower salary scales, complicate application.

Repatriation, the act of returning home from a foreign assignment, is difficult. Finding the right job for

the expatriate to return to is a consistent challenge.

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KEY TERMS

ethnocentric framework (p. xxx)

expatriate (p. 778)

expatriate selection (p. xxx)

expatriate failure (p. 786)

geocentric framework (p. xxx)

home-country national (p. 778)

human resource management (HRM) (p. 775 )

localization

polycentric framework (p. xxx)

repatriation (794)

third-country national (p. 778)

ENDNOTES

46

1 Sources include the following: “In Search of Global Leaders: View of Jeffery Immelt, Chairman and CEO, General Electric,” Harvard Business Review, (August 1, 2003); B. Ettorre, “A Brave New World,” Management Review, (1993): 10–16; M. Larson, “More Employees Go Abroad as International Operations Grow,” Workforce Management, (June 1, 2006); J. Fraser and J. Oppenheim, “What’s New About Globalization?” The McKinsey Quarterly, (1997): 168–79; “Go East, My Son,” The Economist, (August 10, 2006):78; “China’s Recruitment Market Is Booming,” The Economist,, (September 21, 2006):46; S. Jones, “Going Stateside: Once the Overseas Hitch Is Over, Homeward-Bound Expats Hit Turbulence,” Crain’s Chicago Business, (July 24, 2000); B. Newman, “Expat Archipelago,” Wall Street Journal, (Re-trieved December 12, 1995): A1; R. Pelton, “The World’s Most Dangerous Places,” Harper Resource, (2003); Joe Sharkey, “Global Economy Is Leading to More Dangerous Places,” New York Times, (April 19, 2005); M. Schoeff, “P&G Places a Premium on International Experience,” Workforce Management, (April 10, 2006):28; E. Marx, “Route to the Top, 2006,” Cranfield University School of Management, (2007); Robert Half Global Financial Employment Monitor, at www.rhi.com/OurServices, (Retrieved April 29, 2009); Global Relocation Trends 2010, GMAC Global Re-locations Services, www.gmac.com; Early PwC International Challenge, (EPIC), www.pwc.com/extweb/career.nsf/docid/9204374F898F3E5A8525748F00741E9D, (Retrieved May 21 2009).2 "Staffing Globalisation: Travelling more Lightly," The Economist, (June 23, 2006).

3 "Globalisation: The Empire Strikes Back," The Economist, (Sep 18, 2008):51.4 Joe Sharkey, "Global Economy Is Leading To More Dangerous Places," New York Times, (April 19, 2005): C-3.

5 Ibid, "Globalisation: The Empire Strikes Back."

6 “Schumpeter: The Tussle for Talent,” The Economist, (January 6, 2011).

7 “Routes to the Top: How CEOs embrace Global Mobility,” Global Mobility Articles and Studies,

www.articles.totallyexpat.com/routes-to-the-top-how-ceos-embrace-global-mobility, (Retrieved June 6, 2011).

8 Paula Caligiuri and Victoria Di Santo, “Global Competence: What is it, and can it be Developed through Global

Assignments?” Human Resource Planning, (September 2001): 27–36; Mark Morgan, “Career-Building Strategies:

It’s Time to do a Job Assessment: Are your Skills Helping you up the Corporate Ladder?” Strategic Finance, (June

2002): 38–44.

9 Hoon Park, “Global Human Resource Management: A Synthetic Approach.” The Journal of International Business

and Economics, (2002):28-51.

10 William Judge, “Is a Leader’s Character Culture-Bound or Culture-Free? An Empirical Comparison of the Character

Traits of American and Taiwanese CEOs,” Journal of Leadership Studies, 8 (Fall 2001): 63–79.

11 Keith Brouthers, “Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance,”

Journal of International Business Studies, 33 (Summer 2002): 203–22.

12 Ben Kedia, Richard Nordtvedt, and Liliana M. Perez, “International Business Strategies, Decision-Making Theories,

and Leadership Styles: An Integrated Framework,” Competitiveness Review, 12 (Winter–Spring 2002): 38–53.

13 Sully Taylor, Schon Beechler, and Nancy Napier, “Toward an Integrative Model of Strategic International Resource

Management,” Academy of Management Review, 21 (1996): 959–85, discuss these models in the context of multido-

mestic and a combination of global and transnational strategies.

14 Watson Wyatt Worldwide, “Human Capital Index: Human Capital as a Lead Indicator of Shareholder Value,” at

www.watsonwyatt.com/research/resrender.asp?id=w-488&page=1 (accessed November 27, 2007).

15 See, for example, N. Khatri, “Managing Human Resource for Competitive Advantage: A Study of MNEs in Singa-

pore,” International Journal of Human Resource Management, 11:2 (2000): 336.

16 “Travelling More Lightly,” The Economist, June 22, 2006.

17 “A Special Report On Innovation In Emerging Markets: The World Turned Upside Down," The Economist,” www.economist.com/node/15879369, (Retrieved April 21, 2011).

http://www.articles.totallyexpat.com/routes-to-the-top-how-ceos-embrace-global-mobility

http://www.pwc.com/extweb/career.nsf/docid/9204374F898F3E5A8525748F00741E9D.%20Accessed%20May%204

http://www.gmac.com/

http://www.rhi.com/OurServices%20

18 Leslie Klaff, “Thinning the Ranks of the Career Expats,” Workforce Management (October 2004): 84–87.

19 Yvonne Sonsino, reported in “Travelling More Lightly.” See also Mercer LLC, “International Assignments Increas-

ing.”

20 PwC International Challenge (EPIC)

www.pwc.com/extweb/career.nsf/docid/9204374F898F3E5A8525748F00741E9D, (Retrieved, May 4, 2009).

21 Global Relocation Trends, GMAC Global Relocations Services, www.gmac.com, (Retrieved April 21, 2011).

22 “More Females Sent on International Assignment than ever Before, Survey Finds,”

http://www.mercer.com/pressrelease/details.htm?idContent=1246090, (Retrived April 25, 2009).

23 Calvin Reynolds, “Strategic Employment of Third Country Nationals: Keys to Sustaining the Transformation of HR

Functions,” Human Resource Planning, 20 (March 1997): 33–50.

24 Jeffrey Joerres, Beyond Expats: Better Managers for Emerging Markets,” McKinsey Quarterly, (May 2011).

25 “Financial careers: Go east, young moneyman," The Economist, (April 16, 2011):79-80.

26 Global Relocation Trends: 2011 Survey Report," Brookfield Global Relocation Services, www.brookfieldgrs.com/insights_ideas/grts/, (Retrieved June 15, 2011).27 Karina Frayter, IBM to Laid-off: Want a Job in India?, http://money.cnn.com/2009/02/05/news/MNEs/ibm_jobs/,

(Retrieved April 29, 2009).

28 Adrian Wooldridge, “The Battle for the Best,” The Economist: The World in 2007.

29 Chi-fai Chan and Neil Holbert, “Marketing Home and Away: Perceptions of Managers in Headquarters and Sub-

sidiaries,” Journal of World Business 36 (Summer 2001): 205.

30 Ibid, "Staffing Globalisation."

31 Tsun-yan Hsieh, Johanne Lavoie, and Robert Samek, “Are You Taking Your Expatriate Talent Seriously?” The

McKinsey Quarterly (Summer 1999): 71.

32 Ibid, "Staffing Globalisation."

33 William C. Weldon, “Chairman’s Letter: To Our Shareholders,” Annual Report 2006 (Johnson & Johnson, 2007), at

http://jnj.v1.papiervirtuel.com/report/2007030901 (accessed November 27, 2007).

35 Vijay Pothukuchi, Fariborz Damanpour, Jaepil Choi, Chao C. Chen, and Seung Ho Park, “National and Organiza-

tional Culture Differences and International Joint Venture Performance,” Journal of International Business Studies,

33 (Summer 2002): 243–66.

36 J. Kahn, “The World’s Most Admired MNEs,” Fortune, (October 11, 1999): 267.

37 Ibid, Kahn, “The World’s Most Admired MNEs.”

38 “Tylenol (Acetaminophen) To Be Available In Japan In Early Fall, 2000,” Doctor's Guide, www.pslgroup.com/dg/1d9dfa.htm, (Retrieved June 15, 2011).39 David Ahlstrom, Garry Bruton, and Eunice S. Chan, “HRM of Foreign Firms in China: The Challenge of Managing

Host Country Personnel,” Business Horizons, 44 (May 2001): 59.

40 “High-Tech Nomads: These Engineers Work as Temps on Wireless Projects All Over the World,” Time, (November

26, 2001): B20; B. Kedia and A. Mukherji, “Global Managers: Developing a Mindset for Global Competitiveness,”

Journal of World Business, 34 (Fall 1999):30.

http://money.cnn.com/2009/02/05/news/companies/ibm_jobs/

http://www.mercer.com/pressrelease/details.htm?idContent=1246090



43 The type of ownership of its foreign operations influences an MNE’s staffing policy. Expatriates transferred abroad

to a foreign joint venture, for example, may find themselves in ambiguous situations, unsure of whom they represent

and uncertain of whether they report to both partners or to the partner that transferred them. Typically, MNEs insist

on using their own executives when they’re concerned that local personnel may make decisions in their own interest

rather than that of the joint venture.


45 Big US Firms Shift Hiring Abroad, Wall Street Journal, (April 19, 2011): B1.

46 “Financial Careers: Go East, Young Moneyman," The Economist, (April 16, 2011):79-80.

47 H. Seligson, “Shut Out at Home, Americans Seek Opportunity in China." NYTimes.com,

www.nytimes.com/2009/08/11/business/economy/11expats.html, (Retrieved May 4, 2011).

48 Global Relocation Trends: 2011 Survey Report," Brookfield Global Relocation Services,

www.brookfieldgrs.com/insights_ideas/grts/, (Retrieved June 15, 2011).

49 Ibid, Wooldridge, “The Battle for the Best."

50 View of Y. Sonsino, a partner at Mercer, reported in “Staffing globalisation: Travelling more lightly,” Economist

Intelligence Unit, (June 23, 2006).

51 Ibid, Caligiuri and Di Santo, “Global Competence;" Ibid, Hsieh et al., “Are You Taking Your Expatriate Talent Seri-

ously?”

52 Susan Schneider and Rosalie Tung, “Introduction to the International Human Resource Management Special Issue,”

Journal of World Business 36 (Winter 2001): 341–46.

53 “In Search of Global Leaders: View of Stephen Green, Group CEO, HSBC,” Harvard Business Review, (August 1,

2003). At the company level, Google's decision to re-route its servers to Hong Kong after refusing China's calls to

censor e-mails highlights adaptiveness.

54 S. Jun, J. Gentry, and Y. Hyun, “Cultural Adaptation of Business Expatriates in the Host Marketplace,” Journal of

International Business Studies, 32 (Summer 2001): 369.

55 “Business in China and the West: A Tale of Two Expats," The Economist,” (December 29th 2010).

56 The New International Executive Business Leadership for the 21st Century, (Harvard Business School and Amrop

International, 1995); Reported in Andrew Crisp, “International Careers Made Easy,” The European, (March 24,

1995): 27.

57 Ibid, Woodbridge, "The Battle for the Best."

58 "Opening Doors Around the World: 2010-2011 Going Global Report, Survey results based on 122 MNEs doing busi-

ness in than 50 countries.

60 “Global Relocation Trends Survey 2010 | Global Mobility Articles and studies.”

http://www.articles.totallyexpat.com/global-relocation-trends-survey-2010/ (Retrieved April 4, 2011); Global Relo-

cation Trends 2010, GMAC Global Relocations Services, www.gmac.com, (Retrieved April 21, 2011).

61 Data provided by National Foreign Trade Council. Maria L. Kraimer, Sandy Wayne, and Renata Jaworski, “Sources

of Support and Expatriate Performance: The Mediating Role of Expatriate Adjustment,” Personnel Psychology ,54

(Spring 2001): 71.



63 "The Expat Explorer Survey 2010," HSBC Bank International. Survey of 4,127 expatriates from more than 100 countries.

64 M. Shaffer, D. Harrison, M. Gilley, and D. Luk, “Struggling for Balance amid Turbulence on International Assign-

ments: Work-Family Conflict, Support and Commitment,” Journal of Management, 27 (January–February 2001): 99;

Chris Moss, “Expats: Thinking of Living and Working Abroad?” The Guardian, (October 19, 2000): 4.

65 Ibid, "In Search of Global Leaders."


67 Diane E. Lewis, “Families Make, Break Overseas Moves,” Boston Globe, (October 4, 1998): 5D. “Expat Spouses:

It Takes Two,” Financial Times, (March 1, 2002):C-1; Ibid, Klaff, "Thinning the Ranks of the Career Expats.”

68 Ibid. "Expat Spouses: It Takes Two."

69 Global Relocation Trends: 2011 Survey Report," Brookfield Global Relocation Services, www.brookfieldgrs.com/insights_ideas/grts/, (Retrieved June 15, 2011)."The Expat Explorer Survey 2010," HSBC Bank International. Survey of 4,127 expatriates form more than 100 countries.70 Chris Brewster, “Making Their Own Way: International Experience Through Self-Initiated Foreign Assignments,”

Journal of World Business 35 (Winter 2000): 417; Vesa Suutari, Kerr Inkson, Judith Pringle, Michael B. Arthur, and

Sean Barry, “Expatriate Assignment versus Overseas Experience: Contrasting Models of International Human Re-

source Development,” Journal of World Business, 32 (1997): 351–68.

71 D. Ones and C. Viswesvaran, “Relative Importance of Personality Dimensions for Expatriate Selection: A Policy

Capturing Study,” Human Performance, 12 (1999): 275–94.

72 Valerie Frazee, “Send Your Expats Prepared for Success,” Workforce, 78 (March 1999): S6.

73 S. Larson, “More Employees Go Abroad as International Operations Grow," Worforce.com,

http://www.workforce.com/index.html, (Retrieved April 27, 2009).

74 Global Relocation Trends: 2011 Survey Report," Brookfield Global Relocation Services, www.brookfieldgrs.com/insights_ideas/grts/, (Retrieved June 15, 2011).75 C. Panella, “Meeting the Needs of International Business: A Customer Service-Oriented Business Language

Course,” The Journal of Language for International Business, 9 (1998): 65–75; M. Inman, “How Foreign Language

Study Can Enhance Career Possibilities,” (Washington DC: ERIC Clearinghouse on Languages and Linguistics,

1987), www.ericdigests.org/pre-927/career.htm, (Retrieved November 27, 2007); C. Randlesome and A. Myers,

“Cultural Fluency: Results from a UK and Irish Survey,” Business Communication Quarterly 60:3, (1997): 9–22.

76 S. Baker, “Catching the Continental Drift: These Days, English Will Suffice for Americans Working in Europe,”

Business Week, (August 14, 2001).

77 C. Cole, “Bridging the Language Gap: Expatriates Find Learning Korean Key to Enjoying a More Satisfying Life,”

The Korea Herald, (August 16, 2002).

78 M. Ligos, “The Foreign Assignment: An Incubator, or Exile?” New York Times, (October 22, 2000): A-1.

79 View of the American Council on the Teaching of Foreign Languages, reported in Tanya Mohn, “All aboard the

Foreign Language Express,” New York Times, (October 11, 2000):A-1.

80 “English is Coming: The Adverse Side-Effects of the Growing Dominance of English,” The Economist, (February

14, 2009):85.



http://www.articles.totallyexpat.com/global-relocation-trends-survey-2010/

81 M. Joseph, “India Faces a Linguistic Truth - English Spoken Here," New York Times, (February 16, 2011): B-1.

82 European Commission, “Languages of Europe,” Education and Training, at http://europa.eu. int/comm/education/

policies/lang/languages/index_en.html, (July 18, 2007).

83 “Global Spread of English Poses Problems for UK,” People’s Daily Online, (February 18, 2006)..

84 A. Sitze, “Language of Business: Can E-Learning Help International MNEs Speak a Common Language?” Online

Learning, (March 2002):19–23.

85 PricewaterhouseCoopers, International Assignments: European Policy and Practice, www.pwcglobal.com/

extweb/ncsurvres.nsf, (1997).

86 “In Search of Global Leaders: View of Fred Hassan, Chairman and CEO, Schering-Plough,” Harvard Business Re-

view, (August 1, 2003).

87 Estimate reported in the second annual study of expatriate issues, conducted from January through March 2002,

sponsored by CIGNA International Expatriate Benefits; the National Foreign Trade Council, an association of multi-

national MNEs that supports open international trade and investment; and WorldatWork,

www.prnewswire.com/micro/CI9, (Retrieved September 2, 2005).

88 Ibid, “Measuring the Value of International Assignments.”

89 C. Gould, “What’s the Latest in Global Compensation?” Global Workforce, (July 1997):28.

90 G. Latta, “Expatriate Policy and Practice: A Ten-Year Comparison of Trends,” Compensation and Benefits Review

31:4, (1999): 35–39, quoting studies reported by Organization Resources Counselors.

91 “Business in China and the West: A Tale of Two Expats," The Economist,” (December 29 2010):65.

92 “Designing competitive expatriate compensation packages,” Mercer, www.mercer.com/referencecontent.htm?

idContent=1303865, (Retrieved May 3, 2009).

93 This practice, however, appears to be disappearing, especially for assignments in so-called world capitals like New

York, London, and Tokyo, in which many executives are interested and where there is, (relatively) little “depriva-

tion.” In addition, the number and nature of “hardships” resulting from foreign assignments are in decline, particu-

larly as advances in transportation and communications enable expatriates to keep in closer contact with home coun-

tries; the openness of economies allows them to buy familiar goods and services; and the general level of housing,

schooling, and medical services increasingly meets their needs.

94 A U.S. family based in China, for example, commonly spends more money to get the same goods than they would

buy back home. Why? Because they prefer Western items that must be imported and have thus been subjected to

high tariffs. Expatriates often obtain food and housing at rates higher than going local rates because they don’t know

the language well, where to buy, or how to bargain.

95 Towers Perrin and CIGNA, for example, specialize in international compensation. In addition, MNEs rely on esti-

mates of cost-of-living differences—even if they are imperfect. MNEs commonly use such sources as the U.S. State

Department’s cost-of-living index, published yearly in Labor Developments Abroad, the UN Monthly Bulletin of Sta-

tistics, and surveys by the Financial Times, P-E International, Business International, and the Staff Papers of the In-

ternational Monetary Fund.

96 Adapted from “Cost of Living survey 2010 - City rankings,” www.mercer.com/press-releases/1311145?

siteLanguage=100, (Retrieved April 5, 2011).

http://www.mercer.com/referencecontent.htm?idContent=1303865

http://www.mercer.com/referencecontent.htm?idContent=1303865

97 “Home Away from Home: Expatriate Housing in Asia,” The Korea Herald, (May 2, 2002).

98 “Tokyo Tops in H.K. Survey on Living Cost for Expatriates,” Japan Economic Newswire, (January 24, 2002).

99 A. Maitland, “A Hard Balancing Act: Management of Dual Careers,” Financial Times, (May 10, 1999): 11.

100 V. Frazee, “Expert Help for Dual-Career Spouses,” Workforce, 78 (March 1999): S18.

101 J. Clark, “Added Global Risks Impact Security Planning for Oil, Gas Expat Workers,” The Oil and Gas Journal, (April 2002): 32–37.

103 "The Expat Explorer Survey 2010," HSBC Bank International, www.expatexplorer.hsbc.com/files/pdfs/overall-

reports/2010/experience.pdf, (Retrieved April 4, 2011).

104 Ibid, Mercer, “International Assignments Increasing.”

105 Ibid, Gould, “What’s the Latest in Global Compensation?”


107 “New Survey Suggests Ways to Maximize Expatriate Performance and Loyalty,” Internet Wire, March 27, 2001.

Estimates reported at 2001 National Foreign Trade Council’s International HR Management Symposium. Ibid, Klaff,

"Thinning the Ranks of the Career Expats;" J. Barbian, “Return to Sender: MNEs That Fail to Effectively Manage

Employees Returning from a Foreign Assignment May Find Their Investments Permanently Hitting the Road,”

Training, 39 (January 2002): 40–43.

108 PricewaterhouseCoopers LLP and Cranfield School of Management, “Understanding and Avoiding Barriers to In-

ternational Mobility,” Geodesy, (October 2005); www.pwc.extweb/pwcpublications.nfs/docid/

7ACA93FA424E80E88525121E006E82C/$file/geodesy.pdf, (Retrieved November 27, 2007).

110 Global Relocation Trends 2008, GMAC Global Relocations Services, www.gmac.com

111 M. Lazarova and P. Caligiuri, “Retaining Repatriates: The Role of Organizational Support Practices,” Journal of

World Business 36, (Winter 2001): 389–402.


113 PwC International Challenge, www.pwc.com/extweb/career.nsf/docid/9204374F898F3E5A8525748F00741E9D,

(Retrieved May 4 2009) .

114 Ibid, Klaff, Thinning the Ranks of the Career Expats."

115 Abroad but not forgotten: Improving the career management of employees on international assignments, Human

Resource Management International Digest, 15 (2007): 29 – 31.

116 I. Varner and T. Palmer, “Successful Expatriation and Organizational Strategies,” Review of Business, 23 (Spring

2002): 8–12; J. Selmer, “Practice Makes Perfect? International Experience and Expatriate Adjustment,” Management

International Review, 42 (January 2002): 71–88.

117 The Annecy Symposium, “The Future of Work, Employment and Social Protection,” International Labour Review,

140 (Winter 2001): 453–75.

118 A. Saxenian, “Brain Circulation: How High-Skill Immigration Makes Everyone Better Off,” Brookings Review 20,

(Winter 2002): 28–32; M. Naim, “The New Diaspora,” Foreign Policy, (July–August 2002): 96–98.

119 H-1B Visas Applications to Decline, Target Existing Workers, Workforce Management, (Winter, 2009).



120 M. Poster, “Workers as Cyborgs: Labor and Networked Computers,” Journal of Labor Research 23, (Summer

2002): 339–54.

121 “We Must Halt the Brain-Drain,” Africa News Service, (December 17, 2001).

122 “The Poorest are Again Losing Ground,” Business Week, (April 23, 2001): 130.

123 Sources include the following: Central Intelligence Agency, “India;" The World Factbook, at www.cia.gov/cia/publications/factbook/geos/in.html; Library of Congress, “A Country Study: India,” Country Studies), at http://memory.loc.gov/frd/cs/intoc.html; “Hungry Tiger, Dancing Elephant,” The Economist,, (April 4, 2007); “Virtual Champions, Survey: Business in India,” The Economist,, (June 1, 2006). Manu Joseph, “India Faces a Linguistic Truth - English Spoken Here - New York Times, (February 16, 2011). “Economics focus: The Himalayas of hiring,” The Economist," (August 7, 2010): 76. K. Bradsher, “A Younger India Is Flexing Its Industrial Brawn,” New York Times,, (September 1, 2006):A-1124 “Economics focus: The Himalayas of hiring,” The Economist," (August 7, 2010): 76. 125 K. Bradsher, “A Younger India Is Flexing Its Industrial Brawn,” New York Times,, (September 1, 2006):A-1.126 Infosys rejects 94% job applicants, also gets rejected by many, “Economic Times,” articles.economictimes.india-times.com/2010-05-31/news/27624027_1_net-addition-gross-addition-applicants, (Retrieved May 24, 2011).

http://articles.economictimes.indiatimes.com/2010-05-31/news/27624027_1_net-addition-gross-addition-applicants

http://articles.economictimes.indiatimes.com/2010-05-31/news/27624027_1_net-addition-gross-addition-applicants

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