The Global Enviornment

Although the terms international, global multinational, and transnational tend to be used interchangeably, there are distinct differences. First, a domestic market is one in which a product or service is sold only within the borders of that country. An international market is one in which a company may find that it has saturated the domestic market for the product, so it seeks out international markets in which to sell its product. Since international markets use their existing resources to expand, they do not respond to local markets as well as a global organization. A globalorganization is one in which a product is being sold globally, and the organization looks at the world as its market. The local responsiveness is high with a global organization. A multinational is a company that produces and sells products in other markets, unlike an international market in which products are produced domestically and then sold overseas. A transnational company is a complex organization with a corporate office, but the difference is that much of the decision making, research and development, and marketing are left up to the individual foreign market. The advantage to a transnational is the ability to respond locally to market demands and needs. The challenge in this type of organization is the ability to integrate the international offices. Coca-Cola, for example, engaged first in the domestic market, sold products in an international market, and then became multinational. The organization then realized they could obtain certain production and market efficiencies in transitioning to a transnational company, taking advantage of the local market knowledge.

Globalization has had far-reaching effects in business but also in strategic HRM planning. The signing of trade agreements, growth of new markets such as China, education, economics, and legal implications all impact international business.

Trade agreements have made trade easier for companies. A trade agreement is an agreement between two or more countries to reduce barriers to trade. For example, the European Union consists of twenty-seven countries (currently, with five additional countries as applicants) with the goal of eliminating trade barriers. The North American Trade Agreement (NAFTA) lifts barriers to trade between Canada, the United States, and Mexico. The result of these trade agreements and many others is that doing business overseas is a necessity for organizations. It can result in less expensive production and more potential customers. Because of this, along with the strategic planning aspects of a global operation, human resources needs to be strategic as well. Part of this strategic process can include staffing differences, compensation differences, differences in employment law, and necessary training to prepare the workforce for a global perspective. Through the use of trade agreements and growth of new markets, such as the Chinese market, there are more places available to sell products, which means companies must be strategically positioned to sell the right product in the right market. High performance in these markets requires human capital that is able to make these types of decisions.

The level of education in the countries in which business operates is very important to the HR manager. Before a business decides to expand into a particular country, knowledge of the education, skills, and abilities of workers in that country can mean a successful venture or an unsuccessful one if the human capital needs are not met. Much of a country’s human capital depends on the importance of education to that particular country. In Denmark, for example, college educations are free and therefore result in a high percentage of well-educated people. In Somalia, with a GDP of $600 per person per year, the focus is not on education but on basic needs and survival.

Economics heavily influences HRM. Because there is economic incentive to work harder in capitalist societies, individuals may be more motivated than in communist societies. The motivation comes from workers knowing that if they work hard for something, it cannot be taken away by the government, through direct seizure or through higher taxes. Since costs of labor are one of the most important strategic considerations, understanding of compensation systems (often based on economics of the country) is an important topic. This is discussed in more detail in Section 14.3.3 “Compensation and Rewards”.

The legal system practiced in a country has a great effect on the types of compensation; union issues; how people are hired, fired, and laid off; and safety issues. Rules on discrimination, for example, are set by the country. In China, for example, it is acceptable to ask someone their age, marital status, and other questions that would be considered illegal in the United States. In another legal example, in Costa Rica, “aguinaldos” also known as a thirteenth month salary, is required in December.“Labor Laws and Policy,” The Real Costa Rica, accessed April 29, 2011, http://www.therealcostarica.com/costa_rica_business/costa_rica_labor_law.html. This is a legal requirement for all companies operating in Costa Rica. We discuss more specifics about international laws in Section 14.3.5 “The International Labor Environment”.

HRM Global Strategies

When discussing HRM from the global perspective, there are many considerations. Culture, language, management styles, and laws would all be considerations before implementing HRM strategies. Beechler et al.Schon Beechler, Vladimir Pucik, John Stephan, and Nigel Campbell, “The Transnational Challenge: Performance and Expatriate Presence in the Overseas Affiliates of Japanese MNCs,” in Japanese Firms in Transition: Responding to the Globalization Challenge, Advances in International Management, vol. 17, ed. Tom Roehl and Allan Bird (Bingley, UK: Emerald Group, 2004), 215–42. argued that for multinational companies, identifying the best HRM processes for the entire organization isn’t the goal, but rather finding the best fit between the firm’s external environment (i.e., the law) and the company’s overall strategy, HRM policies, and implementation of those policies. To this end, Adler and Bartholomew developed a set of transnational competencies that are required for business to thrive in a global business environment.Nancy J. Adler and Susan Bartholomew, “Managing Globally Competent People,” Executive 6, no. 3 (1992): 52–65. A transnational scope means that HRM decisions can be made based on an international scope; that is, HRM strategic decisions can be made from the global perspective rather than a domestic one. With this HRM strategy, decisions take into consideration the needs of all employees in all countries in which the company operates. The concern is the ability to establish standards that are fair for all employees, regardless of which country they operate in. A transnational representation means that the composition of the firm’s managers and executives should be a multinational one. A transnational process, then, refers to the extent to which ideas that contribute to the organization come from a variety of perspectives and ideas from all countries in which the organization operates. Ideally, all company processes will be based on the transnational approach. This approach means that multicultural understanding is taken into consideration, and rather than trying to get international employees to fit within the scope of the domestic market, a more holistic approach to HRM is used. Using a transnational approach means that HRM policies and practices are a crucial part of a successful business, because they can act as mechanisms for coordination and control for the international operations.Markus Pudelko and Anne-Wil Harzing, “Country-of-Origin, Localization, or Dominance Effect? An Empirical Investigation of HRM Practices in Foreign Subsidiaries,” Human Resource Management 46, no. 4 (2007): 535–59. In other words, HRM can be the glue that sticks many independent operations together.

Before we look at HRM strategy on the global level, let’s discuss some of the considerations before implementing HRM systems.

Culture as a Major Aspect of HRM Overseas

Culture is a key component to managing HRM on a global scale. Understanding culture but also appreciating cultural differences can help the HRM strategy be successful in any country. Geert Hofstede, a researcher in the area of culture, developed a list of five cultural dimensions that can help define how cultures are different.Geert Hofstede, Cultural Dimensions website, accessed April 29, 2011, http://www.geert-hofstede.com/.

The first dimension of culture is individualism-collectivism. In this dimension, Hofstede describes the degree to which individuals are integrated into groups. For example, in the United States, we are an individualist society; that is, each person looks after him- or herself and immediate family. There is more focus on individual accomplishments as opposed to group accomplishments. In a collective society, societies are based on cohesive groups, whether it be family groups or work groups. As a result, the focus is on the good of the group, rather than the individual.

Power distance, Hofstede’s second dimension, refers to the extent to which the less powerful members of organizations accept that power is not distributed equally. For example, some societies may seek to eliminate differences in power and wealth, while others prefer a higher power distance. From an HRM perspective, these differences may become clear when employees are asked to work in cross-functional teams. A Danish manager may have no problem taking advice from employees because of the low power distance of his culture, but a Saudi Arabian manager may have issues with an informal relationship with employees, because of the high power distance.

Uncertainty avoidance refers to how a society tolerates uncertainty. Countries that focus more on avoidance tend to minimize the uncertainty and therefore have stricter laws, rules, and other safety measures. Countries that are more tolerant of uncertainty tend to be more easygoing and relaxed. Consider the situation in which a company in the United States decides to apply the same HRM strategy to its operations in Peru. The United States has an uncertainty avoidance score of 46, which means the society is more comfortable with uncertainty. Peru has a high uncertainty avoidance, with a score of 87, indicating the society’s low level of tolerance for uncertainty. Let’s suppose a major part of the pay structure is bonuses. Would it make sense to implement this same compensation plan in international operations? Probably not.

Masculinity and femininity refers to the distribution of emotional roles between genders, and which gender norms are accepted by society. For example, in countries that are focused on femininity, traditional “female” values such as caring are more important than, say, showing off. The implications to HRM are huge. For example, Sweden has a more feminine culture, which is demonstrated in its management practices. A major component in managers’ performance appraisals is to provide mentoring to employees. A manager coming from a more masculine culture may not be able to perform this aspect of the job as well, or he or she may take more practice to be able to do it.

The last dimension is long-term–short-term orientation, which refers to the society’s time horizons. A long-term orientation would focus on future rewards for work now, persistence, and ordering of relationships by status. A short-term orientation may focus on values related to the past and present such as national pride or fulfillment of current obligations. We can see HRM dimensions with this orientation in succession planning, for example. In China the person getting promoted might be the person who has been with the company the longest, whereas in short-term orientation countries like the United States, promotion is usually based on merit. An American working for a Chinese company may get upset to see someone promoted who doesn’t do as good of a job, just because they have been there longer, and vice versa.

Based on Hofstede’s dimensions, you can see the importance of culture to development of an international HRM strategy. To utilize a transnational strategy, all these components should be factored into all decisions such as hiring, compensation, and training. Since culture is a key component in HRM, it is important now to define some other elements of culture.

Culture refers to the socially accepted ways of life within a society. Some of these components might include language, norms, values, rituals, and material culture such as art, music, and tools used in that culture. Language is perhaps one of the most obvious parts of culture. Often language can define a culture and of course is necessary to be able to do business. HRM considerations for language might include something as simple as what language (the home country or host country) will documents be sent in? Is there a standard language the company should use within its communications?

Types of Staffing Strategy

There are three main staffing strategies a company can implement when entering an overseas market, with each having its advantages and disadvantages. The first strategy is a home-country national strategy. This staffing strategy uses employees from the home country to live and work in the country. These individuals are called expatriates. The second staffing strategy is a host-country national strategy, which means to employ people who were born in the country in which the business is operating. Finally, a third-country national strategy means to employee people from an entirely different country from the home country and host country. Table 14.4 “Advantages and Disadvantages of the Three Staffing Strategies” lists advantages and disadvantages of each type of staffing strategy. Whichever strategy is chosen, communication with the home office and strategic alignment with overseas operations need to occur for a successful venture.

Expatriates

According to Simcha Ronen, a researcher on international assignments, there are five categories that determine expatriate success. They include job factors, relational dimensions, motivational state, family situation, and language skills. The likelihood the assignment will be a success depends on the attributes listed in Table 14.5 “Categories of Expatriate Success Predictors with Examples”. As a result, the appropriate selection process and training can prevent some of these failings. Family stress, cultural inflexibility, emotional immaturity, too much responsibility, and longer work hours (which draw the expatriate away from family, who could also be experiencing culture shock) are some of the reasons cited for expatriate failure.

Most expatriates go through four phases of adjustment when they move overseas for an assignment. They include elation/honeymoon, resistance, adaption, and biculturalism. In the elation phase, the employee is excited about the new surroundings and finds the culture exotic and stimulating. In the resistance phase, the employee may start to make frequent comparisons between home and host country and may seek out reminders of home. Frustration may occur because of everyday living, such as language and cultural differences. During the adaptation phase, the employee gains language skills and starts to adjust to life overseas. Sometimes during this phase, expatriates may even tend to reject their own culture. In this phase, the expatriate is embracing life overseas. In the last phase, biculturalism, the expatriate embraces the new culture and begins to appreciate his old life at home equally as much as his new life overseas. Many of the problems associated with expatriate failures, such as family life and cultural stress, have diminished.

Host-Country National

The advantage, as shown in Table 14.4 “Advantages and Disadvantages of the Three Staffing Strategies”, of hiring a host-country national can be an important consideration when designing the staffing strategy. First, it is less costly in both moving expenses and training to hire a local person. Some of the less obvious expenses, however, may be the fact that a host-country national may be more productive from the start, as he or she does not have many of the cultural challenges associated with an overseas assignment. The host-country national already knows the culture and laws, for example. In Russia, 42 percent of respondents in an expatriate survey said that companies operating there are starting to replace expatriates with local specialists. In fact, many of the respondents want the Russian government to limit the number of expatriates working for a company to 10 percent.“Russia Starts to Abolish Expat jobs,” Expat Daily, April 27, 2011, accessed August 11, 2011, http://www.expat-daily.com/news/russia-starts-to-abolish-expat-jobs/. When globalization first occurred, it was more likely that expatriates would be sent to host countries, but in 2011, many global companies are comfortable that the skills, knowledge, and abilities of managers exist in the countries in which they operate, making the hiring of a host-country national a favorable choice. Also important are the connections the host-country nationals may have. For example, Shiv Argawal, CEO of ABC Consultants in India, says, “An Indian CEO helps influence policy and regulations in the host country, and this is the factor that would make a global company consider hiring local talent as opposed to foreign talent.”Divya Rajagorpal and MC Govardhanna Rangan, “Global Firms Prefer Local Executives to Expats to Run Indian Operation,” Economic Times, April 20, 2011, accessed September 15, 2011, http://articles.economictimes.indiatimes.com/2011-04-20/news/29450955_1_global-firms-joint-ventures-investment-banking.

Third-Country Nationals

One of the best examples of third-country nationals is the US military. The US military has more than seventy thousand third-country nationals working for the military in places such as Iraq and Afghanistan. For example, a recruitment firm hired by the US military called Meridian Services Agency recruits hairstylists, construction workers, and electricians from all over the world to fill positions on military bases.Sarah Stillman, “The Invisible Army,” New Yorker, June 6, 2011, accessed August 11, 2011, http://www.newyorker.com/reporting/2011/06/06/110606fa_fact_stillman. Most companies who utilize third-country national labor are not new to multinational businesses. The majority of companies who use third-country national staffing have many operations already overseas. One example is a multinational company based in the United States that also has operations in Spain and transfers a Spanish manager to set up new operations in Argentina. This would be opposed to the company in the United States sending an American (expatriate) manager to Argentina. In this case, the third-country national approach might be the better approach because of the language aspect (both Spain and Argentina speak Spanish), which can create fewer costs in the long run. In fact, many American companies are seeing the value in hiring third-country nationals for overseas assignments. In an International Assignments Survey,“More Third Country Nationals Being Used,” n.d., SHRM India, accessed August 11, 2011, http://www.shrmindia.org/more-third-country-nationals-being-used. 61 percent of United States–based companies surveyed increased the use of third-country nationals by 61 percent, and of that number, 35 percent have increased the use of third-country nationals to 50 percent of their workforce. The main reason why companies use third-country nationals as a staffing strategy is the ability of a candidate to represent the company’s interests and transfer corporate technology and competencies. Sometimes the best person to do this isn’t based in the United States or in the host country.

Recruitment and Selection

As we discussed in Section 14.2 “Staffing Internationally”, understanding which staffing strategy to use is the first aspect of hiring the right person for the overseas assignment. The ideal candidate for an overseas assignment normally has the following characteristics:

1. Managerial competence: technical skills, leadership skills, knowledge specific to the company operations.
2. Training: The candidate either has or is willing to be trained on the language and culture of the host country.
3. Adaptability: The ability to deal with new, uncomfortable, or unfamiliar situations and the ability to adjust to the culture in which the candidate will be assigned.

As we discussed earlier, when selecting an expatriate or a third-country national for the job, assuring that the candidate has the job factors, relational dimensions, motivational state, family situation, and language skills (or can learn) is a key consideration in hiring the right person. Some of the costs associated with failure of an expatriate or third-country national might include the following:

1. Damage to host-country relationships
2. Motivation of host-country staff
3. Costs associated with recruitment and relocation
4. Possible loss of that employee once he or she returns
5. Missed opportunities to further develop the market

Because success on an overseas assignment has such complex factors, the selection process for this individual should be different from the selection process when hiring domestically. The process should start with the job analysis, as we discussed in Chapter 4 “Recruitment”. The job analysis and job description should be different for the overseas assignment, since we know that certain competencies (besides technical ones) are important for success. Most of those competencies have little to do with the person’s ability to do the job but are related to his or her ability to do the job in a new cultural setting. These additional competencies (besides the skills needed for the job) may be considered:

1. Experience working internationally
2. Extroverted
3. Stress tolerance
4. Language skills
5. Cultural experiences

Once the key success factors are determined, many of which can be based on previous overseas assignments successes, we can begin to develop a pool of internal candidates who possess the additional competencies needed for a successful overseas assignment.

To develop the pool, career development questions on the performance review can be asked to determine the employee’s interest in an overseas assignment. Interest is an important factor; otherwise, the chance of success is low. If there is interest, this person can be recorded as a possible applicant. An easy way to keep track of interested people is to keep a spreadsheet of interested parties, skills, languages spoken, cultural experiences, abilities, and how the candidates meet the competencies you have already developed.

Once an overseas assignment is open, you can view the pool of interested parties and choose the ones to interview who meet the competencies required for the particular assignment.

Training

Much of the training may include cultural components, which were cited by 73 percent of successful expatriates as key ingredients to success.The Economist Intelligence Unit, Up or Out: Next Moves for the Modern Expatriate, 2010, accessed April 28, 2011, http://graphics.eiu.com/upload/eb/LON_PL_Regus_WEB2.pdf.

Training isn’t always easy, though. The goal is not to help someone learn a language or cultural traditions but to ensure they are immersed in the sociocultural aspects of the new culture they are living in. Roger N. Blakeney,Roger Blakeney, “Psychological Adjustment and Sociocultural Adaptation: Coping on International Assignments” (paper, Annual Meeting of Academy of Management, Atlanta, GA, 2006). an international business researcher, identifies two main pathways to adapting to a new culture. First, people adjust quickly from the psychological perspective but not the social one. Blakeney argues that adjusting solely from the psychological perspective does not make an effective expatriate. Although it may take more time to adjust, he says that to be fully immersed and to fully understand and be productive in a culture, the expatriate must also have sociocultural adaption. In other words, someone who can adjust from a sociocultural perspective ends up performing better because he or she has a deeper level of understanding of the culture. Determining whether your candidate can gain this deeper level would figure in your selection process.

One of the key decisions in any global organization is whether training should be performed in-house or an outside company should be hired to provide the training. For example, Communicaid offers online and on-site training on a variety of topics listed. Whether in-house or external training is performed, there are five main components of training someone for an overseas assignment:

1. Language
2. Culture
3. Goal setting
4. Managing family and stress
5. Repatriation

Training on languages is a basic yet necessary factor to the success of the assignment. Although to many, English is the international business language, we shouldn’t discount the ability to speak the language of the country in which one is living. Consider Japan’s largest online retailer, Rakuten, Inc. It mandated that English will be the standard language by March 2012.Jeff Thredgold, “English Is Increasingly the International Language of Business,” Deseret News, December 14, 2010, accessed August 11, 2011, http://www.deseretnews.com/article/700091766/English-is-increasingly-the-international-language-of-business.html. Other employers, such as Nissan and Sony, have made similar mandates or have already implemented an English-only policy. Despite this, a large percentage of your employee’s time will be spent outside work, where mastery of the language is important to enjoy living in another country. In addition, being able to discuss and negotiate in the mother tongue of the country can give your employee greater advantages when working on an overseas assignment. Part of language, as we discussed in Chapter 9, isn’t only about what you say but also includes all the nonverbal aspects of language. Consider the following examples:

• In the United States, we place our palm upward and use one finger to call someone over. In Malaysia, this is only used for calling animals. In much of Europe, calling someone over is done with palm down, making a scratching motion with the fingers (as opposed to one finger in the United States). In Columbia, soft handclaps are used.
• In many business situations in the United States, it is common to cross your legs, pointing the soles of your shoes to someone. In Southeast Asia, this is an insult since the feet are the dirtiest and lowest part of the body.
• Spatial differences are an aspect of nonverbal language as well. In the United States, we tend to stand thirty-six inches (an arm length) from people, but in Chile, for example, the space is much smaller.
• Proper greetings of business colleagues differ from country to country.
• The amount of eye contact varies. For example, in the United States, it is normal to make constant eye contact with the person you are speaking with, but in Japan it would be rude to make constant eye contact with someone with more age or seniority.

The goal of cultural training is to train employees what the “norms” are in a particular culture. Many of these norms come from history, past experience, and values. Cultural training can include any of the following topics:

1. Etiquette
2. Management styles
3. History
4. Religion
5. The arts
6. Food
7. Geography
8. Logistics aspects, such as transportation and currency
9. Politics

Cultural training is important. Although cultural implications are not often discussed openly, not understanding the culture can harm the success of a manager when on overseas assignment. For example, when Revlon expanded its business into Brazil, one of the first products it marketed was a Camellia flower scented perfume. What the expatriate managers didn’t realize is that the Camellia flower is used for funerals, so of course, the product failed in that country.Sudipta Roy, “Brand Failures: A Consumer Perspective to Formulate a MNC Entry Strategy” (postgraduate diploma, XLRI School of Business and Human Resources, 1998), accessed August 12, 2011, http://sudiptaroy.tripod.com/dissfin.pdf. Cultural implications, such as management style, are not always so obvious. Consider the US manager who went to Mexico to manage a production line. He applied the same management style that worked well in America, asking a lot of questions and opinions of employees. When employees started to quit, he found out later that employees expect managers to be the authority figure, and when the manager asked questions, they assumed he didn’t know what he was doing.

Training on the goals and expectations for the expatriate worker is important. Since most individuals take an overseas assignment to boost their careers, having clear expectations and understanding of what they are expected to accomplish sets the expatriate up for success.

Because moving to a new place, especially a new country, is stressful, it is important to train the employee on managing stress, homesickness, culture shock, and likely a larger workload than the employee may have had at home. Some stress results from insecurity and homesickness. It is important to note that much of this stress occurs on the family as well. The expatriate may be performing and adjusting well, but if the family isn’t, this can cause greater stress on the employee, resulting in a failed assignment. Four stages of expatriate stress identified in the Selyes model, the General Adaption Syndrome, are shown in Figure 14.5 “General Adaption Syndrome to Explain Expatriate Stress”. The success of overseas employees depends greatly on their ability to adjust, and training employees on the stages of adjustment they will feel may help ease this problem.

Spouses and children of the employee may also experience much of the stress the expatriate feels. Children’s attendance at new schools and lack of social networks, as well as possible sacrifice of a spouse’s career goal, can negatively impact the assignment. Many companies offer training not only for the employee but for the entire family when engaging in an overseas assignment. For example, global technology and manufacturing company Honeywell offers employees and their families a two-day cultural orientation on the region they will be living in.Leslie Gross Klaff, “The Right Way to Bring Expats Home,” BNET, July 2002, accessed August 12, 2011, http://findarticles.com/p/articles/mi_m0FXS/is_7_81/ai_89269493/. Some of the reasons for lack of adjustment by family members might include the following:

1. Language issues
2. Social issues
3. Schooling
4. Housing
5. Medical services

The ability of the organization to meet these family needs makes for a more successful assignment. For example, development of an overseas network to provide social outlets, activities, schooling and housing options, assignment of mentors to the spouse, and other methods can help ease the transition.

Finally, repatriation is the process of helping employees make the transition to their home country. Many employees experience reverse culture shock upon returning home, which is a psychological phenomenon that can lead to feelings of fear, helplessness, irritability, and disorientation. All these factors can cause employees to leave the organization soon after returning from an assignment, and to take their knowledge with them. One problem with repatriation is that the expatriate and family have assumed things stayed the same at home, while in fact friends may have moved, friends changed, or new managers may have been hired along with new employees. Although the manager may be on the same level as other managers when he or she returns, the manager may have less informal authority and clout than managers who have been working in the particular office for a period of time. An effective repatriation program can cost $3,500 to $10,000 per family, but the investment is worth it given the critical skills the managers will have gained and can share with the organization. In fact, many expatriates fill leadership positions within organizations, leveraging the skills they gained overseas. One such example is FedEx president and CEO David Bronczek and executive vice president Michael Drucker. Tom Mullady, the manager of international compensation planning at FedEx, makes the case for a good repatriation program when he says, “As we become more and more global, it shows that experience overseas is leveraged back home.” Leslie Gross Klaff, “The Right Way to Bring Expats Home,” BNET, July 2002, accessed August 12, 2011, http://findarticles.com/p/articles/mi_m0FXS/is_7_81/ai_89269493/

Repatriation planning should happen before the employee leaves on assignment and should be a continuous process throughout the assignment and upon return. The process can include the following:

• Training and counseling on overseas assignment before leaving
• Clear understanding of goals before leaving, so the expatriate can have a clear sense as to what new skills and knowledge he or she will bring back home
• Job guarantee upon return (Deloitte and Touche, for example, discusses which job each of the two hundred expats will take after returning, before the person leaves, and offers a written letter of commitment.Leslie Gross Klaff, “The Right Way to Bring Expats Home,” BNET, July 2002, accessed August 12, 2011, http://findarticles.com/p/articles/mi_m0FXS/is_7_81/ai_89269493/)
• Assigning the expatriate a mentor, ideally a former expatriate
• Keeping communication from home open, such as company newsletters and announcements
• Free return trips home to stay in touch with friends and family
• Counseling (at Honeywell, employees and families go through a repatriation program within six months of returning.Leslie Gross Klaff, “The Right Way to Bring Expats Home,” BNET, July 2002, accessed August 12, 2011, http://findarticles.com/p/articles/mi_m0FXS/is_7_81/ai_89269493/)
• Sponsoring brown bag lunches where the expatriate can discuss what he or she learned while overseas
• Trying to place expatriates in positions where they can conduct business with employees and clients from where they lived

It is also important to note that offering an employee an international assignment can help develop that person’s understanding of the business, management style, and other business-related development. Working overseas can be a crucial component to succession planning. It can also be a morale booster for other employees, who see that the chosen expatriate is further able to develop his or her career within the organization.

While the focus of this section has been on expatriate assignments, the same information on training is true for third-country nationals.

If it is decided that host-country nationals will be hired, different training considerations might occur. For example, will they spend some time at your domestic corporate headquarters to learn the business, then apply what they learned when they go home? Or, does it make more sense to send a domestic manager overseas to train the host-country manager and staff? Training will obviously vary based on the type of business and the country, and it may make sense to gain input from host-country managers as opposed to developing training on your own. As we have already discussed in this chapter, an understanding of the cultural components is the first step to developing training that can be utilized in any country.

Compensation and Rewards

There are a few options when choosing compensation for a global business. The first option is to maintain companywide pay scales and policies, so for example, all sales staff are paid the same no matter what country they are in. This can reduce inequalities and simplify recording keeping, but it does not address some key issues. First, this compensation policy does not address that it can be much more expensive to live in one place versus another. A salesperson working in Japan has much higher living expenses than a salesperson working in Peru, for example. As a result, the majority of organizations thus choose to use a pay banding system based on regions, such as South America, Europe, and North America. This is called a localized compensation strategy. Microsoft and Kraft Foods both use this approach. This method provides the best balance of cost-of-living considerations.

However, regional pay banding is not necessarily the ideal solution if the goal is to motivate expatriates to move. For example, if the employee has been asked to move from Japan to Peru and the salary is different, by half, for example, there is little motivation for that employee to want to take an assignment in Peru, thus limiting the potential benefits of mobility for employees and for the company.

One possible option is to pay a similar base salary companywide or regionwide and offer expatriates an allowance based on specific market conditions in each country.J. Cartland, “Reward Policies in a Global Corporation,” Business Quarterly, Autumn 1993, 93–96. This is called the balance sheet approach. With this compensation approach, the idea is that the expatriate should have the same standard of living that he or she would have had at home. Four groups of expenses are looked at in this approach:

1. Income taxes
2. Housing
3. Goods and services
4. Base salary
5. Overseas premium

The HR professional would estimate these expenses within the home country and costs for the same items in the host country. The employer then pays differences. In addition, the base salary will normally be in the same range as the home-country salary, and an overseas premium might be paid owing to the challenge of an overseas assignment. An overseas premium is an additional bonus for agreeing to take an overseas assignment. There are many companies specializing in cost-of-living data, such as Mercer Reports. It provides cost-of-living information at a cost of $600 per year. Table 14.6 “The Balance Sheet Approach to Compensation” shows a hypothetical example of how the balance sheet approach would work.

Other compensation issues, which will vary greatly from country to country, might include the following:

1. The cost of benefits in another country. Many countries offer universal health care (offset by higher taxes), and therefore the employee would have health benefits covered while working and paying taxes in that country. Canada, Finland, and Japan are examples of countries that have this type of coverage. In countries such as Singapore, all residents receive a catastrophic policy from the government, but they need to purchase additional insurance for routine care.Countries with Universal Healthcare (no date), accessed August 11, 2011, http://truecostblog.com/2009/08/09/countries-with-universal-healthcare-by-date/. A number of organizations offer health care for expatriates relocating to another country in which health care is not already provided.
2. Legally mandated (or culturally accepted) amount of vacation days. For example, in Australia twenty paid vacation days are required, ten in Canada, thirty in Finland, and five in the Philippines. The average number of US worker vacation days is fifteen, although the number of days is not federally mandated by the government, as with the other examples.Jeanne Sahadi, “Who Gets the Most (and Least) Vacation” CNN Money, June 14, 2007, accessed August 11, 2011, http://money.cnn.com/2007/06/12/pf/vacation_days_worldwide/.
3. Legal requirements of profit sharing. For example, in France, the government heavily regulates profit sharing programs.Wilke, Maack, und Partner, “Profit-Sharing,” Country Reports on Financial Participation in Europe, 2007, worker-participation.eu, 2007, accessed August 12, 2011, http://www.worker-participation.eu/National-Industrial-Relations/Across-Europe/Financial-Participation/Profit-sharing.
4. Pay system that works with the country culture, such as pay systems based on seniority. For example, Chinese culture focuses heavily on seniority, and pay scales should be developed according to seniority. In Figure 14.6 “Hourly World Compensation Comparisons for Manufacturing Jobs”, examples of hourly compensation for manufacturing workers are compared.
5. Thirteenth month (bonus) structures and expected (sometimes mandated) annual lump-sum payments. Compensation issues are a major consideration in motivating overseas employees. A systematic system should be in place to ensure fairness in compensation for all expatriates.

Performance Evaluations

The challenge in overseas performance evaluations is determining who should rate the performance of the expatriate. While it might make sense to have the host-country employees and managers rate the expatriate, cultural differences may make this process ineffective. Cultural challenges may make the host country rate the expatriate more harshly, or in some cases, such as Indonesia, harmony is more important than productivity, so it may be likely an Indonesia employee or manager rates the expatriate higher, to keep harmony in the workplace.George Whitfield, “Do as I Say, Not as I Do: Annual Performance Appraisal and Evaluation in Indonesia” n.d., Living in Indonesia, accessed August 11, 2011, http://www.expat.or.id/business/annualperformanceappraisal.html.

If the home-country manager rates the performance of the expatriate, he or she may not have a clear indication of the performance, since the manager and expatriate do not work together on a day-to-day basis. A study performed by Gregersen, Hite, and Black suggests that a balanced set of raters from host and home countries and more frequent appraisals relate positively to the accuracy of performance evaluations.Hal Gregersen, Julie Hite, and Steward Black, “Expatriate Performance Appraisal in US Multinational Firms,” Journal of International Business Studies 27, no. 4 (1996): 711–38. They also suggest that the use of a standardized form relates negatively to perceived accuracy. Carrie Shearer, an international HR expert, concurs by stating that the standardized form, if used, should also include special aspects for the expatriate manager, such as how well the expatriate fits in with the culture and adaptation ability.Carrie Shearer, “Expat Performance Appraisal: A Two Tier Process?” October 8, 2004, Expatrica.com, accessed August 12, 2011, http://www.expatica.com/hr/story/expat-performance-appraisal-a-two-tier-process-10529.html.

Besides determining who should rate the expatriate’s performance, the HR professional should determine the criteria for evaluating the expatriate. Since it is likely the expatriate’s job will be different overseas, the previous criteria used may not be helpful in the evaluation process. The criteria used to rate the performance should be determined ahead of time, before the expatriate leaves on assignment. This is part of the training process we discussed earlier. Having a clear picture of the rating criteria for an overseas assignment makes it both useful for the development of the employee and for the organization as a tool. A performance appraisal also offers a good opportunity for the organization to obtain feedback about how well the assignment is going and to determine whether enough support is being provided to the expatriate.

The International Labor Environment

As we have already alluded to in this chapter, understanding of laws and how they relate to host-country employees and expatriates can vary from country to country. Because of this, individual research on laws in the specific countries is necessary to ensure adherence:

1. Worker safety laws
2. Worker compensation laws
3. Safety requirements
4. Working age restrictions
5. Maternity/paternity leaves
6. Unionization laws
7. Vacation time requirements
8. Average work week hours
9. Privacy laws
10. Disability laws
11. Multiculturalism and diverse workplace, antidiscrimination law
12. Taxation

As you can tell from this list, the considerable HRM factors when doing business overseas should be thoroughly researched.

One important factor worth mentioning here is labor unions. As you remember from Chapter 12 “Working with Labor Unions”, labor unions have declined in membership in the United States. Collective bargaining is the process of developing an employment contract between a union and management within an organization. The process of collective bargaining can range from little government involvement to extreme government involvement as in France, for example, where some of the labor unions are closely tied with political parties in the country.

Some countries, such as Germany, engage in codetermination, mandated by the government. Codetermination is the practice of company shareholders’ and employees’ being represented in equal numbers on the boards of organizations, for organizations with five hundred or more employees. The advantage of this system is the sharing of power throughout all levels of the organization; however, some critics feel it is not the place of government to tell companies how their corporation should be run. The goal of such a mandate is to reduce labor conflict issues and increase bargaining power of workers.

Taxation of expatriates is an important aspect of international HRM. Of course, taxes are different in every country, and it is up to the HR professional to know how taxes will affect the compensation of the expatriate. The United States has income tax treaties with forty-two countries, meaning taxing authorities of treaty countries can share information (such as income and foreign taxes paid) on residents living in other countries. US citizens must file a tax return, even if they have not lived in the United States during the tax year. US taxpayers claim over $90 billion in foreign tax credits on a yearly basis.Internal Revenue Service, “Foreign Tax Credit,” accessed August 13, 2011, http://www.irs.gov/businesses/article/0,,id=183263,00.html. Foreign tax credits allow expatriates working abroad to claim taxes paid overseas on their US tax forms, reducing or eliminating double taxation. Many organizations with expatriate workers choose to enlist the help of tax accountants for their workers to ensure workers are paying the correct amount of taxes both abroad and in the United States.

Logistics of International Assignments

As you learned earlier, providing training for the expatriate is an important part of a successful assignment. However, many of the day-to-day aspects of living are important, too.

One of the most important logistical aspects is to make sure the employee can legally work in the country where you will be sending him or her, and ensuring his or her family has appropriate documentation as well. A visa is permission from the host country to visit, live, or work in that country. Obtaining visas is normally the job of an HR professional. For example, the US Department of State and the majority of countries require that all US citizens have a valid passport to travel to a foreign country. This is the first step to ensuring your host-country national or third-country national can travel and work in that country.

Next, understanding the different types of visas is a component to this process. For example, the United States offers a Visa Waiver Program (VWP) that allows some nationals of thirty-six participating countries to travel to the United States for stays of less than ninety days. Iceland, Singapore, and France are examples of countries that participate in this program. For most host-national assignments, however, this type of visa may not be long enough, which then requires research of the individual country. It is important to mention that most countries have several types of visas, such as the following:

1. Visas for crew members working on ships or airlines
2. Tourist visas
3. Student visas
4. Employment visas for long-term employment at a foreign company
5. Business visas

The visa process and time line can vary greatly depending on the country for which the visa is required. For example, obtaining a visa to work in China may take six months or longer. The best place to research this topic is on the country’s embassy website.

Besides ensuring the expatriate can legally work in the country, other considerations are worth mentioning as well:

1. Housing. Where will I live is one of the most important questions that an expatriate may ask. The HR professional can help this process by outsourcing a leasing or rental company in the city where the expatriate will live to find a rental that meets the expectations of the expatriate. Choosing a place to live ahead of time can reduce stress (one of the causes of failure for assignments) for the expatriate and his or her family. Allowances may be made for housing costs, as discussed in the compensation section.
2. Moving belongings. Determination of how belongings left behind will be stored at home or if those items will be brought to the host country is another logistical consideration. If items will be brought, beyond what can be carried in a suitcase, the HR professional may want to consider hiring a moving logistics company that specializes in expatriate moves to help with this process.
3. The possibility of return trips home. As part of the initial discussion, the option of offering return trips home can make repatriation and performance reviews with home-country managers easier. This also gives the expatriate and his or her family the opportunity to visit with family and friends, reducing reverse culture shock upon return.
4. Schooling. Some organizations may want to provide information on the schooling system to the expatriate, if he or she has children. Schools begin at different times of the year, and this information can make the registration process for school easier on the family.
5. Spousal job. We know already from earlier in this chapter that one of the biggest challenges facing expatriates (and reasons for failure) is unhappiness of the spouse. He or she may have had a career at home and given that up while the spouse takes an assignment. HR professionals might consider offering job search services as part of the allowance discussed earlier in this chapter. Lockheed Martin, for example, offers job search services to spouses moving overseas.Maureen Minehan, “Six Job Search Tips for Expatriate Spouses,” n.d., Expatica, accessed August 12, 2011, http://www.expatica.com/nl/essentials_moving_to/essentials/six-job-search-tips-for-expatriate-spouses-327_9125.html.

In any situation, support from the HR professional will help make the assignment a success, which shows that HRM practices should be aligned with company goals.