INTERNATIONAL HUMAN RESOURCES MANAGEMENT Yonatan Reshef Strategic Management and Organization Faculty of Business University of Alberta Based on Peter J. Dowling, Denice E. Welch, and Randall S. Schuler (3 rd ed.). International Human Resource Management. South-Western College Publishing.

Acronyms  HCNs – HOST-COUNTRY NATIONALS  PCNs – PARENT-COUNTRY NATIONALS  TCNs – THIRD-COUNTRY NATIONALS

INTERNATIONAL VERSUS DOMESTIC HRM  More functions to perform (taxation, culture orientation, relocation, admin services for expats)  Broader perspective (cater to needs of Parent-Country Nationals, Host-Country Nationals, Third-Country Nationals)  Greater involvement in the personal lives of employees  Greater risk exposure (expat failure, family problems, terrorism)  More external influences (government regulations, local ways of doing business, code of conduct)

APPROACHES TO INTERNATIONAL HUMAN RESOURCE MANAGEMENT ETHNOCENTRIC: Highly centralized, HQ control, PCNs dominate. POLYCENTRIC: Decentralized. Each subsidiary has some degree of decision making autonomy, HCNs manage subsidiaries. GEOCENTRIC: Ignores nationality in favor of ability. The color of one’s passport does not matter when it comes to rewards, promotion, and development. REGIOCENTRIC: Personnel may move outside their countries but only within a particular geographic region.

EXPAT MANAGERS Why send expatriates? Why host country nationals (HCNs) or third country nationals (TCNs) are not good enough? Advantages and limitations of PCN, HCN and TCN expats.

PARENT-COUNTRY NATIONALS Advantages Control and co- ordination by HQ is maintained. Promising managers get international experience. PCNs are the best people for the job. Assurance that the subsidiary will comply with company objectives, policies, etc. Disadvantages HCNs’ promotion opportunities are limited. Adaptation to host country may take a long time. PCNs may impose an inappropriate HQ style. Compensation differences between PCNs and HCNs may cause problems.

HOST-COUNTRY NATIONALS Advantages No problems with language and culture. Reduced hiring costs. No work permits required. Continuity of management improves, since HCNs stay longer in positions. Govt. policy may force hiring of HCNs. Promotional opportunities not limited - so higher morale among HCNs. Disadvantages HQ may have less control over operations. HCNs may still have limited career opportunities outside the subsidiary and their country. Hiring HCNs limits opportunities for PCNs to gain overseas experience. Hiring HCNs may encourage a federation of disintegrated national units rather than one integrated global unit.

THIRD-COUNTRY NATIONALS Advantages Salary and compensation may be lower than for PCNs. May be more familiar with host country than the PCNs. Disadvantages Transfers must consider national animosities. Host government may resent TCNs as much as PCNs. TCNs may not comply with HQ style of management. TCNs may not want to return after assignment.

REASONS FOR EXPAT FAILURE (In descending order of importance) AMERICAN MNCs 1. spousal adjustment problems 2. manager’s inability to adjust 3. other family reasons 4. manager’s emotional or personal maturity 5. unable to cope with larger overseas responsibility JAPANESE MNCs 1. unable to cope with larger overseas responsibility 2. new environment problems 3. personal or emotional problems 4. lack of technical competence 5. spousal adjustment problems.

Costs of Expatriate Failure DIRECT –Airfare and associated relocation expenses INDIRECT –Damage to employee moral –Loss of market share DIRECT EFFECT ON THE EXPATRIATE –Self-esteem; self-confidence; prestige among peers –Promotion opportunities; Motivation –Family

COMPENSATION If compensation is raised, then problems may be encountered on return to head office. If compensation is not adequately raised, then there may be no incentive to go for the international assignment, given the hardships that are usually involved in doing so.

Going Rate Approach Based on local market rates – the base salary is linked to the salary structure in the host country. Relies on local survey comparisons of: Local nationals (HCNs) Expats of same nationality ( all Canadians working in Japan) Expats of all nationalities Base pay and benefits may be supplemented by additional payments for low-pay countries

Advantages and Disadvantages of the Going Rate Approach Advantages Equality with local nationals Simplicity Identification with the host country Equity among different nationalities Disadvantages Variation between assignments for same employees Variation between expats of same nationality in different countries Potential re-entry problems

The Balance Sheet Approach Basic objective is maintenance of home-country living standard, plus financial inducement Home-country pay and benefits are the foundations of this approach Adjustments to home package to balance additional expenditure in host country Financial incentives (expat/hardship premium) added to make the package attractive Most common system in usage by multinationals firms

THE BALANCE SHEET APPROACH (II) FOUR MAJOR CATEGORIES TO CONSIDER: GOODS AND SERVICES – FOOD, PERSONAL CARE, CLOTHING, HOUSEHOLD FURNISHING, RECREATION HOUSING INCOME TAXES RESERVE – CONTRIBUTIONS TO SAVINGS, PAYMENTS FOR BENEFITS, PENSION CONTRIBUTIONS, INVESTMENTS, EDUCATION EXPENSES, SOCIAL SECURITY TAXES…

Advantages and Disadvantages of the Balance Sheet Approach Advantages Equity between assignments between expats of the same nationality Facilitates expat re-entry Easy to communicate to employees Disadvantages Can result in great disparities between expats of different nationalities between expats and local nationals Can be quite complex to administer

PREPARING THE MANAGER AND THE FAMILY Some issues: Spouse training - how much control the company can exert over the spouse Children’s education - frequent changes in schools or distance from parents Selection criteria: Age a factor.

MNCs AND THE ISSUE OF SPOUSES IN THE SELECTION PROCESS Reluctance to intrude into personal matters, issues of civil liberties may arise. Some MNCs resort to informal methods such as dinners with the family or putting the family in contact with another who once lived abroad. Work permit issues - granted to the employees only, not to their spouses.

REPATRIATION: REVERSE CULTURE-SHOCK JOB RELATED FACTORS SOCIAL FACTORS “Out of sight, out of mind” International experience devalued Loss of status and pay, relatively speaking Changes in the HQ Expat assignment - different type of social interaction ( going from a very close expat community to where everyone is very busy with their own lives) Problems of spouse returning to the workforce Lack of peer support for teenagers

Topics Covered by a Repatriation Program Preparation, physical relocation, and transition information (what the company will help with) Financial and tax assistance (including benefit and tax changes, loss of overseas allowance) Re-entry position and career path assistance Reverse culture shock (including family disorientation) School systems and children’s education Workplace changes (corporate culture, structure) Stress management Help in finding new social contacts