© 2006 Prentice Hall9-1 Chapter 9 Staffing, Training, and Compensation for Global Operations PowerPoint by Kristopher Blanchard North Central University.

© 2006 Prentice Hall 9-1

Chapter 9 Staffing, Training, and

Compensation for Global Operations

PowerPoint byKristopher Blanchard

North Central University


Introduction

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

competitive advantage.—Allan Halcrow, Personnel Journal

Of the top 100 UK firms surveyed by Cendant International Assignment Services, 63 reported failed foreign assignments.

- www.expat.FT.com

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 production—capital, technology, raw materials, and information—are 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 resource—one that also provides control over other resources. Most

U.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 business

worldwide. 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 Americans—more 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


Staffing Philosophies for Global Operations

Firms using an ethnocentric staffing approach fill key managerial positions with people from headquarters – that is, parent-country nationals (PCNs).

In a polycentric staffing approach, local managers – host-country managers (HCNs) – are hired to fill key positions in their own country.

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


Staffing Philosophies for Global Operations

In the global staffing approach, the best managers are recruited from within or outside of the company, regardless of nationality.

In a regiocentric staffing approach, recruiting is done on a regional basis – say within Latin America for a position in Chile.

Who use the global & regiocentric approach to

staffing? Can you the companies or firms? What would the advantages &

disadvantage of these approaches?


Global selection. •Consider overall staffing approach suitable for

company’s strategy•Consider 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 assignments influence expatriate success: job factors, relational

dimensions (cultural empathy & flexibility), motivational state, family situation & language

skills.© 2006 Prentice Hall 9-8

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 to a 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 ethnocentric

policy in the past. © 2006 Prentice Hall 9-9

use an online job site like Monster.com or

Hotjobs.com to search for career opportunities

overseas.



Problems with ExpatriationSelection based on headquarters criteria rather than assignment needsInadequate preparation, training, and orientation prior to assignmentAlienation or lack of support from headquartersInability to adapt to local culture and working environment


Problems with Expatriation

Problems with spouse and children – poor adaptation, family unhappiness

Insufficient compensation and financial support

Poor programs for career support and repatriation


Training and DevelopmentChallenges faced by expatriates– China: a continuing problem for expatriates; one

complained that at his welcome banquet he was served duck tongue and pigeon head

– Brazil: expatriates stress that cell phones are essential because home phones don’t work

– India: returning executives complain that the pervasiveness of poverty and street children is overwhelming

– Indonesia: here you need to plan ahead financially because landlords typically demand rent two to three years in advance

– Japan: expatriates and their families remain concerned that although there is excellent medical care, the Japanese doctors reveal little to their patients.

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 half

of 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 expatriate’s 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


Cross-Cultural Training: Culture Shock

Culture shock is 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 and different 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 a vast array of new cultural cues and expectations.


Cross-Cultural Training: Culture ShockHoneymoon – when positive attitudes and expectations, excitement, and a tourist feeling prevail

Irritation and hostility – the crisis stage when cultural differences result in problems at work, at home, and in daily living

Gradual adjustment – a period of recovery in which the “patient” 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

Biculturalism – the 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


Cross-Cultural Training: Sub-Culture ShockSubculture shock occurs when a manager is transferred to another part of the country where there are cultural differences – essentially from what she or he perceives to be a “majority” culture to a “minority” one. This can occur in one’s home country such as the effects of moving from New York to Texas.


Training TechniquesArea studies, that is, documentary programs about the country’s geography, economics, sociopolitical history, and so forth

Culture assimilators, which expose trainees to the kinds of situations they are likely to encounter that are critical to successful interactions

Language training

Sensitivity training

Field experiences – exposure to people from other cultures within the trainee’s own country

A great source of materials on training is the American Society for Training and

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

over 250,000 training programs. The site is at http://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/

In continuing our discussion of “strategic fit,” it is important to remember that training programs, like staffing

approaches, be designed with the company’s strategy in mind. Although it is probably impractical to break those programs 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 firm’s managers, as well as those for host-country nationals, for

four globalization stages—export, multidomestic, multinational, and global. It is noteworthy, for example, that the 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 firm’s expatriates.



Integrating Training with Global Orientation


Integrating Training with Global Orientation

Slide 9-22. As a further area for managerial preparation for global orientation–in addition to training plans for expatriates and for HCNs

separately–there is a particular need to anticipate potential problems with the

interaction of expatriates and local staff. In a 2003 study of expatriates and local staff

(inpatriates) in Central and Eastern European joint ventures and subsidiaries, Peterson

found that managers reported a number of behaviors by expatriates that helped them to

integrate with local staff, but also some which were hindrances, highlighted on this

slide. Clearly, this kind of feedback from MNC managers in the field can provide the basis

for expatriate training and also help HCNs to anticipate and work with the expatriates in

order to meet joint strategic objectives© 2006 Prentice Hall 9-23


Training Host-Country Nationals

We found that the key human resource role of the MNC [in Central and

Eastern Europe] was to expose the local staff to a market economy; to

instill world standards 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.


Training Host-Country NationalsContinuous 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-trained management staff with broad international experience


Management Focus: Success! Starbucks’ Java Style Helps Recruit, Train, and Retain Local Managers in Beijing Starbucks Coffee International now has 70 facilities in China. In addition to converting a nation of tea drinkers into coffee lovers, Starbucks had to deal with the problem of finding, training, and keeping local Chinese managers. As part of their training effort, Starbucks sends managers to Tacoma, Washington for three months to learn not only how to make a cup of coffee, but also to learn culture. Chinese managers appreciate a company that invests in their development and treats them with respect.


Training Host-Country NationalsTraining to facilitate e-business adoption is taking on increasing importance

Training in information and communication technologies is particularly critical for firms in new economy and emerging markets

List of training needs for managers in Eastern Europe


Training Priorities for E-Business Development

Return


Compensating Expatriates

Compensation is a crucial link between strategy 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 a

wide variation in net spendable income

The World at Work is a professional organization for

HR/Compensation professionals. Their informative Web site can be

found at http://www.worldatwork.org/


http://www.worldatwork.org/

To ensure that expatriates do not lose out through their overseas assignment, the balance sheet

approach is often used to equalize the standard of living between the host country and the home country and to add some compensation for inconvenience or qualitative loss. See Slide 9-32. However, recently

some companies have begun to base their compensation package on a goal of achieving a

standard of living comparable to that of host-country managers, which does help resolve some of the

problems of pay differentials. In fairness, the MNC is obliged to make up additional costs that the

expatriate would incur for taxes, housing, and goods and services.The tax differential is complex and

expensive for the company, and generally MNCs use a policy of 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. The burden of foreign taxes can be lessened, however,

by efficient tax planning. © 2006 Prentice Hall 9-31


Balance Sheet Approach


Compensating ExpatriatesSalary – Local salary buying power and currency translation, as compared with home salary; bonuses or incentives for dislocationTaxes – Equalize any differential effects on taxes as a result of the assignmentAllowances – Relocation expenses; cost-of-living adjustments; housing allowance for assignment and allowance to maintaining house at home; trips home for family; private education for childrenBenefits – Health insurance; stock options


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% of their disposable income on food and utilities– East European managers must have cash for

about 65% to 80% of their base pay– US managers must have cash of about 40%


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 regulated around the world


Comparative Management in Focus: Compensating Russians

Korean companies are cashing in by signing up low-cost Russian

engineers.www.Businessweek.com, March 8, 2004

Russia is our No.1. destination for technology outsourcing.

Cha Dae Sung, Samsung, March 8, 2004


Comparative Management in Focus: Compensating Russians

Select Russian employees who are achievement-oriented and willing to take risks Tie individual bonuses to initiative and personal accountability (to encourage individual goal setting).Organize social events and other group activities.Provide small-group incentivesProvide a mix of short- and long-term incentives Tailor the compensation package to individual preferences


What is total rewards? http://www.worldatWork.comTotal Rewards: All of the tools available to the employer that may be used to attract, motivate and retain employees. Total rewards include everything 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 systems of centuries past to the current complex incentive formulas of today, the organizational premise has been the same: Provide productivity and results to our enterprise and we will provide you with something of value.There are five elements of total rewards, each of which includes programs, practices, elements and dimensions that collectively define an organization's strategy to attract, motivate and retain employees. These elements are: Compensation Benefits Work-Life Performance and Recognition Development and Career Opportunities


Looking Ahead

Chapter 10 – Developing a Global Management Cadre– Preparation, Adaptation, and Repatriation– Global Management Teams– The Role of Women– Working within Local Labor Relations Systems

© 2006 Prentice Hall9-1 Chapter 9 Staffing, Training, and Compensation for Global Operations PowerPoint by Kristopher Blanchard North Central University.

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