IBUS 330: Test 4 Part 3
|Balance-sheet approach||Types of Compensation Plans|
The most common approach to expatriate pay is the balance sheet approach, which aims to develop a salary structure that equalizes purchasing power across countries so expatriates have the same standard of living in their foreign assignment as they had at home. There are three common methods of implementing the balance sheet compensation plan. The home-based method sets compensation based on the salary of a comparable job in his or her home city, the headquarters-based method sets salary in terms of the salary of a comparable job in the city where the MNE has its headquarters, and the host-based method bases compensation on the prevailing pay scales in the locale of the foreign assignment, plus foreign-service premiums, extraordinary allowances, home-country benefits, and taxation compensation.
|Culture shock||a condition of disorientation affecting someone who is suddenly exposed to an unfamiliar culture or way of life or set of attitudes|
|Ethnocentric framework||• Three perspectives anchor an MNE's staffing policy:|
An ethnocentric framework fills key management positions with home-country nationals.
• Familiarity with the way decisions are made and things get done at headquarters means that expatriates can be counted on to transfer home-country procedures to foreign operations.
• A shortage of qualified local candidates makes expatriates a direct and immediate solution to staffing shortfalls.
• Posting expatriates symbolically and operationally diffuses corporate policies and practices.
• Expatriates offset the tendency for policies and practices to break down when transferred from the home to host country.
• Expatriates' lower likelihood of leaving the company to join a local rival reduces the odds of proprietary information leaks.
• The international exposure and experience gained by expatriates boosts a company's knowledge of international business strategies and practices.
• Assigning home-office executives to foreign operations can create high costs and lost opportunities.
• Ethnocentric staffing policies can also leave local managers unmotivated and demoralized.
• Lastly, an ethnocentric staffing policy can prove impractical. Host governments, alert to the importance of developing and employing the nation's workforce, prefer that foreign subsidiaries hire locals.
|Expatriate||An expatriate is home-country national, usually an employee of the firm, who is assigned abroad to manage the enterprise's foreign subsidiary(s)|
|Expatriate failure||• Costs of Failure|
• Preventing Failure
- Dealing with Adjustment and Stress
• The fall in the rate of expatriate failure testifies to the improving sophistication of selection processes. Still, few see this drop as cause to stop and celebrate. The financial and personal costs of expatriate failure, no matter how infrequent, are destructive. The average cost per failure can be as high as three times the expatriate's annual domestic salary plus the cost of relocation.
• Sometimes failure is the consequence of poor HRM putting the wrong person in the wrong job at the wrong time with the wrong expectations. Other times, failure is a surprise, as personal circumstances turn a sure thing in the wrong direction. The costs of either situation spur firms to study the causes of expatriate failure and develop preemptive training and preparation programs.
• Traditionally, attention focused on the expatriate's lack of adjustment to the new environment as a predictor of failure. The inability of an expatriate to adjust to the foreign assignment has consistently been linked to his or her inadequate cultural sensitivities and skills. Hence, the vast majority of MNEs provide cross-cultural preparation.
• Given that a foreign assignment is usually more stressful for the family than for the expatriate, companies consider the adjustment difficulties for the spouse and family. Expatriates indicate that critical family challenges are children's education, family adjustment, and partner resistance to moving abroad. Difficulties also emerge with respect to location difficulties and general social adjustments. Consequently, the leading cause of expatriate failure is the inability of a spouse and children to adapt to the host nation.
|Expatriate selection||Selecting Expatriates|
• Technical Competence
- Satisfactory Relationships with Host Nationals
- Sensitivity to Host Environments
• Leadership Ability
• Despite considerable efforts, HRM cannot consult a battery of technical indicators that distinguishes a good versus poor expatriate. Indeed, the selection of people to work abroad often proves arbitrary. The need for expatriates to run international operations, coupled with the cost of expatriate failure, spurs systematic selection processes. HRM relies on career, cultural, and psychological assessment measures, anchored in the company's staffing framework, to organize the selection process. These measures, applied through both objective evaluations and in-depth interviews, screen expatriate candidates in terms of technical competence, adaptiveness, and leadership ability.
• Technical competence often is the leading determinant of who is selected for an international assignment.
• Managers often have had several years' worth of work experience before a company sends them abroad. This tendency reflects the fact that expatriate selections are often made by line managers based on the candidate's operational track record. Moreover, many companies translate a record of outstanding technical competence as the self confidence needed to do well abroad.
• Performance data show that effective expatriates are adaptive; thrust into a new, unusual situation, they develop the outlooks, skills, and poise needed to thrive.
• Self-Maintenance These qualities, such as personal resourcefulness, are useful because things do not always go as planned. The difficulty of specifying the elements of resourcefulness is evident in companies' struggles to identify candidates commanding this attribute. Like many MNEs, the selection process at HSBC uses tests, interviews, and exercises to estimate a candidate's potential. While many are standardized, some assess intangibles.
• Satisfactory Relationships with Host Nationals Living and working in different cultures demands flexibility and tolerance. Whether called cultural empathy or others orientation, this outlook enhances an expatriate's ability to interact with different people in alien settings. Research reports that two factors play vital roles: the ability of an expatriate to develop sincere, honest friendships with foreign nationals, and the expatriate's willingness to use the host-country language.
• Sensitivity to Host Environments Valuable competencies include the sensitivities that help one interpret the immediate environment in ways that reject stereotypes, preconceptions, and unrealistic expectations. As traveling abroad quickly shows, new situations in new settings challenge one's values and outlooks. Interpreting how colleagues, customers, and competitors in the local market see events, rather than criticizing them for dissimilarities, supports strong performance in foreign markets.
• Leadership Ability
• Top managers in subsidiaries usually assume a greater range of leadership roles and broader duties than do managers of similar-size home-country operations.
|Geocentric framework||• Three perspectives anchor an MNE's staffing policy:|
A geocentric framework seeks the best people for key jobs throughout the organization, regardless of nationality.
A geocentric staffing policy helps companies pursue a global and, especially, a transnational strategy. Both types of strategies rely on exploiting learning opportunities around the world to generate and leverage ideas.
Economic factors, decision-making routines, and legal contingencies complicate a geocentric framework.
A geocentric staffing policy is hard to develop and costly to implement the aggressively multinational composition of senior management that results from geocentric staffing policies that reduce cultural myopia. Difficulty plagues adoption, however, given the need for executives to retain a sense of identity in the face of empathizing with the views of a diverse range of people.
The logistics of the geocentric framework are costly. Exposing people to different ideas in diverse places is expensive. Compensation and relocation costs escalate when transferring high-priced managers from country to country. In addition, the higher pay and prestige enjoyed by those managers in the company's global executive vanguard can trigger resentment. Current cost sensitivities in the face of the global credit crisis further pressure companies to economize the geocentric staffing approach. Presently, companies experiment with short-term engagements, commuter relationships, and extended business travel in lieu of multiyear assignments.
|Home-country national||An expatriate is home-country national, usually an employee of the firm, who is assigned abroad to manage the enterprise's foreign subsidiary(s)|
|Human resource management||Design of formal systems in an organization that ensure the effective and efficient use of human talent to accomplish organizational goals.|
|Polycentric framework||• Three perspectives anchor an MNE's staffing policy:|
A polycentric framework uses host-country nationals to manage local subsidiaries.
• A local hire, given prevailing workplace standards and wage conditions, is typically paid less than the expatriate.
• Host countries—especially those that are suspicious of foreign-controlled operations—prefer local managers who presumably are less inclined to emphasize global objectives over local interests.
• Awarding top jobs to local managers makes it far easier to attract, motivate, and retain local employees.
• For numerous social and cultural reasons, local workers prefer to work for local managers.
• The failure of some expatriates takes a toll on the company in terms of unsatisfactory performance, sidetracked careers, and deflated morale; ceteris paribus, locals are less likely to fail, given their familiarity with the local environment.
• Sensitivity in interpreting and dealing with local conditions makes many local managers better able than expatriates to adapt global policies and practices.
• Accountability issues emerge when local units evolve into quasi-autonomous operations that depend less and less on the home office for resources.
• Allegiance issues emerge when host-country nationals in charge of a subsidiary see their commitment to local colleagues and their home country rather than to the faraway headquarters of the company.
• Potential disengagement of local staff from the parent company.
|Repatriation||is the process of returning the expatriate to his or her home country working environment, and is a process fraught with difficulties. problems arise in three general areas: (i) personal finances, (ii) readjustment to the home-country work environment and (iii) readjustment to home-country social life.|
|Third-country national||describes and individuals of other nationalities hired by a government or government sanctioned contractor who represent neither the contracting government nor the host country or area of operations.|
|Technical competence||Technical competence (usually indicated by past performance) is a significant determinant of success in foreign assignments. The foreign subsidiary manager must understand both the technical necessities of a position and also how to adapt to foreign conditions, such as scaled-down plant and equipment, varying productivity standards and less efficient national infrastructure.|
|Adaptiveness||Three types of adaptive characteristics influence an expatriate's success when entering a new culture: (i) those needed for self-maintenance, (ii) those related to the development of satisfactory relationships with host nationals and (iii) cognitive skills and sensitivities that help one accurately perceive what is happening within the host society. The adaptation of a manager's family is also crucial to the success of an overseas assignment.|
|Self-maintenance||Self-Maintenance These qualities, such as personal resourcefulness, are useful because things do not always go as planned. The difficulty of specifying the elements of resourcefulness is evident in companies' struggles to identify candidates commanding this attribute. Like many MNEs, the selection process at HSBC uses tests, interviews, and exercises to estimate a candidate's potential. While many are standardized, some assess intangibles.|
|Value-activity switching||MNEs often threaten to switch activities to other countries in order to extract wage reductions or other concessions from workers.|
|Codetermination||As related to international labor relations, a practice in which employees have a role in the management of a company that includes worker representatives with voting rights on the corporate board of directors.|