Chapter Nineteen Human Resource Management McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives  Discuss creating a company “global mindset”  Explain the fit of IC strategies and HR management  Compare home, host, and third country nationals as IC executives  Explain the role, challenges, and opportunities of an expatriate position  Discuss the importance of the trailing spouse of an expatriate executive  Understand the difficulties of finding qualified IC executives and the importance of language  Explain compensation packages complications for expatriate executives

The Global Mindset  Expatriates are people who live outside their country of citizenship  Global mind-set  Combines an openness to and an awareness of diversity across markets and cultures with a propensity and ability to synthesize across this diversity

International HRM Approaches  Ethnocentric  Hire and promote employees on the basis of the parent company’s country frame of reference  Polycentric  Hire and promote employees on the basis of the local context of the subsidiary frame of reference

International HRM Approaches  Regiocentric  Hire and promote employees on the basis of the specific regional context of the subsidiary frame of reference  Geocentric  Hire and promote employees on the basis of ability and experience without considering race, citizenship, or narrow frame of reference

Recruitment, Selection and Training  Parent Country National (PCN) or Home Country National  Broadens their experience in IB  Prepares top management team managers  Protect proprietary knowhow  Transfer knowhow to subsidiary  Host Country National (HCN)  Local expertise  Local connections

Recruitment, Selection and Training  Third Country National (TCN)  May be less expensive than employees from the home country  May have similar culture to that of the host country  May have worked for another unit of the IC and be familiar with policies, procedures and people  Common approach in developing countries  May not be welcome by host country  More common as more companies take a geocentric view

Expatriate Profile  80% of medium and large size companies have employees abroad  65% expect the number to increase  Expatriates are getting younger  54% years old up from 41%  More expatriates are women  21% vs. historical 15%

Expatriates and Family  Nine of ten expatriate failures are family related  Unhappy spouses are a major reason for early return  An expatriate failure translates into a loss of a “million-dollar corporate-training investment” in the executive  Two-career families are a challenge for ICs

Language Training  A language trap exist when the international business person speaks only the home language  The English language has become lingua franca  Chinese is the new “hot” language to know

Culture Shock Phases  There are five phases of culture shock  Honeymoon  Distress  Acceptance  Integration  Reverse culture shock

Repatriation  Reverse culture shock  Returning expatriate’s skills and knowledge are valuable but may be unappreciated  Positions of responsibility similar to that of expatriate position may not be available home  Family adjustment at home can be problematic

Expatriate Services  Health care programs exist to assist companies and expatriates with  claims administration  language  translations  currency conversions  service standardization  

Expatriate Services  Other expatriate services include  banking services  training  culture and language  house hunting, utilities hook-up, grocery and hardware shopping  long-distance care for relatives  schools  clubs, organizations, and memberships

Compensation Salary  Paying home country nationals the same salaries as their domestic counterparts  permits worldwide consistency  bonuses  Increasing use of third country nationals- often treated like PCNs  Trend to pay HCNs same base

Allowances  Housing Allowance  Permits executive to live at same standard as at home  Cost-of-Living Allowance  Based on differences in price of food, utilities, transportation, entertainment, clothing, personal services, and medical expenses as compared to home

Allowances  Allowances for Tax Differentials  Ensures expatriates will not have less after-tax pay at home  Education Allowances  Insures children receive education equal to that at home  Moving and Orientation Allowances  Used for household effects and language instruction

Total Compensation Cost Expatriate in Russia Source: U.S. Firms Extend Global Reach, Workforce Management, December 2004, p. 142

Cost of Living and Quality of Living Rankings Note: Cost of living index includes cost of housing. Base City, New York City, USA = 100. Cost of Living index is for Quality of Living index is for Source: Mercer Human Resource Consulting, 2007 Cost-of-Living Survey, (July 10, 2008); Mercer Human Resource Consulting, 2008 Quality of Living Survey, (July 10, 2008).

Bonuses  Bonuses  Expatriate employee compensation payments in addition to base salary and allowances because of hardship, inconvenience, or danger  Bonuses include  overseas premiums  contract termination payments  home leave reimbursement

Compensation, Exchange Rates, and Inflation  For expatriate employees, compensation packages incorporate many types of payments or reimbursements and must take into consideration exchange rates and inflation

Compensation Packages Can Be Complicated  Allowances and percentage of base salary are usually paid in host country currency  Percentage is usually 65 to 75 percent, with the remainder banked where employee directs  Firms must decide which exchange rate to use  This is more difficult in countries with exchange controls and nonconvertible currencies

Hardship Differential Pay Premiums for Selected Cities and Countries, 2008

Compensation of Third Country Nationals  There is a trend toward applying the same compensation plan to third country nationals as home country expatriates  Problems can arise in  The calculation of the income tax differential when an American expatriate is compared with an expatriate from another country  Home leave bonus

Expatriate Perks  Expatriates sometimes get perks designed to boost total compensation while minimizing taxes  Perks include  car(s)  private pension plan  retirement payment  health, life, kidnapping insurance  emergency evacuation services  club membership  company house  foreign affiliate directorship  home leave  hidden slush funds (can be illegal)