Chapter 17 – Managing Human Resources in an International Context
CHAPTER 17
Managing Human Resources in an International Context
Learning Objectives
LO 17-1 Discuss several of the major factors that may affect the quantity and quality of labor in a nation.
LO 17-2 Explain the relationship between competitive strategies (international, multidomestic, global,
and transnational) and international human resource management approaches (ethnocentric,
polycentric, regiocentric, and global).
LO 17-3 Compare home-country, host-country, and third-country nationals as international company
executives.
LO 17-4 Explain what an expatriate is, and identify some of the challenges and opportunities of an expat
position.
LO 17-5 Discuss the increasing importance of accommodating the trailing spouse of an expatriate
executive.
LO 17-6 Identify some of the complications of compensation packages for expatriate executives.
NOTE:
International business statistics, data, and facts about countries, regions, governments, and companies can
change rapidly and dramatically. We recommend that you update this information regularly.
As an adopter of this text, McGraw-Hill offers you a complementary online resource each month, the
International Business Newsletter. The IB Newsletter gives you an array of timely and relevant articles,
videos, country profiles, teaching suggestions, and data resources to add breadth, depth, and richness to
the ever-changing topic of international business.
iGlobe is also a way to keep your courses current. In partnership with PBS, iGlobe is a free video
service for McGraw-Hill adopters that allows you to download breaking news videos onto your desktop
to show in class or online. Updated monthly, these streaming videos are complete with teaching notes and
discussion questions. Key concepts for each video are identified to save you time! Visit
www.mhhe.com/ball13e, or talk to your McGraw-Hill sales representative for more information about
iGlobe or the IB Newsletter.
17-1
Chapter 17 – Managing Human Resources in an International Context
Overview
This chapter examines how human resource management and worldwide labor conditions impact
businesses operating in the international environment. Effective managers for ICs are in high demand but
short supply. One expert on China says sending someone to China with Chinese language capability but
without “Chinese values” can be worse than sending a Westerner without those values.
International companies without effective human resource policies will find themselves failing to execute
in the international marketplace. Complicating issues that HR managers face is the trailing spouse who
may also have a career and a family whose members are leaving their friends. Compensation, support,
and repatriation are among the expatriate issues addressed in IHRM.
Suggestions and Comments
1. National and international periodicals frequently have articles about working conditions in
different counties along with topics on IC executive selection and compensation.
2. In those periodicals and in scholarly publications there is information about international
business and approaches to language training.
Student Involvement Exercises
1. Ask students to evaluate the local benefits and costs of labor mobility across national borders.
2. Students may look for some of the rich blog sources to prepare reports about working
conditions in different countries.
3. Career planning is a logical link with this material. Some students may think that a foreign
posting is too exotic for them, so this chapter presents a way to expand their horizons.
4. From The Economist, the Financial Times, the Wall Street Journal and many other printed and
online sources, students could find job leads. Often, pay ranges are given, which leads nicely
into the discussion of comparable salaries and cost-of-living issues.
Guest Lecturers
1. Your school may have a course in labor economics and the person who teaches it could enlarge
on problems and uses of labor.
2. Ask an immigration attorney to speak on U.S. immigration policy.
3. Human Resource Management professors, particularly if they have international experience or
knowledge.
4. An IB manager with experience working in a foreign country may be willing to discuss
compensation packages in a general way and other expat benefits and perks.
5. Personnel officers from companies in your area may be able to contribute.
Worldview
17-2
Chapter 17 – Managing Human Resources in an International Context
The focus of this Worldview is “Executives with the Right Stuff Are in Big Demand.” The
importance of finding executives with the “right stuff” for performing well is particularly critical in
developing economies and examples from Latin America and China are presented. Some of the
challenging differences between a domestic and a foreign, emerging market context are identified. It is
relatively easy to stimulate discussion of this topic in a classroom context, particularly if the discussion is
iniatiated through questions such as, “what does it take to have the ‘right stuff’ for a foreign assignment?”
and “How might a company go about assessing whether or not a candidate has the ‘right stuff’?”
Global Debate
The focus of this Global Debate explores the question “Are Women Appropriate for International
Assignments?” The question alone will present controversy in your class, as women will typically
answer with a resounding and emphatic, “YES!” Once past that initial question, further discussion can be
stimulated by asking such follow-up questions as, “Is there a glass ceiling for women in IB
management?,” “What education and training do women need in order to be strong candidates for global
assignments?,” “What personal characteristics do women need to be successful in global assignments?,”
“Do women on international assignments need different support than men?,” “Are women in your class
interested in an IB career? Why and/or why not?,” and “Are there circumstances in which you believe
that the use of women expatriates should be most strongly considered, or perhaps not considered at all?”
The Global Path Ahead
The focus of this The Global Path Ahead explores a student’s decisions to pursue a career in
international human resource management. Her interest in international issues was sparked by her own
international upbringing, which included a broad variety of living and travel experiences. These
experiences clarified the challenges of doing business internationally, and piqued her interest in human
resource management aspects of international business. She discusses her experiences going to work
immediately after graduation in the international human resources group of a Fortune 100 company,
providing an insightful overview for students interested in careers in this area. She provides several
salient recommendations for how students might better prepare themselves for finding and exploiting
opportunities in IHRM. The Resources for Your Global Career section provides a range of useful
suggested resources for understanding global labor trends, global labor issues, and opportunities to pursue
careers in international human resource management.
Mini-Case, “Brittany Miller: Should She Accept an International Assignment?”
Answers to this question depend on student judgment and values combined with material in the chapter.
Issues may include the following:
Spouses often can receive assistance from the company in finding a suitable foreign assignment
and work permission, where applicable. The transition is difficult for children, but the
opportunities are also huge. Brittany will want to focus on the expatriate support offered by the
company, especially in the family area, how to keep connected while she is in China, and the
reentry situation. How does this assignment fit into her career development?
Lecture Outline
Opening Section
17-3
Chapter 17 – Managing Human Resources in an International Context
As companies internationalize their activities, they often find value in utilizing expatriates for reasons
such as transfer of skills, control of operations, development of expanded mindsets, and so forth. Since
international assignments are becoming crucial experience for moving into the higher corporate ranks,
successfully managing this experience is becoming more important. HR is playing an increasingly
important role in successfully identifying, preparing, and compensating an expat for a foreign assignment,
and successfully re-integrating the expat into the home office. Trailing spouses and taking the family
abroad are also issues of concern because managers, both men and women, are more vocal about not
wanting to be apart from their families. Developing attractive, yet equitable, compensation packages is a
challenge for HR.
I. Worldwide Labor Conditions
A. Overall size of the workforce
1. Populations in developing nations tend to be growing and becoming younger
2. 38% of the world’s 15- to 24-year-olds live in India and China
3. Populations in many developed nations are projected to decline due to low birthrates and low
levels of immigration
B. Aging of Populations
1. An aging population is a trend affecting the workforce of many nations
2. Aging of populations is more pronounced for the developed countries (Figure 17.1)
3. An aging population has implications for labor force size and skill; policies regarding
immigration; economic growth; and a range of political issues
C. Urbanization of Workforce
1. The population and labor force worldwide have been shifting dramatically from rural to urban
2. More than half of the world’s population now lives in urban areas
3. Urbanization is higher in developed countries
4. The rate of urbanization has been 4 times faster in developing countries, from 1975 to 2009
5. Urbanization often creates a pool of low-cost, low-skill workers
D. Immigrant Labor
1. Labor mobility is the movement of people from country to country or area to area to get jobs
2. People often move to secure better economic situations (Figure 17.2)
3. 60% of the world’s migrants live in developed countries
4. Migrant labor ranges from highly skilled jobs to lower-skilled positions in agriculture,
cleaning, and domestic service
5. Immigation may result in depressed wages for a nation’s workers
6. The U.S. has 5% of the world’s population but 20% of the world’s migrants
E. Brain Drain
1. Brain drain is the loss by a country of its most intelligent and best-educated people
2. It is a serious problem for developing countries
3. Reverse brain drain is the return home of highly skilled immigrants who have made a
contribution in their adopted country
4. New economic opportunities in their home countries, as well as political barriers and
challenges in host developed nations, have encouraged reverse brain drain
17-4
Chapter 17 – Managing Human Resources in an International Context
F. Labor Unions
1. labor unionization varies significantly across nations
2. Union activity in the U.S. and Europe tends to be adversarial with management, while in
Japan the unions tend to identify strongly with the interests of the company
3. There is a trend of declining numbers of union members in most developed nations,
especially within industrial sectors
4. International developments such as offshoring of production activities have been perceived as
a threat by some national unions, promoting some multinational labor activity
II. The International Human Resource Management (IHRM) Approach (Table 17.1)
A. Company competitive strategy should drive its IHRM
B. IHRM terms:
1. Home-country nationals or parent-country nationals (PCNs)
2. Host-country nationals (HCNs)
3. Third-country nationals (TCNs)
III. Recruitment and Selection of Employees (also called staffing)
A. Three sources of staffing for IC executives are PCNs, HCNs, and TCNs
B. There are four possible staffing policies:
1. Ethnocentric: use of home country citizens (PCNs) for key posts
2. Polycentric: use of host country nationals (HCNs) in subsidiaries and PCNs at HQ
3. Regiocentric: use of regional-area nationals for subsidiary staffing
4. Geocentric: staffs globally, using worldwide staffing pools
IV. Training and Development
A. Home- or Parent-Country National (PCN)
1. Due to the difficulty of an overseas assignment, few recent college graduates are hired for an
overseas assignment.
2. New hires need time to adjust to the workplace and learn the business.
3. Preparation for international assignment includes language training and special assignments to
overseas locations
4. Overseas assignments are difficult for families
B. Host-Country National (HCN), hired either in Host Country or Home Country
1. The same criteria for selecting PCNs apply to HCNs.
2. Training of HCNs may focus more on business practices
3. Hiring HCNs who have studies in the parent company’s country may help.
4. Training at headquarters
C. Third-Country National (TCN)
1. May be advantageous in terms of costs, culture knowledge
2. Host-Country Attitudes: Some host country governments may prefer hiring of their citizens
3. Prevalent in developing countries due to lack of skilled employees
4. Generalizations about TCNs are Difficult
a. Wide range of multi-country experience
b. Various routes to professional TCN status
V. Expatriates
17-5
Chapter 17 – Managing Human Resources in an International Context
A. Different types of expats:
1. HCN hires are sometimes called inpatriates
2. HCNs or TCNs given short-term assignment abroad are called flexpatriates
3. Culture shock affects ALL expatriates regardless of international experience
4. Reverse culture shock happens when expat returns home
B. The Expatriate Family
1. Trailing Spouses in Two-Career Families
a. Career implications significant to both expat and spouse
b. Dissatisfied spouse may affect expat performance, marriage, etc.
2. IHRM addressing spousal issues more closely
C. Expatriate Children May Suffer the Most
1. Children have challenges as well as benefits
2. Children sometimes referred to as third-culture kids (TCKs)
D. Preparation for the Transition: Language Training
1. English is lingua franca of the world
2. Goal is to establish goodwill and show interest in host country
3. Fluency not needed, but day-to-day communication helpful
E. Expatriate Services: banking, tax, family-assistance programs
F. Repatriation – The Shock of Returning Home
1. Often re-entry and feeling a part of home office is difficult
2. IHRM needs to offer career counseling and reorientation
V. Compensation of IC executives who are expatriates has three components. (Refer to Table 17.2)
A. Salaries are usually standard for each level of the management hierarchy throughout the IC.
B. Allowances are payments to compensate expatriates for extra costs of living abroad, such as:
1. Housing Allowances
2. Cost-of-living Allowances (Table 17.3)
3. Allowances for Tax Differentials
4. Education Allowances
5. Moving and Orientation Allowances
C. Bonuses (or premiums) are paid in recognition that expatriates and their families undergo
hardships and inconveniences and make sacrifices living abroad. They include:
1. Overseas Premiums (Table 17.4)
2. Contract Termination Payments
3. Home Leave
D. Compensation Packages Can Be Complicated
1. What Percentage?
a. What to pay in host country currency?
b. Home country currency?
c. Other country currency?
2. What Exchange Rate?
a. Inflation and exchange rates change
b. Differ from country to country
E. Compensation of Third-Country Nationals
Trend is to treat them the same as HCN expats
17-6
Chapter 17 – Managing Human Resources in an International Context
F. International Status is given the top people whom the IC wants to retain.
G. Perks given a manager with international status may include:
1. Company cars, perhaps with chauffeurs
2. Private pension plan
3. Retirement payment
4. Life insurance
5. Health insurance
6. Emergency evacuation services
7. Kidnapping, ransom and extortion insurance
8. Company house or apartment
9. Foreign subsidiary directorship
10. Seminar and vacation travel
11. Club membership
12. Hidden slush funds
VI. What Is Important to You?
A. Know this and negotiate for it before you accept your assignment.
B. Understand the cost-of-living differential for countries you are looking at for a foreign
assignment (Table 17.3).
17-7