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

© 2006 Prentice Hall9-2 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. -

© 2006 Prentice Hall9-3 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.

© 2006 Prentice Hall9-4 Ethnocentric/PCN Advantages: PCNs familiar with company goals, products, technology, policies and procedures. Disadvantages: lack of development of local managers (impacts moral and commitment) and poor adaptation and lack of effectiveness of expatriates Used when: inadequate local management, early stages of internationalization, centralized approach to globalization, close communication and coordination with HQ is needed.

© 2006 Prentice Hall9-5 Polycentric/HCN Advantages: less expensive to hire a local than to create an expatriate, local managers can help with sensitive political issues and some countries may require it. Disadvantages: difficulty of coordinating with HQ, conflicting loyalty of local, HQ managers do not get valuable experience

© 2006 Prentice Hall9-6 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. –Greater pool of candidates to chose from –Usually more culturally savvy and adaptable –Often more cost effective In a regiocentric staffing approach, recruiting is done on a regional basis – say within Latin America for a position in Chile.

© 2006 Prentice Hall9-7 Problems with Expatriation Selection based on headquarters criteria rather than assignment needs Inadequate preparation, training, and orientation prior to assignment Alienation or lack of support from headquarters Inability to adapt to local culture and working environment

© 2006 Prentice Hall9-8 Problems with Expatriation Problems with spouse and children – poor adaptation, family unhappiness: most frequently cited reason for expatriate failure. Insufficient compensation and financial support Poor programs for career support and repatriation

© 2006 Prentice Hall9-9 Training and Development Areas critical to preparation: cultural training, language instruction, familiarity with everyday matter. Challenges 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.

© 2006 Prentice Hall9-10 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.

© 2006 Prentice Hall9-11 Cross-Cultural Training: Culture Shock Honeymoon – 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

© 2006 Prentice Hall9-12 Cross-Cultural Training: Sub- Culture Shock Subculture 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.

© 2006 Prentice Hall9-13 Training Techniques Area 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

© 2006 Prentice Hall9-14 Integrating Training with Global Orientation

© 2006 Prentice Hall9-15 Integrating Training with Global Orientation

© 2006 Prentice Hall9-16 Training Host-Country Nationals Continuous training and development of HCNs and TCNs for management positions is an important factor for long-term success of the multinational corporation Ongoing development will facilitate the transition to an indigenization policy The company will have a well-trained management staff with broad international experience

© 2006 Prentice Hall9-17 Training Host-Country Nationals Training 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

© 2006 Prentice Hall9-18 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

© 2006 Prentice Hall9-19 Balance Sheet Approach

© 2006 Prentice Hall9-20 Compensating Expatriates Salary – Local salary buying power and currency translation, as compared with home salary; bonuses or incentives for dislocation Taxes – Equalize any differential effects on taxes as a result of the assignment Allowances – Relocation expenses; cost-of-living adjustments; housing allowance for assignment and allowance to maintaining house at home; trips home for family; private education for children Benefits – Health insurance; stock options

© 2006 Prentice Hall9-21 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%

© 2006 Prentice Hall9-22 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

© 2006 Prentice Hall9-23 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 incentives Provide a mix of short- and long-term incentives Tailor the compensation package to individual preferences

© 2006 Prentice Hall9-24 Repatriation: Out of sight, out of mind Organizational problems: –Perceived lack of recognition –Loss of networking and mentor relationships –Unsuitable job assignment –Loss of career and promotional opportunities –Loss of authority and professional freedom –Resentment from colleagues and others –System and policy changes as well as technical obsolescence Personal problems: –Social adaptation problems –Loss of status and standard of living –Financial problems

© 2006 Prentice Hall9-25 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 Hall9-26 Training Priorities for E- Business Development Return