International Human Resource Management

Managing across borders
International Corporation
•A domestic firm that builds on its existing capabilities to penetrate overseas markets. •Companies such as Tata, Honda, General Electric, and Procter & Gamble used this approach to gain access to Europe . •They essentially adapted existing products for overseas markets without changing much else about their normal operations.

Multinational Corporation
•A MNC is a more complex form that usually has fully autonomous units operating in multiple countries. •Adobe, Philips and Samsung are three typical MNCs who have traditionally given their foreign subsidiaries a great deal of latitude to address local issues such as consumer preferences, political pressures, and economic trends in different regions of the world. •Frequently these subsidiaries are run as independent companies , without much integration.

Unilever and Shell have made good progress in restructuring operations to function more transnationally. Transnational Corporation •A firm that attempts to achieve the local responsiveness of an MNC while also achieving the efficiencies of a global firm. •To balance the “global /local” dilemma a transnational uses a network structure that coordinates specialized facilities positioned around the world. •By using the flexible structure a TNC provides autonomy to independent country operations but brings these separate activities into an integrated whole. •These companies operate much like a global firm.Global Corporation •A firm that has integrated worldwide operations through a centralized home office. •Japanese companies such as Matsushita and NEC tend to treat the world market as a unified whole and try to combine activities in each country to maximize efficiency on a global scale. •Companies such as Ford. .

operations are controlled centrally from the corporate office Transnational Corporation Specialized facilities permit local responsiveness. complex coordination mechanisms provide global integration. High International Corporation Uses existing capabilities to expand into foreign markets Multinational Corporation Several subsidiaries operating as stand-alone business units in multiple countries High Low Low Local Responsiveness .Global Efficiency Global Corporation Views the world as a single market.

Differences between Domestic HRM and IHRM: variables  Complexity involved in operating in different countries.     varied nationalities of employees The different Cultural Environment The industry or industries with which the MNC is involved Attitudes of Senior Management Extent of reliance of MNC on home country domestic market .

terrorism Broader external influences: government regulations. children Changes in emphasis as the workforce mix of expatriates and locals varies: fairness Risk exposure: expatriate failure.Differences between Domestic HRM and IHRM  More HR activities: taxation.      administrative services The need for a broader perspective: cater to multiple needs More involvement in employees’ personal lives: adjustment. culture orientation. ways of conduct . spouses.

Variables that Moderate Differences between Domestic HR and IHRM .

What does IHRM add into the Traditional Framework of HRM?  Types of employees  Within and cross-cultural workforce diversity  Coordination  Communication  Human resource activities  Procurement  Allocation  Utilization of human resources  Nation/country categories where firms expand and operate  Host country  Parent country  Third country .

A Model of IHRM .

International staffing  Host Country National (HCN): Employees who are natives of the host country where the subsidiary is located. .  Parent Country National (PCN) or expatriates: Employees from the home country who are on international assignment.  Third Country Nationals (TCN): Employees who are natives of a country other than the home country or the host country.

Who is an expatriate?  An employee who is working and temporarily residing in a foreign country • Some firms prefer to use the term “international assignees”. • Expatriates are PCNs from the parent country operations. TCNs transferred to either HQ or another subsidiary. and HCNs transferred into the parent country  Global flow of HR: more complexity in activities and more involvement in employees' lives 1–11 .

International Assignments Create Expatriates: 1–12 .

and almost 70% sent to less developed nations return home early .The Expatriate Problem  High Expatriate Failure Rates  Average cost per failure to the parent firm can be as high as three times the expatriate’s annual domestic salary plus the cost of relocation  Between 16% & 40% of all American employees sent abroad to developed nations.

7. 5. 2. 4. Inability of spouse to adjust Manager’s inability to adjust Other opportunities arise Manager’s personal or emotional maturity Inability to cope with larger overseas responsibility Lack of technical competence Difficulties with new environment Repatriation issues Bad selection . 6.Reasons for Expatriate Failure 1. 8. 9. 3.

Training and Development Once people are selected for overseas assignments. the company’s educational arm conducts trainings at all divisions worldwide to develop talent for overseas assignments.  Corporations that are serious about succeeding in global business are carrying out intensive training programs for employees to be relocated to foreign assignments. including division heads receive 40 hours of training each year to learn. how to work together as “Motorola People”. All employees. . Motorola University. in part. training programs are conducted for expatriate managers so that they can carry out effective supervision of foreign employees.

2. 7. Political structure and current players. 4. Current affairs. Social and business etiquette. The language. 3. Sources of pride and great achievements of the culture. transportation. 8. Geography. Cultural values and priorities. one should become acquainted with the following aspects of the host country: 1. especially its major cities. 6. time zones. . 10. hours of business. History and folklore. Practical matters such as currency. including relations between the host country and India. Religion and the role of religion in daily life. 5.Contents of Training Programs To prepare for an international assignment. 9.

. pay plans often focus on individual performance and achievement. pay plans focus more on internal equity and personal needs. However. such as the United States. In individualistic cultures. in collectively oriented cultures such as Japan and Taiwan. Executives should normally try to create a pay plan that supports the overall strategic intent of the organization but provides enough flexibility to customize particular policies and programs to meet the needs of employees in specific locations. a guiding philosophy for designing pay systems might be “think globally and act locally”. In general.Compensation Different countries have different norms for employee compensation.

disparity Achievement vs. natural resources Inflation. government Equality vs. organization vs. education of workforce . relationships ECONOMIC CONDITIONS Size of economy Types of industries. work Short vs. unemployment Protectionism vs. worker participation Skills. open market Attitudes toward risk Quality of life vs.CULTURAL PREFERENCES PERSONAL PREFERENCES Importance of status Role of individual vs. solidarity SOCIAL CONSTRAINTS Income tax rates. long-term Competitiveness vs. social costs Laws and regulations Collective bargaining.

•When companies commence operations in a foreign country.Compensation of Host-Country Employees •Are generally paid on the basis of productivity. . time spent on the job. or a combination of these factors. •In industrialized countries. The piece rate method is quite common. •In some countries like Japan. pay is generally by the hour. they usually set their wage rates at or slightly higher than the prevailing wage for local companies. in developing countries by the day. seniority is an important element in determining employee’s pay rates .

and Egypt among the developing countries and France among the industrialized countries. . though they are urged to conform to local practices to avoid upsetting local compensation practices. •Defined contribution plans are on the rise. Peru. sex equality is becoming important. and stock ownership is being tried.. •Eventually. India. •Whereas in USA . •Profit sharing is legally required for certain categories of industry in Mexico.Compensation of Host-Country Employees contd. most benefits are awarded to employees by employers. Pakistan. in other industrialized countries most of them are legislated or ordered by governments.

firms such as Nike and Starbucks has taken a number of initiatives to reduce the perception of overcapitalizing on worldwide compensation differences.  Among Starbucks’ many initiatives is its association with Fair Trade and Conservation International to help farmers in third-world countries get a premium for the coffee they grow. .Global social responsibility  As pressure on firms to exercise greater global social responsibility has increased.

allow for maintaining a standard of living 3. . Provide for the education of the employee’s children abroad. Allow for maintaining relationships with family. an international compensation program must 1. Facilitate reentry home. Be in writing. 6. and business associates via trips home and other communication technologies. 9. Include provisions for good healthcare. 7. provide an incentive to leave 2.Compensation of Expatriate Managers To be effective . Provide for security in countries that are politically unstable or present personal dangers. Take into account the foreign taxes the employee is likely to have to pay(in addition to domestic taxes) and help him or her with tax forms and filing. 5. 8. 4. friends. if necessary.

•They are also likely to bring their family members with them. expatriates are frequently given per-diem (per-day) compensation. usually those that are project-based. .Compensation for short term assignments •For short term assignments. •The assignment becomes more like a commuting assignment in which the expatriate spend the week in the host country and returns home on the weekend. •The managers may reside in hotels and service apartments instead of leasing houses.

Calculate base pay. Consists of following steps: 1.Begin with the home-based gross income. social security. and pension contributions. Deduct taxes. a housing allowance is added in here. Often.Compensation for long-term assignments Two types are: (i) Home-based pay and (ii) Host based pay Home based pay: Based on the balance-sheet approach. it is designed to equalize the purchasing power of employees at comparable positions living overseas and in the home country and to provide incentives to offset qualitative differences between assignment locations. Figure cost-of-living adjustment(COLA): Add a cost of living adjustment to the base pay. . including bonuses. 2.

friends. automobile and education expenses. usually 15% of base salary or now a days a little less.Add assistance programs: These additions are often used to cover added costs such as moving and storage. In general. Differentials element is intended to correct for the higher costs of overseas goods and services so that in relation to their domestic peers expatriates neither gain purchasing power nor loose it. . Add incentive premiums: General mobility premiums and hardship premiums compensate expatriates for separation from family. the cost typically runs between three -five times the home country salary.3. 4. and domestic support systems.

•The expatriates are also provided with a global health benefits plan such as.Cigna International Expatriate Benefit (This plan covers 2 lakh expatriates and their dependents for 700 different international client companies) . Incentive premiums are generally phased out. •Ex: Getting married to a local or develop a love for the host country. and the employee pays only local taxes and falls under the social benefits programmes established by the Govt.Host-based pay Expatriates pay comparable to that earned by employees in a host country. This process is known as ‘localization’ •When an employee is localized. of the host country. his or her compensation is set on par with local standards and practices. •Localization of pay of an employee depends on whether he or she will remain abroad or return home.

•Although home country managers frequently have formal responsibility of appraising individuals on foreign assignments. •So. . •For these reasons. performance evaluations that combine the two sources of appraisal information is a better option. the multirater (360-degree) appraisal is favoured among global firms. they may not be able to fully understand expatriate experiences because geographical distances pose communication problems. •Host country managers may be in the best position to observe day-today performance but may be biased by cultural factors and may not have a view of the organization as a whole.Performance Appraisal Who should appraise performance? •An individual working internationally has at least two allegiances: one to his home country and other to the host country in which the employee is currently working.

or develop managerial talent.Performance criteria The criteria are tied to the various reasons employees were sent abroad in the first Place.whether the goal was to transfer technical skills or best practices. improve a division’s financial performance. .

Labor unions strength around the world depends on many factors such as. religious. European Unions have much more political power than many other unions around the world. . the European Trade Union Confederation (ETUC) and the International Labor Organization (ILO) are among the major worldwide organizations endeavoring to improve the conditions of workers. homogeneity of labor (racial. The International Confederation of Free Trade Unions (ICFTU). social class) and unemployment levels. per capita labor income.Level of employee participation.Labor Environment Worldwide A country’s labor environment plays a large role in international business and HR decisions. Wages and benefits vary dramatically across the world as do safety. mobility between management and labor. child and other legal regulations.

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