International Labor Markets, Staffing, and Currency Risk Management

Local labor market

The pool of available employees with necessary skills within commuting distance; varies by region and over time.

Population aged 65+ in OECD 2020/2050

17% in 2020; projected 26% by 2050.

Urbanization of workforce

Shift from rural to urban areas; creates low-cost labor but requires social/psychological adjustment for new workers.

Labor mobility

Movement of people across regions/countries for jobs.

3D jobs

Dirty, dangerous, degrading jobs.

Guest worker

Legal temporary foreign worker, usually in service, factory, or construction.

Brain drain

Loss of a country's most educated citizens seeking better opportunities.

Motivation behind brain drain

Better economic and professional opportunities.

Reverse brain drain

Skilled immigrants return home; often encouraged by home-country programs or company outsourcing.

Labor union

Organization of workers to advance members' interests.

Collective bargaining

Union negotiates with management for workers.

PCN

Employee is citizen of parent company's home country.

HCN

Employee is citizen of host-country where subsidiary operates.

TCN

Employee is citizen of neither parent nor host country.

Ethnocentric staffing

PCNs in key roles; good for PCN development but costly.

Polycentric staffing

HCNs manage subsidiaries; good local understanding but may lack home-country corporate knowledge.

Regiocentric staffing

Mix of HCNs and TCNs; flexible but cost savings not guaranteed.

Geocentric staffing

Best person for job regardless of nationality; consistent HR globally but costly and competitive.

Expatriate

Employee from home or third country assigned abroad (2-5 years).

Inpatriate

Employee hired in host country.

Flexpatriate

Short-term international assignee.

Expatriate failure causes

High cost; up to 25% leave early.

Culture shock

Anxiety when entering a very different culture.

Reverse culture shock

Difficulty adjusting when returning home.

Three dimensions of cross-cultural adjustment

Work context; adjusting to daily life; interacting with locals.

Expatriate salary basis

Equal-pay-for-equal-work; influenced by host-country policies.

Allowance/bonus/perk

Add-ons to base salary for higher living costs abroad.

Operating in foreign currency issues

When transactions or subsidiary operations occur in foreign currencies.

Current rate method

Assets/liabilities translated at current spot rates.

Temporal method

Monetary items at current rates; fixed assets at historical rates.

Functional currency

Primary currency of the business.

Two accounting standards

GAAP (rules-based) and IFRS (principles-based).

Gray's dimensions

Secrecy-transparency; optimism-conservatism.

Two capital-raising sources

Retained earnings; external equity or debt.

Issuing stock abroad effect

Raises brand recognition in foreign markets.

Offshore financial center

Low-tax, low-regulation financial hub; tax haven.

ADR

U.S.-traded receipts representing foreign shares.

Fronting loan

Parent funds subsidiary via bank intermediary; tax and regulatory advantages.

Transfer pricing

Pricing between units of the same company; flexible but ethically sensitive.

Hedging

Offsetting risk by taking opposite positions.

Multilateral netting

Centralized clearing of intracompany cash flows; lowers costs and optimizes cash.

Lead and lag

Adjust payment timing based on expected currency movements.

Transaction exposure

Exchange rate affects value between contract and payment.

Translation exposure

Changes in financial statement value after consolidation.

Economic exposure

Future cash flows affected by unexpected currency shifts.

Exposure netting

Centralized matching of currency exposures.

Forward market hedge

Lock in future exchange rate via forward contract.

Currency option hedge

Right to buy (call) or sell (put) currency at set rate.

Money market hedge

Use borrowing/lending strategies to lock in exchange rate effect.

Swap contract

Exchange currency cash flows over time.

Income tax

Direct tax on earnings.

VAT

Indirect tax on value added during production.

Withholding tax

Tax on passive income (dividends, interest).

Worldwide tax approach

Tax residents on worldwide income.

Territorial tax approach

Tax only income earned domestically.

Minority ownership tax rule

Active income taxed when remitted; passive income taxed when earned.

Outsourcing

Hiring outside firms for noncore activities.

Offshoring

Relocating activities to another country.

Supply chain

Activities required to produce and deliver products/services.

Supply chain management

Coordinating flows of materials, info, finances, services.

Inventory turnover

COGS ÷ average inventory.

Global sourcing: wholly owned subsidiary

Company-owned facility abroad to reduce costs.

Overseas joint venture

Shared ownership production abroad.

In-bond plant contractor

Maquiladora; components sent for assembly abroad.

Overseas independent contractor

Foreign manufacturer makes products under company label.

Independent overseas manufacturer

Foreign firm produces goods often designed by them.

Intrafirm trade

Trade between parent and foreign affiliates.

Indirect procurement

Buying goods not part of finished products (MRO supplies).

JIT

Minimal inventory; focus on efficiency and quality.

Little JIT

Only inventory-focused, missing full system improvements.

TQM

Companywide commitment to quality and customer satisfaction.

Quality circle

Small employee group meeting to improve quality.

Synchronous manufacturing

Theory of constraints; remove bottlenecks.

Bottleneck

Step limiting system output.

Mass customization definition

Fast, low-cost production of customized products.

Collaborative customization

Customer involved in selecting features.

Adaptive customization

Standard product users can adjust.

Cosmetic customization

Different packaging/presentation only.

Transparent customization

Customized for customer without them knowing.

Six-sigma

Process improvement aiming for 3.4 defects per million.

Six-sigma steps

Define, Measure, Analyze, Improve, Control.

Logistics

Managing movement of materials and goods.

Logistics company services

Shipping, warehousing, distribution, brokerage.

Manufacturing rationalization

Splitting production across units, each making limited components.

Backward vertical integration

Firm produces its own inputs.

Forces impeding standardization

Cultural, political, technological limitations.

CIM

Computer-integrated manufacturing.

Intermediate technology

Between capital- and labor-intensive; adapted for local needs.