Chapter 14 by Nguyen Ngoc Lam (K18 HL)

Chapter 14 Human Resource Selection and Development Across Cultures

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The Importance of International Human Resources

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Human resources are crucial for an organization's success, providing human capital and fostering efficiency. Creative human resource management, including financial compensation and daily comforts, can motivate employees, reduce turnover, and encourage teamwork, leading to increased sales and innovation.

Getting the Employee Perspective

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Managers should assess employee treatment to improve productivity and reduce turnover. As employees recognize their individual talents, companies are adapting their approach to employees. By segmenting the workforce, offering flexibility, and personal touches, employers can foster commitment and retention, even in the face of labor shortages.

Employees as Critical Resources

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Organizations need to attract qualified employees and match them to suitable jobs for success. Face-to-face communication remains crucial, despite increasing e-mail, web-, and teleconferencing use.

Investing in International Assignments

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MNCs face high costs of sending expatriate managers overseas due to high costs and potential failures. With improved education and talent availability, MNCs are turning to locally engaged employees or third-country nationals. However, a shortage of skilled management remains. Investing in language and cross-cultural training is crucial. The demand for globally adept managers will likely grow.

Economic Pressures

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The human resources function in MNCs is changing due to reduced costs and increased efficiencies. HR personnel-to-staff ratios have dropped from 1.3 per 100 in 2014 to 1.1 per 100 in 2015. Many HR tasks are now outsourced, with two-thirds of employers outsourcing HR activities. During the 2009-2010 global recession, pay freezes, reductions, and pay cuts were common, leading to concerns over talent retention and reserving salary increases for top performers.

Sources of Human Resources

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MNCs can hire from home-country, hostcountry, third-country, and inpatriates, as well as outsourcing global operations, and are also engaging temporary or contingent employees.

Home-Country Nationals

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Home-country nationals, also known as expatriates, are managers from the country where a multinational corporation is headquartered. They have historically been used in key positions in foreign affiliates, with companies like Cisco Systems and IBM sending expats to India. However, some research suggests that host-country nationals may be better suited for certain jobs. In recent years, there has been a trend away from using home-country nationals due to costs, uncertain returns, and increasing availability.

Host-Country Nationals

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MNCs often hire host-country nationals for middle and lower-level positions due to expectations from countries, cost, and government regulations. This approach can lead to a sense of entitlement and low productivity. Sony is implementing this in the US, encouraging employees to adapt to local styles and culture, resulting in innovative creations.

Third-Country Nationals

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Third-country nationals (TCNs) are managers from countries other than the MNC's headquartered or assigned to work. They offer advantages such as lower salaries and benefits, better working knowledge, and better understanding of the region. TCNs can achieve corporate objectives more effectively than expatriates or local nationals, offer different perspectives during expansion, and demonstrate a global image in joint ventures. In recent years, inpatriates have emerged in international management, helping MNCs develop global core competencies and adapt to unified Europe and labor shortages in certain regions.

Subcontracting and Outsourcing

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Offshore outsourcing and subcontracting are potential sources of international management talent. Offshore outsourcing allows companies to coordinate and integrate geographically dispersed human resources across distant borders. This has been facilitated by the growth of international subcontracting and lean production systems. Offshoring is increasingly attractive for international human resource needs in developing countries like China, India, and the Philippines. However, concerns have arisen about the cost savings and availability of qualified personnel in India. Offshoring can be profitable for firms specializing in global production and HR coordination.

Selection Criteria for International Assignments

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General Criteria

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Selection criteria for overseas assignments often include both technical and human aspects, with technical expertise and interpersonal skills being highly valued by Japanese and American MNCs.

Adaptability to Cultural Change

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Overseas managers require adaptability and cultural toughness, experiencing culture shock and frustration in their new environment, indicating they are actively involved in the new culture.

Physical and Emotional Health

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Organizations require overseas managers to have good physical and emotional health, withstand culture shock, and consider marital status for a better fit.

Age, Experience, and Education

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MNCs aim for a balance between age and experience, sending both young and seasoned personnel to overseas posts. While academic degrees are important, MNCs use formal education for training and development.

Language Training

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Language skills are crucial for international business, especially in non-English-speaking countries. Despite traditional poor performance in English, expatriates are increasingly improving their conversational skills. In developed countries, 67% of expatriates attempt to learn the host country's language, while only 51% in developing nations.

Motivation for a Foreign Assignment

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International management experts argue that a desire for work abroad is not enough to make an effective overseas manager. Candidates must also believe in the job's importance and have a sense of mission. Other motivators include adventure, promotion, and economic status improvement. The travel mystique continues to motivate professionals to seek assignments abroad, with global mobility dating back to ancient times and driven by technological advancements.

Spouses and Dependents or Work-Family Issues

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Spouses and dependents play a crucial role in overseas assignments, as unhappy families can negatively impact performance and job satisfaction. Organizational support and the balance between work and family domains influence an individual's intentions. Companies often interview both spouses and managers before approving assignments, focusing on family suitability. Factors influencing employee willingness to work overseas include unmarried employees, married couples without children, prior international experience, commitment to professional careers, and spouses' attitudes.

Leadership Ability

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Effective leadership is crucial in international assignments, with firms assessing characteristics like maturity, emotional stability, communication, independence, initiative, creativity, and good health to ensure success.

Economic Pressures and Trends in Expat Assignments

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Despite economic stagnation, most multinational corporations (MNCs) continue to make overseas assignments, with 95% of them being successful. The most common goal is filling a managerial or technical gap, with career development and local relationship building being other objectives. Employees report benefits like faster promotions, higher pay, and more mobility. However, assignments can fail, with employees often rejecting opportunities due to family concerns. Companies face increasing pressure to reduce the cost of their expatriate programs, as traditional financial metrics are not used. The most frequently cited locations for assignments are the US, China, and the UK.

International Human Resource Selection Procedures

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MNCs use tests and interviews for selection, with some employing both. Adjustment models help with overseas assignment variables, enhancing effective expatriate selection.

Testing and Interviewing Procedures

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Testing is not widely used by firms for overseas assignments, as it is costly, inaccurate, and has poor predictive value. Interviews are still the best method, with 52% of U.S. MNCs conducting interviews with both managers and their spouses, suggesting adaptability is crucial for successful performance abroad.

The Adjustment Process

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International human resource management specialists have developed models to explain the factors involved in effectively adjusting to overseas assignments. There are two major types of adjustments: anticipatory and in-country adjustments. Anticipatory adjustment involves pre-departure training and previous experience with the assigned country. In-country adjustment involves maintaining a positive outlook, interacting well with host nationals, and evaluating cultural values. A five-stage process model focuses on forming network ties in the host country to obtain critical informational and emotional support resources. Effective selection of expatriates is multifaceted and challenging, but if all works out, individuals can become important parts of the organization's overseas operations.

Compensation

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Compensation packages for expatriates typically include a base salary, benefits, allowances, incentives, and taxes.

Base salaries

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Base salaries are the amount an expatriate typically receives in their home country, such as $200,000-$300,000 for upper-middle managers in the United States.

Benefits

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Benefits make up approximately one-third of regular employee compensation, but there are several issues surrounding compensation for expatriates, including whether MNCs should maintain expatriates in home-country benefit programs, enroll them in host-country benefit programs, and consider host-country legislation regarding termination of employment.

Allowances

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Allowances are an expensive feature of expatriate compensation packages, such as cost-of-living allowances, housing allowances, education allowances, hardship allowances, and hardship premiums.

Incentives

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Incentives have also been designed to keep expats motivated, with some firms dropping the ongoing premium for overseas assignments and replacing it with a one-time lump-sum premium. This lump-sum payment has several benefits, including retaining its value as an incentive, reducing costs to the company, and being more readily available for saving or spending.

Taxes

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Taxes are another major component of expatriate compensation, with top-level expats often earning far more than this, so they may pay two tax bills for the amount by which their pay exceeds $100,800. MNCs usually pay the extra tax burden by determining the base salary and other extras (e.g., bonuses) that the expat would make if based in the home country. Taxes on this income are computed and compared with the taxes due on the expat's income, with any taxes exceeding what would have been imposed in the home country paid by the MNC, and any windfall kept by the expat as a reward for taking the assignment.

Tailoring the Package

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MNCs tailor compensation packages to suit specific situations, such as the salary disparity between senior-level managers in Japan and the United States. To address this issue, companies can link pay and performance to attract and retain outstanding personnel. There are several approaches to formulating compensation packages, including balance-sheet, negotiation, localization, lump-sum, cafeteria, and regional systems. The balance-sheet approach ensures the expat is "made whole" and does not lose money by taking the assignment. Negotiation involves working out a special, ad hoc arrangement that is acceptable to both parties. Localization pays the expat a salary comparable to local nationals, while lump-sum allows the expat to make their own decisions. Cafeteria offers expats a series of options and a regional system sets a compensation system for all expats assigned to a particular region. The most important thing about global compensation is cost-effectiveness and fairness.