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International HRM

Staffing, Training, and Compensation for Global Operations

[In the new millennium], the caliber of the people will be the only source of competitive advantage. —Allan Halcrow, Personnel Journal Of the top 100 UK firms surveyed by Cendant International Assignment Services, 63 reported failed foreign assignments. -

The International Human Resource Management Process
HRM’s Strategic Content Recruitment and Selection Training and Development Performance Appraisal Compensation and Benefits Labor Relations Contribution to Organizational Effectiveness
© 2006 Prentice Hall

Staffing Philosophies for Global Operations

Firms using an ethnocentric staffing approach fill key managerial positions with people from headquarters – that is, parent-country nationals (PCNs).  Reasons :  Familiar with firms goal, product, tech, policies & culture  Protecting company interest  Lack of specialized knowledge workers in the local market  Close coordination with HQ  Problems:  Lack of motivation among the local workers-less opportunity & development  Poor Adaptation by the expatriate

Staffing Philosophies for Global Operations

In a polycentric staffing approach, local managers – hostcountry managers (HCNs) – are hired to fill key positions in their own country.  Reasons :  specialized local market knowledge- language, policy  Less expensive  Legal requirements of the host country,  political contacts  Problems:  Autonomous subsidiaries  Less experienced  Conflict of loyalties

Staffing Philosophies for Global Operations

In the global staffing approach, the best managers are recruited from within or outside of the company, regardless of nationality. In a regiocentric staffing approach, recruiting is done on a regional basis – say within Latin America for a position in Chile.

Staffing Philosophies for Global Operations

Reasons:  Greater pool of qualified candidate  Expert  Integrated global enterprise  Have global mindset  Bilingual/ multilingual skillusually bring ore cultural flexibility and adaptability to the situation Problem:  Costly  Difficult to find willing candidate

IHRM Orientations and Multinational Strategies

Three Employee Categories at an MNE

Host-country nationals (HCNs) -- citizens of the country where the subsidiary or affiliate is located. HCNs make up the largest proportion of the employees that the firm hires abroad.The firm’s labor force in manufacturing, assembly, basic service activities, clerical work, and other non-managerial functions largely consists of HCNs. Parent-country nationals (PCNs) -- also known as home-country nationals, PCNs are citizens of the country where the MNE is headquartered. Third-country nationals (TCNs) -- employees who are citizens of countries other than the home or host country. Most TCNs work in management and possess special knowledge or skills.


In a global organization, it is very common for employees to move across national boundaries to take up responsibilities that others cannot fulfill. These employees on international assignments are traditionally called expatriates. An expatriate is an employee who is assigned to work and reside in a foreign country for an extended period, usually a year or longer. Note that any one of the three categories of employees can be considered an expatriate depending on the location of the assignment. E.g., a HCN who is transferred into parent country operations also resides outside of his or her home country. While expatriates comprise only a small percentage of the workforce in most MNEs, they perform critical functions abroad, such as managing a subsidiary.

Selection: Necessary Skills and Abilities for International Managers
Skills and Abilities
Necessary to Do

Skills and Abilities
Necessary to Work

The Job
Technical •Functional •Managerial

in a Foreign Location
Adaptability •Location-specific skills •Personal characteristics

Improved Chances of Succeeding in An International Job Assignment


Problems with Expatriation
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Selection based on headquarters criteria rather than assignment needs Inadequate preparation, training, and orientation prior to assignment Alienation or lack of support from headquarters Inability to adapt to local culture and working environment Problems with spouse and children – poor adaptation, family unhappiness Insufficient compensation and financial support Poor programs for career support and repatriation

Cross-Cultural Training: Culture Shock

Culture shock is a state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture. The cause of culture shock is the trauma people experience in new and different cultures, where they lose the familiar signs and cues that they had used to interact in daily life and where they must learn to cope with a vast array of new cultural cues and expectations.

Phases in Acculturation





Honeymoon Phase

New culture seems exotic and stimulating Excitement of working in new environment makes employee overestimate ease of adjusting Lasts for first few days or months

Disillusionment Phase
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Differences between new and old environments are blown out of proportion Challenges of everyday living Many stay stuck in this phase

Adaptation Phase
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Employee begins to understand patterns of new culture Gains language competence Adjusts to everyday living


Anxiety has ended Employee gains confidence in ability to function productively in new culture Repatriation may be difficult

Cross-Cultural Training: Culture Shock
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Honeymoon – when positive attitudes and expectations, excitement, and a tourist feeling prevail Irritation and hostility – the crisis stage when cultural differences result in problems at work, at home, and in daily living Gradual adjustment – a period of recovery in which the “patient” gradually becomes able to understand and predict patterns of behavior, use the language, and deal with daily activities, and the family starts to accept their new life Biculturalism – the stage at which the manager and family members grow to accept and appreciate local people and practices and are able to function effectively in two cultures

Cross-Cultural Training: Sub-Culture Shock

Subculture shock occurs when a manager is transferred to another part of the country where there are cultural differences – essentially from what she or he perceives to be a “majority” culture to a “minority” one.

Training Techniques

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Area studies, that is, documentary programs about the country’s geography, economics, sociopolitical history, and so forth Culture assimilators, which expose trainees to the kinds of situations they are likely to encounter that are critical to successful interactions Language training Sensitivity training Field experiences – exposure to people from other cultures within the trainee’s own country

Training Host-Country Nationals
We found that the key human resource role of the MNC [in Central and Eastern Europe] was to expose the local staff to a market economy; to instill world standards of performance; and provide training and functional expertise.
Richard Peterson, “The use of Expatriates and Inpatriates in Central and Eastern Europe Since the Wall Came Down,” Journal of World Business, 2003.

Training Host-Country Nationals

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Continuous training and development of HCNs and TCNs for management positions is an important factor for long-term success of the multinational corporation Ongoing development will facilitate the transition to an indigenization policy The company will have a well-trained management staff with broad international experience Training to facilitate e-business adoption is taking on increasing importance Training in information and communication technologies is particularly critical for firms in new economy and emerging markets

Compensating Expatriates

Compensation is a crucial link between strategy and its successful implementation

Must be a fit between compensation and the goals of the firm

Maintaining an appropriate compensation package is more complex than it would seem

Little variation in typical salary but there is a wide variation in net spendable income

Compensating Expatriates

Salary – Local salary buying power and currency translation, as compared with home salary; bonuses or incentives for dislocation Taxes – Equalize any differential effects on taxes as a result of the assignment Allowances – Relocation expenses; cost-of-living adjustments; housing allowance for assignment and allowance to maintaining house at home; trips home for family; private education for children Benefits – Health insurance; stock options

Compensating Expatriates

A number of variable apply including local market factors and pay scales, government involvement in benefits, unions, and the cost of living must all be considered Eastern Europeans spend 35% to 40% of their disposable income on food and utilities  East European managers must have cash for about 65% to 80% of their base pay  US managers must have cash of about 40%

Compensation Approach

There is two compensation approaches:  The going rate approach: host country salary structure is followed.  The balance sheet approach: Home country salary structure is followed.

Figure 20.5 An Expatriate Balance Sheet
Foreign and Excess U.S. Taxes Paid by company Excess Foreign Costs Paid by company Foreign Service Premium/ Hardship Added by company

U.S. Domestic Base Salary
Taxes Consumption Savings

U.S. Hypothetical Tax and Social Security

U.S. Spendable Income U.S. Hypothetical Housing and Utilities U.S. Auto Purchase

U.S. Levels

© 2006 Prentice Hall


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Return of the expatriate to home country following completion of a lengthy foreign assignment. Like expatriation, repatriation requires advance preparation. Unless managed well, the expatriate is likely to encounter problems upon returning home. Some returning employees find their international experience is not valued, and they may be placed in lesser or ill-suited positions than what they held abroad. Some expatriates report financial difficulties upon returning, such as inflated housing prices or cuts in pay. Many experience “reverse culture shock,” readjustment to parent-country culture. For the employee and family members who have spent several years abroad, psychological readjustment to life in the home country can be stressful.