prof. s p bansal principal investigator
TRANSCRIPT
Principal Investigator
Co-Principal Investigator
Paper Coordinator
Content Writer
Prof. S P Bansal Vice Chancellor
Maharaja Agrasen University, Baddi
Prof YoginderVerma
Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.
Prof. Rajeev Jain
Department of Commerce and Management
University of Kota, Kota
Dr. Pragya Dheer
Department of Commerce and Management
University of Kota, Kota
Paper: 01, Human Resource Management
Module: 38, International Human Resource Management
Items Description of Module
Subject Name Management
Paper Name Human Resource Management
Module Title International Human Resource Management
Module Id Module no. 38
Pre- Requisites Basic knowledge of what International Human Resource Management is.
Objectives To study the basic concepts of International Human Resource Management
Keywords
QUADRANT-I
Module 38: International Human Resource Management
Learning Outcome
1. Introduction
2. Meaning and Definition
3. Features of International Human Resource Management
4. Reasons for the growth of International Human Resource Management
5. Need/Characteristics of International Human Resource Management
6. Complexities/Challenges of International Human Resource Management
7. Stages of International Human Resource Management
8. Model of International Human Resource Management
9. Functions of International Human Resource Management
References
Learning Outcomes: The aim is to familiarize the tools and methods of Human Resource Management in
an International environment.
Understanding the relationship between (international) strategic objectives, organizational performance
and human behaviour should enable students to better motivate and understand International Human
Resource Management (IHRM) phenomena’s and to diagnose and analyze complex behaviour in a
different cultural setting.
Objectives are for:
Being able to understand HR challenges in international management.
Know how the HRM function can contribute to the firm’s international strategy.
Have an understanding how to appraise and evaluate in an international environment.
Know how to prepare, train and develop employees for international posts.
Identify the main trends regarding international compensation for executives.
Understand major ethical and SCR in international business.
38.1. Introduction:
When human resource management assumes a global
perspective, it becomes international human resource
management. Several factors like new technologies and
new markets are driving changes in the various aspects of
an organisation. But the advent of globalization in recent
decades has provided a decisive momentum to
international human resource management as an
increasing number of companies are realizing that their
future success and growth depend on their ability to
internationalize their operations. http://www.sociologydiscussion.com/globalisation/globalisation-social-dimensions-of-globalisation-explained/977
In the global village, organisations have crossed the boundary of the country in terms of their business
operations. The liberalization process in India, has thrown enormous opportunities for foreign companies
to come to India and Indian companies to expand the market beyond the country. Infact, many Indian
multinationals are performing extraordinarily well outside the country.
Globalisation of business has probably touched the HR manager more severely than any other functional
head. The HR executive needs to give international orientation to whatever he or she does employee
hiring, training and development, performance review, remuneration, motivation, welfare or industrial
relations. International orientation assumes greater relevance as businesses get increasingly interlinked
across nations.
Just as the success of a domestic business depends on its human resource, so is the case with an
international business. The type of people, the willingness with which they work and the commitment
they exhibit towards the organisation determine the competitive edge of an MNC in the international
market. The international firm may have the best of resources at its headquarters. The resources cannot be
effectively utilized or transferred to foreign affiliates
without using the human power.
38.2 Meaning and Definition:
International Human Resource Management (IHRM) is
defined as the interplay between the three important
dimensions of human resource management – types of
employees, human resource activities and the country of
operation. It is the complexities of operating in different
countries and employing different national categories of
workers, which essentially differentiates domestic and
international HRM.
An international business must procure, motivate, retain
and effectively utilize services of people both at the
corporate office and at the foreign plants. The process
of procuring, allocation and effectively utilizing human
resource in an international business is called international human resource management (IHRM). www.slideshare.net/SoumyaSahoo1/international-hrm-15512350
International Human Resource Management (IHRM) is the process of acquiring, developing, allocating
and utilizing human resources in a global corporation to achieve organizational objectives irrespective of
geographical boundaries. In global firms, human resource managers must achieve two somewhat
conflicting strategic objectives i.e.,
i. They must integrate human resource policies and practices across a number of subsidiaries in
different countries so that overall corporate objectives can be achieved.
ii. The approach to HRM must be sufficiently flexible to take care of significant differences in
business conditions and culture.
38.2.1. Definition:
According to P.V. Morgan, “International Human Resource Management (IHRM) is the interplay among
three dimensions – human resource activities, types of employees and countries of operations.”
According to Nancy Wong, “International human resource management involves carrying out, on a
worldwide basis, activities like candidate recruitment and selection, assignment terms and documentation,
relocation processing and vendor management, immigration processing, cultural and language orientation
and training, compensation administration and payroll processing, tax administration, career planning and
development and handling of spouse and dependent matters.”
According to Micheal Armstrong, “International human resource management is the process of
employing and developing people in international organisations which operate globally. It means working
across national boundaries to formulate and implement resourcing, development, career management and
remuneration strategies, policies and practices applicable to international workforce.”
38.3. Features of International Human Resource
Management (IHRM):
1. IHRM involves employment of the right people at
the right positions, irrespective of geographical
locations.
2. It requires the development of a long – term HR
plan to make sure of an effective alignment of the
HR strategies with the corporate objectives.
3. It requires the development of a diversified range
of skills for employees, especially for those who
need to work beyond national boundaries.
4. It necessitates the determination of compensation
for host -, home – and third – country nationals on
the basis of country – specific factors.
5. It requires the creation of centralized reporting relationships around the world for faster
information sharing. www.civilserviceindia.com/subject/Management/notes/international-human-resource-management.html
6. It requires the introduction of formal and informal methods to integrate the different parts of the
global business effectively.
7. It requires the development of a well – organized evaluation system to assess the performance of
employees across different locations and nations
8. It is necessary to understand the cultural dimensions of host nations that influence the HR
operations.
9. It is essential to maintain good communication among all the parts and people of the organisation
at the global level.
10. The perceived value of the HR activities generally varies across the different locations of
international companies.
38.4. Reasons for the growth of International Human
Resource Management (IHRM):
Factors that have contributed to the growth of International
Human Resource Management (IHRM) are:
1. The advent of globalization has increased the growth
of multinational companies and international business
operations, which has contributed to the global
mobility of human resources.
2. A growing shortage of human resources with
international exposure and experience affects the
companies’ global preparedness in human resource
management. This has forced the international
companies to assign a larger role for global human
resource management activities in their organisation.
3. In a significant number of cases, the successes of
international operations of companies are determined
by the performance of the expatriates and other employees working in a foreign country. This has
made the organisations attach a greater significance to IHRM activities.
4. Since the failure of international operations often proves costly to the organisation, companies
take additional precautionary measures in training and compensating human resources. This
necessitates the establishment of a full – fledged international HR department.
5. Differences in the people, process, tax computation, organizational structure and culture of
different nations force the companies to undertake several complex HR activities like tax
planning, orientation, training and compensation fixation.
38.5. Need / Characteristics of International Human
Resource Management (IHRM):
These are the various factors which represents the need
/ characteristics along with the factors which
differentiate between domestic human resource
management and international human resource
management:
38.5.1. The need for a broader perspective:
HR managers working in a domestic environment
generally function in a single government scenario
managing the employees of only the host country. In
multinational platform, the HR managers have to take a
broader view of different international issues, such as
expatriates’ benefits and cross – cultural work dynamics in managing people.
Globalisation
Shortage of Human Resource with international
exposure
Significant number of cases
Failure of international operations
Difference in people, process,
tax computation & culture.
Broader Perspective
Involvement in employee’s
personal lives
Emphasis changes in the
workplaceRisk exposure
More external influences
38.5.2. More involvement in employee’s personal lives:
High degree of personal involvement in the employees’ personal lives is necessary for the selection,
training, placement and effective management of both Parent Country Nationals (PCNs) and Third
Country Nationals (TCNs) employees. The role of the HR department is to make the expatriate employees
understand their housing, health care, work culture, compensation and all other matters so that they feel
comfortable at the new places.
38.5.3. Emphasis changes as the workplace mix of expatriates and locals varies:
As international operations of companies gain experience, the emphasis put on the various human
resource activities changes.
38.5.4. Risk Exposure:
The consequences of failure in international operations are more severe than the domestic business. The
failure of an expatriate in terms of performance or his premature return from the assignment costs the
company heavily and has tremendous impact over the market share and international customer
relationship.
38.5.5. More external influences:
The influence of the external factors, such as different types of governments, state of economy and
business policies and practices of various host countries are quite high, and therefore, pose a great
challenge for HR professionals to manage. Depending on the attitude of the government towards
international firms in their country; the HR policies of the MNC changed.
38.6. Complexities / Challenges of
International Human Resource
Management (IHRM):
38.6.1. Need for Broader Perspective:
In the international business, the HR managers
require a broader view of various international
issues such as expatriated benefits, cross
culture work dynamics in managing people,
etc.
38.6.2. Ethical and Corporate Social
Responsibility:
Ethics and corporate social responsibility in
the international business environment are always debatable. MNCs have been accused of being
indifferent to the problems of host countries as they are more concerned about the profitability of their
companies. MNCs have to balance the ethics and moral of their country and host country. It includes:
Complexities / Challenges
of IHRM
Broader Perspective
Ethical & Corporate Social Responsibilities
BriberyCode of conduct for international
business
38.6.2.1. Ethical Relativist:
They believe that there is no right or wrong. What is right in a particular situation in one place may not be
so in another. Relativism offers flexibility but may prove to be disastrous in the long run for an MNC.
38.6.2.2. Ethical Absolutist:
An MNC which believes in this approach is strongly influenced by the practices and policies of its home
country. They do not give much importance to the culture and values of the host country. Ethical
absolutists have been criticized for their arrogance and for showing little respect to the traditions and
cultures of the host countries.
38.6.2.3. Ethical Universalist:
An Ethical Universalist believes that there are fundamental rules which help us differentiate between right
and wrong. These rules need to be adhered to in any country and in any situation. An ethical universalist
believes that cultural variations between countries should not lead to any wrongdoing on the part of the
MNCs. There is a distinction between practices which are culturally different and ones which is morally
wrong.
38.6.3. Bribery:
According to survey conducted by J. Macken, developed countries give around $85 billion to
underdeveloped countries in form of bribes. MNCs from developed countires have been accused of
bribing government officials. Hence, countries should frame laws to prevent corruption.
38.6.4. Code of conduct for international business:
The first step in framing code of conduct for international business players came in the form of the “Caux
Roundtable Conference” on “Principles for Business Conduct” held in 1994. It was a conference on
international business ethics, held at Caux, Switzerland and was attended by the business leaders from all
countries. The focus was to formulate a set of rules and ethical codes which would be used for
benchmarking global business practices. The main aim of Caux conference as given in the charter is, “to
further the twin value of living and working together and human dignity by promoting free trade,
environmental and cultural integrity and prevention by bribery and corruption.
38.7. Stages of International Human Resource Management (IHRM):
From an organizational viewpoint, the international human resource development and usage process
generally goes through four stages viz,
38.7.1 Transfer:
The 1st stage involves the transfer of an executive or executives from the home country to fill key
positions in a foreign operations.
38.7.2. Mixed Resources:
In this 2nd Stage, sometimes due to pressures from
foreign government (or because foreign nationals have
been suitably trained for the work), most foreign
operation jobs are held by local personnel.
38.7.3. Unitary Resources:
At this stage, in the evolution process, the entire
operation is staffed by foreign nationals including the
top management positions. In other situations, the
organisations’ operations may have matured to the
point at which foreign nationals at all levels have been
trained to handle all jobs effectively.
38.7.4. Interchange:
In this final stage, there is the recognition that a manager’s skill and competence rather than his or her
passport should be the basis of advancement, privileges and rewards. In other words, there is not only the
opportunity for home country managers to obtain international assignments, but foreign managers within
the organisation are given assignments at the home office.
38.8. Model of International Human Resource Management (IHRM):
Morgan has presented a model to highlighted the broad function of international human resource
management. This model consists of the following 3 dimensions:
38.8.1. Human Resource Activity: procurement, allocation and utilization.
38.8.2. Country of Operation: the host country where a subsidiary may be located, the home country in
which the firm’s headquarters are located and a third country which may be the source of labour, finance
etc.
38.8.3. Types of employees of an international firm: host country nationals, parent country nationals and
third country nationals.
Thus, international human resource management is the interplay between three dimensions namely human
resource activities, the country of operation and the types of employees. International human resource
management differs from domestic HRM due to the complexities of operating in different countries and
employing workers belonging to different nations.
Transfer
Mixed Resources
Unitary Resources
Interchange
Fig 38.1 Model of International HRM
Sources: P.V. Morgan, 1986, “International Human Resource Management: Fact or Fiction”, Personnel
Administrator, 31 (9), Page no. 44.
38.9. Functions of International Human Resource Management (IHRM)
Recruitment and Selection
Performance Management
Compensation
Repatriation
38.9.1. International Recruitment:
The response of an international firm to an international
recruitment and selection depends on:
i. Its general staffing policy on key positions in
headquarters and subsidiaries.
ii. Its ability to attract the right candidate, and
iii. The constraints placed by the host government
on hiring policies.
Thus, there are 4 major approaches to multinational staffing decisions:
38.9.1.1. Ethnocentric Approach:
Under this parent nation employees fill all key positions in a multinational. While this approach may be
common for firms at the early stages of internationalization, there are business reasons for pursuing such
an approach:
a. A perceived lack of qualified host nation employees ,and
b. The need to maintain good communication, coordination and control links with corporate
headquarters.
International Recruitment
International Selection
International Performance Management
International Compensation
International Repatriation
Normally, when a multinational company acquires a firm in any other country it wishes to replace local
managers with the parent company nationals to ensure that the culture and values to be uniform in all the
units of the MNC throughout the globe. But sometimes, based on the competency of the local people they
may be inducted to the company to have the local understanding in terms of managing people and market
dynamics.
Disadvantages:
a. It limits the promotion opportunities of host country nationals, which may lead to decline
productivity and high labour turnover.
b. The parent company nationals being placed in the host country take lots of time in understanding
the local dynamics leading to faculty decisions.
c. The salary structure of the parent company nationals, create a feeling which is much better its
employees in other countries, discrimination and frustration among the employees from the host
country.
38.9.1.2. Polycentric Approach:
This approach is basically taken up while employing host country nationals in the subsidiary of the MNC
operating in that country and its basic premise is that parent country nationals will only hold positions in
the corporate headquarters. This policy resolves many disadvantages of ethnocentric approach and has the
following advantages:
a. There would be no language barrier.
b. Managing local politics and administration will be very easier.
c. This is less expensive than the ethnocentric approach.
It has few disadvantages:
a. Maintaining understanding between the corporate and the subsidiary management becomes
difficult.
b. It also becomes difficult to imbibe the original culture of the company.
c. This will not provide the opportunity to the host country employees to get exposure and
experience outside their own country, which will minimize their growth and development in the
organisation beyond their own country.
38.9.1.3 Geocentric Approach:
This approach subscribes the view of employing the best people in key positions throughout the
organisation without the consideration of any nationality. This addresses the disadvantages of both
ethnocentric and polycentric approach. It is not necessary that the competent people are available only in
the host or parent nations. They may be available in any part of the globe. Moreover, it helps the
organisation to develop core competency taking the best talents in the core area.
Drawbacks:
a. Constraints in terms of the employment policy of the particular country.
b. Paper work involved in hiring a foreign national instead of a local nationals.
c. Hassles of obtaining work permit for dependents of the employees.
d. Expensive in terms of the investment toward training and development of the individual.
e. Benchmarking the salary with the international compensation package, which is definitely more
than the salary to be given to the individual in home country.
38.9.1.4. Regiocentric Approach:
This approach advocates the division of operations of the multinational company on the basis of some
geographical regions & allows the transfer of employees within a particular region.
Its main advantages:-
(a) A major motive for using such an approach is that it allows interaction between executives transferred
to regional headquarters from subsidiaries & parent country nationals posted to regional headquarters.
(b) It also reflects some senstivity to local conditions.
(c) Another advantage is that such an approach can prove highly effective for a multinational to move
from a purely ethnocentric to geocentric approach.
Disadvantages:-
(a) It can produce ‘federalism’ at a regional rather than a country basis.
(b) While this approach does improve career prospects at the national level, it only moves the barrier to
the regional level.
Table 38.1 Four approaches to IHRM
Aspects of Orientation
the Enterprise Ethnocentric Polycentric Regiocentric Geocentric
HR Strategy Uniform strategy
across units
Diverse strategies
across units
Regional
integration of
strategy, but
differentiation
across region
Global
overarching
strategy on key
issues but
differentiated
policies on more
local issues
Performance
criteria Evaluation
& Control
By home country
headquarters
By local subsidiary
management
Coordinator across
countries in the
region
Global as well as
local standards and
control
Information &
Resource flows
Mainly from
headquarters to
local subsidiaries
Little among
subsidiaries, little
between subsidiary
and headquarters
Little between
subsidiary &
headquarters
medium to high
among subsidiaries
in region
Inflows and
outflow between
and among
headquarters and
subsidiaries
Staffing mix Home country
managers
Host country
managers
Host and third
country national
from within the
region
Best people where
they can be best
used
Career
Development
Home country
managers
developed to work
anywhere
Totally within
subsidiary career
path and
development
Regional career
paths and
development
Managers
anywhere
developed to work
anywhere
Purpose of
socialization
process
Gain loyalty
commitment and
understanding of
headquarters
Gain loyalty and
commitment to the
subsidiary
Gain loyalty and
commitment to the
region
Gain loyalty,
commitment and
understanding of
the total firm and
its diverse units.
Sources:- DA Heenan & Howard v Perlmutter, “Multinational Organisation Development”, (Reading, Mass:
addision-wesley, 1979) pp.18-19. Ken Kamoche , “The Integration- differentiation Puzzle: A Resource –capability
perspective in international Human Resource Management”, The International Journal of Human Resource
Management, Vol.7(I), 1996, pp 230-244.
38.9.2. International Selection:-
A very crucial function of IHRM, selection of people of the parent company nationals for their home
country operations placements is normally a general function carried out by the HR department. The
selection of expatriates is even more crucial since it has to follow international recruitment & selection
standards.
38.9.2.1 Expatriate Selection:-
This area is extremely complex & receives a lot of attention from the multinationals. Predicting future
performance potential when hiring or promoting staff, especially in foreign environment is very difficult
at the best of times. In this context, there’s a concept called ‘expatriate failure’ .This refers to the
premature return of an expatriate from an international assignment. This may be due to a selection error or
absence of proper training on cultural issues and self-adjustment. There are two major categories of costs
associated with expatriate failure-direct cost & indirect cost. Direct cost include airfare & associated
relocation expenses, salary & training costs. However, these cost precisely depends on
(a) Level of position concerned
(b) Country of destination
(c) Exchange rates
Indirect costs are harder to quantify but are often more expensive for the company.
38.9.2.2 Criteria for Selection:-
A chance of failure & the risk involved being high, the selection criteria for expatriate is a serious
function of IHRM. Utmost care requires to be taken in selecting highly motivated people in terms of
strong emotions & high level of competence.
The various factors that are widely accepted to have a major impact on the probability of success in
international assignments are based on the model proposed by Dowling, Welch and Schuler(1999).
Individual situation
Fig 38.2 Factors Impacting Probable Success of International Assignment
(i)Technical Ability:
The important parameter to judge any individual for a foreign assignment is the performance. Expatriate’s
technical skills& managerial competency need to be judged during selection process meticulously to
avoid incompetency at work after the posting. The competency demanded by the job need to be studied
carefully, and based on the key competencies, proper matching has to be done.
(ii) Cross-cultural suitability:
Competency is not the sole criteria for success. An individual is able to perform well only when he gets
acclimatized in the new environment, which might be in the opposite pole of the cultural continuum.
Cross-culture ability is very important in determining effectiveness of the individual at work in foreign
assignment.
(iii) Family requirements:
It is an established fact that spouse acceptability & comfortability toward foreign assignment is an
important variable in determining the success of the expatriate manager. Worldwide dissatisfaction & lack
of adjustment by the spouse has caused failure of expatriate manager.
(iv) Language:-
It is an effective communication drives. It has been seen that people having competency over the host
country language have drawn better mileage than their counterparts having no language knowledge.
Especially, People being posted in senior cadre management position in MNC subsidiaries should have
the knowledge of the host country language.
(v) Country/Cultural requirement:-
Selection decision
Language
Family requirement
MNE reqiurements
Technical ability
Country / cultural
requirement
requirement
Cross Culture
Suitability
The culture & employment policies of multinational companies have an influence over the selection &
recruitment decisions. The company may have certain policies of recruiting certain percentage of people
from the home country as expatriates according to their corporate philosophy.
Other situational factors influencing selection criteria:
1. Negotiated agreement by the local partner may create some constraints to depute expatriates.
2. Duration of the assignment will determine the selection decision.
3. Amount of knowledge transfer inherent in the expatriate’s job in the foreign operation.
38.9.3 International Performance Management:
One of the most challenging aspects for a firm operating is an international environment is managing the
performance of its various international facilities. Monitoring performance & ensuring conformance to
agreed standards are important elements of IHRM.
Fig 38.3 Basic Components of performance Management
Various constraints that may affect goal attainment are:-
38.9.3.1 Whole as against part:
A multinational company operates in different countries through its subsidiaries which function in a
multicultural environment. As a result, the integration & control imperatives often place it in a position
where it may decide that good of the whole is more important than one subsidiary’s short term profits.
38.9.3.2 Volatility of international environment:-
Global market is mostly dynamic & unpredictable in nature. Hence, the long term goal fixation &
persuasion need to be emphasized rather than having extra ordinary importance on short term ups &
down.
38.9.3.3 Variable levels of maturity:
Without the supporting infrastructure of the parent organisation, market development in foreign
subsidiaries is generally slower & more difficult to achieve than at home. This is because at home, there
are established brands that support new products & therefore, new businesses can be cross subsidized by
other division.
Factors associated with individual performance and appraisal in an international context:
1. Compensation package:
Perceived financial benefits along with career progression potential associated with international
assignment are often important motivating factors which drive the employee to accept international
assignments.
2. Task (assignment variables & the role of the expatriate):
Four main expatriate task roles have been identified in the literature on IHRM against the following
positions:
(i) Chief executive officer (CEO) overseas the entire foreign subsidiary operation.
(ii) Structure reproducer carried out the assignment of replicating the structure similar to the one in the
parent country in the foreign subsidiary.
(iii) Troubleshooter is normally sent by the parent company to a foreign subsidiary to analyse & solve a
particular operational problem.
(iv) operative performs functional job tasks in an existing operational structure & usually at lower level of
the organisational hierarchy.
3. Headquarter’s support:
International assignments are different from domestic ones in many respects. One of them is due to the
fact that the former involves relocation of the employee along with his/her family into a totally foreign
environment.
4. The environment in which performance occurs:
The international context with its differing legal, economic, societal, technical & political demands are a
major determinant of expatriate performance.
5. Cultural Adjustment:
The process by which an expatriate adjusts to the culture of the foreign country is extremely important.
The longer it takes for expatriate & his/her family to adjust to the new environment, the most costly it is
to the organisation as it affects their performance.
Every individual goes through a cultural adjustment cycle as shown in figure 38.4 while on an
international assignment.
Fig 38.4 Cultural Adjustment Cycle Source: H. De Cieri, P.J. Dowling and K.F.Taylor, 1991, The psychological Important of Expatriates Relocation on
Partners, International Journal of Human Resource Management, 2(3), 380.
Phase 1: Just getting the offer throws stimulating emotions associated with pleasant excitements, anxiety,
sense of adventure & range of positive & negative emotions.
Phase 2: The moment the initial excitement is over, the person encounters reality which gets translated to
homesickness leading to possible negative appraisals of the situation & a period of crisis.
Phase 3: Slowly, the present work demands help the expatriate to gain motivation, who gets adapted to
the new environment & begins to adjust.
Phase 4: As the person gets adjusted to the new environment, his performance improves & he is in a state
of healthy recovery.
38.9.4 International Compensation Management:
When a firm develops international compensation policies, it tries to fulfill some broad objectives:
(i) The compensation policy should be in line with the structure, business needs & overall strategy of the
organisation.
(ii) The policy should aim at attracting & retaining the best talent.
(iii) It should enhance employee satisfaction.
(iv) It should be clear in terms of understanding of the employee & also convenient to administer.
The employee also has a number of objectives that he wishes to achieve from the compensation policy of
the firm:
(i) He expects proper compensation against his competency & performance level.
(ii) He expects substantial financial gain for his own comfort & for his family also.
(iii) He expects his present & future needs to be taken care of including children’s education, medical
protection & housing facilities.
(iv) The policy should be progressive in nature.
Major components of an international compensation package are:
(i) Base salary:
This term has a slightly different meaning in an international context than in a domestic one. In the latter
case, it denotes the amount of cash compensation that serves as a benchmark for other compensation
elements like bonus, social benefits.
(ii) Foreign service inducement premium:
This is a component of the total compensation package given to employees to encourage them to take up
foreign assignments. This is with the aim to compensate them for the possible hardships they may face
while being overseas.
(iii) Allowances:
One of the most common kinds of allowances internationally is the cost of living allowance (COLA). It is
typically involves a payment to compensate for the difference in the cost of living between the two
countries resulting in an eventual difference in the expenditure made.
Approaches to International Compensation:
There are two main options in the area of international compensation:
(i) Market rate approach:
Under this, the base salary is linked to the structure in the host country. The multinational obtains
information from local compensation surveys & decides whether local employees, expatriates of different
nationalities will be the points of reference for benchmarking of the compensation.
Advantages:-
(i) It is a simple approach to follow.
(ii) Identification with the host country is possible.
(iii) Equality with local nationals.
(iv) Equality amongst people of different countries.
Disadvantages:-
(i) There is a possibility of variation in the compensations offered to expatriates from the same country in
different countries.
(ii) It can pose problem when the expatriate is repatriated back to his country where the salary structure is
lower than that in the host nation.
(iii) There is also a danger of variation between assignment for same employee.
(ii) Balance Sheet approach:
This approach tries to maintain relativity to parent country employee colleagues & compensating for the
costs of an international assignment. The key assumption of this is that employees going for foreign
assignments should not suffer any kind of tangible loss due to working in a new environment.
Under this approach, 4 main categories of expenditure incurred by expatriates are covered:
(a) Goods & Services – home country outlays for food, personal care, clothing, household furnishing etc.
(b) Housing – cost associated with housing in the host country.
(c) Income tax – host country & parent country taxes.
(d) Resources – contributions to savings, payments for benefits, pension contribution etc.
Advantages:
1. Equity between foreign assignment & expatriates of the same.
2. Repatriation of expatriates.
Disadvantages:
1. Complicated to administer & involves high cost.
2. Result in huge disparities between expatriates of different nationalities.
38.9.5 Repatriation:
Though the people face difficulty in acclimatizing & developing adjustment with the new culture of the
new country, still they do not feel comfortable in quitting job & going back to the home country by
accepting the failures. This happening creates more psychological frustration than continuing in the new
environment. This phase in always treated as the final stage of expatriation process.
The repatriation process (figure 38.5) is divided into four related phase (Welch, Adans, Batchley &
Howard, 1992):
(i) Preparation:-
It involves developing plans for the future & gathering information about the new position. The
organisation may provide a checklist to the employee for all the steps to be followed before his return to
his home country.
(ii) Physical relocation:-
This stage involves shifting the personal belongings, travelling to the next posting which usually is to the
home country.
(iii) Transition:-
In this stage, the person starts the process of setting down in the new setting. This involves settlement of
new house, education of the children, social adjustment with the new friends & colleagues.
(iv) Readjustment:-
It Involves coping with the reverse culture shock & career depends. This phase is very critical for the
repatriates in terms of adjusting to the new environment.
Fig 38.5 Repatriation Process
Source: D. Welch, T.Adams, B.Betchley & M.Howard, 1992, “The view from the outer side: The handling of
repatriation & other expatriation activities by the Royal Australian Airforce, Proceeding of the Academy of
International Business Southeast Asia Conference, June, Brisbane.
Summary:
Globalisation is the process of extending business activities to foreign countries. It has significant
implications for employment, HRD, compensation, labour relations etc. The model of international HRM
comprises of three variables – HR activities, country of operation and type of employees. Thus, there are
four approaches to international recruitment – ethnocentric, polycentric, geocentric and regiocentric.