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2006 Prentice Hall 9-1

Chapter 9Staffing, Training, and

Compensation for Global

Operations

PowerPoint by

Kristopher Blanchard

North Central University

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Introduction

[In the new millennium], the caliber of thepeople will be the only source of

competitive advantage.

Allan Halcrow, Personnel Journal

Of the top 100 UK firms surveyed by CendantInternational Assignment Services, 63

reported failed foreign assignments.- www.expat.FT.com

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A vital component of implementing global strategy is international

human resource management (IHRM). IHRM is increasingly being

recognized as a major determinant of success or failure in international

business. In a highly competitive global economy, where the other

factors of productioncapital, technology, raw materials, andinformationare increasingly able to be duplicated, the caliber of the

people in an organization will be the only source of sustainable

competitive advantage available to U.S. companies. Corporations

operating overseas need to pay careful attention to this most critical

resourceone that also provides control over other resources. MostU.S. multinationals underestimate the importance of the human

resource planning function in the selection, training, acculturation, and

evaluation of managers assigned abroad. Yet the increasing significance

of this resource is evidenced by the numbers. More than 37,000

multinational corporations (MNCs) are currently in businessworldwide. They have control more than 200,000 foreign affiliates and

have more than 73 million employees. In the United States, foreign

MNCs employ three million Americansmore than 10 percent of the

U.S. manufacturing workforce. In addition, about 80 percent of mid-

and large-sized U.S. companies send managers abroad, and most plan

to increase that number. 2006 Prentice Hall 9-3

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Staffing Philosophies for Global

Operations

Firms using an ethnocentric staffing

approach fill key managerial positions with

people from headquartersthat is, parent-country nationals (PCNs).

In a polycentric staffing approach, local

managershost-country managers (HCNs)

are hired to fill key positions in their own

country.

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Advantages & Disadvantages

Ethnocentric staffing: close control, high

technical capability/experience required,

proprietary concerns.

Lack of opportunities for local mgrs, expense,

poor adaptation & lack of expatriate

effectiveness

Polycentric staffing: good for multinational

strategy, localization. Familiar with the culture,

language & local norms

Coordinating goals bet subsidiary & PC can

be difficult, local mgrs having a potential

conflicting loyalties 2006 Prentice Hall 9-5

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Staffing Philosophies for Global

Operations

In the global staffing approach, the best

managers are recruited from within or

outside of the company, regardless ofnationality.

In a regiocentric staffing approach,

recruiting is done on a regional basissay

within Latin America for a position in

Chile.

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Who use the global &

regiocentric approach tostaffing? Can you the

companies or firms? What

would the advantages &

disadvantage of these

approaches?


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Global selection.

Consider overall staffing approach suitable for

companys strategyConsider host country regulation, stage of

internalization

Importantly, who is both suitable & available for

the position

1) Can it be suitably filled by a host-country

national?

2) Selection criteria for overseas assignmentsinfluence expatriate success: job factors,

relational dimensions (cultural empathy &

flexibility), motivational state, family situation &

language skills. 2006 Prentice Hall 9-8

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Most MNCs tend to start out their operations in a

particular region by selecting primarily from their

own pool of managers. Over time, and with

increasing internationalization, they tend to move toa predominantly polycentric or regiocentric policy

because of: (1) increasing pressure (explicit or

implicit) from local governments to hire locals (or

sometimes legal restraints on the use of expatriates);and (2) the greater costs of expatriate staffing,

particularly when the company has to pay taxes for

the parent-company employee in both countries. In

addition, in recent years, MNCs have noted an

improvement in the level of managerial and

technical competence in many countries, negating

the chief reason for using a primarily ethnocentricpolicy in the past. 2006 Prentice Hall 9-9

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use an online job site like

Monster.com orHotjobs.com to search for

career opportunitiesoverseas.


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Problems with Expatriation

Selection based on headquarterscriteria rather than assignmentneeds

Inadequate preparation, training,and orientation prior to assignment

Alienation or lack of support from

headquartersInability to adapt to local cultureand working environment

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Problems with Expatriation

Problems with spouse and childrenpoor adaptation, family

unhappinessInsufficient compensation and

financial support

Poor programs for career support

and repatriation

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Training and DevelopmentChallenges faced by expatriates

China: a continuing problem for expatriates; onecomplained that at his welcome banquet he was servedduck tongue and pigeon head

Brazil: expatriates stress that cell phones are essentialbecause home phones dont work

India: returning executives complain that thepervasiveness of poverty and street children isoverwhelming

Indonesia: here you need to plan ahead financially

because landlords typically demand rent two to threeyears in advance

Japan: expatriates and their families remain concernedthat although there is excellent medical care, theJapanese doctors reveal little to their patients.

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It is clear that preparation and training for cross-

cultural interactions are critical. In earlier discussions

of the need for cultural sensitivity by expatriate

managers, reports indicate that up to 40 percent of

expatriate managers end their foreign assignments

early because of poor performance or an inability to

adjust to the local environment. Moreover, about halfof those who do remain function at a low level of

effectiveness. The direct cost alone of a failed

expatriate assignment is estimated to be from $50,000

to $150,000. The indirect costs may be far greater,depending on the expatriates position. Relations with

the host-country government and customers may be

damaged, resulting in a loss of market share and a

poor reception for future PCNs. 2006 Prentice Hall 9-14

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Cross-Cultural Training: Culture

Shock

Culture shock is a state of disorientationand anxiety about not knowing how to

behave in an unfamiliar culture. The

cause of culture shock is the traumapeople experience in new and different

cultures, where they lose the familiar

signs and cues that they had used tointeract in daily life and where they must

learn to cope with a vast array of new

cultural cues and expectations.

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Cross-Cultural Training: Culture Shock

Honeymoonwhen positive attitudes and expectations,

excitement, and a tourist feeling prevailIrritation and hostilitythe crisis stage when cultural

differences result in problems at work, at home, and in

daily living

Gradual adjustmenta period of recovery in which thepatient gradually becomes able to understand and

predict patterns of behavior, use the language, and deal

with daily activities, and the family starts to accept

their new life

Biculturalismthe stage at which the manager and

family members grow to accept and appreciate local

people and practices and are able to function effectively

in two cultures

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Cross-Cultural Training: Sub-

Culture Shock

Subculture shock occurs when amanager is transferred to another

part of the country where there are

cultural differencesessentiallyfrom what she or he perceives to be

a majority culture to a minority

one. This can occur in ones home countrysuch as the effects of moving from New

York to Texas.

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Training Techniques

Area studies, that is, documentary programsabout the countrys geography, economics,

sociopolitical history, and so forth

Culture assimilators, which expose trainees to

the kinds of situations they are likely to encounterthat are critical to successful interactions

Language training

Sensitivity trainingField experiencesexposure to people from

other cultures within the trainees own country

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A great source of materials on training is

the American Society for Training and

Development (ASTD). It includes aseminar agent that allows you to search

over 250,000 training programs. The site

is athttp://www.astd.org/.For an example of a company that does

cultural training for expatriates go to

www.culturesense.com.

http://www.astd.org/http://www.culturesense.com/http://www.culturesense.com/http://www.astd.org/

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In continuing our discussion of strategic fit, it is important

to remember that training programs, like staffing

approaches, be designed with the companys strategy in

mind. Although it is probably impractical to break thoseprograms down into a lot of variations, it is feasible to at

least consider the relative level or stage of globalization that

the firm has reached because obvious major differences

would be appropriate, for example, from the initial export

stage to the full global stage. Slide 9-21 suggests levels of

rigor and types of training content appropriate for the firms

managers, as well as those for host-country nationals, for

four globalization stagesexport, multidomestic,

multinational, and global. It is noteworthy, for example, thatthe training of host-country nationals for a global firm has a

considerably higher level of scope and rigor than that for the

other stages and borders on the standards for the firms

expatriates. 2006 Prentice Hall 9-20

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Integrating Training with Global Orientation

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Integrating Training with Global Orientation

Slid 9 22 A f th f i l ti

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Slide 9-22. As a further area for managerial preparationfor global orientationin addition to training plans for

expatriates and for HCNs separatelythere is aparticular need to anticipate potential problems with

the interaction of expatriates and local staff. In a 2003study of expatriates and local staff (inpatriates) inCentral and Eastern European joint ventures and

subsidiaries, Peterson found that managers reported a

number of behaviors by expatriates that helped themto integrate with local staff, but also some which werehindrances, highlighted on this slide. Clearly, this kind

of feedback from MNC managers in the field canprovide the basis for expatriate training and also helpHCNs to anticipate and work with the expatriates in

order to meet joint strategic objectives


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Training Host-Country Nationals

We found that the key human resourcerole of the MNC [in Central and EasternEurope] was to expose the local staff to

a market economy; to instill worldstandards of performance; and provide

training and functional expertise.Richard Peterson, The use of Expatriates and Inpatriates in

Central and Eastern Europe Since the Wall Came Down,

Journal of World Business, 2003.

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Continuous training and development of

HCNs and TCNs for management

positions is an important factor for long-

term success of the multinational

corporation

Ongoing development will facilitate the

transition to an indigenization policy

The company will have a well-trainedmanagement staff with broad

international experience

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Management Focus: Success! Starbucks JavaStyle Helps Recruit, Train, and Retain LocalManagers in Beijing

Starbucks Coffee International now has 70facilities in China. In addition to converting anation of tea drinkers into coffee lovers,

Starbucks had to deal with the problem offinding, training, and keeping local Chinesemanagers. As part of their training effort,Starbucks sends managers to Tacoma,Washington for three months to learn not onlyhow to make a cup of coffee, but also to learnculture. Chinese managers appreciate acompany that invests in their development andtreats them with respect.

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Training to facilitate e-business

adoption is taking on increasing

importance

Training in information andcommunication technologies is

particularly critical for firms in new

economy and emerging marketsList of training needs for managers in

Eastern Europe

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Training Priorities for E-Business

Development

Return

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Compensating Expatriates

Compensation is a crucial link betweenstrategy and its successful implementation

Must be a fit between compensation and the

goals of the firm

Maintaining an appropriate compensation

package is more complex than it would

seem

Little variation in typical salary but there is awide variation in net spendableincome

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The World at Work is a

professional organization for

HR/Compensation professionals.

Their informative Web site can befound at

http://www.worldatwork.org/

http://www.worldatwork.org/http://www.worldatwork.org/

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To ensure that expatriates do not lose out through their overseasassignment, the balance sheet approach is often used to

equalize the standard of living between the host country and thehome country and to add some compensation for inconvenience

or qualitative loss. See Slide 9-32. However, recently somecompanies have begun to base their compensation package on agoal of achieving a standard of living comparable to that of host-

country managers, which does help resolve some of theproblems of pay differentials. In fairness, the MNC is obliged to

make up additional costs that the expatriate would incur fortaxes, housing, and goods and services.The tax differential iscomplex and expensive for the company, and generally MNCs

use a policy of tax equalization:The company pays any taxes dueon any type of additional compensation that the expatriate

receives for the assignment; the expatriate pays in taxes onlywhat she or he would pay at home. The burden of foreign taxescan be lessened, however, by efficient tax planning.


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Balance Sheet Approach

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Compensating ExpatriatesSalaryLocal salary buying power and

currency translation, as compared withhome salary; bonuses or incentives fordislocation

TaxesEqualize any differential effects on

taxes as a result of the assignmentAllowancesRelocation expenses; cost-of-living adjustments; housing allowance for

assignment and allowance to maintaininghouse at home; trips home for family;private education for children

BenefitsHealth insurance; stock options

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Compensating Host-Country Nationals

A number of variable apply including local

market factors and pay scales, government

involvement in benefits, unions, and the

cost of living must all be considered

Eastern Europeans spend 35% to 40% oftheir disposable income on food and utilities

East European managers must have cash for

about 65% to 80% of their base payUS managers must have cash of about 40%

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Compensating Host-Country Nationals

To be competitive, MNCs can focus on

providing goods and services that are

either not available at all or are

extremely expensive.

It is important to make clear what

benefits, as well as salary, come with a

position because of the way

compensation is perceived and regulatedaround the world

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Comparative Management in Focus:

Compensating Russians

Korean companies are cashing in bysigning up low-cost Russian engineers.

www.Businessweek.com, March 8, 2004

Russia is our No.1. destination fortechnology outsourcing.

Cha Dae Sung, Samsung, March 8, 2004

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Comparative Management in Focus:

Compensating Russians

Select Russian employees who are achievement-oriented and willing to take risks

Tie individual bonuses to initiative and personalaccountability (to encourage individual goal

setting).Organize social events and other group activities.

Provide small-group incentives

Provide a mix of short- and long-term incentives

Tailor the compensation package to individualpreferences

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What is total rewards?http://www.worldatWork.com

Total Rewards: All of the tools available to the employer that may beused to attract, motivate and retain employees. Total rewards includeeverything the employee perceives to be of value resulting from the

employment relationship.Throughout history, employers have been challenged with attracting,motivating and retaining employees. From the simplest barter systemsof centuries past to the current complex incentive formulas of today,the organizational premise has been the same: Provide productivityand results to our enterprise and we will provide you with something

of value.There are five elements of total rewards, each of which includesprograms, practices, elements and dimensions that collectively definean organization's strategy to attract, motivate and retain employees.These elements are:

Compensation

BenefitsWork-Life

Performance and Recognition

Development and Career Opportunities
http://www.worldatwork.com/http://www.worldatwork.com/

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Looking Ahead

Chapter 10Developing a Global

Management Cadre

Preparation, Adaptation, and Repatriation

Global Management Teams

The Role of Women

Working within Local Labor Relations Systems

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