INTERNATIONAL HRM

INTRODUCTION

International management encounters many problems above those faced by a domestic organization. Geographic distance and a lack of close, day-to-day relationships with headquarters represent a major challenge to multinationals. "It is essential, therefore, that special attention is given to the staffing practices of overseas units"

Many challenges exist when staffing a business that functions globally. Differences in cultures provide many opportunities for establishing a diverse workforce. If the parent company is located in the U.S and separate offices are being established in other areas of the world, the HR Manager will be responsible for making sure that the goals and timeline to reach those goals are met.

Depending on the type of business, the HR Manager will need to establish a way for the policies and philosophy of the company to be consistent in all branches, regardless of location. The easiest, but probably the most costly, solution is for the HR Manager to place home-country employees in the foreign locations in an effort to establish a program to meet the needs of the parent company.

Geographic differences will present issues for communication, time zone differences, language difference and more.

STAFFING

Staffing is the process of acquiring , deploying and retaining a workforce of sufficient quantity and quality to create positive impacts on the organization's effectiveness

FACTORS AFFECTING STAFFING

General staffing policy on key positions at headquarters and subsidiaries Constraints placed by host government Staff availability

PIGORS - 3 DIFFERENT SOURCES OF EMPLOYEES

First, the company can send employees from its home country, which are referred to as expatriates, expats or home country nationals. Second, it can recruit host country nationals (natives of the host country), Third, it can hire third country nationals who are natives of a country other than the home country or the host country.

CHALLENGING ASPECTS

One of the challenges is staffing the operation. Most times bringing employees from one country to another is expensive for many reasons. First, the initial cost of airfare, living expenses and transportation in the host country. The second expense incurred with bringing expatriates in to the international operation is the training involved in making sure the people going to the host country are familiar with, laws, rules, culture, and expectations in the new country. There are also expenses incurred of the expatriate is not fluent in the host countries language.

The main challenge with hiring host-country employees is their lack of understanding about how the organization functions at home and what the goals are. There may be challenges when having a person from the host county come to train the individual, and then leaving to allow this person to run the operation with a short amount of training from the organizations superiors.

One of the challenges in hiring a third-country national is the training and cost to relocate the individual. Though many of these hires are smart choices because of culture and language there are still costs incurred in relocation and also in training.

When international expansion of the company is in its infancy, management is heavily relying on local staff, as it is extremely respondent to local customs and concerns.

As the companys international presence grows, home-country managers are frequently expatriated to stabilize operational activities (particularly in less developed countries). At later stages of internationalization, different companies use different staffing strategies; however, most employ some combination of host-country, home-country, and third-country nationals in the top management team"

STAFFING POLICIES OF MNCS 4 CATEGORIES

Ethnocentric policy Polycentric policy Geocentric policy Regiocentric policy

ETHNOCENTRIC POLICY

The ethnocentric staffing policy refers to the strategy of a multinational company to employ managers for key positions from the parent headquarters instead of employing local staff Strategic decisions are made at headquarters Limited subsidiary autonomy Key positions in domestic and foreign operations are held by headquarters personnel PCNs manage subsidiaries

ADVANTAGES:
To ensure new subsidiary complies with overall corporate objectives and policies Has the required level of competence Overcomes lack of qualified managers in host nation Unified culture Helps transfer core competencies (and skills back)

DISADVANTAGES:
Limits the promotion opportunities of HCNs, leading to reduced productivity and increased turnover among the HCNs Longer time for PCNs to adapt to host countries, leading to errors and poor decisions being made High cost Produces resentment in host country Can lead to cultural myopia

REASONS FOR RELYING ON PARENT COUNTRY NATIONALS (PCNS)

The expatriates technical and business expertise. Ability to transfer the headquarters culture to the foreign operation (infusing central beliefs throughout the organization). Political understanding of the headquarters organization. Effective communication between headquarters and the subsidiary. Lack of qualified host country nationals (HCNs). Greater ability of expatriates to transfer know-how from the parent to the subsidiary. Measure of control over the subsidiary. Career and promotion opportunities for PCNs. Personnel development. No need of well-developed international internal labor market. Rapid substitution of expatriates possible.

MAJOR PROBLEMS WITH THIS APPROACH

Parent country nationals continue to experience difficulties to adjust to international assignments. The adaptation of expatriates is uncertain. Complicated personnel planning procedures. The private life of expatriates is severely affected. Difficulties in constant mentoring during the stay abroad. This approach to staffing limits the promotion and career opportunities of local managers, which may lead to low moral and increased turnover. PCNs are not always sensitive to the needs and expectations of their host country subordinates. Tensions between the expatriate executives and the HCNs (caused by philosophical issues such as the clash of cultures and also by some fairly hard issues such as the often substantial income gap). Expatriates are very expensive in relation to HCNs. Legal regulations of the host country. Government restrictions. Repatriation. High failure rate.

POLYCENTRIC
Each subsidiary is a distinct national entity with some decision-making autonomy HCNs manage subsidiaries who are seldom promoted to HQ positions PCNs rarely transferred to subsidiary positions. Host-country nationals manage subsidiaries Parent company nationals hold key headquarter positions Best suited to multi-domestic businesses

ADVANTAGES:

Employment of HCNs eliminates language barriers, reduces the need for cultural awareness training programs Employment of HCNs allows a multinational company to take a lower profile in sensitive political situations Employment of HCNs is less expensive Employment of HCNs gives continuity to the management of foreign subsidiaries (lower turnover of key managers) Alleviates cultural myopia. Inexpensive to implement Helps transfer core competencies

DISADVANTAGES:

Difficult to bridge the gap between HCN subsidiary managers and PCN managers at headquarters (language barriers, conflicting national loyalties, cultural differences) HCN managers have limited opportunities to gain experience outside their own country PCN managers have limited opportunities to gain international experience Resource allocation and strategic decision making will be constrained when headquarter is filled only by PCNs who have limited exposure to international assignment

GEOCENTRIC

A global approach - worldwide integration

View that each part of the organization makes a

unique contribution

Best suited to Global and trans-national businesses

Nationality is ignored in favor of ability:

Best person for the job Color of passport does not matter when it comes to rewards, promotion and development.

ADVANTAGES:
Ability of the firm to develop an international executive team Overcomes the federation drawback of the polycentric approach Support cooperation and resource sharing across units Enables the firm to make best use of its human resources Equips executives to work in a number of cultures Helps build strong unifying culture and informal management network

DISADVANTAGES:
Host government may use immigration controls in order to increase HCNs employment Expensive to implement due to increased training and relocation costs Large numbers of PCNs, HCNs, and TCNs need to be sent across borders Reduced independence of subsidiary management National immigration policies may limit implementation Expensive to implement due to training and relocation Compensation structure can be a problem.

REGIOCENTRIC

Reflects a regional strategy and structure; Regional autonomy in decision making; Staff move within the designated region, rather than globally;

ADVANTAGES:
Allow interaction between executives transferred to regional headquarters from subsidiaries in the region and PCNs posted to the regional headquarters Provide some sensitivity to local conditions Help the firm to move from a purely ethnocentric or polycentric approach to a geocentric approach

DISADVANTAGES:

Constrain the firm from taking a global stance Staffs career advancement still limited to regional headquarters, and not the parent country headquarters

TRANSFER OF STAFF FOR INTERNATIONAL BUSINESS ACTIVITIES

Reasons for International Assignments Types of International Assignments Expatriate and Non-expatriates their roles

REASONS FOR INTERNATIONAL ASSIGNMENTS

Position filling Skills gap, launch of new endeavor, technology transfer Management development Training and development purposes, assisting in developing common corporate values Organizational development Need for control, transfer of knowledge, competence, procedures and practices

TYPES OF INTERNATIONAL ASSIGNMENTS

Short term: up to 3 months

Troubleshooting Project

supervision A stopgap until a permanent arrangement is found

Extended: up to 1 year
May

involve assignments

similar

activities

as

short-term

Long term: varies from 1 to 5 years

The

traditional expatriate assignment

NON-STANDARD ASSIGNMENTS
Commuter assignments Rotational assignments Contractual assignments Virtual assignments

Some of these arrangements assist in overcoming the high cost of international assignments but are not always effective substitutes for the traditional expatriate assignment.

ROLES OF AN EXPATRIATE
Agent of direct control Agent of socialization Network builder Boundary spanner Language node Transfer of competence and knowledge

ROLES OF NON-EXPATRIATES

People who travel internationally yet are not considered expatriates as they do not relocate to another country
Road

warriors, globetrotters, frequent fliers

Much of international business involves visits to foreign locations, e.g.

Sales

staff attending trade fairs Periodic visits to foreign operations

NON-EXPATRIATES ENJOY POSITIVES AS:

A

Glamorous life Excitement and thrills of conducting business deals in foreign locations Life style (top hotels, duty-free shopping, business class travel) General exotic nature

EXPERIENCE A HIGH LEVEL OF STRESS

Home

and family issues

- Frequent absences
Work

arrangements
Domestic side of position still has to be attended to

Travel

logistics
concerns

waiting in airports, etc. Poor diet, lack of sleep, etc.

Health

EXPATRIATE PROBLEM

Expatriate: citizens of one country working in another Expatriate failure: premature return of the expatriate manager to his/her home country
Cost

of failure is high: estimate = 3X the expatriates annual salary plus the cost of relocation (impacted by currency exchange rates and assignment location)

Inpatriates: expatriates who are citizens of a foreign country working in the home country of their multinational employer

REASONS FOR EXPATRIATE FAILURE

US multinationals Inability of spouse to adjust Managers inability to adjust Other family problems Managers personal or emotional immaturity Inability to cope with larger overseas responsibilities European multinationals Inability of spouse to adjust

Japanese Firms Inability to cope with larger overseas responsibilities Difficulties with the new environment Personal or emotional problems Lack of technical competence Inability of spouse to adjust.

Strategists

headquarters

representing

interests

of

the

MNEs

Daily Managers - run operations, to build local capabilities

and gain international management experience

Ambassadors - representing headquarters interests in the

subsidiaries and representing the interests of the subsidiaries when interacting with headquarters

Trainers - for their replacements

Expatriate Failure and Selection

(1) premature (earlier than expected) return (2) unmet business objectives (3) unfulfilled career development objectives

Using the relatively easy-to-observe measure of premature return, studies in the 1980s reported that 76% of US MNEs have more than 10% expatriates failures, and 41% and 24% of European and Japanese MNEs, respectively, have a comparable number of failure cases

EXPATRIATE SELECTION

Reduce expatriate failure selection procedures

rates

by

improving

An executives domestic performance does not (necessarily) equate his/her overseas performance potential

Employees need to be selected not solely on technical expertise but also on cross-cultural fluency

FOUR ATTRIBUTES THAT PREDICT SUCCESS

Self-Orientation

Possessing high self-esteem, self-confidence and mental well-being Ability to develop relationships with host-country nationals Willingness to communicate The ability to understand why people of other countries behave the way they do Being nonjudgmental and being flexible in management style Relationship between country of assignment and the expatriates adjustment to it

Others-Orientation

Perceptual Ability

Cultural Toughness

COMPONENTS OF EXPATRIATE PAY

Base Salary Same range as a similar position in the home country Foreign service premium Extra pay for work outside country of origin Allowances Hardship, housing, cost-of-living and education allowances Taxation Firm pays expatriates income tax in the host country Benefits Level of medical and pension benefits identical overseas

Organizations Compensation Policy Employment and Taxation Laws Compensation Benefits Competitors

Allowances

Economic Conditions

Political and Social Environment

Standard of Living

Expatriate costs may pose a multiple-fold expense in

relation to employees who are not sent as expatriates to foreign destinations, and are usually significantly higher than the compensation accorded to HCNs and TCNs

a Chinese manager with 15 years experience costs less than USD 70,000 per annum, while a US expatriate manager with corresponding expertise would cost his or her organization USD 300,000 per year

KEY COMPONENTS OF INTERNATIONAL COMPENSATION PROGRAMME FOR EXPATRIATES

Base Salary

The base salary is usually the main component in international compensation, and is the main benchmark used for other elements in an expatriate compensation package, such as bonuses and benefits The base salary is either paid in the expatriates home or parent country currency, or in the currency of the expatriates host country

Hardship Premium
For expatriates (usually PCNs, TCNs) who will encounter hardships caused by the transfer to a foreign location, determining the appropriate level of payment can be difficult

Factors determining the hardship premium, usually expressed in terms of an expatriates base pay, are typically:

Assignment Actual hardship Tax consequences Length of assignment

Allowances: There are many types of allowances in

an international compensation package: Cost of Living Allowance Payment made to the expatriate with a view to compensating for differences in expenditure between the home or parent country and the host country. Factors such as inflation differentials and the price level need to be considered. Often, the cost of living allowance is difficult to determine

Housing Allowance Payment made to the expatriate with a view to ensuring that he or she can maintain their home-country living standard in the host country. Alternatively, an organization may provide housing facilities on a mandatory or optional basis. Also, support services may be provided to the expatriate, for example, by helping sell or rent the expatriates house in the home country

Home Leave Allowance Payment made to the expatriate with a view to facilitating their visit back to the home country, once or twice a year. Home leave enables the expatriate to renew business, family and social ties, and thus avoid adjustment problems subsequent to repatriation Relocation Allowance Payment made with a view to enable the relocation of the expatriate to the assignment location. Includes moving, shipping, storage costs, subsidies for purchase of appliances and (possibly) an automobile

Education Allowance Payment made with a view to supporting the education of the expatriates children, i.e. tuition, language class, school enrollment fees, books and supplies, transportation to educational establishment, room and boarding, school uniforms etc. Problems regarding the level of education required and adequacy of schools in the host country, and transportation to other localities may pose significant problems for organizations

Miscellaneous Allowances Depending on the level of seniority of the expatriate, payments to him or her for club memberships, sport associations, maintenance of household staff etc. may be rendered In addition, the organization may render financial assistance to the spouse for her or his loss of income as a result of the transfer of the expatriate

Benefits Support rendered to an expatriate in addition to the allowances provided. There are several types of benefits, more prominent examples being: Social Security Benefits (home country or host country?) Paid Vacations for expatriate and family Rest and Rehabilitation leave (especially for expatriates based in hardship assignment locations) Emergency Cases (severe illness, death)

APPROACHES

There are two basic approaches used to determine an international compensation package:
The Going Rate Approach The Balance Sheet Approach

THE GOING-RATE APPROACH

Based on local market rates Relies on survey comparisons

Local nationals (HCNs) Expatriates of same nationality Expatriates of all nationalities

Compensation based on the selected survey comparison Base pay and benefits may be supplemented by additional payments for low-pay countries Example: Should a Pakistani bank operating in London use local British salaries, the salaries other Pakistani competitor banks in London or the average salary offered by all foreign banks operating in London as the reference point for the base salary offered

ADVANTAGES

Equality with local nationals Simplicity

Identification with host country

Equity amongst different nationalities

DISADVANTAGES
Variation between assignments for the employee Rivalry between expatriates of nationality in getting assignments to countries Potential reentry problems in the country

same same some home

BALANCE SHEET APPROACH

Based on the premise that employees on overseas assignments should have the same spending power as they would in their home country. The home country is the standard for all payments. The objective is to: Ensure cost effective mobility of people to global assignments Ensure that expatriates neither gain nor lose financially Minimize adjustments required of expatriates

The balance sheet approach is widely used by international organizations to determine the compensation package for expatriates: Basic objective is the maintenance of home-country living standard, plus financial inducement Home-country pay and benefits are the foundations of this approach Adjustments to home package to balance additional expenditure in the host country Financial incentives (expatriate / hardship premium) added to make the package attractive

The balance sheet approach to international compensation is a system designed to equalize the purchasing power of employees at comparable position levels living abroad and in the home country, and to provide incentives offset qualitative differences between assignment locations

OUTLAYS CONSIDERED IN THE B S A

BSA considers 4 types of outlays which are incurred by expatriates:

Goods and services Outlays incurred in the home country for food, personal care, clothing, household furnishings, recreation, transportation & medical care Housing All major costs associated with housing in the host country

Income Taxes Parent country & host country income tax expenditures Reserve Contributions to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc. Where costs of host country > costs of home country organization pays the expatriate to make up the difference

BALANCE SHEET APPROACH

Equivalent Salary and Allowances, Host Country $10,200 Relocation Bonus $1,500 Home Country Salary $7,000 Taxes $2,000 Housing $2,000 Goods and Services $2,000 Reserve $1,000 Taxes $1,000 Housing Allowances, paid by company

$700
Goods and Services

Reserve

ADVANTAGES

Equality between assignments & between expatriates of the same nationality Facilitates expatriate reentry Easy to communicate To employees

DISADVANTAGES

Can result in considerable disparities between expatriates of different nationalities & between expatriates & local nationals Can be quite complex to administer (e.g. changing economic conditions, taxation)

OTHER APPROACHES
Negotiation Localization Lump Sum Cafeteria Plan Regional Systems

Global compensation managers increasingly deal with two areas of focus.

They

must manage highly complex and turbulent local details, while Concurrently building and maintaining a unified, strategic pattern of compensation policies, practices and values.

EXPATRIATE EXPECTATIONS

Financial protection in terms of benefits, social security and living costs in the foreign location. Opportunities for financial advancement through income and/or savings. Issues such as housing, education of children and recreation to be addressed in the policy. Career advancement and repatriation.

KEY COMPONENTS OF INTERNATIONAL COMPENSATION

The area of international compensation is complex, primarily because multinationals must cater to three categories of employees:
PCNs, TCNs and HCNs Key Components: Base salary Foreign services inducement Hardship premium Allowances Benefits

EXPATRIATE COMPENSATION WORKSHEET

EXAMPLE OF AN EXPATRIATE COMPENSATION An expatriate working in a U.S. branch may receive:

Base

pay: $1,400/mon Housing: up to $1,400/mon (Optional) Itemized reimbursement: $500/mon Discretionary expense (e.g., gifts & gratuity to clients and partners): $1000/special holidays Benefits: Social security/Medicare (Optional) Health care: $200/mon paid by employer Unemployment coverage Workers comp

REPATRIATION
process of facilitating career anxiety experienced by repatriates (returning expatriates)

psychological contract - informal understanding of expected delivery of benefits in the future for current services repatriates also experience a loss of status, spouse and children may also find it difficult to adjust back home mentor - helps alleviate the out-of-sight, out-of-mind feeling by ensuring that the expatriate is not forgotten at headquarters and by helping secure a challenging position for the expatriate upon return

EXPATRIATION vs. INPATRIATION

Addressing the expatriation problem, one solution is inpatriation relocating employees of a foreign subsidiary to the MNEs headquarters for the purposes of
(1) (2)

filling skill shortages at headquarters and developing a global mindset for such inpatriates.

Most inpatriates are expected to eventually return to their home country to replace expatriates. Unfortunately, many are ineffective. Inpatriates, just like expatriates, have their fair share of problems and headaches.