INTERNATIONAL HUMAN RESOURCES MANAGEMENT

Yonatan ReshefStrategic Management and Organization

Faculty of BusinessUniversity of Alberta

Based on

Peter J. Dowling, Denice E. Welch, and Randall S. Schuler. 1999 (3rd

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 NATIONALSAdvantages

• 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 NATIONALSAdvantages

• 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 theGoing 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