Human Resource Selection and Development Across Cultures chapter fourteen Human Resource Selection and Development Across Cultures McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Chapter Outline Sources of human resources Selecting managers for overseas assignments Compensation Repatriation

Sources of Human Resources Home country nationals Host country nationals Third-country nationals Inpatriates Offshore outsourcing

Home-country Nationals Are citizens of the country where the MNC is headquartered but live & work elsewhere Often used To start up operations (most common reason) To provide technical expertise To help the MNC maintain financial control over the operation In top management positions to give promising home-country managers international experience

Host-country Nationals Citizens of the country where they live & work They are familiar with the culture and know the language They can often do a better job than home-country nationals They are less expensive than home-country personnel Host-country governments often prefer use of host-country nationals and some require it Hiring them is good public relations U. S. companies tend to rely heavily on host-country nationals

Third-country Nationals People who are citizens of neither the home country or the host country Example: A Mexican, employed by an American company, working in Argentina The employee's native country and the country where he works are often in the same geographic region

Advantages of Third-Country Nationals They often require less compensation than home-country nationals If they are from the same geographic region as the host country and also know the company's culture, they can often achieve objectives better than other types of managers Have cross-cultural skills Provide a global or transnational image

Inpatriates Persons who work in the home country and are citizens of a different country Advantages of inpatriates Help to develop global core competencies Provide diversity and an international perspective in the home office Improve career opportunities for company managers who are not from the home country

Expatriate Any person who lives and works outside the country of which he/she is a citizen Includes home-country nationals, third-country nationals, and inpatriates In most cases, expatriates must have work visas from the government of the country where they live and work Citizens of one EU country can live and work in other EU countries (There are some restrictions on citizens of new EU member countries.)

Offshore Outsourcing Home Country Perspective Buying goods or services from a firm in one country for use in another Can significantly reduce overhead & labor costs Quality and timeliness are sometimes problems Can create public relations problems in the home country Job losses in the home country Abuse of foreign workers by overseas contractors Liability issues from unsafe products

Outsourcing: Corporate Viewpoint Looking Abroad for a Workforce

Skills MNCs Seek Within Countries

Selecting Managers for Overseas Assignments Overview of selection criteria Adaptability to cultural change Willingness to take an overseas assignment Selection procedures

Criteria for Selecting Managers for International Assignments Adaptability Independence Self-reliance Physical & emotional health Age Experience Education Knowledge of local language Motivation Support of spouse & children Leadership

Expatriate Selection Criteria

Adaptability to Cultural Change Work experiences with cultures other than one’s own Previous overseas travel Knowledge of foreign languages Recent immigration background or heritage Ability to integrate with different people, cultures, and types of business organizations

Adaptability to Cultural Change (2) Ability to sense and accurately evaluate events in the host country Ability to solve problems within different frameworks and perspectives Sensitivity to differences of culture, politics, religion, and ethics Flexibility in managing operations on a continuous basis despite lack of assistance and gaps in information

Willingness to Take an Overseas Assignment Unmarried employees are more willing than other groups to work overseas. Married employees with teenage children are usually the least willing to work overseas. Employees with prior international experience are more likely to accept an overseas assignment.

Willingness to Take an Overseas Assignment (2) People who are most committed to their careers are more likely to work overseas Careers and attitudes of spouses have a significant impact on employee willingness to work overseas. Employee and spouse perceptions of company support are crucial to employee willingness to work overseas.

Selection Procedures Both technical competence and adaptability should be considered Interviews are a common selection tool. Both the employee and the spouse may be interviewed Home-country and host-country interviewers may be used Psychological testing of the employee Used less often than interviews Many managers believe that interviews are more effective than testing.

Compensation Compensation overview Compensation details Compensation approaches

Common Elements of Compensation Packages Compensating expatriates can be difficult because there are many variables to consider Most compensation packages are designed around four common elements: Allowances Taxes Base Salary Benefits

Compensation Details Base Salary Base salary: the amount of money that an expatriate would receive for doing the same job in the home country Used as a basis to establish salary in the host country Salary may be paid in home country currency, host country currency, or a combination of the two

Compensation Details Benefits Benefits: a substantial portion of expatriate compensation Is the home country or the host country responsible for the expatriate's social security benefits? Should home-country benefits programs be available to host-country nationals?

Compensation Details Allowances Relocation allowance Cost-of-living allowances are paid when the employee must incur extra costs that he would not pay in the home country Examples: housing allowance, and the costs of private schools for the employee's children Hardship allowance: Often paid to employees who work in a country with difficult living conditions

Compensation Details Allowances (2) Allowances (continued) Foreign service premium In the past, a foreign-service premium was often a monthly payment that continued as long as the employee worked overseas Many firms have eliminated the ongoing foreign-service premium. Today, a one-time, lump sum foreign service premium is often paid at the start of the overseas assignment to provide cash for immediate expenses.

Compensation Details Taxes An expatriate may be required to pay income taxes to both the host country and his/her native country The company compensates the employee for the extra amount of tax

Compensation Details Summary The cost of an expatriate employee = salary costs + benefit costs + allowance costs + tax costs

Compensation Approaches The compensation package must be cost-effective and should be seen as fair Balance-sheet approach: ensure that the expatriate does not lose money from the foreign assignment Negotiation approach: Negotiate compensation with each employee Localization: Pay the expatriate a salary comparable to local nationals

Compensation Approaches (2) Lump sum method: give expatriate a pre-determined amount of money. Employee decides how to spend it. Cafeteria approach: Offer the employee a choice among various compensation options, with a limit on total costs Regional system: Set up a compensation system for all expatriates who are assigned to a particular region

Repatriation of Expatriates Reasons for returning home Readjustment problems Transition strategies

Repatriation of Expatriates Reasons for returning to the home country Most expatriates return home when their agreed-on tour of duty is over Some want their children educated in a home-country school Some are not happy in the overseas assignment Some return early because they failed to do a good job

Repatriation of Expatriates (2) Readjustment problems “Out of sight, out of mind” syndrome: the expatriate may not have been considered for jobs that he/she could do well Organizational changes may have: eliminated the jobs for which the expatriate is well-qualified reduced the importance of the expatriate's position or department The new job may be seen as a demotion.

Repatriation of Expatriates (3) Readjustment problems Technological advances may have made the expatriate's skills obsolete The former expatriate may not have an opportunity to use skills gained abroad. The former expatriate's salary and benefits may be lower than they were abroad. The former expatriate has to readjust to home-country culture and adjust to a new job

Effectiveness of Returning Expatriates

Repatriation of Expatriates (4) Transition strategies: Help smooth the adjustment from an overseas to a home-country assignment Repatriation agreement: addresses the concerns of the individual and the company before the foreign assignment begins. Keep the expat involved in home office communication and projects during the foreign assignment. Appoint a higher-level manager as a career mentor for the expatriate (helps to avoid "out of sight, out of mind" problem).