International Human Resource Management

2 – MARKS:
What is the difference between Domestic Organizations and Multinational
Organizations?
Multinational corporations operate in two or more countries while domestic
companies restrict their operations to a single country. The reasons companies
expand to other countries vary. Some companies do it to seek new markets, others to
find resources, yet others to reduce costs. All multinational companies learn to
handle the special challenges of multinational financial management. Eugene F.
Brigham and Phillip R. Davies suggest, in their advanced corporate finance textbook
Intermediate Financial Management, there are six main differences that set apart
multinational financial management from domestic financial management.
Different Economic and Legal Structure
Companies that expand to other countries must take to heart the medieval
saying: when in Rome do as the Romans. Different countries have different legal
structures, financial methods and customs, and a multinational corporation must learn
how to adapt to these differences. For instance, a company in the United States might
use the Securities Exchange Commission generally accepted accounting principles,
GAAP, but may have to change to the international financial reporting standards when
it has subsidiaries in other countries.
Different Currency Denominations
Multinational corporations must do business with different currencies
depending on where their subsidiaries are located. This involves dealing with the cost
and inconvenience of exchanging currencies when transferring funds between
countries.
Different Languages
Multinational companies must generally deal with several languages through
their everyday operations. For instance, a company with a subsidiary in Spain may
have to carry out business in Spanish, Catalan, Galician or in the Basque language
depending on where in Spain its offices are located. This generates extra costs and
paperwork because you have to translate company policies, forms and even telephone
conversations to two or more languages.
Cultural Differences
Successful multinational companies must be flexible enough to adapt to local
culture and preferences. The cultural differences may vary how a product is marketed;
for instance, changing a slogan that is unsavory or ineffective when translated, or by
changing the product itself. For example, McDonald's will vary its menu to adapt to
differences in the local palate: in Italy McDonald's serves pasta and in Nicaragua rice
and beans.
Role of Governments
Not all governments deal with multinational companies in the same way. Some
place burdensome tariffs on foreign corporations, while others welcome them with
open arms and provide financial incentives in exchange for the new jobs the
corporation generates. Governments also vary in their respective levels of corruption,
efficiency and bureaucracy.
Political Risk
Multinational corporations must also assess the stability of a country's
government before it decides to do business in it -- especially if the corporation must
pay expensive licenses and "incentives" to oil the gears of bureaucracy. Countries
where valuable natural resources are controlled by the government and licensed to
foreign companies are a source of both great opportunity and risk to multinationals.
For instance, while a license to extract raw materials at a low price is priceless for a
multinational looking for a reliable line of supply, a change in government could mean
financial ruin for a subsidiary with economic agreements with the previous
administration.

Expand PCNs, HCNs and TCNs

Parent Country National (PCN): When a company of a country recruits employee from
its own country is known as PCN.
Host Country National (HCN): When a company of a country runs their business in
another country and recruits employees from that country then it is known as HCN.
Third Country National (TCN): describes and individuals of other nationalities hired
by a government or government sanctioned contractor who represent neither the
contracting government (Home Country) nor the host country or area of operations

What is Geocentricity?
The Geocentric Approach is a method of international recruitment where the
MNC's hire the most suitable person for the job irrespective of their Nationality.

What is Social Dumping?

The practice of allowing employers to lower wages and reduce employees'
benefits in order to attract and retain employment and investment

What is Virtual Organization?

The term virtual organization is used to describe a network of independent
firms that join together, often temporarily, to produce a service or product. Virtual
organization is often associated with such terms as virtual office, virtual teams, and
virtual leadership. The ultimate goal of the virtual organization is to provide
innovative, high-quality products or services instantaneously in response to customer
demands.

The term virtual in this sense has its roots in the computer industry. When a
computer appears to have more storage capacity than it really possesses it is referred
to as virtual memory. Likewise, when an organization assembles resources from a
variety of firms, a virtual organization seems to have more capabilities than it actually
possesses.
What is the difference between Domestic HRM and International HRM?

What are the types of Expatriate Training?

What are the issues involved in International Performance Management?

There are many challenges associated with expatriate performance management.
Although we have listed some below, they are likely to vary by business. Ideally work to
identify the challenges your company is likely to encounter and attempt to mitigate
them in the expatriate performance management plan.
Environmental variations
Performance management systems rarely work in the same way domestically
and internationally. Environmental variations including; different growth rates, the
immediate environment and differences in performance, usually mean international
performance appraisals need to be unique to each expatriate manager.
Time and distance
Improvements in technology make this less of an issue than it once was, but time
differences and local infrastructure will impact on performance and appraisals. This is
particularly true of expats working in underdeveloped countries.
Cultural adjustment
The employee’s ability to adjust to the organisational culture within the
subsidiary, as well as the wider culture within their new country, is likely to impact
performance. An understanding of the local organisational culture by the HR team, the
management team and the employee will facilitate the creation of a measurable
international performance management system.
Inconsistency of implementation
Like all performance development, it will only be successful if implemented
consistently in company subsidiaries. Oversight of this may be a challenge if most
Human Resource functions are centralised to headquarters, meaning some employees
thrive while others are left directionless.

What is meant by attrition?

What is acculturation?
Attrition is defined as both the voluntary and involuntary reduction of a
company’s workforce through deaths, employee retirements, transfers, resignations
and terminations. While some attrition is to be expected in normal business operations,
a high level of reduction can lead to problems and a lack of manpower. Some of the ways
human resources professionals do their part to keep top-performing employees happy
and attrition rates low is design and implement company compensation programs,
motivation systems and a company culture. Besides retaining top performing
employees, business owners try to keep their attrition rates as low as possible to keep
from having to spend money on advertising for, hiring, training and completing
paperwork for new employees.

List down the four approaches to IHRM.

 Ethnocentric approach
 Polycentric approach
 Geocentric approach, and
 Regiocentric approach

Mention any two issues of cross border labour issues.

 Counselling
 Litigation
 Training
 Transactions
Define IHRM.
International Human Resource Management (IHRM) is the term used for
organisations that manage their human resources activities at an international level.
IHRM includes ‘typical’ HR functions such as recruitment, selection, performance
management, training and development, and remuneration, however these are analysed
and/or managed at an international level (e.g. companies may advertise positions
globally or update their policies following a review of international best practice).

What is meant by culture shock?

Culture shock is an experience a person may have when one moves to a cultural
environment which is different from one's own; it is also the personal disorientation a
person may feel when experiencing an unfamiliar way of life due to immigration or a
visit to a new country, a move between social environments, or simply transition to
another type of life. One of the most common causes of culture shock involves
individuals in a foreign environment. Culture shock can be described as consisting of at
least one of four distinct phases: honeymoon, negotiation, adjustment, and adaptation.

List down any two cultural theories

What is meant by expatriation?

Expatriates are the employees who are sent to work abroad on a long-term job
assignment such as employees who need populate a new office or senior managers who
need to manage or set up a new branch.
Expatriate employees generally receive additional benefits, such as cost of living
and hardship allowances as well as housing or education and sometimes even paid
education for their children.
8 – MARKS:

What are the problems and impact of Re-entry of Expatriates?

Explain various components of International Compensation Management.

The area of international compensation is complex primarily because

multinationals must cater to three categories of employees: PCNs, TCNs and HCNs.

 Base salary: The term base salary acquires a somewhat different meaning when
employees go abroad. In a domestic context, base salary denotes the amount of
cash compensation serving as a benchmark for other compensation elements
(such as bonuses and benefits). For expatriates, it is the primary component of a
package of allowances, many of which are directly related to base salary (e.g.
Foreign Service premium, cost-of-living allowance, housing allowance) as well as
the basis for in-service benefits and pension contributions. It may be paid in
home or local country currency or a combination of both. The base salary is the
foundation block for international compensation whether the employee is a PCN
or TCN. Major differences can occur in the employee’s package depending on
whether the base salary is linked to the home country of the PCN or TCN, or
whether an international rate is paid.

 Foreign Service inducement and hardship premium: Parent-country

nationals often receive a salary premium as an inducement to accept a foreign
assignment, as well as a hardship premium to compensate for challenging
locations. Under such circumstances, the definition of hardship, eligibility for the
premium, and amount and timing of payment must be addressed. For example,
where a host country’s work week may be longer than that of the home country,
a differential payment may be made in lieu of overtime, which is not normally
paid to PCNs or TCNs. In cases in which hardship is determined, US firms often
refer to the US Department of State’s Hardship Post Differentials Guidelines to
determine an appropriate level of payment. As a number of researchers in this
field have noted over many decades18 making international comparisons of the
cost of living is problematic. It is important to note, though, that these payments
are more commonly paid to PCNs than TCNs. Foreign service inducements, if
used, are usually made in the form of a percentage of salary, usually 5 to 40 per
cent of base pay, but are also sometimes offered as a lump-sum incentive (i.e. as a
one-off payment made at some point during an assignment). Such payments
vary, depending upon the assignment location, tax consequences, and length of
assignment. Allowances Issues concerning allowances can be very challenging to
a firm establishing an overall compensation policy, partly because of the various
forms of allowances that exist. In this section we will discuss the six most
common allowances.
 Cost-of-living allowance: The cost-of-living allowance (COLA), which
typically receives the most attention, involves a payment to compensate
for differences in expenditures between the home country and the foreign
country. COLA payments are intended to compensate for cost differentials
between an expatriate’s home and host country, for example, the costs of
transportation, furniture and appliances, medical, alcohol and tobacco,
automobile maintenance and domestic help. Family size is the
predominant method for determining COLA payments, with increments
provided for each child. Often this allowance is difficult to determine, so
companies may use the services of organizations such as Mercer (a US-
based firm)19 or ECA International (based in Britain).20 These firms
specialize in providing COLA information on a global basis, regularly
updated, to their clients. The COLA may also include payments for
housing and utilities, and discretionary items.21 Various COLA indices
exist, which, for example, allow an American to live like an American in
Paris or which presume that the American will adapt to the assignment
location by adjusting to the local life style and international living costs.
 Housing allowance. The provision of a housing allowance implies that
employees should be entitled to maintain their home-country living
standards (or, in some cases, receive accommodation that is equivalent to
that provided for similar foreign employees and peers). The amount of
housing allowance is determined predominantly by family size, and to
some extent job level. Other alternatives include company-provided
housing (either mandatory or optional); a fixed housing allowance across
a particular job level, with the expatriate ‘topping up’ according to
personal preferences; or assessment of a portion of income, out of which
actual housing costs are paid. Housing issues are often addressed on a
case-by-case basis, but as a firm internationalizes, formal policies become
more necessary and efficient. Financial assistance and/or protection in
connection with the leasing of an expatriate’s former residence is offered
by many MNEs, but less so for selling a house as many MNEs encourage
their employees to retain a presence in their home country real estate
market. Those in the banking and finance industry tend to be the most
generous, offering assistance in sale and leasing, payment of closing costs,
payment of leasing management fees, rent protection and equity
protection. Generally, TCNs tend to receive these benefits less frequently
than PCNs.
 Home leave allowances. Many MNEs also have a provision for home
leave allowances where employers cover the expense of one or more trips
back to the home country each year. The primary purpose of paying for
such trips is to give expatriates the opportunity to renew family and
business ties, thereby helping them to minimize adjustment problems
when they are repatriated. Although firms traditionally have restricted
the use of leave allowances to travel home, some firms give expatriates
the option of applying home leave to foreign travel rather than returning
home. Firms allowing use of home leave allowances for foreign travel
need to be aware that expatriate employees with limited international
experience who opt for foreign travel rather than returning home may
become more homesick than other expatriates who return home for a
‘reality check’ with fellow employees and friends. Without the benefit of
returning home to mix with employees and friends it is possible to
idealize what they remember of their experience at work and home and
fail to come to a measured judgment of what is good and bad in both their
host and home environments. Overall, it would seem prudent for MNEs to
take the view that home leave allowances should normally be used for the
purpose they are provided – to give employees and their families the
opportunity to renew family and business ties, thereby increasing the
probability of reduced adjustment problems when they are repatriated.
 Education allowances. The provision of education allowances for the
children of expatriates is frequently an integral part of an international
compensation policy. Allowances for education can cover items such as
tuition (including language classes), application and enrolment fees,
books and supplies, meals, transportation, excursions and extra-
curricular activities, parent association fees, school uniforms and, if
applicable, room and board. Although school uniforms are not common in
the USA, it is common practice (and in many countries compulsory) for
school children to wear uniforms, particularly in international schools.
PCNs and TCNs usually receive similar treatment concerning educational
expenses, but the level of education provided for and the adequacy of
local public schools versus international schools may present problems
for multinationals. International schools (e.g. United World College of
South East Asia, British International School Shanghai) are far more
expensive than local public schools but are preferred by many expatriates
because these schools follow the home-country curriculum and cater to a
globally diverse student body more capable of supporting ‘third culture
kids’. The cost of local and international schools for dependent children
from kindergarten through to high school are typically covered by the
employer ORC reports that 95 per cent of MNEs contribute to the
educational expenses of expatriate children.22 However, there may be
restrictions depending on the age of children (pre-school, day care and
university are typically not covered), availability of school places, and
their fees. In a number of countries attendance at schools in the host
location may be seen as unsuitable and the MNE may cover (or contribute
towards) the costs of children attending a private boarding school
elsewhere (e.g. the costs of room and board as well as other
transportation costs to cover parental visits and school holiday travel).23
 The costs of attendance at a university may also be provided for by
multinationals, when deemed necessary, but this is rare.
 Relocation allowances. Items typically covered by relocation allowances
include moving, shipping and storage charges; temporary living expenses;
subsidies regarding appliance or car purchases (or sales); and down
payments or lease-related charges. Allowances regarding perquisites
(cars, drivers, club memberships, servants24 and so on) may also need to
be considered (usually for more senior positions, but this varies according
to location). These allowances are often contingent upon tax-equalization
policies and practices in both the home and the host countries. For
example, in most Western countries a driver is considered a luxury, only
available to very senior managers. In developing economies a driver is
economical in terms of cost, effectiveness and safety. Apart from the
expectation that managers use drivers, parking is frequently chaotic in
developing countries (especially in large cities) and the driver also
performs the function of a parking attendant. In some developing
countries it is quite common for the police to arrest drivers involved in
traffic accidents and leave them in detention while responsibility and
damages are assessed. Such a risk is unacceptable to many MNEs which
do not allow their expatriate employees to drive at all in specific
developing countries and provide local drivers for both the expatriate and
spouse.
 Spouse assistance. Increasingly, many MNEs are also offering spouse
assistance to help guard against or offset income lost by an expatriate’s
spouse as a result of relocating abroad. Payments, on average, are capped
at US$7000 per family but vary according to region. Although some MNEs
may pay a one-time allowance to make up for a spouse’s lost income
(averaging US$11 000 per family according to ORC25), US multinationals
are beginning to focus on providing spouses with employment
opportunities abroad, either by offering jobsearch assistance, career
counseling, cultural orientation, resume/CV preparation, work permit
assistance and language tuition, or in more unusual cases employment in
the MNE’s foreign business (subject of course to a work visa being
approved by the host country government for this purpose). To
summarize, MNEs generally pay allowances in order to encourage
employees to take international assignments and to keep employees
‘whole’ (i.e. relatively comparable) to home standards.

 Benefits: The complexity inherent in international benefits often brings more

difficulties than when dealing with compensation. Expatriate ‘benefits’ includes
health care, pension plans/social security, life insurance, child allowances and
profit sharing/stock option plans.

Pension plans are very difficult to deal with country-to-country as national

practices vary considerably. Transportability of pension plans/social security
and medical coverage benefits are very difficult to normalize. Therefore, MNEs
need to address many issues when considering benefits, including:
  Whether or not to maintain expatriates in home-country programs,
particularly if the multinational does not receive a tax deduction for it.
 Whether MNEs have the option of enrolling expatriates in host-country
benefit programs and/or making up any difference in coverage.
 Whether expatriates should receive home-country or are eligible to
receive host-country social security benefits.

Write notes on Industrial Relations in International HR Management Context.

Explain various approaches in International Recruitment and Selection.

Ethnocentric approach:
The ethnocentric approach to recruitment means that we hire people from our
parent country to fill positions all over the world. For example, if we want to fill an
executive role in a foreign country, we could:

 Relocate one of our existing employees who’s a permanent resident of our parent
country.
 Hire a person from our parent country who lives or wants to live in the host
country.

We use the ethnocentric method when [opening a new branch at a new country,
so it’d be easier for our company’s policies and procedures to be transferred from the
parent country to the new branch]. As a rule, expatriates from our parent country should
comprise less than [20%] of a foreign office so that we minimize the total hiring costs
and avoids missing the pulse of the local community.

Polycentric approach:
The polycentric approach to recruitment means that we hire locals to fill our
positions in a host country. For example, we could advertise on local job boards or
create a contract with a local recruitment agency.

We use the polycentric approach when [we need the skills of locals to conduct our
business. For example, if we want to expand our clientele to a specific country, we’d hire a
local professional who knows the market and can coordinate our sales operations.] We’ll
apply one of the other approaches if we haven’t found qualified candidates after [four
months].

Regiocentric approach:
The regiocentric approach to recruitment means that we hire or transfer people
within the same region (like a group of countries) to fill our open positions. For
example, we might decide to transfer employees within Scandinavian countries. So if we
want to hire someone in Sweden (a host country) we could transfer one of our
employees from Denmark, a host country in the same region.

We use the regiocentric approach when [the costs of transferring an employee

from a host country are lower than transferring them from the parent country.] When
deciding to use this approach, take into account any language or cultural barriers that
may exist.

Geocentric approach:
Geocentric approach to recruitment is hiring the best people to fill our positions
without regard to where they come from or where they live. This means:

 Hiring remote employees. We

use this option when we want to hire someone at a place where we don’t have
offices. For example, if we want a customer support agent in another time zone to
support our customers there.
  Relocating our employees.
This includes both bringing foreign talent into our parent country and relocating
people to a new host country. We use this approach when we need someone to
be physically present at a specific location, but the best person for the job is
living elsewhere.

To use the geocentric approach, we need to have a global outlook on recruitment.

For example, whenever a position opens at a host country or our parent country, the
hiring team could:

 Advertise on global job boards first, before using local job boards mentioning the
location of the job clearly. Also, advertise on job boards focused on remote work
when possible.
 Source candidates online without looking at their current location.
 Check our global employee database to find internal candidates who may wish to
relocate.
 Ask recruiters to suggest candidates they met at international career fairs or
events.
 Ask for referrals from our existing employees, as they may have someone in their
network that could fit in this position and be willing to relocate.