Topic 9: Human Resources in a Multinational Environment

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30 Terms

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Sources of Human Resources

Home country nationals

Host country nationals

Third country nationals

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Home country nationals

Manager show are citizens and the country where the MNC is headquartered

Commonly called expatriates (expats).

Reasons for using home country nationals:

-desire to provide company’s more promising managers with international experience to equip them better for more responsible positions (giving opportunities for current staff)

-unavailability of managerial talent in the host country

-host country’s multiracial / multi religious population, which might mean that selecting a manager of either race would result in political or social problems

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In the past, expatriates were almost always

Men. But over last decade there has been growing number of female expatriates as companies have come to realize women do want international assignments and are prepared to assume the challenges that accompany these jobs

Not as many females interested because they are usually the primary parent, but there is still a large number of females who do it

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In recent years, has been a trend away from using home country national

True among Japanese firms, which long preferred to employ expats and were reluctant to allow local nationals a significant role in subsidiary management

In less developed countries, they would use home country nationals. In more developed countries, more host country nationals would be used

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Host country nationals

local managers who are hired by MNC. for several reasons, many MNCs use these managers at the middle and lower level ranks. Reason include:

-many countries expect the MNC to hire local talent, good way to meet expectation. Good public relations

-even if MNC wanted to staff all management positions with home country personnel, it is unliked to have this many available managers

-cost of transferring and maintaining an expat in host country would be cost prohibitive

-familiar with culture and know the language

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Many US MNCs use home country mangers to get the operation started

Then they turn things over to host country managers

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One major rule that influences staffing managerial positions in an international setting is

In those cases where government regulations dictate selection practices and mandate at least some degree of nativization

In Brazil, two thirds of employees in any foreign subsidiary traditionally have to be Brazilian nationals. Also if company is planning to hire a foreigner has a Brazilian occupying the same position, the non native cannot receive a higher salary than the native worker

In Saudi Arabia (Saudization), foreign firms are required to at least employ 75% Saudi nationals although many executives have claimed to successfully negotiate lower rates around. 30%

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Third country nationals

Mangers who are citizens of countries other than than the one in which the MNC is headquartered or th done in which they are assigned to work by the MNC

Advantages:

-salary and benefit packages are usually less than that of a home country national, although recently, salary gap between the two has begun to diminish

-may have very good working knowledge of the region and or speak the same language as local people. Helps explain why many US MNCs have hired English or Scottish managers for the top positions at subsidiaries in former British colonies such as Jamaica, India, the West Indies, and Kenya (use to be a British colony, even tho it is not anymore, it has a lot of British influence still). Cultural aspect, linking cultures

-during periods of rapid expansion, these people cannot only substitute for expatriates in new and growing operations offfer different perspectives that con complement and expand on sometimes narrowly focused viewpoints of both nationals and headquarters personnel. In addition to alternative viewpoint, they also bring unique cross cultural skills to the management process.

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Selection criteria for international assignments

Influenced by the MNCs experience and often are culturally based

-Anglo Saxon cultures (US, England, Canada, Ireland, Australia) what is generally tested is how much the individual can contribute to the tasks of the organization. Intelligence tests and measures of competencies are the norm

-Germanic cultures, emphasis is more on quality of education in a particular function

-Latin and far Eastern cultures, characterized by ascertaining how well the person “fits in” with the larger group. Latin cultures tend to be based more on personality, communication, and social skills than about the Anglo Saxon notion of intelligence

Both technical and human criteria are considered in selection process. Firms that fail to consider both often find that their rate of failure is quite high

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The compensation issue

One reason there has been a decline in number of expats in recent years is that MNCs have found that the expense can be prohibitive

Research suggests, expats cost employers 2-5 times as much as home country counterparts and frequently 10 or more times as much as local nationals in the country to which they are assigned

Due to regulations or especially employee expectations

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ECP (expatriate compensation package) =

Base salary + benefits + allowances + incentives + taxes

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Base salary

Amount of money that an expat normally receives in the home country. In US, been around $175,000 for upper and middle managers in recent years, and this rate is imagine to paid managers in both Japan and Germany. Expat salaries are normally set according got base pay of home countries.

German manager working for a US MNC assigned to Spain would have a base salary that reflects the salary structure in Germany.

US expats have salaries tied to US levels.

Base pay serves as benchmark against which bonuses and benefits are calculated

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Benefits

Approximately one third of compensation for regular employees. Compose a similar, or larger, portion of expat compensation.

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Issues surrounding compensations for expats

-Whether MNCs should maintain expats in home country benefit programs, particularly if these programs are not tax deductible

-Whether MNCs have the option of enrolling expats in host country benefit programs and or making up any difference in coverage

-Whether the home or host country is responsible for the expats social security benefits

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Most US based MNCs include expats managers in their home office benefit programs at no additional cost to the expat

If host country requires expat to contribute to their social security programs, the MNC typically picks up the tab. Several international agreements between countries recently have eliminated such dual coverage and expenses

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MNCs often provide expats with

Extra vacation and with special leaves. The MNCs typically will pay the airfare for expats and their families to make annual visits home, for emergency leave, and for expenses when a relative is in the home country is ill or dies

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Allowances

Expensive feature of expat compensation packages, one of the most common parts is a cost of living allowance (payment for the difference between the home country and the overseas assignment) designed to provide the expat with the same standard of livening that he or she enjoyed in the home country

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Relocation allowances

Typically involve moving, shipping, and storage charges that are associated with personal furniture, clothing, and other items that the expat and his family are (or are not) taking to the new assignment

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Housing allowance

Cover a wide range. Some firms provide expat with a residence during the assignment and pays all associated expenses. Others give a predetermined housing allotment each month and let expats chose their own residence. Additionally, some MNCs help those going on assignment with the sale or lease of the house they are leaving behind. If the house is sold, the company usually pays closing costs and other associated expenses

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Education allowances

Cover costs such as tuition, enrollment fees, books, supplies, transportation, room, board, and school uniforms

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Hardship allowances

Designed to induce expats to work in hazardous areas or an area with poor quality of life. Those who are assigned to Eastern Europe, china, and some middle eastern countries sometimes are granted a hardship premium, these payments may be in the form of a lump sum (10,000-50,000) or a percentage (15% to 50%) of the expats base compensation

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Incentives

have been designing special incentive programs to keep expats motivated. In the process a growing number of firms have dropped the ongoing premium for overseas assignments and replaced it with a one time, lump sum premium. Example: in early 1990s, over 60% of MNCs gave ongoing premiums to their expats. Today’s percentage is under 50% and continues to decline

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Factors that influence type and amount of incentive include

Whether the person is moving within or between countries and where the person is being stationed. Incentive payments range between 15% and 60%

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Growing belief that incentive payments need to be phased out

An assignment itself is its own reward, an opportunity for an employee to achieve personal and career growth. In some organizations, succession planning for senior level positions requires international experience.

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Taxes

Expat Kay have two tax bills, one from host country and one from US Internal Revenue Service, for the same pay. IRS Code Section 911 permits a deduction of up to $100,800 for 205 on foreign earned income, top level expats often earn far more than this. Thus they must pay two tax bills for the amount by which their pay exceeds $100,800. MNCs pay the extra tax burden

they usually pay their regular US taxes and MNCs usually covers burden of host country tax

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Repatriation

Return to one’s home country, occurs within 5 years of the time they leave. Reasons for returning:

Tour of duty is dress education, lack of happiness in overseas assignments, family is not happy, or failure to do a good job

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Readjustment problems

Companies say they want people to have international experience, but they often seem unsure of what to do with those managers when they come back.

Surveys of returning expats show that 75% of them noted that they felt their permanent position upon returning home was a demotion. Over 60% said they lacked opportunities to put their foreign experience to work, and 60% said that their company has not communicated clearly about what would happen to them when they return. Worst of all, 25% had left the company within a year of returning

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Research showed that the longer the duration of an overseas assignments, the more problems the expat has being reabsorbed into the home office. Reasons:

Out of sight, out of mind

Organizational changes

Technological advances in parent headquarters

Adjust to lower standard of living upon returning home (possibly finding new home)

Children returning to public school

Missing the cultural lifestyle

International experiences may not be viewed as important

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Transition strategies

Can take a number of different forms:

Repatriation agreements- would be signed and executed before assignment takes place, cover length of assignment, plans for return (will return to equal or greater position), gives clarity that the assignment is good for you and there is plan for you when you come back

Help manage expats home- home is usually your biggest assets, company will manage it out through renting it out, will handle maintenance and deal with tenants, paying attention to the return so they will make sure tenant will be gone

Use a sponsorship model to monitor performance and plan for expats return- performance on a personal basis, a person at home would act as a sponsor or mentor to check on how the expat is doing, usually someone who has already had a foreign assignment and knows your situation

Keep them in the loop- include them in some meetings, them involved on a regular basis, just because they are gone, they are not gone from your company

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This chapter boils down to

Planning and communication