1. Staffing, Training, and Compensation
for Global Operations
YUAN, DOLLAR, YEN
© 2010 Pearson Prentice Hall

2. Opening Profile: Staffing Company Operations in Emerging Markets
BRIC
Have outpaced the supply of mid and upper-level management
Need for up to business leaders, but 3000–5000 may be available
Many are simply not at the skill level required by foreign companies
BRIC Countries
The ability to staff subsidiaries in emerging market economies with local managers has become a major challenge in the race for recruiting and training local talent. Emerging economies such as Brazil, Russia, India, and China (BRIC Countries) have been developing so rapidly and have attracted increasing overseas investment that they have outpaced the supply of suitable mid-level and upper-level managers in their own markets.
© 2010 Pearson Prentice Hall

3. Opening Profile: BRIC—The Shortage of Mid/Upper-Level Managers
Brazil
Deficit at upper-level management
Russia
Deficit at all management levels
India
Deficit starting at the middle level. Also, dealing with the “brain drain”
China
?????????
For these reasons, the challenge to companies operating around the world is not only to recruit capable local managers, but to be able to retain them.
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4. Opening Profile: What Attracts the Potential Recruits in Emerging Markets?
Brand
A global “name brand” known for its excellence
Purpose
A company that is breaking into new markets, with new models and strategy
Opportunity
A company that provides a fast-track training and career path
Culture
An organizational culture of openness and transparency
© 2010 Pearson Prentice Hall

5. IHRM Functions Recruitment and selection Training and development
Compensation and performance management
Management of expatriates
International human resource management (IHRM) is being recognized as a major determinant of success or failure in international business. Because other factors of production (e.g., capital, technology, raw materials) increasingly can be duplicated, human resources are a key source of sustainable competitive advantage to companies. Additionally, human resources provide control over other resources.
IHRM functions include recruiting and selecting employees, providing preparation and training, setting up appropriate compensation and performance management programs, and—especially—the management of expatriates (employees assigned to a country other than their own). Without creating a system of fits between strategy, structure, and staffing, an international organization will not be optimally effective. Ideally, the desired strategy should dictate the organizational structure and staffing modes considered most effective for implementing that strategy.
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6. Staffing for Global Operations
Ethnocentric Approach
Polycentric Approach
Used at internationalization stage of strategic expansion, with centralized structure
Parent-country nationals (PCNs)
Often used with multinational strategy
Host-country nationals (HCNs)
Managerial staffing abroad falls into one or more of four staffing approaches: ethnocentric, polycentric, regiocentric, and global.
In the ethnocentric approach, key managerial positions are filled with people from headquarters, i.e., parent-country nationals (PCNs). Advantages of this approach include PCN familiarity with company goals products, technology, policies, and procedures. Additionally, it can be a means of dealing with inadequate local managerial skills and of maintaining close control. Disadvantages include lack of opportunities and development for local managers, and poor adaptation and lack of effectiveness of expatriates in foreign countries. This approach also can perpetuate ineffective home-country processes and prevent the company from taking advantage of the worldwide pool of management skill.
The polycentric staffing approach is often used with a multinational strategy and fills key positions with host country nationals (HCNs). HCNs are local managers hired to fill key positions in their own country. This approach helps companies to “act local,” can be less expensive than using PCNs, and can help stave off problems in sensitive political situations. Often this approach is achieved by acquiring foreign firms. Disadvantages of the polycentric approach include difficulty coordinating activities and goals between the subsidiary and parent company, conflicting loyalties from local managers, and headquarters managers do not gain overseas experience.
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7. Staffing for Global Operations
Global Staffing Approach
Regiocentric Approach
Third country nationals (TCNs)
Transpatriates
Can produce a mix of PCNs, HCNs, and TCNs
In the global staffing approach, the best managers are recruited from within or outside of the company, regardless of nationality (i.e., third country nationals). Advantages of this approach include providing a greater pool of qualified and willing applicants from which to choose, which can further develop a global executive cadre. Additionally, TCNs tend to be more culturally flexible, bi or multilingual, and viewed as an acceptable compromise between headquarters and local managers. It also can be more cost-effective to transfer and pay managers from some countries than from others because their pay scale and benefits packages are lower. As some become truly global and move away from the concepts of host and home country, the term “transpatriate” is replacing the term “expatriate.” Implementing a global staffing approach is easier said than done, as there can be difficulty in finding high-quality mangers who are willing to transfer frequently around the world.
With the regiocentric approach, recruiting is done on a regional basis. This approach can produce a mix of PCNs, HCNs, and TCNs depending on the needs of the company or the product strategy.
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8. Strategic Mode, Organizational Variables, and Staffing Orientation
Aspect of enterprise
Ethnocentric
Polycentric
Regiocentric
Global
Strategic orientation
International
Multidomestic
Regional
Transnational
Perpetuation
Expatriates used for key positions
Locals used for key positions locally
Regional people used regionally
Best people used anywhere
Evaluation and control
Home standards applied
Determined locally
Determined regionally
Globally integrated
Rewards
High at home; low in subsidiaries
Wide variation
Based on contribution to regional objectives
Based on contribution to local and worldwide objectives
The choice of staffing policy has a considerable influence on organizational variables in the subsidiary, such as locus of decision making authority, the methods of communication and the perpetuation of human resource management practices. Some of these influences are highlighted in this slide, which summarizes some of the information in Exhibit 9-1 in the text. It focuses on the other primary HR functions. Research indicates that an ethnocentric policy is associated with a higher incidence of IHRM problems.
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9. Managing Expatriates: Selection
Job factors
Relational dimensions
Motivational state
Family situation
Language skills
Success categories
An important responsibility of IHR managers is that of managing expatriates. Most multinationals underestimate the importance of the human resource planning function in selection, training, acculturation, and evaluation of expatriates.
Although there are many factors that contribute to expatriate success, many personal directors select expatriates only on the basis of their domestic track records and technical expertise. The need to ascertain whether potential expatriates have the necessary cross-cultural awareness and interpersonal skills is often overlooked. Studies suggest there are five categories of success for expatriates. Of course, determining whether the expatriate will be successful in those dimensions can be challenging. Research indicates that extroverted managers with high tolerance for stress are more likely to adjust to overseas assignments and perform well.
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10. Managing Expatriates: Selection
Stress
Tolerance
Extraversion
Predictors of success
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11. Expatriates Performance Management
Selection based on headquarters criteria
Inadequate preparation, training, orientation
Alienation or poor support from headquarters
Inability to adapt to the local culture
Many reasons, besides poor selection, contribute to expatriate failure in US multinationals. Failure also can be attributed to poor preparation and planning for entry and reentry transitions of the manager and his or her family. The suitability and adjustment of the spouse is particularly important and often given insufficient attention. Indeed the latter is the most frequently cited reason for expatriate failure in US and European countries. This slide and the next provide a synthesis of the factors frequently mentioned by researchers and firms as the major causes of expatriate failure.
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12. Expatriates Performance Management
Problems with spouse and children
Insufficient compensation and financial support
Poor programs for career support and repatriation
After careful selection, plans must be made for the preparation, training, and development of expatriate managers. Though these issues are addressed separately in the following slides, it is important to note that they should be components of an integrated performance management program that is specific to expatriates.
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13. Expatriate Training and Development
China
Different food
Brazil
Home phones don’t work
India
Pervasive poverty
Indonesia
Rent paid 2–3 years in advance
Japan
Doctors reveal little to patients
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14. Expatriate Training and Development
Japanese Expatriate Planning
Selection based on long-term knowledge of executives and their families
Use of longer assignments (e.g., 5 years)
Extensive headquarters support
Unlike most US companies, foreign companies tend to provide much more training and preparation. Thus, expatriates from certain countries tend to experience much fewer incidences of failure. For example, in addition to training programs Japanese companies have very careful selection programs that eliminate potential “failures” from the start. They also make use of longer assignments to give expatriates more time to adjust initially and then function at full capacity. Once on assignment, the Japanese receive considerable support from headquarters and sometimes even from local divisions set up for that purpose.
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15. IHRM Process to Maximize Effectiveness of Expatriate Assignments
Evaluate potential problems.
Select expatriates.
Develop contracts.
Assess development and support needs.
Evaluate effectiveness and problems.
Repatriate after successful assignment.
Integrate value-added to firm.
Debrief expatriate and family.
To improve IHRM process

16. Cross-Cultural Training
A state of disorientation and anxiety about not knowing how to behave in an unfamiliar culture
The goal of training is to ease the adjustment to the new environment
Culture Shock
When a manager is transferred to another part of the country, where there are cultural differences
The “shock” comes from feeling like an “immigrant” in one’s own country
Subculture Shock
The three areas critical to preparation are cultural training, language instruction, and familiarity with everyday matters. Training in language and practical affairs is fairly straightforward, but cross-cultural training is complex and deals with deep-rooted behaviors.
One goal of cross-cultural training is to reduce culture shock—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 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 new cues and expectations. Results of culture shock include the inability to work effectively, family stress, and hostility toward host nationals. Culture shock usually progresses through four stages:
The honeymoon phase includes positive attitudes and excitement and may last up to several weeks.
The irritation and hostility phase is the crisis stage when cultural differences result in problems at home and work. It is characterized by homesickness, and many expatriates never get past this phase.
Gradual adjustment is a phase of recovery in which the expatriate begins to understand and predict patterns of behavior, use the language, and accept his or her new life.
Biculturalism is a stage in which the expatriate and family members grow to accept and appreciate local people and practices and are able to function effectively in two cultures. Many people never get to this stage, but operate acceptably at the third stage.
Subculture shock occurs when a manager is transferred to another part of the country where there are cultural differences—essentially from what he or she perceives to be a “majority” culture to a “minority” one. The shock comes from feeling like an “immigrant” in one’s own country and being unprepared for such differences.
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17. Training Techniques Area studies Culture assimilators
Language training
Sensitivity training
Field experiences
Host-family surrogate
Area studies are documentary programs about the country’s geography, economics, sociopolitical history, etc. Cultural assimilators expose trainees to the kinds of situation they are likely to encounter that are critical to successful interactions. Language training, sensitivity training, and field experiences are also training options. The latter provides exposure to people from other cultures within the trainee’s own country. Host-family surrogate is a kind of field experience in which the MNC pays for and places an expatriate family with a host family as part of an immersion and familiarization program.
Tung recommends giving trainees increasing levels of personal involvement as they progress through each method. The most effective intercultural training occurs when trainees become aware of the differences between their own cultures and the ones they are planning to enter. The impact of host-country training (like host-family surrogate) can be far greater than that of training conducted strictly in the home country.
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18. Corporate Programs to Develop Global Managers
ABB rotates 500 managers to different countries every 2–3 years.
Pepsi brings foreign managers to the United States for one-year assignments.
British Telecom uses informal mentoring between expatriates and potential assignees.
This slide shows examples of global management development programs for junior employees.
© 2010 Pearson Prentice Hall

19. Management Focus: Citibank Gives Advice on Career Planning
Be mobile: to get somewhere, you have to go places!
There is a growing need for a cadre of professionals with the global perspective to lead the organization.
A global move is a good career move
Expatriate assignments offer an extraordinary opportunity for experience, learning, and personal and career enrichment.
Citibank’s advice to those considering global careers is that pursuing such careers can be very attractive. At the same time, though, Citibank offers several options for those who aren’t ready for a long-term expatriate assignment.
© 2010 Pearson Prentice Hall

20. Integrating Training with Global Orientation
Export Stage
Multidomestic Stage
Training need: low to moderate
Content: interpersonal skills, culture, customer values, business behavior
HCNs: train to understand parent-country products and policies
Training need: moderate to high
Content: interpersonal skills, culture, technology transfer, business practices and laws
HCNs: familiarize with production and service procedures
Training programs, like staffing approaches, should be designed with the company’s strategy in mind. The relative level or stage of globalization the firm has reached should be considered. This and the next three slides suggest levels of rigor and types of training content for four globalization stages.
© 2010 Pearson Prentice Hall

21. Integrating Training with Global Orientation
Multinational Stage
Global Stage
Training need: high moderate to high
Content: interpersonal skills, two-way technology transfer, corporate value transfer, strategy, stress management, culture, business practices
HCNs: training in technical areas, products and services, corporate culture
Training need: high
Content: global corporate operations, corporate culture transfer, customers, global competitors, strategy
HCNs: training in proficiency in production and efficiency systems, corporate culture, business systems, global conduct policies
© 2010 Pearson Prentice Hall

22. Factors that Influence the Integration of Expatriates with Local Staff
Factors Helping
Factors Hindering
Forming close working relationships
Learning local language
Transferring technical/business knowledge
Integrating into local life
Cultural sensitivity
Willingness to learn
Adaptability
Not using team concept
Not learning local language
Arrogance
Spouse/family adjustment problems
Being autocratic
We-they mentality
Lack of curiosity
Acting like back home
Exhibit 9-7 lists behaviors that can help or hinder expatriate integration with local staff. The information was collected from actual expatriate managers and can provide the basis for expatriate training. It also can help HCNs to anticipate and work with expatriates to meet joint strategic objectives. This first four helping behaviors presented in Exhibit 9-7 are shown in this slide. The first four hindrances are shown in the next slide.
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23. Compensating Expatriates
DuPont’s Global Transfer Center of Expertise creates perceptions of equity and goodwill.
Companies are looking for ways to cut the costs of expatriate assignments.
The need to reconcile parent- and host-country practices adds complexity.
The balance sheet approach
Tax equalization
Components of the compensation package: salary, taxes, allowance, benefits
Compensation is a crucial link between strategy and its successful implementation: There must be fit between compensation and the goals for which the firm wants managers to aim. The premature return of expatriates or the unwillingness of managers to take overseas assignments can often be traced to their knowledge that the assignment is financially detrimental. DuPont is an example of a company that centralizes its programs for about 400 international locations in its Global Transfer Center of Expertise. Because of this centralization, expatriates know they are getting the same package.
The Wall Street Journal estimates that sending a $100,000-a-year manger to London can cost the organization $300,000 per year. Send the same manager to Stockholm or Tokyo and the cost may rise to $1 million. For this reason, many companies are looking for ways to cut the costs of expatriate assignments, such as by making assignments longer (to cut down on relocation costs) or shorter (so that the family does not need to accompany the expatriate).
Particularly challenging when it comes to designing expatriate compensation packages is the need to reconcile parent- and host-country practices. Though there may be little world-wide variation in typical executive base salaries, wide variation in net spendable income is often present. US executives may receive more in cash and stock, but must pay for many things European companies provide (e.g., cars, entertainment allowances). Also, purchasing power is affected by the relative cost of income in different locations.
In designing compensation packages, it is necessary to make sure expatriates can maintain a standard of living that is equivalent to their colleagues at home and to compensate them for any additional costs incurred. The balance sheet approach is used to equalize the standard of living between the host and home country and to add some compensation for inconvenience or qualitative loss. Some companies, however, are now striving to create a standard of living that is comparable to host-country managers. Even so, the MNC is obliged to make up additional costs that the expatriate would incur for taxes, housing, and goods and services. With tax equalization, the company pays any taxes due on any type of additional compensation that the expatriate receives for the assignment. The expatriate pays in taxes only what she or he would pay at home. Tax planning can lessen the tax burden for the company. For example, a company can save on taxes by renting an apartment for the employee rather than providing a cash housing allowance. All components of the compensation package must be considered in light of home- and host-country legalities and practices. In designing each of these components, it is most important to be strategically competitive by making the package attractive to those kinds of managers the company wishes to relocate.
© 2010 Pearson Prentice Hall

24. Components of the Compensation Package
Salary
Local salary buying power vs. home salary
Taxes
Equalize any differential effects of taxes
Allowances
Relocation expenses, housing, trips home…
Benefits
Health insurance, stock options
Managing PNC compensation is a complex challenge for companies with overseas operations. All components of the compensation package must be considered in the light of both home and host-country legalities and practices.
© 2010 Pearson Prentice Hall

25. Training HNCs Facilitates indigenization
Links successful corporate culture and local culture
Facilitates e-business adoption
The continuous training and development of HCNs and TCNs for management positions is also important in the long-term success of multinational corporations. The ongoing development of HCNs will facilitate the transition to an indigenization policy. It also is a way of bridging the gap between a firm’s successful corporate culture and practices and local culture and practices. Additionally, managerial training in information and communication technologies is critical for firms in new economy and emerging markets, and it can provide leverage for rapid economic growth.
© 2010 Pearson Prentice Hall

26. Management Focus: Success! Starbucks’ Java Style in Beijing
Challenges: recruiting, motivating, and retaining Beijing managers
Chinese recruits want training and advancement opportunities more than money.
Starbucks has achieved a remarkable penetration rate in China, given that it is a country of tea drinkers who do not readily take to the taste of coffee. Despite Starbuck’s success to date in China, it has had trouble recruiting, motivating, and retaining managers in a country where the demand for local managers by foreign companies is far greater than the supply of managers with any experience in capitalist-style companies. Consequently, Chinese recruits are particularly interested in training and advancement opportunities because they know that managers with experience in Western organizations can always get a job.
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27. Management Focus: Success! Starbucks’ Java Style in Beijing
Recruits are trained in management and in Starbucks’ culture
Three months in Seattle
Make coffees in a real store
Training, and resulting trust and participation, also serve as motivators
Management recruits spend three-months in Seattle, Washington, to experience the West Coast lifestyle and the company’s informal culture. This experience includes backyard barbecues and learning the art of coffee-making at real stores.
The training on culture at Starbucks is very different from what most Chinese recruits have experienced in state-owned Chinese companies, where work is strictly defined and has no challenge for employees. In an environment where local nationals are traditionally not expected to exercise initiative or authority, Starbuck’s approach also serves as a means of motivating recruits.
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28. Compensating HNCs Eastern Europeans require more cash than Americans.
Compensation in Japan is becoming more Westernized.
Chinese workers resist pay for performance.??????
How do firms determine appropriate compensation for HCNs, given local norms, and the competitive needs of the firm? Research by Mercer indicates that most firms have a global pay structure in place that includes policies on position pay relative to the market, short- and long-term incentives, and methodologies for job grading.
When designing HCN pay, there are many variables to consider. These variables include the local market and local pay scales, government involvement in benefits, the role of unions, and the cost of living. For example, Hungarians, Poles, and Czechs spend about 35-40% of their disposable incomes on food and utilities. Russians may spend as much as 75%. Thus, Eastern European managers must have cash for about 65-80% of their base pay, whereas US managers only have about 40% in cash. MNCs also can be competitive by providing goods and services that are either not available or very expensive in Eastern Europe. In Japan, compensation is becoming more Westernized to become more competitive. For instance, they are beginning to base pay on performance, rather than seniority, and are making people responsible for their own retirement fund decisions. Alternatively, Chinese workers often resist pay for performance, leading many Western companies to use salary increases. Companies also set up housing schemes, such as investing in apartments, as a way to compete for good managers.
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29. Comparative Management in Focus: Compensation
“Best Practices”
Regional Clusters
Country Specific
Incentives not too large, pay based on individual performance, reduce seniority pay
Asian and Latin countries use more seniority pay, group/team pay, and pay for future goals
United States uses less incentives than expected, China and uses more ???
Research by Mary Ann Von Glinow examined how and in what environments various organizations conducted their IHRM functions. Her findings are highlighted in the Comparative Management in Focus. This and the following slides illustrate some of her findings for each IHRM function. The first column shows those practices that tend to be universal within the cultures studied. The second column shows countries or regions where those practices are similar. The third column shows where those practices were specific to certain countries.
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30. Comparative Management in Focus: Selection
“Best Practices”
Regional Clusters
Country Specific
“Getting along with others” and “Fit with corporate values”
Anglo cluster focuses on technical skill, work experience; Korea, Japan, focus on work experience
Japan looks at a person’s potential; Korea relies on employment tests; China????
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31. Comparative Management in Focus: Performance Appraisal
“Best Practices”
Regional Clusters
Country Specific
Could be better in all countries; emphasis on development and documentation
Expression used little in Asian countries; in Latin America the administrative purpose is important
CHINA??????
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32. Comparative Management in Focus: T&D
“Best Practices”
Regional Clusters
Country Specific
Used to improve technical skills and, increasingly, team building
Softer practices used in Anglo cluster but more use is desired; Latin cluster desires more use of all practices
In Mexico, T&D is a reward; United States is outsourcing more; Korea uses team building extensively
Soft practices include team building and understanding business practices and corporate culture.
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33. Comparative Management in Focus: Relation to Strategy
“Best Practices”
Regional Clusters
Country Specific
T&D and performance appraisal most closely linked to organizational capability
Low cost and differentiation strategies linked to HRM in Asian cluster
CHINA???
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