Human Resource Management

McGraw-Hill/IrwinInternational Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

chapter twenty

20-3

Learning Objectives

Recognize the importance of creating a company “global mindset”

Understand the relationship between competitive strategies and HR management approaches

Compare home country, host country, and third country nationals as IC executives

Understand the difficulties of finding qualified executives for international companies (IC)

Understand what an expatriate is and the challenges of and opportunities of an expat position

20-4

Learning Objectives

Realize the increasing importance of accommodating the trailing spouse of an expatriate executive

Remember some of the complications of compensation packages for expatriate executives

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The Global Mindset

• Expatriate– A person living outside citizenship country

• Global Mind-set– A mind-set that combines an openness to

and an awareness of diversity across markets and cultures with a propensity and ability to synthesize across this diversity

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International HRM Approaches

• Ethnocentric– Hiring and promoting employees on the basis of

parent company’s home country frame of reference

• Polycentric– Hiring and promoting employees on the basis of

specific local context of the subsidiary

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International HRM Approaches

• Regiocentric– Hiring and promoting employees on the basis of the

specific regional context of the subsidiary

• Geocentric– Hiring and promoting employees on the basis of

ability and experience without considering race or citizenship

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Strategic Approach, Organizational Concerns, and the International Human Resource Management Approach to

Be Used

20-9

Recruitment, Selection and Training

• Parent Country National (PCNs) or Home Country National- Study of language and culture

• Host Country National (HCN)– Hired in the host country

• Third Country National

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Recruitment, Selection and Training

• Third Country National (TCN)– May accept lower wages and benefits than will

employees from the home country– May also come from a culture similar to that of

the host country– May have worked for another unit of the IC and

be familiar with policies, procedures and people– Common approach in developing countries– May not be welcome by host country– May come from an international agency– Greater use as companies take geocentric view

20-11

Expatriates

• Family– Nine of ten expatriate failures family-related

– Unhappy spouses major reason for early return

– Company losing a “million-dollar corporate-training investment” in executive

20-12

Language Training

• Language Trap– International business person speaks only

home language

– English language has become lingua franca

– Chinese new “hot” language to know

20-13

Expatriate Services

• Health care programs to assist companies and expatriates with – Claims administration– Language– Translations– Currency conversions– Service standardization– www.ExpatExpert.com– www.branchor.com

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Expatriate Services

• Banking services– Online, 24-hour assistance

• Training– Culture and language

• House hunting, utilities hook up, grocery and hardware

shopping, long-distance care for relatives, schools,

organizations, and cultural items

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Compensation

SalariesPaying home country nationals the same

salaries as their domestic counterparts permits worldwide consistencybonuses

Increasing use of third country nationals- often treated like PCNs

Trend to pay HCNs same base

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Total compensation Costs for Sending an Expatriate American Manager to Russia

20-17

Allowances

• Housing Allowance– Permits executive to live at same standard as at home

• Cost-of-Living Allowance– Based on differences in price of food, utilities,

transportation, entertainment, clothing, personal services, and medical expenses as compared to home

• Allowances for Tax Differentials– Ensures expatriates will not have less after-tax pay at

home

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Allowances

• Education Allowances– Insures children receive education equal to that at home

• Moving and Orientation Allowances– Household effects and language instruction

20-19

Ranking of 50 Cities from Most to Least Expensive, 2006

20-20

Bonuses

• Bonuses– Expatriate employee compensation

payments in addition to base salary and allowances because of hardship, inconvenience, or danger

– Bonuses include• Overseas premiums• Contract termination payments• Home leave reimbursement

20-21

Compensation Packages

• For expatriate employees, packages incorporate many types of payments or reimbursements and must take into consideration exchange rates and inflation

20-22

Hardship Differential Pay Premiums for Selected Cities and Countries, 2006

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Compensation Packages Can Be Complicated

• Allowances and percentage of base salary are usually paid in host country currency– Percentage usually 65 to 75 percent, with remainder

banked where employee directs

• What Exchange Rate?– Must be chosen– More difficult in countries with exchange controls and

nonconvertible currencies

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Compensation of Third Country Nationals

• Trend toward applying the same compensation plan to third country nationals as home country expatriates

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

when American expatriate compared with expatriate from another country

– Home leave bonus

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International Status

• Entitles expatriate employee to allowances and bonuses applicable to the place of residence and employment

• Perks– Compensate executives while minimizing taxes

• Private pension plan• Retirement payment• Life Insurance• Hidden slush funds (can be illegal)• Club membership• Company house• Foreign affiliate directorship