Chapter 16

Managing Human Resources

in an International Context

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

The Global Mind-set• A prerequisite for global industry

dominance• Global Mind-set:

– “Combines an openness to and an awareness of diversity across markets and cultures with a propensity and ability to synthesize across this diversity”

LO1

16-2

Recruitment and Selection of Employees

• Ethnocentric Staffing Policy– “related to hiring and

promoting employees on the basis of the parent company’s home-country frame of reference”

• Polycentric Staffing Policy– “related to hiring and

promoting employees on he basis of the specific local context in which the subsidiary operates”

• Ethnocentric Staffing Policy– “related to hiring and

promoting employees on the basis of the parent company’s home-country frame of reference”

• Polycentric Staffing Policy– “related to hiring and

promoting employees on he basis of the specific local context in which the subsidiary operates”

• Regiocentric Staffing Policy– “related to hiring and

promoting employees on the basis of the specific regional context in which the subsidiary operates”

• Geocentric Staffing Policy– “related to hiring and

promoting employees on the basis of ability and expertise without considering race or citizenship”

• Regiocentric Staffing Policy– “related to hiring and

promoting employees on the basis of the specific regional context in which the subsidiary operates”

• Geocentric Staffing Policy– “related to hiring and

promoting employees on the basis of ability and expertise without considering race or citizenship”

LO2

16-3

Recruitment and Selection of Employees

• Ethnocentric Staffing Policy– International

Strategic Orientation– Decisions made at

headquarters with home country frame of reference

– Use Parent Country Nationals (PCNs) in key expatriate foreign management & technical positions

• Ethnocentric Staffing Policy– International

Strategic Orientation– Decisions made at

headquarters with home country frame of reference

– Use Parent Country Nationals (PCNs) in key expatriate foreign management & technical positions

• Issues:– Expatriates have

difficulty with cultural bias toward host country

– Specialized teams need to be sent to deal with specific problems

• Prepares Managers for higher level positions at headquarters

• Issues:– Expatriates have

difficulty with cultural bias toward host country

– Specialized teams need to be sent to deal with specific problems

• Prepares Managers for higher level positions at headquarters

LO2

16-4

Recruitment and Selection of Employees

• Polycentric Staffing Policy– Multidomestic

Strategic Orientation– HR policies created

at local level for local operations context

– Some governments demand employment at all levels to reflect racial composition of the society

• Polycentric Staffing Policy– Multidomestic

Strategic Orientation– HR policies created

at local level for local operations context

– Some governments demand employment at all levels to reflect racial composition of the society

• Issues:– Familiarity with local

customs, culture & language

– Hiring costs lower– Training costs may be

high– Unfamiliar with ICs

home country and corporate culture, policies and culture

– Best people may be pirated by other firms

• Issues:– Familiarity with local

customs, culture & language

– Hiring costs lower– Training costs may be

high– Unfamiliar with ICs

home country and corporate culture, policies and culture

– Best people may be pirated by other firms

LO2

16-5

Recruitment and Selection of Employees

• Regiocentric Staffing Policy– Regional Strategic

Orientation– Regional employees

selected for key positions from HCNs and TCNs

• Regiocentric Staffing Policy– Regional Strategic

Orientation– Regional employees

selected for key positions from HCNs and TCNs

• Issues:– Problems of using

home or host country nationals can be avoided

– An executive adapting to one language and culture make adapting to another easier

– Potential cost savings

• Issues:– Problems of using

home or host country nationals can be avoided

– An executive adapting to one language and culture make adapting to another easier

– Potential cost savings

LO2

16-6

Recruitment and Selection of Employees

• Geocentric Staffing Policy– Transnational

Strategic Orientation

– Find the best person for the job regardless of national origin

– Capitalize on advantages of each staffing policy

• Geocentric Staffing Policy– Transnational

Strategic Orientation

– Find the best person for the job regardless of national origin

– Capitalize on advantages of each staffing policy

• Issues:– HRM strategy must

be consistent across all subsidiaries

– HRM borrows best practices from wherever found

– HRM does not show any preferences to Headquarters practices

• Issues:– HRM strategy must

be consistent across all subsidiaries

– HRM borrows best practices from wherever found

– HRM does not show any preferences to Headquarters practices

LO2

16-7

Training and Development• Home- or Parent-County National (PCNs)

– Trained in home country before being sent abroad

• Host-Country National (HCNs)– HNCs hired in home country– HNCs hired in host country

• Third Country National (TCNs)– Host-country attitudes– Generalizations about TCNs are difficult– More common as more companies take a geocentric

view– International agencies are a source for TCNs

• Home- or Parent-County National (PCNs)– Trained in home country before being sent abroad

• Host-Country National (HCNs)– HNCs hired in home country– HNCs hired in host country

• Third Country National (TCNs)– Host-country attitudes– Generalizations about TCNs are difficult– More common as more companies take a geocentric

view– International agencies are a source for TCNs

LO3

16-8

Expatriates• Expatriate

– “a person living outside his/her country of citizenship”

• Inpatriates– “Employees hired in the

host country”

• Flexpatriates– “home or third-country

employees on short term assignments”

• Expatriate– “a person living outside

his/her country of citizenship”

• Inpatriates– “Employees hired in the

host country”

• Flexpatriates– “home or third-country

employees on short term assignments”

• Why use expatriates?– Bring technical or

managerial skills that might be scarce in host country

– Transfer and install companywide systems/cultures

– Trusted connection for oversight and control of foreign operations

– Develop skills/experiences for promotion

• Why use expatriates?– Bring technical or

managerial skills that might be scarce in host country

– Transfer and install companywide systems/cultures

– Trusted connection for oversight and control of foreign operations

– Develop skills/experiences for promotion

LO4

16-9

Culture Shock• Culture Shock

– “anxiety people often experience when they move from a culture they are familiar with to one that is entirely different”

• Symptoms:– Lack of direction from not

know how to do things in new culture

– Feelings/emotional discomfort

– Disorientation or confusion

• Reverse Culture Shock– Occurs when returning

home

• Culture Shock– “anxiety people often

experience when they move from a culture they are familiar with to one that is entirely different”

• Symptoms:– Lack of direction from not

know how to do things in new culture

– Feelings/emotional discomfort

– Disorientation or confusion

• Reverse Culture Shock– Occurs when returning

home

• Three dimensions of cross-cultural adjustment:1. Work Context

• job clarity, role conflict, discretion in job completion

2. Adjustment to General Environment• Differences in housing,

food, education, health, safety, transportation

3. Interaction with Local Nationals • Differences with

behavioral norms, conflict communication patterns

• Three dimensions of cross-cultural adjustment:1. Work Context

• job clarity, role conflict, discretion in job completion

2. Adjustment to General Environment• Differences in housing,

food, education, health, safety, transportation

3. Interaction with Local Nationals • Differences with

behavioral norms, conflict communication patterns

LO4

16-10

The Expatriate’s Family• Facts:

– 90% expatriate failures are family related

– 81% who decline give family concerns as reason

– Unhappy spouses are a major reason for early return

– An expatriate failure translates into a loss of a “million-dollar corporate-training investment” in the executive

• Facts:– 90% expatriate failures

are family related– 81% who decline give

family concerns as reason

– Unhappy spouses are a major reason for early return

– An expatriate failure translates into a loss of a “million-dollar corporate-training investment” in the executive

• Trailing Spouses in Two-Career Families are a Challenge for ICs– Offer help in adjustment– Assistance with job

hunting in host country– Identifying career

opportunities– Cultural training

• Expatriate Children May Suffer the Most– Third Culture Kids (TCKs)

are multilingual and hold several passports

• Trailing Spouses in Two-Career Families are a Challenge for ICs– Offer help in adjustment– Assistance with job

hunting in host country– Identifying career

opportunities– Cultural training

• Expatriate Children May Suffer the Most– Third Culture Kids (TCKs)

are multilingual and hold several passports

LO4

LO5

16-11

Preparation for the Transition: Language Training

• English is the world’s lingua franca and common 2nd language

• Expatriate & family need host country language skill for effective adjustment

• Many foreign customers speak English but will hide behind their language in negotiations

• Mandarin Chinese is the new “hot” language

• English is the world’s lingua franca and common 2nd language

• Expatriate & family need host country language skill for effective adjustment

• Many foreign customers speak English but will hide behind their language in negotiations

• Mandarin Chinese is the new “hot” language

LO4

16-12

Expatriate Services• Health care programs

exist to assist companies and expatriates with: – Claims administration– Language translations– Currency conversions– Service standardization– Websites for expat

issues:• www.ExpatExpert.com• www.branchor.com

• Health care programs exist to assist companies and expatriates with: – Claims administration– Language translations– Currency conversions– Service standardization– Websites for expat

issues:• www.ExpatExpert.com• www.branchor.com

• Other expatriate services include assistance with: – banking services– culture and language

training

– house hunting, utilities hook-up, grocery and hardware shopping

– long-distance care for relatives

– schools– clubs, organizations,

and memberships

• Other expatriate services include assistance with: – banking services– culture and language

training

– house hunting, utilities hook-up, grocery and hardware shopping

– long-distance care for relatives

– schools– clubs, organizations,

and memberships

LO4

16-13

Repatriation – the Shock of Returning Home

• Issues to Address:– Reverse culture shock– Autonomy abroad but restrictive work context

at home– Headquarters' people and attitudes will change– Returning expatriate’s skills and knowledge are

valuable but may be unappreciated– Positions of responsibility similar to that of

expatriate position may not be available home– Promotion or career expectations may not

happen– Family adjustment at home can be problematic

• Issues to Address:– Reverse culture shock– Autonomy abroad but restrictive work context

at home– Headquarters' people and attitudes will change– Returning expatriate’s skills and knowledge are

valuable but may be unappreciated– Positions of responsibility similar to that of

expatriate position may not be available home– Promotion or career expectations may not

happen– Family adjustment at home can be problematic

LO4

16-14

Compensation• Compensation &

Salary Trends: – Paying HCNs the same

salaries as their domestic counterparts –

• permits worldwide consistency

• add allowances & bonuses

– Trend to use “local terms” package equal to local manager

– “Equal-pay-for-equal-work” concept with extra payments to expats

• Compensation & Salary Trends: – Paying HCNs the same

salaries as their domestic counterparts –

• permits worldwide consistency

• add allowances & bonuses

– Trend to use “local terms” package equal to local manager

– “Equal-pay-for-equal-work” concept with extra payments to expats

LO6

16-15

Allowances & Bonuses• Allowances

– “employee compensation payments added to base salaries because of higher expenses encountered when living abroad”

• Examples:– Housing Allowances– Cost-of-Living Allowances– Allowances for Tax

Differentials– Education Allowances– Moving and Orientation

Allowances

• Allowances– “employee compensation

payments added to base salaries because of higher expenses encountered when living abroad”

• Examples:– Housing Allowances– Cost-of-Living Allowances– Allowances for Tax

Differentials– Education Allowances– Moving and Orientation

Allowances

LO6

• Bonuses– “Expatriate employee

compensation payments in addition to base salaries and allowances, because of hardship, inconvenience, or danger”

• Examples:– Overseas Premiums– Contract Termination

Payments– Home Leave

• Bonuses– “Expatriate employee

compensation payments in addition to base salaries and allowances, because of hardship, inconvenience, or danger”

• Examples:– Overseas Premiums– Contract Termination

Payments– Home Leave

16-16

Compensation Packages Can Be Complicated

• Compensation Packages– “for expatriate employees, packages that incorporate many

types of payments or reimbursements and must take into consideration exchange rates and inflation”

• Issues:– Expensive – can add 50+% to base salary– What Percentage?

• Allowances and percentage of base salary are usually paid in host country currency

• Percentage is usually 65 to 75 percent, with the remainder banked where employee directs

– What Exchange Rate?• Firms must decide which exchange rate to use• This is more difficult in countries with exchange controls and

nonconvertible currencies

• Compensation Packages– “for expatriate employees, packages that incorporate many

types of payments or reimbursements and must take into consideration exchange rates and inflation”

• Issues:– Expensive – can add 50+% to base salary– What Percentage?

• Allowances and percentage of base salary are usually paid in host country currency

• Percentage is usually 65 to 75 percent, with the remainder banked where employee directs

– What Exchange Rate?• Firms must decide which exchange rate to use• This is more difficult in countries with exchange controls and

nonconvertible currencies

LO6

16-17

Compensation of Third-Country Nationals

• There is a trend toward applying the same compensation plan to third country nationals as home country expatriates

• Problems can arise in– The calculation of the income tax differential

when an American expatriate is compared with an expatriate from another country

– Home leave bonus

• There is a trend toward applying the same compensation plan to third country nationals as home country expatriates

• Problems can arise in– The calculation of the income tax differential

when an American expatriate is compared with an expatriate from another country

– Home leave bonus

LO6

16-18

International Status• International Status

– “Entitles expatriate employee to all the allowances and bonuses applicable to the place of residence and employment”

• International Status– “Entitles expatriate

employee to all the allowances and bonuses applicable to the place of residence and employment”

• Being from another country does not always qualify for international status

• Host-country employees can be promoted to international status without being sent abroad

• Rewards are used to retain valuable employees

• International status means receiving some or all available allowances and bonuses

• Complexity of compensation requires international personnel management specialists or consultants

• Being from another country does not always qualify for international status

• Host-country employees can be promoted to international status without being sent abroad

• Rewards are used to retain valuable employees

• International status means receiving some or all available allowances and bonuses

• Complexity of compensation requires international personnel management specialists or consultants

LO6

16-19

Perks• Cars, including

chauffeurs for high level executives

• Private pension plan• Retirement payment• Life insurance• Health insurance• Emergency evacuation

services (for medical or other reason)

• Cars, including chauffeurs for high level executives

• Private pension plan• Retirement payment• Life insurance• Health insurance• Emergency evacuation

services (for medical or other reason)

• Kidnapping, ransom, & extortion insurance

• Company housing or apartment

• Directorship of a foreign subsidiary

• Seminar holiday travel• Club memberships

• Kidnapping, ransom, & extortion insurance

• Company housing or apartment

• Directorship of a foreign subsidiary

• Seminar holiday travel• Club memberships

LO6

16-20