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CHAPTER TWENTY
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT
OBJECTIVES
20-1 Profile international human resource management
20-2 Distinguish the perspective of the expatriate
20-3 Differentiate the staffing frameworks used by MNEs
20-4 Describe expatriate selection
20-5 Appraise expatriate preparation
20-6 Summarize expatriate compensation
20-7 Profile expatriate repatriation
20-8 Describe expatriate failure
CHAPTER OVERVIEW
Firms the world over agree on the importance of qualified personnel to achieve their
foreign growth and operational objectives. Chapter Twenty broadly deals with two
primary human resource concerns. The management discussion begins with an overview
of specific international management qualifications and characteristics; it then explores
the advantages of transferring and promoting home country vs. expatriate vs.
third-country managers, plus the associated issues of compensation and repatriation. The
chapter concludes with an exploration of expatriate failure.
CHAPTER OUTLINE
OPENING CASE: Globalizing Your Career?
Today’s global companies are increasingly looking for managers who are comfortable
on the world stage. International companies use expatriate managers to varying
degrees, some extensively and some sparingly. Many companies develop their managers
for years before assigning the manager to an overseas position. Laying the foundation
for a possible career in international business is hard work, and the experience of
actually working internationally can be even harder. Managers in foreign assignments
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are usually given much broader responsibilities than they have experienced in their
home country. After completing an international assignment, repatriation to the home
country presents major challenges as well. Despite the challenges of international
careers, more and more CEOs assert that international experience is an essential feature
of a high-performance career.
I. INTERNATIONAL HUMAN RESOURCE MANAGEMENT
International Human Resource Management (IHRM) shepherds an MNE’s most
valued assets—its people. IHRM organizes people within the MNE, developing
policies and systems that improve individual productivity and collective
performance. Unconditionally, IHRM is more difficult for the MNE than for its
uni-national counterpart. Besides dealing with situations in the home market, IHRM
adjusts policies and systems for differing political, cultural, legal, and economic
circumstances.
A. The Strategic Role of IHRM
Anecdotes suggest and research confirms a powerful relationship between HRM
processes, management productivity, and strategic performance. International HRM
can be a source of creating superior value and competitive advantages. Superior
human resources can sustain high productivity, competitive advantage, and value
creation for the international company. The relationship between superior HRM
and high productivity, competitive advantage, and shareholder value confirms its
importance and has transformed HRM. HRM is now a driver of company strategy
and has a direct mission: to staff the right person in the right job in the right place
for the right salary.
1. A Case in Point: GE’s Evolution. Beginning in the 1980s, GE focused on
globalizing its markets and materials sourcing. At each step along the way
to its current transnational strategy, GE rethought its HRM philosophy to
make sure it had the human capital to achieve its strategy.
B. IHRM’s Mission
GE’s success, like that of many other MNEs profiled throughout this chapter,
highlights IHRM’s mission: find, staff, compensate, and retain executives with
the qualifications needed to support and sustain the MNE’s strategy. Done well,
IHRM supports higher productivity, stronger competitiveness, and improving
profitability. Done poorly, people problems undermine firm performance and
diminish careers.
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I. THE PERSPECTIVES OF THE EXPATRIATE
A. Who’s Who?
Classifying a foreign assignment, in terms of the executive’s relative
nationality, uses a range of terms, including
• expatriate,
• home-country national,
• parent-country national,
• third-country national,
• inpatriate,
• transpatriate,
• flexpatriate,
• reverse-expat.
An expatriate (or “expat”) is an executive sent to work temporarily in a
country that is not his or her legal residence. There are various types of
expatriates. A home-country national, also known as a parent-country
national, is a citizen of the country where the firm is headquartered. A
third-country national is neither a citizen of the home nor the host country
(i.e., a Malaysian national running the Russian subsidiary of his Australian
company). If the Malaysian executive is transferred to the MNEs Australian
headquarters, he is then an inpatriate. Finally, a transpatriate refers to expat
lifers who work an ongoing series of international assignments, plan never to
return to headquarters, and in extreme cases, profess neither a corporate nor
national “home.”
B. Trends in Expatriate Assignment.
Demand for expatriates escalates worldwide. MNEs of all types struggle to
staff
subsidiaries. Shortages of talented executives, in light of flexible logistics and
shifting markets, change the characteristics of the international assignment. The
notion of “a few years” increasingly gives way to a few months, a few weeks,
or even a few days. So-called commuter assignments post an expatriate for a
short span. In extreme cases, it comprises the workweek, with the expat
returning
home for the weekend—say, shuttling between Paris and Madrid. Increasingly,
commuter assignments give rise to so-called flexpatriates, executives who run
the commuter cycle for a longer span as they work “frequent flyer
assignments”.
1. The Young, the Old, and the Restless. Traditionally, an
international assignment was seen as a midcareer opportunity for
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development. Now companies are looking to older and younger
employees who are more mobile. Younger employees are given an early
opportunity for international experience. More females are also seeking
expatriate placements.
2. Expanding Scope of Women. Females currently comprise about
20% of all expatriates.
3. Growing Scope of Third Country National. The changing
workplace of globalization elevates the role of third country nationals,
who often have the particular outlook and versatile competencies needed
to run organizations in diverse locations. Short-term assignments boost
the logistical appeal of third-country nationals.
4. Reverse Expatriates. The rising importance of emerging markets
refines our evolving ideas of expatriates. Historically, MNEs recruited
executives in richer countries and assigned them to units in developing
countries. Now, talented executives from emerging economies—so-called
reverse-expats—are sent straight to richer countries to speed their
development. They spend anywhere from a few weeks to a year in an
operational unit before eventually returning home—where they often
replace a traditionally defined, and usually higher-paid, expatriate.
C. The Economics of Expatriates.
Economic pressures and cost concerns spur companies to emphasize frequent
business travel in lieu of a longer-term international assignment. Cost pressures
encourage localization, whereby an expatriate retains the foreign assignment
but accepts the status of a local hire and, correspondingly, a lower host-location
salary.
D. The Enduring Constant.
Evolving trends in the global marketplace drive evolving ideas on staffing
international operations. Still, there is an enduring constant: Running the
hundreds of thousands of subsidiaries throughout the world requires a mix of
talented, enterprising locals, parent-country execs, and third-country
expatriates.
III. STAFFING FRAMEWORKS IN THE MNE
IHRM professionals apply staffing frameworks (a conceptual structure that helps
solve complex issues) to organize expatriate policies and systems. Research
emphasizes the ethnocentric, polycentric, and geocentric staffing frameworks.
A. The Ethnocentric Framework.
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Ethnocentrism occurs when one group places itself at the top of a supposed
hierarchy of relevant groups. Hence, the ethnocentric framework signifies the
belief that the management principles and business practices used by
headquarters are superior to those used in other countries.
1. Advantages. Staffing overseas slots with parent-country executives has
strategic, skills, and socialization advantages.
a. Strategic Advantages. Headquarters prefers entrusting control of
the company’s “crown jewels” to those who will best protect
them: namely, trustworthy colleagues from the home country.
b. Skills and Socialization Advantages. Regulating the transfer of
its core competencies is vital when they are difficult to articulate,
specify, or standardize. An ethnocentric framework offsets this
problem by posting a home-country manager with technical
knowledge and direct experience to local slots.
2. Limitations. This approach can, however, lead some difficulties.
a. Workplace Tensions. Ethnocentric staffing policies demotivate
local workers. Unless an expatriate transfers unique skills, local
employees may resent someone they see as no more, perhaps less,
qualified than themselves.
b. Legal-Political Tensions. An ethnocentric staffing policy can
prove legally difficult and politically impractical. Employment
law in countries worldwide regulates, sometimes lightly,
sometimes strictly, the use of expatriates in place of locals.
c. Misreads and Misfits. Tensions Force-fitting foreign operations
to mimic the standards of the home office risks pounding square
pegs into circular slots. Certainly, an MNE can make its foreign
operations mirror the outward appearance of its home-country
headquarters. Assigning home-office executives to foreign
operations, however, does not automatically create a successful
“mini-me” subsidiary. Consequently, an ethnocentric framework
can prove detrimental, posting executives who misread markets
and methods.
B. Polycentric Framework.
The polycentric staffing framework looks to host-country nationals to manage
local subsidiaries.
1. Advantages. Staffing foreign operations with locals has strategic,
economic, and political advantages
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c. Strategic Advantages. Proponents of polycentrism reason that
local managers are stronger performers given their keener
understanding of local customers, markets, and institutions.
d. Economic Advantages. Using host-country managers boosts
local motivation and morale. Still, likely costs include gaps with
global operations due to problems of accountability and
allegiance.
e. Political Advantages. Understandably, host governments prefer
polycentric approaches. They see local managers as better citizens
and stakeholders than expatriates, far more likely to champion
national interests over global objectives. Activist officials often
require the MNE hire locals, such as licensing requirements that
prohibit expatriate accountants and lawyers or visa regulations
that put a hard cap on the number of foreigners who can staff a
local subsidiary. The polycentric framework neutralizes these
impediments.
2. Limitations. A polycentric approach, by effectively decentralizing
authority to local subsidiaries, fans organizational tensions on several
counts.
a. Autonomy Tensions. Installing local executives in
decision-making roles and growing resource independence from
the parent could turn the local subsidiary into a quasi-autonomous
unit. Unchecked, an MNE risks devolving into a federation of
loosely connected, largely autonomous national operations that
pay little mind to headquarters.
b. Accountability and Allegiance Tensions. Dilemmas over
allegiance emerge when host country managers are loyal to local
colleagues instead of their home-country bosses.
c. Motivation and Mobility Tensions. Locals have scant
opportunities to work outside their home country, effectively
imposing a glass ceiling on their professional mobility.
Consequently, local managers may see little incentive to study
multinational business practices or identify ways to improve
cross-national integration. The resulting single-country focus can
isolate national subsidiaries as well as push enterprising
executives, ambitious to work abroad, to quit.
C. The Geocentric Staffing Framework.
The geocentric framework posts the most qualified executives, regardless of
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nationality, to expatriate slots.
1. Advantages. The geocentric framework develops executives whose
global mindset enables them to easily and effectively navigate cultures and
countries
a. Strategic Advantages. Geocentricity, and its advocacy of a global
mindset, develops expats that command key competencies. They
understand and interpret what is going on in a global situation,
they decipher verbal and nonverbal messages and signals from
people of different outlooks, and their flexibility helps them deal
appropriately with different situations. They effectively
implement global and, especially, transnational strategies, finding
ways to exploit learning opportunities, transfer knowledge, and
promote collaboration
2. Limitations. A geocentric framework is tough to develop and costly to
maintain. Professional and logistic tension complicate its effectiveness
b. Professional Tensions. Difficulty plagues expat development
given the need for executives to retain a sense of identity in the
face of increasing diversity. Working with groups marked by
cultural diversity takes on a different vibe than with groups
composed of people of similar ethnicities and nationalities.
c. Logistics Tensions. The geocentric framework imposes costly
logistics. Exposing executives to different ideas in diverse places,
given the quest to improve their global mindset, is expensive.
D. Which Framework When? Each of the three staffing approaches has its
merits and drawbacks. [see Table 20.1].
IV. EXPATRIATE SELECTION
Screening executives to find those with the greatest inclination and highest
potential for a foreign assignment is the process of expatriate selection (see Figure
20.3). Today, IHRM applies operational, cultural, and personality measures,
commensurate with the prevailing staffing framework, to identify candidates. These
screens, applied through objective evaluations and in-depth personal interviews,
assess candidates on several dimensions. Anecdotes and analysis emphasize the
following.
A. 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
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adapt to foreign conditions, such as scaled-down plant and equipment, varying
productivity standards and less efficient national infrastructure.
B. Self-Orientation.
An expatriate assignment is marked by ambiguity, uncertainty, and risk. Thrust
into challenging situations, an expat’s effectiveness depends upon developing
new knowledge, skills, and abilities. Facing ambiguities, one must organize
interpretation and fortify decision-making.
C. Others-Orientation.
Orientation, both self and others, help expats (1) manage ambiguity, uncertainty
and risk, (2) resolve physical, emotional and social stress, (3) support effective
communication, and (3) enhances interpersonal interactions.
D. Resourcefulness.
Resourcefulness refers to a person’s potential for (1) self-maintenance
situational flexibility, (2) interpreting the immediate environment, and (3)
developing productive workplace relationships.
E. Global Mindset. [see Figure 20.4]
Increasingly a precondition as well as an outcome of expatriate success, a
global mindset reflects awareness of differences across countries coupled with
a capacity to divine overlapping principles. A global mindset helps successful
expatriates see not a barren landscape, but a cornucopia of choices upon
entering foreign markets.
V. EXPATRIATE PREPARATION AND DEVELOPMENT
Ideally, IHRIM begins preparing an executive for an international assignment long
before she is slated to go. Too, IHRIM does not stop once she begins her new job;
support systems carry on to optimize her performance. Conventionally, IHRM
focused on fitting an expat’s technical know-how with the position’s requirements.
Figure 20.5 identifies leading concerns of expatriates ahead of moving to their
foreign assignment. These concerns show that improving cultural sensitivities and
interpersonal skills improves the odds of successful adjustment and, by extension, a
successful assignment. IHRM translate this imperative into a two-stage program:
preparation prior to departure, and then, once in-country, ongoing development:
A. Pre-Departure Preparation Programs
Expatriate preparation programs aim to transfer specific information about
the host country as well as improve the executive’s cultural sensitivity.
preparing expats often requires helping them recognize gaps in their global
mindset. Realization helps immunize them to culture shock—a
soon-after-arrival dissatisfaction with the host society that can deteriorate
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into homesickness, irritability, arrogance, and disdain.
B. In-Country Development Programs
In-country development efforts, often through mentorship programs,
virtual meetings, and executive coaching, support the expatriate.
Increasingly, MNEs use CD-based or web-based development programs,
given that the expatriate can tap resources anywhere, anytime during an
assignment. Their economical convenience provides in-country
reinforcement tools that can span the assignment.
C. Family Matters
Increasingly, expatriate preparation and support activities include the
spouse and family members. An emerging trend is including families in
predeparture preparation, particularly destination familiarization and
cultural orientation programs.
POINT-COUNTERPOINT: English: Destined to be the Global Language
POINT: English is quickly becoming the lingua franca of the world. English is being
taught as the second language in a number of schools throughout the world. Nearly a
quarter of the world’s population speaks some English, and English speakers account for
40 percent of the world’s output. The prevalence of English on the Internet makes it
possible to conduct business all over the world in one language, and translation software
makes learning a foreign language less useful. Many managers report that foreign
language skills rank low relative to other skills needed to work abroad.
COUNTERPOINT: There are many reasons for learning a foreign language. Surveys
report that managers who learn foreign languages make better innovative contributions
to their organizations. Learning the local language can build rapport with local
employees and sends an important message. Cross-cultural literacy can also keep one
from being excluded from important business networks and chatting with local officials
and colleagues. Learning a foreign language is also a personally enriching experience
for anyone going abroad. Finally, foreign language competency may be needed as
Americans increasingly face strong competitors who are bilingual or multilingual.
VI. EXPATRIATE COMPENSATION
Compensation plays a decisive role in attracting, motivating, and retaining
expatriates. Setting effective compensation systems that fairly reward executives
here, there, and everywhere requires IHRM deal with a range of issues regarding
differing pay levels, benefits, tax programs, and prerequisites.
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A. 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.
1. Home-Based Method. The home-based method sets compensation
based on the salary of a comparable job in the expatriate’s home city.
2. Headquarters-Based Method. The headquarters-based method
sets salary in terms of the salary of a comparable job in the city where
the MNE has its headquarters.
3. Host-Based Method. Sometimes called destination pricing, going
rate, or localization, this method bases expatriate compensation on the
prevailing pay scales in the foreign locale.
4. Global Market Method. The global market approach views an
international assignment as a continuous but an irregular activity. It
recognizes that an expatriate, in the context of a commuter or flex
assignment, irregularly works for different durations in the same or,
sometimes, different countries. Implementing this approach requires
designing flexible systems and sophisticated performance tracking
that, in spite of logistical complications, keeps the expat whole.
B. Components of Expatriate Compensation.
Commonly, expatriates negotiate their base salary, foreign-service
premium, various allowances, fringe benefits, tax differentials, and benefits
[see Table 20.2]. Each dimension can significantly influence the total
compensation. The changing economics of expatriate assignments
moderates compensation schemes. In particular, the mandate to contain
costs pushes IHRM to review the link between aspects of selecting and
classifying expatriates with compensation standards. Key points include:
1. Assignment Type. The growing use of commuters and flexpatriates
alters the compensation calculus. Short-term assignments typically do
not trigger a change in pay or benefits, but add a per diem to regular
pay.
2. Supply Dynamics. Many international assignments have “gone from
being special and unique, with piles of money thrown at them, to being
an everyday part of the company.” Foreign service premiums, likewise,
have been phased out by many.
3. Redefining Markets. Cost-reduction techniques redefine the
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compensation parameters of an international assignment. Many MNEs
with operations in Europe now treat the continent as if it were one
country. Others cut hardship allowances for locales that are far more
hospitable than they once were, such as Prague, Shanghai, and Rio de
Janeiro. Increasing globalization steadily reduces the number of
hardship destinations.
C. Compensation Complications.
Setting compensation in evolving organizations that use several types of
expatriates expands the parameters of analysis. IHRM, for instance,
regularly resolves complications of the following sort.
a. Changing Standards. The evolving dynamics of globalization require
IHRM fine-tune compensation methods. MNEs struggle to equalize
pay for the same type of job that is done by different people in
different countries.
b. Consistency Concerns. Legal, cultural, and regulatory differences
require tailoring performance-based pay by country and region.
Managing expatriates of multiple nationalities transferred from
high-to- low or low-to-high cost markets quickly creates anomalies
and exceptions. IHRM must determine if all managers who perform
the same job, but in different locations, receive the same
compensation.
VII. REPATRIATING EXPATRIATES
Repatriation is the process of returning the expatriate to his or her home
country-working environment, and is a process fraught with difficulties.
A. Repatriation Challenges
1. Career Progression. The principal cause of repatriation frustrations
is finding the right job for the returning executive.
2. Changes in Personal Finances. Most expatriates enjoy a rich
lifestyle and returning home with fewer benefits and perks
may be difficult.
3. Personal Readjustment. Expatriates may experience reverse
culture shock when returning home. They may find that they have to
relearn things they took for granted.
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5. Managing Repatriation. Effective human resource practices for
soothing re-entry include placement in jobs that build on foreign
experiences, a reorientation program, and a corporate mentor who looks
after expatriates’ interests while they’re abroad. The principal cause of
repatriation frustrations is finding the right job for someone to return to.
B. Improving Repatriation
IHRM notes the importance of effective repatriation. Most have formal
repatriation policies, organize workshops, and link return strategies to
career management. IHRM studies and solves repatriation complications
precisely because the greater the difficulties that repatriates confront, the
greater the difficulty in convincing others to accept international
assignments.
VIII. EXPATRIATE FAILURE
Expatriate failure, narrowly defined, is a manager’s premature return home due
to poor operational performance. Broadly defined, it is the breakdown of IHRM’s
expatriate management systems. In the 1980s, performance problems brought
nearly a third of American expatriates assigned to advanced countries home
early; the failure rate was twice that for those posted to less-hospitable
countries. Today, approximately 5 percent of expats fail to complete their
assignment. Leading causes include quitting to work elsewhere, family concerns,
spouse/partner dissatisfaction, inadequate job performance, organizational
restructuring, and internal transfer.
A. The Costs of Failure.
Expatriate failure is operationally costly, professionally detrimental, and
personally stressful. The average cost of an expatriate failure can be as
high as three times the annual domestic salary plus the cost of relocation.
A. The Wildcard
Some folks, despite best intentions, do not adjust well to working abroad.
In theory, an ideal expatriate’s technical qualification, self-confidence,
resourcefulness, and global mindset make her effective anywhere and
everywhere. Displacement can lead to nostalgia, culture shock, and
depression. Notwithstanding the glamour and rewards, the expatriate
lifestyle moves some far beyond their comfort zone. Then, no matter the
degree of preparation, a sought-after adventure devolves into a
nerve-wracking exile
LOOKING TO THE FUTURE: I’m Going Where? The Changing Locations of
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International Assignments
In the past, expatriates found their assignments in the premier business centers of
Europe, North America, and Japan. The rising importance of emerging economies in fast
expanding Asia and Africa is the driving force behind Western MNEs relocating a large
share of operations in these regions. As sales, growth, labor, and executive opportunity
migrate from the west to faster growing emerging economies, you can expect a change
in the geography of expatriate assignments and activities. Data already confirms the
trend is underway: China, Brazil, the United Arab Emirates, Hong Kong, India, and
Singapore are leading destinations for expats.
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