International Business Environments & Operations Daniels ● Radebaugh ● Sullivan International Business Environments and Operations 14e by Daniels, Radebaugh, and Sullivan Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

International Human Resources Chapter 20 International Human Resources Chapter 20: International Human Resources Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Learning Objectives To discuss the importance of human resource management To explain the types of expatriates To profile the staffing frameworks used by MNEs To assess how MNEs select, prepare, compensate, and retain expatriates The Learning Objectives for this chapter are To discuss the importance of human resource management To explain the types of expatriates To profile the staffing frameworks used by MNEs To assess how MNEs select, prepare, compensate, and retain expatriates Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Introduction Learning Objective 1: To discuss the importance of human resource management Learning Objective 1: To discuss the importance of human resource management. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Introduction In addition to insightful strategies, great supply chains, sharp financial systems, and so on, successful MNEs have great people It is important to get the right person in the right job in the right place at the right time for the right compensation Successful MNEs have insightful strategies, great supply chains, sharp financial systems, and great people. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall What is HRM? Human resource management (HRM) the activities that staff the MNE HRM is more difficult in international companies because of Environmental differences Strategic contingencies Organizational challenges MNEs need to figure out how to build, develop, and retain a cadre of managers to lead the company. In today’s global economy, managers that can succeed and thrive despite environmental differences, strategic contingencies, and organizational challenges can give their firm a competitive advantage. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

What is HRM? Factors Influencing HRM in International Business This Figure shows the factors influencing HRM in international business. Notice that a fit between strategy and HRM is essential to success. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Strategizing HRM Superior human resources are essential to high productivity competitive advantage value creation MNEs need to integrate strategy and HRM Today, companies see HRM as a driver of company strategy, responsible for providing the people who can leverage the firm’s core competencies across the global market. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Perspective of the Expatriate Learning Objective 2: To explain the types of expatriates Learning Objective 2: To explain the types of expatriates. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Perspective of the Expatriate MNE executives can be locals expatriates leave their own country to live and work in another Home country nationals Third-country nationals MNE executives are classified as being locals – those who are hired by the company in their own country to staff local operations, or expatriates. An expatriate is an employee who leaves her or his native country to live and work in another. A home country national is a citizen of the country where the firm is headquartered, while a third-country national is an employee who is a citizen of neither the home nor the host country. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Perspective of the Expatriate Trends in expatriate assignments most expatriate assignments are short term lasting less than a year more assignments are going to younger and older workers than in the past the number of female expatriates, third-country nationals, and reverse expatriates is rising Traditionally, expatriate assignments were for three to five years and involved mid-level managers, but today, most assignments last less than a year and may involve younger workers or older employees. Similarly, more women and third-country nationals are being sent on foreign assignments. A new type of expatriate - the reverse expatriate - is also becoming more common. These managers are from emerging countries who are sent to developed countries to learn the ropes and are then reassigned to their home country. Keep in mind that the high cost of expat assignments is forcing companies to rethink how to structure their assignments and look for ways to economize. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Staffing Frameworks in the MNE Learning Objective 3: To profile the staffing frameworks used by MNEs Learning Objective 3: To profile the staffing frameworks used by MNEs. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Staffing Frameworks in the MNE There are three approaches to staffing policy Ethnocentric fill key management positions with home-country nationals Polycentric use host-country nationals to manage local subsidiaries Geocentric seek the best people for key jobs throughout the organization, regardless of nationality There are three approaches to staffing in an MNE: ethnocentric, polycentric, and geocentric. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Staffing Frameworks in the MNE The Ethnocentric Framework: Key Benefits This Table shows the advantages of an ethnocentric approach to staffing. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Staffing Frameworks in the MNE The Polycentric Framework: Key Benefits This Table shows the advantages of the polycentric approach. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Staffing Frameworks in the MNE The key advantage of the geocentric approach is that managers can move between countries and cultures without losing their personal effectiveness But, this approach is difficult to develop and maintain A geocentric staffing policy helps companies pursue a global and, especially, a transnational strategy. Both types of strategies rely on exploiting learning opportunities around the world to generate and leverage ideas. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Staffing Frameworks in the MNE Comparing Approaches to Staffing Foreign Operations Which framework is best? Well, no approach is superior in all cases. It’s important to look at what the company is trying to accomplish. This Table compares the different approaches to staffing and where each approach works well. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates Learning Objective 4: To assess how MNEs select, prepare, compensate, and retain expatriates Learning Objective 4: To assess how MNEs select, prepare, compensate, and retain expatriates. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates Expatriate selection screening executives to find those with the greatest inclination and highest potential for a foreign assignment Candidates are screened according to Technical competence Adaptiveness self-maintenance satisfactory relationships with host nationals sensitivity to host environments Leadership When selecting an individual for a foreign assignments, MNEs consider the individual’s technical competence, ability to adapt to the host country and relate with host nationals, and leadership qualities. Keep in mind that while technical competence is important, so too is the expatriate’s personal resourcefulness and sensitivity to the host environment. Note also that leadership skills are essential because the expatriate often has broader responsibilities in the foreign subsidiary. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Managing Expatriates Key Competencies of Expatriates This Figure shows the key competencies of expatriates. Notice the high importance of a global mindset and cultural intelligence/sensitivity. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates Expatriate failure a manager’s premature return home due to poor performance The rate of failure is dropping in general, but is higher in emerging economies China and India The cost of failure can easily reach $1 million The rate of expatriate failure is falling thanks to better selection processes, but is still high in emerging economies particularly China and India. Keep in mind though, that because failure is costly from both a monetary and a personal perspective, companies are continually looking for ways to improve success rates. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Managing Expatriates Concerns of Expatriates Ahead of Moving to Foreign Assignments This Figure shows the leading concerns of expatriates prior to their foreign assignments. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates Common reasons for expatriate failure inability of the spouse and family to adapt to the host country To prevent expatriate failure, companies may provide preparation programs to provide General country understanding Cultural sensitivity Practical skills Preventing expatriate failure is important. Many companies have developed training programs for both the manager and the manager’s family to help the adjustment process go more smoothly. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates Compensation packages should Motivate employees Allow employees to maintain their standard of living Reflect the responsibilities of the position Ensure that after-tax income will not fall Maintain pay equity among peers Compete with industry packages Be easily administered How should expatriates be paid? This is a question that challenges many international companies. Companies need to ensure that the employee is paid enough to be motivated to accept the foreign assignment, yet not let costs get out of hand or create inequities. In general, the higher the pay, the longer the expatriate assignment lasts. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates Types of compensation plans Balance sheet approach equalizes purchasing power across countries so expatriates have the same living standard in their foreign posting that they had at home Home-based method Headquarters-based method Host-based method The most common approach to expatriate compensation is the balance sheet approach. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates A typical compensation package includes Base salary Foreign service allowance Fringe benefits Tax differentials Expatriates typically negotiate their salary in terms of base salary, foreign service premiums, various allowances, fringe benefits, and tax differentials. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Managing Expatriates What Does an Expatriate Cost? This Table shows a typical expatriate compensation package. Keep in mind that current trends show that companies are reducing some of the allowances as expatriate assignments become more common. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Managing Expatriates Top Five Most Expensive Cities for Expatriates by Region This Table shows the most expensive cities for expatriates. Managers being transferred to these cities are likely to receive cost-of-living allowances. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall Managing Expatriates Repatriation the process of reintegrating the expatriate into the home country upon completion of the foreign assignment Can pose problems Work Financial Social The challenge is to find the right job for the returning manager The repatriation process is often paid little attention or ignored completely, yet it can be one of the most important elements in the expatriate assignment process. While some managers find that they are promoted upon their successful completion of a foreign assignment, as many as one third return to temporary assignments, and some 80 percent to assignments with less responsibility. This prompts many managers to look for new positions. In 2010, for example 40 percent left their company within one year, and another 25 percent between the first and second year after returning. To prevent this, and the loss of knowledge and experience to the firm, companies must work hard to find the right job for the returning expatriate. It’s important to manage the repatriation process. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Brainpower: Drains, Circulation, or Returns? Trends worker populations will grow faster in developing countries wealthier countries will continue to grow in the number of retirees MNEs must adapt Brain drain Labor-saving threats Brain circulation The growing mobility of capital, technology, and information among countries and companies presents new challenges for companies. Access to and retention of more qualified personnel will become even more important for companies seeking to recruit and retain skilled workers. Worker population trends in developed and developing countries suggest that there will be fewer people to do productive work in the wealthier countries. These countries are already trying to adjust, engaging in a range of education and training programs. MNEs must adapt to the social and economic consequences of these programs. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall