Globalization

The process of integrating world economies; growth in the functional integration of national economies

International HRM

… is the process of procuring, allocating & effectively using HR in a multinational organization is the way in which work organizations deal with people management issues occuring in more than one national context

Culture

… is customs, beliefs, norms & values that guide them to behavior of people in society and that are passed on from one generation to another

CULTURE

Political System

Economic

Prosperity

Religious Beliefs

Language

ValuesEducatio

n System

Organization Culture

… is collective beliefs & principles of an organization’s employees and is a product of such factors as history, tehnology, management style & national culture

Types of Business Culture:

Ethnocentric Culture: Senior Managers are from home country & home country practices are prevalent & subsidiary country units comply with centralized directions

Polycentric Culture: Local managers are employed to implement strategies & subsidiaries are allowed to operate in more diverse ways including HR

Geocentric Culture: Staffing is undertaken on a worldwide basis. HR practices emerge from staff from HO & subsidiary units

Regio-centric Culture: Managers are recruited regionally & HR practices are consistent within the specific regions

Societal Clusters

Anglo: UK, USA, Australia, Ne Zealand, Ireland, Canada, South Africa

South Asia: India, Malaysia, Philippines, Thailand, Indonesia

Arab: Egypt, Kuwait, UAE

Asian: China, Japan, South Korea, Singapore

Germanic: Germany, Austria, Netherlands

Drivers of globalization

Developing economies have huge markets

MNCs locating their subsidiaries in low-wage and low-cost countries

Changing demographics – India, Thailand, China

Regional trading blocs – WTO, EU, NAFTA minimize trade and investment barriers and facilitate movement of people

Declining trade and investment barriers

Technology

Dimensions of multi-cultural management

Motivation

Teams

HR PracticesCommunicatio

n

Leadership

Work Values

Managing Global, Diverse Workforce

Building a multi-cultural organization

MinimumInter-group

conflicts

PluralismIdentifi-cation

Bias FreeStructural Integratio

n

Leadership

Diversity

Effective communication across cultures

Learn the language of the host country

Be aware that cross-cultural barriers do exist

Speak clearly

Be sensitive to non-verbal communication

Cultural sensitivity

Work Values

Independence Conformity

Individualism Collectivism

Authority Equality

Compliance Empowerment

Managing Culturally Diverse Teams

1.Adaptation – Acknowledging cultural gaps & working around them2.Structural Intervention – Changing the composition of a team3.Managerial Intervention – Bringing in a higher level manager4.Exit – Removing a team member

Terminology

Home Country: The native country to which the MNC belongs

Host Country: The country in which an MNC has set up its operations

Expatriate: Inhabitant of the home country sent on an assignment to a Host Country

Local Country National ( LCN ): Native of the Host Country. Also called as Host Country National ( HCN )

Third Country National ( TCN ): Native of one country which is not the home country and being sent on an assignment to the host country which may be either the home country or a third countryEg: A U.S based company sending a Belgium employee to Singapore

Types of Expatriates for the purpose of compensation:

Expatriate, TCN, LCN

Expatriate Compensation

Companies send current employees on international assignments for a no. of reasons, like:a)LCNs lack the required skills and knowledge

b) Home Country employee has knowledge of the company for co-ordinating activities in foreign branch with the home country

c) Employees chosen for this reason may be at an early stage of their careers and are thus being groomed for a higher responsibility

Components of Expatriate Compensation and some concern areas

Base Pay:• The job is evaluated using the company’s job evaluation plan• Pay decided on either of these two methods:

a) Home Country based method: Setting the base in relation to how the person would be paid for doing the job in the home country

b) Host Country based method: Setting the base pay in relation to how the job is paid in the host country

Advantage: Creates parity amongst HCNsConcern: Disparity with one’s own income in home

country

Variable Pay: For expats can be similar to domestic programmesConcern: a) Supervisor is at a remote location & may not

fully be apprised of the expat’s performance; b) Many a times, goals & perf. standards for expat. assignments are not clearly spelled out

Components of Expatriate Compensation and some concern areas ( contd.. )

Bonuses:Offered to entice an employee to take up foreign

assignment. Various ways in which bonus is included in compensation:

i) A percentage added to base pay ranging from 10% - 30% of base pay

Concern: On repatriation bonus lost is seen as pay cut

ii) Lumpsum payment at the beginning of the assignment

Concern: Raises employee’s income & therefore taxes in one year

Allowances:

A) Cost-of-living-allowance: paid to “keep the employee whole” – is a percentage of base pay – calculated upon the difference in the cost of living between the HQ & the Host Country

B) Education Allowance

Components of Expatriate Compensation and some concern areas ( contd.. )

Allowances ( contd.. ):

C) Hardship & Danger Allowance: paid where the overseas assignment is at a location with extraordinary difficult living conditions & unhealthy conditions

D) Automobile Allowance

E) Other Allowances

Benefits:

a) Required Benefits mandated by lawb) Discretionary Benefits like health insurance, retirals

TCN Compensation

TCN Compensation components are similar to that of Expatriate Compensation package. The basic difference of compensation plans for TCNs is the question of "equalization to where?" There are four alternatives:

A)Host Country Equalization: This is paying a TCN the same amount that a local country national would be paid

B)Headquarters Equalization: This type of equalization treats TCNs as if they all worked in and are citizens of the headquarters country

C) Home Country Equalization: This alternative means paying TCNs their regular home country compensation package. Then a housing allowances is added, if the cost of living is higher in the country where the employee is being transferred

D) Modified Home Country Equalization: This final approach uses the home country method for calculating living costs but uses a headquarters approach for calculating base pay. This approach works best if the company uses a split pay system. Otherwise TCNs from different countries would still be receiving different paycheques

LCN Compensation

Base Pay: Base pay in subsidiary companies depends on internal business factors, differences in prosperity and purchasing power, and social factors, unions, government, etc.

Bonuses: Bonuses are common throughout the world as a part of the basic employment contract. In some cases it is even mandated by law.Eg: Payment of Bonus Act, 1965 in India

Variable Pay: It is a form of profit-sharing practice and is mostly called as ‘Performance Pay’

Allowances: The term allowances has a different meaning for LCN's than expatriates. In other countries allowances are additions to base pay given for a variety of reasons. They can increase an employee's pay by 20% or more.

Benefits:A) Required: Such as –

i) Old age, invalidity & survivorsii) Sickness & maternityiii) Work injuryiv) Unemploymentv) Family Allowance

B) Discretionary: Such as –i) Transportationii) Mealsiii) Loansiv) Executive Perquisites

LCN Compensation ( contd.. )

Approaches to International Compensation:

1. Going Rate Approach: Paid according to the Host Country Salary

2. Balance Sheet Approach: Equates purchasing power in foreign country with home country. Additional compensation given for tax adjustments, housing, etc.

3. Global Salary Approach: Applies to global managers in the international cadre. This is based on worldwide job evaluation systems

Compensation Administration:

- Establish salary bands

- Salary increase reviews

- Starting salary for new employees

- Linkage to performance appraisal

- Developing rates of pay for job

Performance Management

Performance Management is a means of getting of getting better results from the organization, teams, and individuals within the agreed framework of planned goals, objectives and standards

What is International Performance Management System?• It is a strategic HRM process that enables the multinational

corporation (MNC) to evaluate and improve continuously individual, subsidiary unit, and corporate performance against clearly defined, preset objectives.

• Effective IPA ( International Performance Appraisal ) creates an incentive system that can ensure international employees and overseas subsidiaries are acting in accordance with the home company’s interests

SOME DEFINITIONS…

PERFORMANCE MANAGEMENT FLOW

PERFORMANCE CRITERIA

Hard Goals: are objective, quantifiable, and can be directly measured such as Return-on-Investment ( ROI ), market share, so on

Soft Goals: tend to be relationship-based or trait-based such as leadership style, interpersonal skills, etc.

Contextual Goals: attempt to take into consideration factorsthat result from the situation in which performance occurs.

FACTORS TO BE CONSIDERED IN INDIVIDUAL PERFORMANCE & APPRAISAL PROCESS

1. Expatriate Performance Management System

- Who conducts the appraisal, how frequently, Appraisal System ( whether multi-rater, MBO, Balanced Scorecard, etc. )

2. Compensation Package

- How is individual compensation revised in line with organizational performance

- How is variable decided

3. Task

- The complexity of the job itself

4. Headquarters’ support

- How frequently did HQ intervene and on what matters

- Whether subsidiaries were visited by HQ staff and frequency of meetings with executives from the parent company

FACTORS TO BE CONSIDERED IN INDIVIDUAL PERFORMANCE & APPRAISAL PROCESS ( contd... )

5. Host Environment:- Social, political, economic factors

6. Cultural Adjustment- ‘Blending in’ with the host country organizational culture

- Reflected through interpersonal relations, people management, conflict resolution, etc.

CHALLENGES IN APPRAISING EXPATRIATE MANAGERS

Challenges in appraising Overseas Managers:

Determining who should be the appraiser – In most cases two groups evaluate the performance of the expatriate managers – host nation managers & home office managers – and both are subject to unintentional bias

Home country managers rely too much on Hard Goals while evaluating an expat’s performance

Deciding on which factors to base the appraisal

Fit of international operation in multinational strategy

Unreliable data

Complex and volatile environments

Time difference and distance separation

Local cultural situation

APPRAISAL OF HCN EMPLOYEES

Subsidiary managers tend to be assessed according to subsidiary performance, with a reliance on hard criteria similar to that applied to heads of domestic units or Divisions

There is a danger that a PCN or TCN subsidiary managers will make decisions and implement local strategies that favor short-term performance to the detriment of longer term organizational goals – her or his subsidiary performance will not be affected if the expatriate assignment has been completed before the consequences of those decisions and strategies begin to take effect

Host-country managers may have a clearer picture of expatriateperformance and can take into consideration contextual criteria, but they may have culturally bound basis (e.g. about role behavior) and lack an appreciation of the impact of the expatriate’s performance in the broader organizational context

APPRAISAL OF HCN EMPLOYEES ( contd.. )

Some expatriates may prefer to have parent-company evaluators given that their future career progression may depend on how the evaluation data is utilized back at headquarters; this may be especially so in cases where foreign operations are relatively less important

Others, may prefer host-country evaluation if they perceive it as a more accurate reflection of their performance. Multiple raters are sometimes used in the domestic context— such as the technique referred to as “360-degree feedback.”

Repatriation

Termination of an overseas assignment or ‘homecoming’

Reasons for Repatriation

Completion of period of posting Family compulsions Move on to another assignment Inability to adjust Failure to do a good job

Challenges of Repatriation:

Many a times organizations do not address the issue of repatriation in the same manner as expatriation

Very few organizations hold re-entry sessions to discusses issues like career objectives, performance, plan for re-entry on account of reasons like:

Lack of expertise Cost of program to train repatriates No perceived need for repatriation training by top

management Repatriation problems are not dramatic, visible.

Challenges for an organization

The way an organization handles repatriation has an impact on staff availability for international assignments

If a repatriate gets a promotion / a position with immense value , other employees see international assignments as a positive career move

If an MNC does not reward expatriate performance, tolerates high turnover among expatriates, its workforce may interpret it as a high career risk

Challenges for an individual

-“Reverse culture shock” – Political, social, economic factors have changed. Person himself has changed and so have family members. Work place environment has itself changed. The person may end up feeling like a “Martian” at home and work

- Reduced income: Many attractive components of the compensation may get exluded from the compensation ( bonuses, hardship allowance, etc. ) leading to a reduced income

- Professional – not in sync with his experience / not in the mainstream

- Finding an interesting job with career advancement: Many expatriate jobs are highly challenging and autonomous. ( start-ups, clean-ups ). Finding positions “back home” with similar challenge and autonomy may be difficult.

Challenges of Repatriation ( contd.. ) :

Need for a Repatriation Process:If approx. 25% of employees exit the firm within a year of repatriation it amounts to a substantial loss financially as well as of human captial

The skills, knowledge and experience gained by the individual on international assignment may be rare and scarce

Challenges of Repatriation ( contd.. ) :Challenges for an individual ( contd.. ) - Having a job ready at the right timeEg: A person was sent on an overseas assignment for 3 years but was called back after 2 years since the assignment was over. Became very difficult to find an appropriate assignment when he came back suddenly

-Logistics: Finding a good school, realtor, etc, can be challenging and unnerving

- Handing off the old job and transitioning into a new one: Thinking about and planning a transition out when one is still fully engaged in one’s position is difficult. One does not want to “check out” prematurely.

Issues to be addressed through the Repatriation Process:

Study your repatriate retention rate over 2-5 years Find from repatriates their opinion on the relation between

expatriate experience and current job.

Based on the above develop a Repatriation Policy which stresses on points like:

Preparation, physical relocation, transition information

Financial and tax assistance ( including benefit and tax changes, loss of overseas allowance )

Re-entry position and career path assistance

Adjustment to ‘Reverse culture shock’ ( including family disorientation)

School systems and children’s education Contd..

Issues to be addressed through the Repatriation Process ( contd.. ):

Helping adjust to workplace changes such as corporate culture, structure, de-centralization

Stress management, communication-related training

Establishing networking opportunities, helping in forming new social contacts

If repatriation coincides with retirement then such individuals might require special counseling to assist in the transition in both – back to home country & to retirement