Chapter 9 Staffing, Training, and Compensation for Global Operations International Human Resources Management Spring Semester 2006 International College of Beijing China Agricultural University © 2006 Prentice Hall

—Allan Halcrow, Personnel Journal Introduction [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. - www.expat.FT.com A vital component of implementing global strategy is international human resource management (IHRM). IHRM is increasingly being recognized as a major determinant of success or failure in international business. In a highly competitive global economy, where the other factors of production—capital, technology, raw materials, and information—are increasingly able to be duplicated, “the caliber of the people in an organization will be the only source of sustainable competitive advantage available to U.S. companies. Corporations operating overseas need to pay careful attention to this most critical resource—one that also provides control over other resources. Most U.S. multinationals underestimate the importance of the human resource planning function in the selection, training, acculturation, and evaluation of managers assigned abroad. Yet the increasing significance of this resource is evidenced by the numbers. More than 37,000 multinational corporations (MNCs) are currently in business worldwide. They have control more than 200,000 foreign affiliates and have more than 73 million employees. In the United States, foreign MNCs employ three million Americans—more than 10 percent of the U.S. manufacturing workforce. In addition, about 80 percent of mid- and large-sized U.S. companies send managers abroad, and most plan to increase that number. © 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). In a polycentric staffing approach, local managers – host-country managers (HCNs) – are hired to fill key positions in their own country. © 2006 Prentice Hall

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. © 2006 Prentice Hall

Problems with Expatriation 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 © 2006 Prentice Hall

Problems with Expatriation Problems with spouse and children – poor adaptation, family unhappiness Insufficient compensation and financial support Poor programs for career support and repatriation © 2006 Prentice Hall

Training and Development Challenges faced by expatriates China: a continuing problem for expatriates; one complained that at his welcome banquet he was served duck tongue and pigeon head Brazil: expatriates stress that cell phones are essential because home phones don’t work India: returning executives complain that the pervasiveness of poverty and street children is overwhelming Indonesia: here you need to plan ahead financially because landlords typically demand rent two to three years in advance Japan: expatriates and their families remain concerned that although there is excellent medical care, the Japanese doctors reveal little to their patients. It is clear that preparation and training for cross-cultural interactions are critical. In earlier discussions of the need for cultural sensitivity by expatriate managers, reports indicate that up to 40 percent of expatriate managers end their foreign assignments early because of poor performance or an inability to adjust to the local environment. Moreover, about half of those who do remain function at a low level of effectiveness. The direct cost alone of a failed expatriate assignment is estimated to be from $50,000 to $150,000. The indirect costs may be far greater, depending on the expatriate’s position. Relations with the host-country government and customers may be damaged, resulting in a loss of market share and a poor reception for future PCNs. © 2006 Prentice Hall

Training Techniques 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 © 2006 Prentice Hall

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. © 2006 Prentice Hall

Cross-Cultural Training: Culture Shock 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 © 2006 Prentice Hall

Integrating Training with Global Orientation In continuing our discussion of “strategic fit,” it is important to remember that training programs, like staffing approaches, be designed with the company’s strategy in mind. Although it is probably impractical to break those programs down into a lot of variations, it is feasible to at least consider the relative level or stage of globalization that the firm has reached because obvious major differences would be appropriate, for example, from the initial export stage to the full global stage. This slide suggests levels of rigor and types of training content appropriate for the firm’s managers, as well as those for host-country nationals, for four globalization stages—export, multidomestic, multinational, and global. It is noteworthy, for example, that the training of host-country nationals for a global firm has a considerably higher level of scope and rigor than that for the other stages and borders on the standards for the firm’s expatriates. © 2006 Prentice Hall

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. © 2006 Prentice Hall

Training Host-Country Nationals 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 © 2006 Prentice Hall

Training Host-Country Nationals 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 E-Business Training Issues © 2006 Prentice Hall

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 © 2006 Prentice Hall

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 Managing PCN compensation is a complex challenge for companies with overseas operations. All components of the compensation package must be considered in light of both home- and host-country legalities and practices. © 2006 Prentice Hall

Compensating Host-Country Nationals 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% © 2006 Prentice Hall

Compensating Host-Country Nationals To be competitive, MNCs can focus on providing goods and services that are either not available at all or are extremely expensive. It is important to make clear what benefits, as well as salary, come with a position because of the way compensation is perceived and regulated around the world © 2006 Prentice Hall

Comparative Management in Focus: Compensating Russians Select Russian employees who are achievement-oriented and willing to take risks Tie individual bonuses to initiative and personal accountability (to encourage individual goal setting). Organize social events and other group activities. Provide small-group incentives Provide a mix of short- and long-term incentives Tailor the compensation package to individual preferences Based on their research and experiences in Russia, Puffer and Shekshnia recommend that Western firms need to design compensation packages that will meet their business objectives as well as reward Russians equitably and appropriately. To achieve this end, they give the following recommendations, designed to “reinforce those aspects of Russian culture that help achieve corporate objectives, while reducing the influence of other cultural dimensions that could undermine objectives:” © 2006 Prentice Hall

Chapter 9 Staffing, Training, and Compensation for Global Operations International Human Resources Management Spring Semester 2006 International College of Beijing China Agricultural University © 2006 Prentice Hall

Training Priorities for E-Business Development Return © 2006 Prentice Hall