Guide

To
International Human Resource
Management

By

Santosh Bagwe
Santosh_bagwe@hotmail.com
+91 99676 42282
 Index
• Introduction to International HRM

 Definition
 Difference between IHRM and Domestic HRM
 Difference between Domestic and International Managers
 Type of International Employees
 Issues in IHRM
 Barriers to Effective Global HRM

• Understanding Culture

 Elements of Culture
 Factors encouraging convergence of Cultures
 Factors encouraging change of culture
 Determinants of Culture
 Importance of cultural sensitivity for global business and diplomacy
 Impact of culture on management approaches

• Cross Culture Business Communication and Behaviour

 Deal Focus VS Relationship Focus

 Formal VS Informal
 Rigid Time VS Fluid Time
 Expressive VS Reserved Cultures
 Business Protocol

• Cross Cultural Negotiations

 Need for cross cultural negotiations

 Anatomy of negotiations
 Prepare for international negotiations
 Parameters of negotiations
 Planning for negotiations
 Importance of trust in negotiations
 Negotiation styles of major cultural groups and countries

• International Business and IHRM Approaches

 Stages of Internationalisation of Business

 Management Philosophy/Approaches to IHRM
 Competencies Required in International Managers
• Recruitment and Selection by Multinationals

 International Labour Market Sources

 Selection Procedure of Expatriates
 Expatriate Success Factors
 Adaptability to cultural change

• Expatriate Training and Development

 Need for training to Expatriate

 Cultural Integrator
 Cultural Awareness Training
 Types of Cross Cultural Training
 Cultural Assimilators

• Organising Multinational Structures

 Stages of Structural Evolution of Multinationals

 New Types of Multinational Structures
 Role of Human Resource

• Compensation Management

 Factors Influencing Compensation Programmes

 Paying Expatriates
 Approaches to Expatriate’s Compensation
 Cultural Impact and Compensation Policy

• Performance Management in International Organisations

 Performance Management and its link with other HR processes

 Multinational Performance Management
 Performance Management of Expatriates
 Variables that Influence Performance of Expatriate

• Organisational Ethics

 Ethics
 Ethical Issues Facing Multinationals
 What can Organisations do to foster Ethical Behaviour
 Good Corporate Citizen
Introduction to International HRM

Definition

General : “Procurement, allocation, utilisation and motivation of Human Resources in

International business.”

P Morgan: Two groups of variables that affects basic HR process

1st – Types of employees
2nd – Political, economic, legal environment, labour laws and practices prevailing in
different countries

Accordingly IHRM can be defined as an interplay between these two group of factors.

But in other model, one more group is added i.e. multinational’s operational
philosophy.

Difference between IHRM and Domestic HRM

• Responsible for a greater number of functions and activities

• Broader knowledge of foreign county employment law
• Closely involved with employees lives
• Cope with more external influences
• Exposure to problems and liabilities
• Management of differential compensation
• Diversity management
• More liasoning activities
• More coordination and travel
• More risk management

Difference between Domestic and International Managers

• Global mindset
• Communication skills
• Conflict management skills
• Oriented towards a process of continual change
• International experience
• Political, economical and social sensitivity and knowledge of many countries
• Knowledge of culture shock and how to minimise it
• Leadership and team building skills
Types of International employees

1) Foreing parent expatriates

2) Host Country nationals
3) Third Country expatriates of foreign parent
4) Third Country expatriates of new venture

Issues in IHRM

• Managing international assignments

• Employee and family adjustment
• Selecting the right person for a foreign assignment
• Culture, communication and gauge
• Language and communication

Barriers to effective global HRM

• Variations
• Perception of HR
• Attitude and actions of headquarters towards HR
• Resistance to change
• Cultural differences in learning and teaching styles
Understanding Culture

Elements of Cultures

• Values form the bedrock of a culture

• Norms
 Folkways – actions of little more significance, the way people
are expected to behave
 Mores – Central to the functioning of a society and to its social
life

• Cultural traits – unique aspects of individual cultures

• Enculturation – the process of acquiring cultural traits
• Diffusion – the process through which cultures change
• Acculturation – traits borrowed over short term become permanently adopted
• Assimilation – immigrants or other newcomers adopt the culture of society in
which they have settled

Factors encouraging convergence of Cultures

• Improvements in transport and communications

• Globalization of media
• Similarities in the tastes and consumption patterns of young people
• The operation of multinationals across the world
• Consumers’ willingness to accept fresh ideas and try new products
• Adoption of similar technologies in several countries

Factors encouraging change of culture

• Rising living standards

• Urbanization of population
• Immigration and emigration
• Economic and political destabilization
• Improvement in the education system
• Opening of foreign trade
• Introduction of new technologies
Determinants of Culture

• Religion – a system of shared beliefs and rituals that are concerned with the
realm of the sacred. What is important for management is how religion shapes
the attitude of a society towards work and entrepreneurship.
• Social Structure – It is the degree of relative importance to individualism or
group that differentiates different cultures.
• Social Mobility – The extent to which individuals can move out of the caste or
class in which they are born.
• Language – It distinguishes one culture from another.
• Education – Learning and sharing cultural values happens through the
education system.
• Aesthetics – the things such as designs, forms, colours, shapes, sound,
conveying the concept of beauty and good taste. These are reflected in the
music, art and architecture of a society.

Importance of cultural sensitivity for global business and diplomacy

• Communicate effectively with customers, suppliers, business associates in

other countries and with foreign employees
• Conduct negotiations and understand body language of other parties
• Predict trends in social behavior likely to affect the firm’s foreign operations
• Realize social responsibility in various countries
• Predict impact of cultural differences on consumer reactions to advertisements
• Foster relationship between union and employees
• Understand local govt. policies
• Conduct efficient meetings in different meetings and encourage employee
participation

Impact of culture on management approaches

• Centralized vs decentralized decision making

• Safety vs risk
• Individual vs group rewards
• Informal vs formal procedures
• High vs low organizational loyalty
• Cooperation vs competition
• Short term vs long term horizon
• Stability vs innovation
Cross Culture Business Communication and Behaviour

Deal Focus VS Relationship Focus

Deal Focus Culture Relationship Focus Culture

Task oriented People Oriented

DF find RF dilatory, vague and
inscrutable
Open to do business with strangers. They
straight away talk business and get down
to facts.
DF value direct, frank, straightforward
language
RF find DF as pushy, aggressive and
offensively blunt.
Prefer to deal with family, friends and
persons who can be well known and
trusted
RF favours an indirect, subtle,
roundabout style. They give priority to
maintaining harmony and avoid saying
anything that may cause embarrassment
or loss of face.

Country wise distribution

DF: German, North America, Australia and New Zealand

Moderately DF: UK, SA, Brazil, Mexico, Hong Kong and Singapore

RF: Arab World, Africa, Latin America and Asia

Formal VS Informal

Formal Culture Informal Culture

Organized in steep hierarchies which Egalitarian organization with smaller

reflects major differences in status and
power
Formal way of addressing people and
maintaining proper protocol are ways of
showing respect to people.
differences in status and power
RF don’t know how to show respect to
high-ranking persons from formal
cultures.

Country wise distribution

Formal: Most of Europe, Asia, Arab, Latin America

Informal: Australia, USA, Canada, New Zealand, Denmark, Norway, Israel

Rigid Time VS Fluid Time

Rigid Time Fluid Time

Punctuality is critical, schedules are set in Less emphasis on punctuality and not
concrete, agendas are fixed and business obsessed with deadlines. Meeting within
meetings are rarely interrupted. meeting.

Country wise distribution

Monochronic Business Culture: North America, Japan, German

Moderately Monochronic Business Culture: Australia, New Zealand, Singapore,

Taiwan, China, South Korea, South Africa, Southern Europe

Polychronic Business Culture: Arab World, Africa, Latin America, SE Asia

Expressive VS Reserved Culture

Expressive Reserved

Expressive people tend to be Reserved cultures feel at ease with much

uncomfortable with more than a second longer silence.
of silence during conversation.

Country wise distribution

Very Expressive Culture: Latin Europe, Latin America

Variably Expressive Culture: USA, Canada, Australia, New Zealand, South Asia,
Africa

Reserved Culture: East and SE Asia, Nordic Europe

Business Protocol
• Dress Code
• Business Cards
• Gifts
• Form of Address
Cross Cultural Negotiations

Need of cross cultural negotiations

• Govt. often imposes restrictions on repatriation of profits and ownership of

raw material resources and requires employment of local people and use of
indigenous input.
MNCs have resources, technology and management skills and they want tax
concessions and protection of their patents and technology.
Hence the two must interact and negotiate with each other to settle terms.

• Seeking to enter a market via an agent or distributor

• Setting up sales network
• Establishing a joint venture or production facility
• Licensing a technology or seeking technology transfer
• Mergers and acquisition

Anatomy of negotiation

Negotiations involve two levels

• Rational decision-making level
• Psychological and social level

Psychological and social elements are affected by culture, therefore, negotiations are
as much to do with psychological as with the rational.

Preparation for negotiation

• Taxation and legal data

• Commercial data
• Financial and economic data
• Infrastructure data
• Labour force data
• Political data
• Trade unions
• Cultural data

Parameters of negotiation

• When to negotiate
• When to negotiate
• Who negotiates
• Who has the authority to decide
• Why negotiate
• How to negotiate
• How much time is needed for negotiation
Planning for negotiations

• What is the minimum I can accept to resolve the conflict

• What is the maximum that I can ask for without appearing outrageous
• What is the maximum I can give away
• What is the least I can offer without appearing outrageous
• What answers is the other person likely to have these questions

How to conduct successful negotiations

• Separate people from the problem

• Emphasise win-win solutions
• Find underlying interests
• Use an objective standard
• Understand the other party
• Negotiation as a sequence of events
• The intangibles
Personalities
Physical space
Time pressure
Who has the authority to decide
Goals

Importance of Trust

This means accepting that they will

• Negotiate in good faith
• Exchange information that is needed to solve problems
• Not resort to unethical behaviour, for example, tapping your communication
with HO
• Respect the secrecy of information and opinions expressed in confidence
• Do their best to convince their members to accept any agreement that they
make with you
• Do their best to implement the agreement
Guidelines for negotiating in different cultural zones

• Japan (China, South Korea, Taiwan, Singapore) – A relationship-focused,

formal, monochromic and reserved culture
• Germany (UK, Denmark, Finland, Netherlands, Czech Republic) – A deal-
focused, moderately formal, monochromic and reserved culture
• France (Belgium, Italy, Spain, Hungary) – A moderately deal focused, formal,
variably expressive and monochromic culture
• Russia (Poland, Romania) – A relationship-focused, formal, polychromic and
expressive culture
• Brazil (Argentina, Mexico and other Latin American Countries) – A
relationship-focused, formal, polychromic and expressive culture
• Saudi Arabia (Egypt, Greece, Other Middle-eastern Countries) – A
relationship-focused, polychromic and expressive culture
• Australia (Canada, USA, New Zealand) – A deal-focused, informal,
monochromic and variable expressive culture
International Business and IHRM Approaches

Stages of Internationalisation of Business

• Domestic Firms
Many well-known firms were domestic firms.
Companies understand their markets, customers, perfect their technologies and
products, and learn to operate business.

• International Firms
A domestic firm begins the internationalisation process when it is involved in
direct and indirect exporting, importing, and licensing, franchising,
manufacturer’s contract, technical agreements or joint ventures.

• Multinational Firms
Any firms that performs its operations in at least two countries.
A firm that owns income-generating assets in more than one country.
A manufacturing company that does business in several countries.
Control is largely decentralised and it is expected to make decisions on local R
& D, production, distribution and marketing. The MNC HQ exercises
worldwide financial control.

• Transnational Firms
Advanced stage of MNC in which nationals of different countries hold shares
in Company
Strategies focus on the simultaneous attainment of local and experience
economies
Criteria for assessing the globalisation levels – Share of foreign assets, shares
of sales beyond the national boundaries and % of employment of foreign
nationals.

• Global
A corporation develops a coordinated system that searches the world to
borrow money at the lowest interest rates, purchases raw materials from
anywhere at the lowest price, manufactures at the lowest costs, sells at the
highest profits and invests in gains for highest return.
The world is a single entity for them.
Selects best people for management regardless of nationality.
It offers globally standardised products that are advanced, functional, reliable
and at low price.
It doesn’t completely reject product customisation and differentiation, but
adjusts to differences in product preferences only after exhausting all efforts to
retain standardisation.

• Transnational Confederations
Primarily organised around technology, design and marketing
A small or medium sized company rather than a large company
Stages of production performed by subcontractors, rather than by subsidiaries
or branches
Primarily a managing or marketing company
 Composed of two parts, one that designs and market product worldwide and
the other that manufactures the products

Management philosophy/approaches to IHRM

• Ethnocentric Organisation
Home oriented organisation. “This works in my country; therefore, it must
work in other countries also.”
They believe that home country nationals are more intelligent, reliable and
trustworthy.
All key positions in HQ and international are for Home Country nationals
When rewards are distributed, home country nationals receive the lion’s share.

• Polycentric Organisation
Host country oriented. “When in Rome do as the Romans do”
Local people know what is best for them. Let’s give them some money and
leave them alone as long as they make us a profit.
Home Country nationals at HQ and local nationals at respective local
subsidiary.
HQ keeps check through financial and posting of key persons.

• Regioncentric Organisation
Regionally oriented organisation
Eg. Japanese subsidiary will manage its Asian operations and a French
subsidiary will manage European operations
“Regional insiders know what neighbouring countries want”
Regional HQ will be responsible local R & D, local executive selection ,cash
management, brand policy, capital expenditure.
HQ will manage world strategy, country analysis, Intercompany loan, long
term financing, selection of top management

• Geocentric Organisation
World oriented
“All for one and one for all. We will work together to solve problems
anywhere in the world.”
The entire organisation focuses on worldwide and local objectives.
They integrate diverse regions through global decision making, making
possible flow of ideas between countries, allocate resources on a global basis,
erase geographical boundaries and globalise functional and product line.
Reward system motivates managers to surrender national biases and work for
worldwide objetives.
Competencies required in international managers

• Knowledge of One’s own country

• A global perspective
• Global mindset
• Knowledge of other country
• Understanding of international business environment
• Understanding international business partners
• Knowledge of Customers
• Knowledge of the silent and spoken international language
• Knowledge of business etiquettes of the host country
Recruitment and Selection by Multinationals

International Labour Market Sources

• Parent Country Nations (PCNs)

PCNs are managers who are citizens of the Country where the MNC is
headquartered.
The reasons for using PCNs include
- The desire to provide the company’s more promising managers with
international experience
- The need to maintain and facilitate organisational coordination and control
- The unavailability of managerial talent in the host country
- The company’s view of the foreign operation as short lived
- The host country’s multi-racial population
- The belief that a parent country manager is the best person for the job.

• Host Country Nationals (HCNs)

HCNs are local managers hired by MNCS
The reasons for using HCNs
- Familiar with the culture, language
- Less expensive, know the way things done, rules of local market
- Hiring them is good public relation

• Third Country Nationals (TCNs)

TCNs are managers who are citizens of countries other than the one in which
the MNC is headquartered or the one in which it is assigned to work by the
MNC.
The reason for using TCNs
- These people have the necessary expertise
- They were judged to be the best ones for the job.

Selection procedure of Expatriates

• Use of selection test
• Technical Ability
• Cross cultural requirements
Following traits are identified s predictors of expatriate success
- Cultural empathy
- Adaptability
- Diplomacy
- Language ability
- Positive attitude
- Emotional stability and maturity

• Family requirements
• Multinational requirements
- Management philosophy or approach
- The mode of operation involved
- The duration of assignment
 - The amount of knowledge transfer inherent in the expatriate’s job in
foreign operation

• Language skills

Expatriate Success factors

• Willing and motivated to go overseas

• Technically able to do the job
• Adaptable
• Good interpersonal skills and be able to form relationship
• Good communication ability
• Supportive families

Adaptability to cultural change

• Work experience with cultures other than one’s own

• Previous overseas travel
• Knowledge of foreign language
• Ability to integrate with different people, cultures, and type of business
organisation
• The ability to sense developments in the host country and accurately evaluate
them
• The ability to solve problems within different frameworks an from different
perspectives
• Sensitivity to subtle differences of culture, politics, religion and ethics in
addition to individual differences
• Flexibility in managing operations on a continuous basis, despite of lack of
assistance and gaps in information

An adjustment model

Two major types of adjustments that an expatriate must make when going on
an overseas assignment.

• Anticipatory adjustment
Carried on before he leaves for the assignment
It is influenced by following factors
- predeparture training
- pervious experience

• In-country adjustment
Takes place on site
It is influenced by following factors
- Ability to maintain a positive outlook in high pressure
- Jobs as reflected by the role he plays in managing, authority he has to
make decisions, newness of work-related challenges and the amount of
role conflicts
- Organisation culture
- Non work factors – toughness with he faces new cultural experience,
family adjustment with new country
- Socialisation factor – to know what is what and who is who
Expatriate Training and Development

Need for Training to Expatriate

• Cost of expatriate failure is very high

• To build a team of internationally oriented, committed and competent
personnel
• Minimize personal problems such as politeness, punctuality, tactfulness,
orderliness, sensitivity, reliability, tolerance and empathy
• Improve overall management style

Pre-departure Training- Emphasises on cultural awareness and business customs of

the country of posting to cope with unexpected events in a new country.

Post-departure Training – helps in minimising culture shock and depression that

usually sets in a new country and culture.

Cultural Integrator
• An individual who is responsible for ensuring that the operations and systems
are in accordance with the local culture.
• He advises guides and recommends action needed to ensure this
synchronisation.
• Even though expatriate are trained before being sent abroad, they are still not
totally prepared to deal with the day-to-day cultural challenges because they
lack field experience.
• He is responsible for handling problems between the subsidiary and host
cultures.
• He may be from parent country or host country who has intimate knowledge
of the company’s culture and can view operations from both sides.
• He can only advice ore recommend a course of action.

Management philosophy and training

• Ethnocentric companies will provide all training at the HQ.
• Polycentric companies will rely on local managers to assume responsibilities
for seeing that the training function is carried our wherever appropriate.
• Geocentric companies organise training courses in different parts of the world,
where a particular function is best carried out.
• Regiocentric companies organise training courses in different countries of the
region.

Cultural Awareness Training

• There are five types of pre-departure training
o Area studies that include environmental briefing and cultural
orientation
o Cultural assimilators
o Language training
o Sensitivity training and
o Field experience
 • To decide the rigour and level of training, following factors are important
o degree of interaction required in the host culture
o similarities between home and host cultures
• If interaction is low and similarities are high, then training should be on task
and job related issues rather than culture related issues.
• If interaction is high and similarities are low, then training should be on cross
cultural skill development as well as task.
• Preliminary visits
o average duration will be about one week
o A well planned overseas trip for candidate and spouse provides a
preview to access their suitability for job, introduction to host country
management, accommodation required, and schooling facilities
available.
• Language training

Types of cross cultural training

• Environment briefing about geography, climate, housing and schools
• Cultural orientation to familiarise with cultural institutions and value system
of host country
• Cultural assimilators to provide intercultural encounters
• Language training
• Sensitivity training to develop attitudinal flexibility
• Field experience to make expatriate familiarise with the challenges of
assignment

Cultural Assimilators
• It is a programmed learning technique that is designed to expose members of
one culture to some of the basic concepts, attitudes, role perceptions, customs
and values of another culture.
• These assimilators are developed for one culture where the candidate is
currently working and the other culture is where he is proposed to be posted.
• Type of assimilators
o The trainee read a short episode of cultural encounter and choose an
interpretation of has happened and why.
o Critical incidents: to be identified as a critical incident, a situation must
meet at least of the following conditions:
An expatriate and a host interact in the situation
The situation is puzzling or likely to be misinterpreted by the
expatriate
The situation can be accurately interpreted if sufficient knowledge
about the culture is available
• The situation is relevant to the expatriate’s task or mission requirements
Organising Multinational Structures

Stages of Structural Evolution of Multinationals

• Stage 1 – Export
o An export or import or franchising arrangement
o Company appoints an export manager who reports to chief of
marketing and all operations concerning export and imports are
controlled by the home office

• Stage 2 – Initial Division Structure

o At this stage, company creates an export division at the corporate home
office and the export division head directly reports to CEO.
o As international sales increases, the local government exert pressure to
set up manufacturing facilities. This prompts the company to set up a
subsidiary.
o Each subsidiary will be responsible for operations within its own
geographic area. Subsidiary manager reports directly to the export
division head
o The role of subsidiary manager is
To transfer of managerial and technical know-how to subsidiary
Communicate, coordinate and implement corporate policies
Assist corporate office by keeping HQ informed of political, economic
development, opportunities and threats in its market.
Liaising with local government

• Stage 3 - Global Product/Area/Functional Structure

o When companies start acquiring and allocating resources on the basis
of global opportunities and threats, global structures are necessary
either on product, geographical area or functional patterns

 Global Product Division:

- In this structure, the company treat each of its major products as
distinct SBUs.
- The logic behind this structure is that products and services of the
company should be sufficiently distinct in product technologies,
requiring different marketing skills to deal with different types of
customers and markets.
- Each product division is treated as a separate profit centre.
- The corporate HQ will maintain control in terms of budgetary
constraints, approval of certain decisions like launching of new
product, total profit and contribution.
- Benefits
It improves client satisfaction because product responsibility and
contact points are clear
Helps to integrate marketing, production and finance globally on
product basis
It provides a direct link from customers to policy makers and
directs R & D efforts into new products
 - Disadvantage
Duplication of personnel within each division
Neglecting areas with long-range potential
o Global Area Division
- In this structure, MNC prefers to divisionalise the foreign
operations on the basis of geographical unit.
- This structure is useful when
economic and political environment in different countries is fast
changing
product range is not too broad
common resources can be shared,
product lines are in the maturity stage
- Disadvantage
Lack of centralised management and control
R & D is ignored

o Global functional Structure

- Not very common except in mining and construction fields
- The operations are divided worldwide on the basis of function.
- Marketing, finance, operations and HRM functions directly report
to corporate functional chief.

• Stage 4 – Global Matrix Structure

o When a MNC is trying to integrate its operations in more than one
dimensions, like product as well as area, or customers and technology,
it resorts to the matrix structure.
o Both product and area division share joint responsibility.
o In this structure, there is a pressure from horizontal matrix managers
for equal allocation of resources; however the vertical managers are
supposed to balance this by organisational priorities and other long
term consideration
o Advantage
Better quality decisions
Better customer focus or response to local needs
o Disadvantage
Coordination becomes difficult
Dual reporting can cause frustration and confusion
Matrix forces managers to spend time on meetings
Information logjams due to proliferation of communication

New types of Multinational Structure

• Heterarchy
o A MNC might have a no of different kinds of centres apart from the
traditional centre HQ
o The argument is that competitive advantage does not necessarily reside
in any one country
o E.g. Centralised R & D in a particular subsidiary
o Control is less reliant on the top-bottom mechanism of previous
hierarchical modes and more reliant on mutual cooperation and
 coordination, organisation culture and widely shared awareness of
central goals and strategy.

• Transnational
o It is characterised by an interdependence resources and responsibilities
across all business units regardless of national boundaries.
o The transnational copes with large flows of components, products,
services, resources, people and information among its subsidiaries,
while simultaneously recognising the specialised resources and
capabilities of each business unit.
o It demands a complex process of coordination and cooperation
involving strong cross-unit integrating devices, a strong corporate
identity, and a well developed worldwide management perspective.

• Networked Firm
o Subsidiaries have developed into significant centres for investment,
activities and influence, and cannot be regarded as at the periphery.
o Interaction between HQ and each subsidiary is likely to be dyadic,
taking place between various actors at many different organisationa
level and covering different exchanges, the outcome of which is
important for effective global performance.
o Such MNCs are loosely coupled political systems rather than tightly
bonded homogenous, hierarchical systems.
o One subsidiary may act as a nodal unit linking a cluster of satellite
organisation. Thus one centre can assume responsibility for other units
in its country or region.

• Keiretsu
o It is a large often vertically integrated group of companies that
cooperate and work closely with each other.
o E.g. Mitsubishi
o These companies are bound together by cross-ownership, longterm
business dealings, interlocking directorates and social ties.

Role of Human Resource – plays a key role in control and coordination process
• The key means for vital knowledge generation and diffusion is through
personal contact. Organisation needs processes to facilitate contacts.
• Staffing decisions are very crucial. Very high importance should be given to
communication and interpersonal relationship ability in selection process.
• Staff transfer
• Visit of the CEO to different countries.
Compensation Management

Factors Influencing Compensation Programmes

• Compensation decisions are strategic decisions and play a key role

• It should be consistent with overall strategy, structure and business needs of
MNC
• It must attract and retain the best staff
• It must facilitate the transfer of international employees in a cost effective
manner.
• It should give due consideration to equity and ease at administration.
• It requires the knowledge of employment and taxation laws, customs, cost of
living index, environment and employment practices, the knowledge of labour
markets and industry norms, foreign currency fluctuations.

Paying Expatriates: unique problems

• Discrepancies in pay between PCN, HCN and TCN
• The need to vary expatriate compensation depending on the life cycle of the
expatriate’s family
• Compensation issues related to re-entry into the parent country organisation

Approaches to Expatriate’s Compensation

• Going Rate Approach
o Base salary remains linked to the salary structure of the host country.
o Required information is obtained through compensation surveys and
published information.
o This approach is favoured by polycentric organisation
o Advantage
Equality with local nationals and expatriates of different nationals
Simple approach
Attract the nationals of PCN and TCN if location is a high-pay country
o Disadvantage
Transfer from a developed country to a developing country
Fighting for getting favourable posting and resisting low pay country
postings
Problems when the expatriate’s repatriated to the home country
An export or import or franchising arrangement
o Company appoints an export manager who reports to chief of
marketing and all operations concerning export and imports are
controlled by the home office

• Balance Sheet Approach

o It links the salary of expatriates and TCNs to home country salary
structure.
o Assumption – Foreign assignees should not suffer financially due to
transfer
o Salary package is divided into goods and services, housing, income
taxes and reserve.
Cultural Impact and Compensation Policy
• National cultural difference
• High power-distance - the compensation system should reflect hierarchical
divisions in the firm.
• Low power-distance - the salary system should be more egalitarian and
performance based.
• Individual cultures - rewards should be given on an individual basis.
• Collectivist cultures - they should be team based.
• Culture with high masculinity – compensation policy focus on social benefits,
quality of work life and equity.
• Culture with high uncertainty avoidance – structured and consistent pay plans
are preferred with no variable plans and discretionary allocation.
• Culture with low uncertainty avoidance – pay should be linked to
performance.
Performance Management in International Organisations

Performance Management and its link with other HR Processes

• Reward Management
• Human Resource Planning
• Training and Development Process
• Relationship with strategy

Multinational Performance Management

• Whole vs part
• Non-comparable data
• Volatility of the international environment
• Separation by time and distance
• HQ-subsidiary interdependence
• Ethical and legal issues
• Market Maturity

Performance Management of expatriates decisions and play a key role

• Setting clear goals for each unit, each department and each employee
• Goals must be mutually supportive and balanced for long and short term
needs.
• Setting standard and measurement criteria for evaluating each type of goal
• Formal monitoring and review of progress towards these objectives
• Using the outcomes of the review process to reinforce desired employee
behaviour through differential rewards and identifying training and
development needs.

Variables that Influence Performance of Expatriate

• Compensation Package
• Nature of Assignment
• Role Clarity
• Psychological Contract – HQ’s support
• Environment of the Host Country
• Cultural Adjustment
Organisational Ethics

Ethics

• It is the discipline that examines the moral standards practised by an individual

or a corporate or society
• It is function of ones’s consciousness
• It is concerned with concept of right and wrong
• Purpose – to determine whether the actions and activities of an individual or
corporate are within the framework of moral standards and value systems
embedded in a particular society.
• It is beyond the boundaries of law, some activities may be legal but may not
be ethical.
• Ethics is best expressed by the seven sins of which are as under
Politics without principle
Wealth without work
Pleasure without conscience
Knowledge without character
Commerce without morality
Science without humanity
Worship without sacrifice

Ethical Issues Facing Multinationals

• Manipulation of stock Market
• Lobbying
• Fudging of accounts and balance sheet
• Product piracy
• Surrogate and deceptive advertising
• Discrimination in selection, compensation and promotion

What can organisations do to foster Ethical Behaviour

• Selection of top members after thorough investigation into their background
and reputation for acting ethically
• Ethical behaviour should constitute an essential component of the performance
appraisal system
• Training programmes on ethical practices and related topics
• Establish an ethical code and insist that managers commit to it

Good Corporate Citizen

The foreign subsidiary should take care of

• Adulteration and loss of quality for any reason

• Employment of women, children and minorities
• Employment of local citizens
• Personal issues including remuneration, pension or severance benefits
• Management-union relationship
• Taxation and financial controls
• Purchase of local and foreign materials
• Purchase, lease and location of buildings and plant