Chapter 9
Staffing, Training, and
Compensation for Global
Operations
PowerPoint by
Kristopher Blanchard
North Central University
© 2006 Prentice Hall
9-1
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.
- www.expat.FT.com
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A vital component of implementing global strategy is international
human resource management (IHRM). IHRM is increasingly being
recognized as a major determinant of success or failure in international
business. In a highly competitive global economy, where the other
factors of production—capital, technology, raw materials, and
information—are increasingly able to be duplicated, “the caliber of the
people in an organization will be the only source of sustainable
competitive advantage available to U.S. companies. Corporations
operating overseas need to pay careful attention to this most critical
resource—one that also provides control over other resources. Most
U.S. multinationals underestimate the importance of the human
resource planning function in the selection, training, acculturation, and
evaluation of managers assigned abroad. Yet the increasing significance
of this resource is evidenced by the numbers. More than 37,000
multinational corporations (MNCs) are currently in business
worldwide. They have control more than 200,000 foreign affiliates and
have more than 73 million employees. In the United States, foreign
MNCs employ three million Americans—more than 10 percent of the
U.S. manufacturing workforce. In addition, about 80 percent of midand large-sized U.S. companies send managers abroad, and most plan
to increase that number.
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Staffing Philosophies for Global
Operations
Firms using an ethnocentric staffing
approach fill key managerial positions with
people from headquarters – that is, parentcountry nationals (PCNs).
In a polycentric staffing approach, local
managers – host-country managers (HCNs)
– are hired to fill key positions in their own
country.
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Advantages & Disadvantages
Ethnocentric staffing: close control, high
technical capability/experience required,
proprietary concerns.
Lack of opportunities for local mgrs, expense,
poor adaptation & lack of expatriate
effectiveness
Polycentric staffing: good for multinational
strategy, localization. Familiar with the culture,
language & local norms
Coordinating goals bet subsidiary & PC can
be difficult, local mgrs having a potential
conflicting loyalties
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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.
In a regiocentric staffing approach,
recruiting is done on a regional basis – say
within Latin America for a position in
Chile.
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Who use the global &
regiocentric approach to
staffing? Can you the
companies or firms? What
would the advantages &
disadvantage of these
approaches?
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Global selection.
•Consider overall staffing approach suitable for
company’s strategy
•Consider host country regulation, stage of
internalization
•Importantly, who is both suitable & available for
the position
1) Can it be suitably filled by a host-country
national?
2) Selection criteria for overseas assignments
influence expatriate success: job factors,
relational dimensions (cultural empathy &
flexibility), motivational state, family situation &
language skills.
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Most MNCs tend to start out their operations in a
particular region by selecting primarily from their
own pool of managers. Over time, and with
increasing internationalization, they tend to move to
a predominantly polycentric or regiocentric policy
because of: (1) increasing pressure (explicit or
implicit) from local governments to hire locals (or
sometimes legal restraints on the use of expatriates);
and (2) the greater costs of expatriate staffing,
particularly when the company has to pay taxes for
the parent-company employee in both countries. In
addition, in recent years, MNCs have noted an
improvement in the level of managerial and
technical competence in many countries, negating
the chief reason for using a primarily ethnocentric
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policy in the past.
use an online job site like
Monster.com or
Hotjobs.com to search for
career opportunities
overseas.
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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
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Problems with Expatriation
Problems with spouse and children
– poor adaptation, family
unhappiness
Insufficient compensation and
financial support
Poor programs for career support
and repatriation
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Training and Development
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.
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It is clear that preparation and training for crosscultural interactions are critical. In earlier discussions
of the need for cultural sensitivity by expatriate
managers, reports indicate that up to 40 percent of
expatriate managers end their foreign assignments
early because of poor performance or an inability to
adjust to the local environment. Moreover, about half
of those who do remain function at a low level of
effectiveness. The direct cost alone of a failed
expatriate assignment is estimated to be from $50,000
to $150,000. The indirect costs may be far greater,
depending on the expatriate’s position. Relations with
the host-country government and customers may be
damaged, resulting in a loss of market share and a
poor reception for future PCNs.
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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.
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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
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Cross-Cultural Training: SubCulture 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. This can occur in one’s home country
such as the effects of moving from New
York to Texas.
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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
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A great source of materials on training is
the American Society for Training and
Development (ASTD). It includes a
seminar agent that allows you to search
over 250,000 training programs. The site
is at http://www.astd.org/.
For an example of a company that does
cultural training for expatriates go to
www.culturesense.com.
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In continuing our discussion of “strategic fit,” it is important
to remember that training programs, like staffing
approaches, be designed with the company’s strategy in
mind. Although it is probably impractical to break those
programs down into a lot of variations, it is feasible to at
least consider the relative level or stage of globalization that
the firm has reached because obvious major differences
would be appropriate, for example, from the initial export
stage to the full global stage. Slide 9-21 suggests levels of
rigor and types of training content appropriate for the firm’s
managers, as well as those for host-country nationals, for
four globalization stages—export, multidomestic,
multinational, and global. It is noteworthy, for example, that
the training of host-country nationals for a global firm has a
considerably higher level of scope and rigor than that for the
other stages and borders on the standards for the firm’s
expatriates.
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Integrating Training with Global Orientation
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Integrating Training with Global Orientation
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Slide 9-22. As a further area for managerial preparation
for global orientation–in addition to training plans for
expatriates and for HCNs separately–there is a
particular need to anticipate potential problems with
the interaction of expatriates and local staff. In a 2003
study of expatriates and local staff (inpatriates) in
Central and Eastern European joint ventures and
subsidiaries, Peterson found that managers reported a
number of behaviors by expatriates that helped them
to integrate with local staff, but also some which were
hindrances, highlighted on this slide. Clearly, this kind
of feedback from MNC managers in the field can
provide the basis for expatriate training and also help
HCNs to anticipate and work with the expatriates in
order to meet joint strategic objectives
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Training Host-Country Nationals
We found that the key human resource
role of the MNC [in Central and Eastern
Europe] was to expose the local staff to
a market economy; to instill world
standards of performance; and provide
training and functional expertise.
Richard Peterson, “The use of Expatriates and Inpatriates in
Central and Eastern Europe Since the Wall Came Down,”
Journal of World Business, 2003.
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Training Host-Country Nationals
Continuous training and development of
HCNs and TCNs for management
positions is an important factor for longterm 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
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Management Focus: Success! Starbucks’ Java
Style Helps Recruit, Train, and Retain Local
Managers in Beijing
Starbucks Coffee International now has 70
facilities in China. In addition to converting a
nation of tea drinkers into coffee lovers,
Starbucks had to deal with the problem of
finding, training, and keeping local Chinese
managers. As part of their training effort,
Starbucks sends managers to Tacoma,
Washington for three months to learn not only
how to make a cup of coffee, but also to learn
culture. Chinese managers appreciate a
company that invests in their development and
treats them with respect.
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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
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Training Priorities for E-Business
Development
Return
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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
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The World at Work is a
professional organization for
HR/Compensation professionals.
Their informative Web site can be
found at
http://www.worldatwork.org/
© 2006 Prentice Hall
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To ensure that expatriates do not lose out through their overseas
assignment, the balance sheet approach is often used to
equalize the standard of living between the host country and the
home country and to add some compensation for inconvenience
or qualitative loss. See Slide 9-32. However, recently some
companies have begun to base their compensation package on a
goal of achieving a standard of living comparable to that of hostcountry managers, which does help resolve some of the
problems of pay differentials. In fairness, the MNC is obliged to
make up additional costs that the expatriate would incur for
taxes, housing, and goods and services.The tax differential is
complex and expensive for the company, and generally MNCs
use a policy of tax equalization:The company pays any taxes due
on any type of additional compensation that the expatriate
receives for the assignment; the expatriate pays in taxes only
what she or he would pay at home. The burden of foreign taxes
can be lessened, however, by efficient tax planning.
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Balance Sheet Approach
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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-ofliving 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
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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%
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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
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Comparative Management in Focus:
Compensating Russians
Korean companies are cashing in by
signing up low-cost Russian engineers.
www.Businessweek.com, March 8, 2004
Russia is our No.1. destination for
technology outsourcing.
Cha Dae Sung, Samsung, March 8, 2004
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Comparative Management in Focus:
Compensating Russians
Select Russian employees who are achievementoriented 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
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What is total rewards? http://www.worldatWork.com
Total Rewards: All of the tools available to the employer that may be
used to attract, motivate and retain employees. Total rewards include
everything the employee perceives to be of value resulting from the
employment relationship.
Throughout history, employers have been challenged with attracting,
motivating and retaining employees. From the simplest barter systems
of centuries past to the current complex incentive formulas of today,
the organizational premise has been the same: Provide productivity
and results to our enterprise and we will provide you with something
of value.
There are five elements of total rewards, each of which includes
programs, practices, elements and dimensions that collectively define
an organization's strategy to attract, motivate and retain employees.
These elements are:
Compensation
Benefits
Work-Life
Performance and Recognition
Development and Career Opportunities
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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
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