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International HRM

Staffing, Training, andCompensation for Global

Operations

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[In the new millennium], the caliber of

the people will be the only sourceof competitive advantage.

Allan Halcrow, Personnel Journal

Of the top 100 UK firms surveyed byCendant International AssignmentServices, 63 reported failed foreign

assignments.- www.expat.FT.com

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2006 Prentice Hall

The International Human Resource

Management Process

HRMs Strategic Content

Recruitment and Selection

Training and Development

Performance Appraisal

Compensation and Benefits

Labor Relations

Contribution to Organizational Effectiveness

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Staffing Philosophies for Global

Operations

Firms using an ethnocentric staffing approach fill keymanagerial positions with people from headquarters thatis, parent-country nationals (PCNs).

Reasons :

Familiar with firms goal, product, tech, policies &

culture Protecting company interest

Lack of specialized knowledge workers in the localmarket

Close coordination with HQ

Problems: Lack of motivation among the local workers-less

opportunity & development

Poor Adaptation by the expatriate

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Operations

In a polycentric staffing approach, local managers host-country managers (HCNs) are hired to fill key positions intheir own country.

Reasons :

specialized local market knowledge- language, policy Less expensive

Legal requirements of the host country,

political contacts

Problems:

Autonomous subsidiaries

Less experienced

Conflict of loyalties

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Operations

In the global staffing approach, the bestmanagers are recruited from within or outsideof the company, regardless of nationality.

In a regiocentricstaffing approach, recruitingis done on a regional basis say within LatinAmerica for a position in Chile.

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Operations

Reasons:

Greater pool of qualified candidate

Expert

Integrated global enterprise

Have global mindset

Bilingual/ multilingual skillusually bring orecultural flexibility and adaptability to thesituation

Problem: Costly

Difficult to find willing candidate

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IHRM Orientations and

Multinational Strategies

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Three Employee Categories at an

MNE

Host-country nationals (HCNs) -- citizens of thecountry where the subsidiary or affiliate is located.HCNs make up the largest proportion of theemployees that the firm hires abroad.The firmslaborforce in manufacturing, assembly, basic service

activities, clerical work, and other non-managerialfunctions largely consists of HCNs.

Parent-country nationals(PCNs)-- also known ashome-country nationals, PCNs are citizens of thecountry where the MNE is headquartered.

Third-country nationals(TCNs) --employees whoare citizens of countries other than the home or hostcountry. Most TCNs work in management andpossess special knowledge or skills.

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Expatriates In a global organization, it is very common for

employees to move across national boundaries to takeup responsibilities that others cannot fulfill. Theseemployees on international assignments are traditionallycalled expatriates.

An expatriate is an employee who is assigned to workand reside in a foreign country for an extended period,usually a year or longer.

Note that any one of the three categories of employeescan be considered an expatriate depending on thelocation of the assignment.

E.g., a HCN who is transferred into parent countryoperations also resides outside of his or her homecountry.

While expatriates comprise only a small percentage ofthe workforce in most MNEs, they perform criticalfunctions abroad, such as managing a subsidiary.

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Selection: Necessary Skills and

Abilities for International Managers

Skills and Abilities

Necessary to Do

The JobTechnical

Functional

Managerial

Skills and Abilities

Necessary to Work

in a ForeignLocationAdaptability

Location-specific skills

Personal characteristics

Improved Chances of Succeeding in

An International Job Assignment

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Problems with Expatriation

Selection based on headquarters criteria ratherthan assignment needs

Inadequate preparation, training, and orientationprior to assignment

Alienation or lack of support from headquarters

Inability to adapt to local culture and workingenvironment

Problems with spouse and children pooradaptation, family unhappiness

Insufficient compensation and financial support

Poor programs for career support andrepatriation

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Cross-Cultural Training: Culture

Shock

Culture shock is a state of disorientation andanxiety about not knowing how to behave inan unfamiliar culture. The cause of cultureshock is the trauma people experience in newand different cultures, where they lose thefamiliar signs and cues that they had used tointeract in daily life and where they mustlearn to cope with a vast array of new culturalcues and expectations.

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9-15

Phases in Acculturation

Honeymoon

Disillusionment

Adaptation

Biculturalism

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Honeymoon Phase

New culture seems exotic and stimulating

Excitement of working in new environmentmakes employee overestimate ease of

adjusting Lasts for first few days or months

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Disillusionment Phase

Differences between new and oldenvironments are blown out of proportion

Challenges of everyday living

Many stay stuck in this phase

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Adaptation Phase

Employee begins to understand patterns ofnew culture

Gains language competence

Adjusts to everyday living

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Biculturalism

Anxiety has ended

Employee gains confidence in ability tofunction productively in new culture

Repatriation may be difficult

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Cross-Cultural Training: Culture

Shock

Honeymoonwhen positive attitudes and expectations,excitement, and a tourist feeling prevail

Irritation and hostility the crisis stage when culturaldifferences result in problems at work, at home, and indaily living

Gradual adjustmenta period of recovery in which thepatient gradually becomes able to understand andpredict patterns of behavior, use the language, and dealwith daily activities, and the family starts to accept theirnew life

Biculturalism the stage at which the manager andfamily members grow to accept and appreciate localpeople and practices and are able to function effectivelyin two cultures

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Cross-Cultural Training: Sub-Culture

Shock

Subculture shock occurs when a manager istransferred to another part of the countrywhere there are cultural differences essentially from what she or he perceives tobe amajorityculture to aminorityone.

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Training Techniques

Area studies,that is, documentary programsabout the countrys geography, economics,sociopolitical history, and so forth

Culture assimilators, which expose trainees to thekinds of situations they are likely to encounterthat are critical to successful interactions

Language training

Sensitivity training

Field experiencesexposure to people fromother cultures within the trainees own country

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Training Host-Country Nationals

Continuous training and development of HCNs andTCNs for management positions is an important factorfor long-term success of the multinational corporation

Ongoing development will facilitate the transition to

an indigenization policy The company will have a well-trained management

staff with broad international experience

Training to facilitate e-business adoption is taking on

increasing importance Training in information and communication

technologies is particularly critical for firms in neweconomy and emerging markets

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Compensating Expatriates

Compensation is a crucial link betweenstrategy and its successful implementation

Must be a fit between compensation and the

goals of the firm Maintaining an appropriate compensation

package is more complex than it wouldseem

Little variation in typical salary but there is awide variation in net spendable income

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SalaryLocal salary buying power and currencytranslation, as compared with home salary;bonuses or incentives for dislocation

Taxes Equalize any differential effects on taxes

as a result of the assignment

AllowancesRelocation expenses; cost-of-livingadjustments; housing allowance for assignmentand allowance to maintaining house at home;

trips home for family; private education forchildren

BenefitsHealth insurance; stock options

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A number of variable apply including local marketfactors and pay scales, government involvementin benefits, unions, and the cost of living must allbe considered

Eastern Europeans spend 35% to 40% of theirdisposable income on food and utilities

East European managers must have cash forabout 65% to 80% of their base pay

US managers must have cash of about 40%

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http://www.mercer.com/costoflivingpr#City_rankings
http://www.mercer.com/costoflivingprhttp://www.mercer.com/costoflivingpr

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Compensation Approach

There is two compensation approaches:

The going rate approach: host country salarystructure is followed.

The balance sheet approach: Home countrysalary structure is followed.

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2006 Prentice Hall 9-31

Figure 20.5 An Expatriate Balance Sheet

U.S. Domestic Base Salary

Taxes Consumption Savings

Foreign and

Excess U.S. Taxes

Paid by company

Excess Foreign Costs

Paid by company

Foreign Service

Premium/ Hardship

Added by company

U.S. Levels

U.S. SpendableIncome

U.S. Hypothetical

Housing and Utilities

U.S. Auto Purchase

U.S. Hypothetical

Tax and

Social Security

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Repatriation Return of the expatriate to home country following

completion of a lengthy foreign assignment.

Like expatriation, repatriation requires advancepreparation. Unless managed well, the expatriate is likelyto encounter problems upon returning home.

Some returning employees find their internationalexperience is not valued, and they may be placed in lesseror ill-suited positions than what they held abroad.

Some expatriates report financial difficulties uponreturning, such as inflated housing prices or cuts in pay.Many experience reverse culture shock, readjustment toparent-country culture.

For the employee and family members who have spentseveral years abroad, psychological readjustment to life inthe home country can be stressful.

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