chapter twenty
Human Resource Management
McGraw-Hill/Irwin
International Business, 11/e
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
 Discuss the importance of creating a company
“global mindset”
 Explain the relationship between competitive
strategies (international, multidomestic, regional,
and transnational) and international HR
management approaches (ethnocentric,
polycentric, regiocentric, and global)
 Compare home country, host country, and third
country nationals as IC executives
 Explain the difficulties of finding qualified
executives for international companies (ICs) and
the importance of foreign language knowledge
20-3
Learning Objectives
 Explain what an expatriate is and the challenges of
and opportunities of an expat position
 Discuss the increasing importance of
accommodating the trailing spouse of an
expatriate executive
 Identify some of the complications of
compensation packages for expatriate executives
20-4
The Global Mindset
• Expatriate
– A person living outside citizenship country
• Global Mind-set
– A mind-set that combines an openness to
and an awareness of diversity across
markets and cultures with a propensity and
ability to synthesize across this diversity
20-5
International HRM Approaches
• Ethnocentric
– Hiring and promoting employees on the basis of
parent company’s home country frame of reference
• Polycentric
– Hiring and promoting employees on the basis of
specific local context of the subsidiary
20-6
International HRM Approaches
• Regiocentric
– Hiring and promoting employees on the basis of the
specific regional context of the subsidiary
• Geocentric
– Hiring and promoting employees on the basis of
ability and experience without considering race or
citizenship
20-7
Strategic Approach, Organizational Concerns, and the
International Human Resource Management Approach to
Be Used
20-8
Recruitment, Selection and Training
• Parent Country National (PCNs) or Home
Country National
- Study of language and culture
• Host Country National (HCN)
– Hired in the host country
• Third Country National
20-9
Recruitment, Selection and Training
• Third Country National (TCN)
– May accept lower wages and benefits than will
employees from the home country
– May also come from a culture similar to that of
the host country
– May have worked for another unit of the IC and
be familiar with policies, procedures and people
– Common approach in developing countries
– May not be welcome by host country
– May come from an international agency
– Greater use as companies take geocentric view
20-10
Expatriates
• Family
– Nine of ten expatriate failures family-related
– Unhappy spouses major reason for early return
– Company losing a “million-dollar corporate-training
investment” in executive
20-11
Language Training
• Language Trap
– International business person speaks only
home language
– English language has become lingua
franca
– Chinese new “hot” language to know
20-12
Expatriate Services
• Health care programs to assist
companies and expatriates with
– Claims administration
– Language
– Translations
– Currency conversions
– Service standardization
– www.ExpatExpert.com
– www.branchor.com
20-13
Expatriate Services
• Banking services
– Online, 24-hour assistance
• Training
– Culture and language
• House hunting, utilities hook up, grocery and hardware
shopping, long-distance care for relatives, schools,
organizations, and cultural items
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Compensation
Salaries
 Paying home country nationals the same
salaries as their domestic counterparts
permits worldwide consistency
bonuses
 Increasing use of third country nationalsoften treated like PCNs
 Trend to pay HCNs same base
20-15
Total compensation Costs for Sending an
Expatriate American Manager to Russia
20-16
Allowances
• Housing Allowance
– Permits executive to live at same standard as at home
• Cost-of-Living Allowance
– Based on differences in price of food, utilities,
transportation, entertainment, clothing, personal
services, and medical expenses as compared to home
• Allowances for Tax Differentials
– Ensures expatriates will not have less after-tax pay at
home
20-17
Allowances
• Education Allowances
– Insures children receive education equal to that at home
• Moving and Orientation Allowances
– Household effects and language instruction
20-18
Ranking of 50 Cities from Most to
Least Expensive, 2006
20-19
Bonuses
• Bonuses
– Expatriate employee compensation
payments in addition to base salary and
allowances because of hardship,
inconvenience, or danger
– Bonuses include
• Overseas premiums
• Contract termination payments
• Home leave reimbursement
20-20
Compensation Packages
• For expatriate employees, packages
incorporate many types of payments or
reimbursements and must take into
consideration exchange rates and
inflation
20-21
Hardship Differential Pay Premiums for
Selected Cities and Countries, 2006
20-22
Compensation Packages
Can Be Complicated
• Allowances and percentage of base salary are
usually paid in host country currency
– Percentage usually 65 to 75 percent, with remainder
banked where employee directs
• What Exchange Rate?
– Must be chosen
– More difficult in countries with exchange controls and
nonconvertible currencies
20-23
Compensation of Third
Country Nationals
• Trend toward applying the same
compensation plan to third country
nationals as home country expatriates
• Problems can arise in
– The calculation of income tax differential
when American expatriate compared with
expatriate from another country
– Home leave bonus
20-24
International Status
• Entitles expatriate employee to allowances
and bonuses applicable to the place of
residence and employment
• Perks
– Compensate executives while minimizing taxes
• Private pension plan
• Retirement payment
• Life Insurance
• Hidden slush funds (can be illegal)
• Club membership
• Company house
• Foreign affiliate directorship
20-25