Chapter 18 – Human Resource Management International Business by Ball, McCulloch, Frantz, Geringer, and Minor

Chapter Objectives Understand why some economies are better at job creation than others. Understand the difficulties of finding qualified executives for international companies (IC) Compare home country, host country, and third country nationals as IC executives Realize the growing role of women in international business Realize the increasing importance of accommodating the trailing spouse of an expatriate executive Remember some of the complications of compensation packages for expatriate executives

Staffing: The Good News and the Difficulties The successful manager of a foreign affiliate must be able to operate efficiently in one culture and explain operations in that culture to executives in another culture. Such managers exist, and may be found in The home country. The host country A third country

Sources of Managers Home Country Home Country Nationals The country in which an international company (IC) has its worldwide headquarters is called the home country. Employees who are citizens of the home country are called home country nationals.

Sources of Managers Host Country Nationals Unavailable A foreign subsidiary often cannot find suitable host country personnel for management jobs. Training for Headquarters Home country citizens are used abroad to broaden their experience to become high-level managers at headquarters. Headquarter’s Representatives Some firms want at least one home country manager in their foreign subsidiaries.

Source of Managers Host Country Host Country Nationals Subsidiaries within the international company facility of companies often are located in countries other than the home country. They are called host countries, and employee citizens of the host countries are called host country nationals.

Source of Managers Host Country Disadvantage of hiring local managers Local managers are often unfamiliar with the home country of the international company (IC) and with its policies and practices. The best of the local managers may be pirated away by local firms or other IC subsidiaries. There can be a conflict of loyalty between the host country and the employer.

Source of Managers Third Country Third country nationals An employee who is a citizen of neither then home nor the host country. An employer should not county on cost savings in using third country nationals. Salaries for these employees may be higher than American companies are paying at comparable position levels.

Selection and Training Home Country If a country feels that it probably will send home countries abroad, it will frequently encourage them to study the language and culture of the country to which they are going. A large problem that has plagued employers is caused by the families of executives transferred overseas.

Selection and Training Host Country Host Country Nationals Hired in Home Country Multinationals try to solve the business technique problem by hiring host country students on their graduation from home country business schools.

Selection and Training Host Country Host Country Nationals Hired in Host Country The number of host country citizens graduating from home country universities is limited. Therefore, multinationals must recruit locally for their management positions.

Selection and Training Third Country Advantages of hiring third country nationals Third country nationals may accept lower wages and benefits than will employees from the home country. They may also come from a culture similar to that of the host country.

Selection and Training As multinationals increasingly take the geocentric view toward promoting, they is likely to be evidence of increased use of third country nationals Geocentric Related to hiring and promoting employees on the basis of ability and experience without considering race of citizenship.

Expatriates Expatriate The Expatriate’s Family A person living outside of his or her country of citizenship. The Expatriate’s Family Nine out of ten expatriate’s failures are family-related. Unhappy spouses are the biggest reason for employees asking to go home early. The company will be losing a “million-dollar corporate-training investment” in the executive.

Language Training The English speakers are stuck in a language trap. The English language has become the lingua franca of the world. English is everybody’s second language.

Women Reasons that women have decided to not continue the executive race Cultural differences toward women in various countries. The glass ceiling. An unwritten, but nevertheless real, ceiling in a organization’s executive hierarchy above which females are rarely promoted.

Selection Dos and Don’ts A checklist of dos and don’ts in selecting executives for foreign operations. Do promote from within. Don’t promote an insider if the outsider is clearly better qualified. Don’t be blinded by language fluency. Do assess the total person.

Compensation Salaries The practice of paying home country nationals the same salaries as their domestic counterparts permits worldwide consistency for this part of the compensation package. Because of the increasing use of third country nationals, those personnel are generally treated in the same way.

Allowances Allowances The most common allowances are for Employee compensation payments added to base salaries because of higher expenses encountered when living abroad. The most common allowances are for housing, cost of living, tax differentials, education, and moving.

Allowances Housing Allowances Designed to permit executives to live in houses as good as those they had at home. Typically, the firm will pay all of the rent that is in excess of 15 percent of the executive’s salary.

Allowances Cost-of-Living Allowances Based on differences in the prices paid for food, utilities, transportation, entertainment, clothing, personal services, and medical expenses overseas. These are compared to the prices paid for these items in the headquarters.

Allowances Allowance for Tax Differentials International companies pay tax differentials when the host country taxes are higher than the taxes that the expatriates would pay on the same compensation and consumption at home. The objective is to ensure that expatriates will not have less after-tax take-home pay in the host country than they would at home.

Allowances Education Allowances Wchools with teachers from most industrialized home countries are available in many cities around the world. But these are private schools and therefore charge tuition. International companies either pay the tuition or, if there are enough expatriate children, operate their own schools.

Allowances Moving and Orientation Allowances Companies generally pay the total costs of transferring their employees overseas. These costs include transporting the family, moving household effects, and maintaining the family in a hotel on a full expense account until the household effects arrive. Companies may also pay for some orientation of the employees and their families.

Bonuses Bonuses Bonuses include Expatriate employee compensation payments in addition to base salaries and allowances because of hardship, inconvenience, or danger. Bonuses include Overseas premiums. Contract termination payments. Home leave reimbursement.

Bonuses Overseas Premiums Additional payments to expatriates and are generally established as a percentage of the base salary. They range from 10 to 25 percent. If living conditions are extremely disagreeable, the company may pay larger premiums for hardship posts.

Bonuses Contract Termination Payments These payments are made as inducements for employees to stay on their jobs and work out the periods of their overseas contracts. The payments are made at the end of the contract periods only if the employees have worked out their contracts.

Bonuses Home Leave International companies that post home country and third country nationals in foreign countries make it a practice to pay for periodic trips back to the home country by such employees and their families.

Compensation Packages Can Be Complicates What Percentage? All allowances and a percentage of the base salary are usually paid in the host country currency. In practice, the percentage varies from 65 to 75 percent, and the remainder being banked where the employee wishes.

Compensation of Third Country Nationals There is a trend toward applying the same compensation plan to third country nationals as home country expatriates. However, problems can arise in the calculation of income tax differential when an American expatriate is compared with an expatriate from another country. Another possible problem area is the home leave bonus.

Perks Perks are symbols of rank in the corporate hierarchy and are used to compensate executives while minimizing taxes. Common perks include Cars. Private pension plan. Retirement payment. Life insurance. Hidden slush fund.