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International Management TENTH EDITION Culture, Strategy, and Behavior Fred Luthans | Jonathan P. Doh Chapter 14 OBJECTIVES OF THE CHAPTER HUMAN RESOURCE SELECTION AND DEVELOPMENT ACROSS CULTURES Firms conducting international business need to be particularly concerned with human resource management issues—including selection, training, and development—to better prepare their personnel for overseas assignments. This chapter focuses on potential sources of human resources that can be employed for overseas assignments, procedures that are used in their selection process, and compensation issues. In this chapter we discuss training and development and the various types of training that are commonly offered. The specific objectives of this chapter are 1. IDENTIFY the three basic sources that MNCs can tap when filling management vacancies in overseas operations in addition to options of subcontracting and outsourcing. 2. DESCRIBE the selection criteria and procedures used by organizations and individual managers when making final decisions. 3. DISCUSS the reasons why people return from overseas assignments, and present some of the strategies used to ensure a smooth transition back into the home-market operation. 4. DESCRIBE the training process, the most common reasons for training, and the types of training that often are provided. 5. EXPLAIN how cultural assimilators work and why they are so highly regarded. The World of International Management The Challenge of Talent Retention in India R etaining talented employees is a challenge for managers around the world. Somewhat to the surprise of MNCs, this challenge has become particularly acute in India. According to a 2015 study by Ernst & Young, only 6 percent of Indian firms felt that they had best-in-class capability for recruitment activities, and only 4 percent stated that they had best-in-class capability for hiring employees with scarce or critical skills.1 The same study found that employee turnover was particularly high for customer-facing employees, with a fifth of all firms seeing annual turnover greater than 20 percent.2 Such high employee turnover has a cost. Shyamal Majumdar of India’s Business Standard explained that frontline employees in a top company cost 40 percent of their salaries to replace and top managers cost 150–200 percent of their salaries to replace.3 Right Management’s Executive Overview described the business implications of high Indian employee turnover: In IT, for example, it is important for clients to develop close relationships with employees working on projects. Frequent turnover means continually building new relationships with replacements, thereby slowing down projects and harming both efficiency and client trust. In manufacturing, high attrition results in the expensive and time-consuming exercise of training recent hires about new technologies.4 Because of the cost of hiring and retraining employees, MNCs in India may not be able to secure the cost savings that led them to India in the first place. More Than Money Discussing retaining talent in India, Elena Groznaya points out that MNCs sometimes mistakenly use the same methods to try to retain employees in India as in the home country. These methods are often compensation driven. In India’s relationshiporiented culture, however, employees are primarily motivated 508 not by compensation, but by a sense of “family” in their companies. Groznaya states: “Traditional Indian companies often play the role of a family extension for their staff” and give employees a feeling of belonging.5 A comprehensive talent management and HR practices study in India supported the conclusion that compensation is not the main factor in retaining Indian employees. Villanova School of Business and Right Management conducted a survey of 4,811 individuals from 28 Indian companies in five industries. According to Right Management’s Executive Overview, the researchers found: While the common perception is that pay is the key element in attracting and retaining talent in India, as well as other emerging countries, our results showed a more complex array of factors played a significant role. Most notably, they included the value of intrinsic rewards—the employees’ sense of progress, competence, influence/choice, and opportunity to do meaningful work. Compensation was not the most significant factor in either retention or engagement, a phenomenon that held true across all industries. Among respondents who indicated an intent to stay, only 30 percent were “very satisfied” with their compensation.6 The key to high retention is keeping employees engaged. The researchers discovered that “lack of engagement was by far the strongest single factor leading to intent to leave an organization. The lesson is clear: The more engaged an employee, the likelier he or she will stay.”7 Four Factors Correlated to Employee Engagement What steps can managers take to keep employees engaged? The researchers identified four HR practices that are correlated with employee engagement, as measured by employees’ feelings of pride and satisfaction in the organization. These factors were performance management, professional development, manager support, and an organizational commitment to a larger social purpose.8 Performance Management The researchers found a significant relationship between retention and a favorable assessment of a firm’s performance management system. Of employees who were in the top third of those who rated their company’s performance management practices highly, “56.1 percent had strong pride in the organization, 65.9 percent had strong satisfaction with the organization, and only 23.5 percent indicated a strong intention to leave.” In contrast, of the bottom third, “only 17.3 percent had strong pride in the organization, 11.1 percent had strong satisfaction, and 48.8 percent expressed a strong intention to leave.”9 When setting up performance management systems at Indian firms, managers need to be coached on how to provide constructive feedback. Indian managers are often hesitant to criticize their employees, but with coaching, they can learn how to use criticism to help employees improve their performance.10 Professional Development Employees who are satisfied with their firm’s professional development opportunities are more likely to remain at the firm. For instance, the researchers found that of those respondents who did not like the professional development practices at their companies, “52.3 percent indicated intent to leave within 12 months vs. 18.7 percent in organizations that strongly supported those practices.” Employees are more engaged when they have clear opportunities for growth in their career. A typical career path may involve the opportunity to work on different projects, participate in overseas assignments, and eventually take on a managerial role.11 Employee assessments should be an important part of the development process. These assessments “can ensure that companies hire the right people for the right jobs and . . . will also help to pinpoint those people with the potential to move into management roles.”12 Management Support From the study, the researchers found that “Due to the urgent need for managerial level personnel, employees in India are often promoted to supervisory roles before they’re ready to assume such responsibilities.” Furthermore, many respondents in the study were dissatisfied with their manager’s ability to engage with their team: “Only 47 percent of respondents agreed that their immediate supervisor was able to provide support and develop his or her team effectively.” This gap in management skills has a negative impact on employee retention. If employees are working 509 510 Part 4 Organizational Behavior and Human Resource Management Employee Attitudes and Beliefs HR Practices Retention Performance Management Practices Pride in Organization Professional Development Practices Intention to Leave Manager Support Satisfaction with Organization Social Responsibility Years of Service, Age, Gender, Position, Education for a supervisor who lacks management skills, they are more likely to leave the company.13 Thus, Indian firms need to train new managers in the basics of management, such as how to reach team objectives and how to mentor employees. Mentoring is an essential management skill in India, where leaders often act as personal advisers. Having effective managers to support their employees is critical to increasing employee retention.14 Social Responsibility Many Indian employees highly value commitment to the community. Firms can engage employees by providing them with opportunities to participate in initiatives to help social causes, such as alleviating poverty. These initiatives should be highlighted in annual reports.15 Start on the First Day The highlights of the research study mentioned were published in an article in MIT Sloan Management Review. According to the article, “The best companies drive employee satisfaction and pride by providing management support, training, and professional opportunities early on. . . . Employers should start an employee’s professional development plan on his or her first day.”16 One of the researchers in the study, Dr. Jonathan Doh, told the MIT Sloan Management Review, “Our findings suggest that even six months from the start date is probably too late. [At that point] the employee is already making decisions about whether to stay around or not.” MNCs can make the decision to stay an easy one by offering employees effective professional development, performance management systems, and manager support.17 Once, India was seen as a source of never-ending talent. Today, India poses some of the same challenges in attracting, hiring, and retaining talent as do many developed countries, with some issues that are particular to the Indian context. Originally, MNCs searched overseas for inexpensive labor, but as countries become more developed and education levels increase, and as employers in home countries worry about a diminishing labor force, the search has shifted. As more highly skilled workers become available in other countries, MNCs have a growing number of sources for their human resources; however, as more MNCs and local firms vie for this talent, a “talent war” may ensue. MNCs may also be able to access foreign human resources by hiring them on a temporary or permanent basis in the home country. Often, they will subcontract or outsource work to foreign employees in home and host countries. This complex web of relationships creates significant managerial challenges and opportunities and suggests that there will always be a need for highly skilled, culturally sensitive, and g­ eographically mobile managerial talent. Chapter 14 Human Resource Selection and Development Across Cultures In this chapter, we explore the procedure of international human resource (HR) selection and training and examine the difficulties of developing a global human resource management process in the presence of dissimilar cultural norms. At the same time, we survey emerging trends in international human resource management, including the increasing use of temporary and contingent staffing to fill the growing global HR needs of MNCs. We also review training and development programs designed to help e­ mployees prepare for and succeed in their foreign assignments and adjust to conditions once they return home. ■ The Importance of International Human Resources Human resources is an essential part of any organization because it provides the human capital that keeps operations running. Human resource management is also key to an efficient, productive workplace. We discussed in Chapter 12 how financial compensation can motivate employees, but creative human resource management can play an even more important role. By focusing on the employees, or the human resources themselves, organizations have found that positive organizational structure leads to company success in the market.18 Sometimes this is recognized through compensation, such as competitive salaries, good benefits, promotions, training, education opportunities, and so forth, which has been known to motivate employees and reduce turnover because there are further incentives to strive for. Other times, companies will provide employees with daily comforts such as meals where an employee’s family is welcome to attend, fitness centers, laundry rooms, or even services such as oil changes while at work. Showing the ­employees that they are not simply cogs in a machine, but that their time is valued and they are thanked for it, often builds morale and can increase company sales through a shared drive to succeed. Furthermore, recognizing the potential in employees and encouraging ­teamwork can lead to greater risk taking and innovations.19 Getting the Employee Perspective Whether managers are trying to increase productivity or decrease turnover rates, it is good to get a sense of how the employees feel they are being treated. Times continue to change, and while employees in the past could be considered one unit, today people are realizing their individual talents and their need to be recognized. For instance, global companies are experiencing a labor shortage as skilled workers are in high demand.20 In essence, skilled workers can almost walk in and request the kind of compensation they desire, and companies may be willing to accept the terms. Even outside this context of labor shortages, firms are restructuring how they look at employees for many good reasons. By segmenting the workforce into categories (but avoiding differentiation based on age or gender because that may imply a form of discrimination) and by offering choices, flexibility, and a personal touch to each employee package, employers are able to provide an underlying sense of commitment because the employee is getting what he or she wants. In other words, by focusing on employees and tailoring human resource management to the individual, people are naturally influenced to stay longer and be more committed to the organization they have joined.21 However, before a company can keep the employee, it must first hire. Employees as Critical Resources Attracting the most qualified employees and matching them to the jobs for which they are best suited are important for the success of any organization. For international organizations, the selection and development of human resources are especially challenging and vitally important. As prevalent and useful as e-mail and web- and teleconferencing have become, and despite the increasing incidence of subcontracting and outsourcing, face-to-face human contact will remain an important means of communication and 511 512 Part 4 Organizational Behavior and Human Resource Management t­ransferring “tacit” knowledge—knowledge that cannot be formalized in manuals or written guidelines. Hence, most companies continue to deploy human resources around the world as they are needed, although the range of options for filling human resource needs is expanding. Investing in International Assignments MNCs must send expatriate (“expat”) managers overseas, no matter how good “virtual” communications become. There are quite a few costs involved, including pre-assignment training, and potential costs due to failure. According to a recent study, expatriate employees cost roughly 2.5 times that of a domestic employee. Furthermore, 10 percent of expatriate projects fail, adding to the overall cost of doing business.22 Given these high costs, many MNCs are turning to locally engaged employees or third-country nationals.23 In addition, the improved education of many populations around the world gives MNCs more options when considering international human resource needs. The emergence of highly trained technical and scientific employees in emerging markets and the increased prevalence of MBA-type training in many developed and developing countries have dramatically expanded the pool of talent from which MNCs can draw. Yet some companies are still having difficulty in winning the “war for talent.” A recent report from China noted that despite much greater levels of advanced education, there is still a shortage of skilled management. “We need a lot more people than we have now, and we need a higher caliber of people,” said Guo Ming, Coca-Cola’s human resource director for Greater China.24 Adjustment problems of expats undertaking international assignments can be reduced through careful selection and training. Language training and cross-cultural training are especially important, but they are often neglected by MNCs in a hurry to deploy resources to meet critical needs.25 The demand for globally adept managers will likely grow, and MNCs will need to continue to invest in recruiting and training the best future leaders. MNCs are also under increasing pressure to keep jobs at home, and their international HR practices have come under close scrutiny. In particular, the “importing” of programmers from India at a fraction of domestic wages, combined with the offshore outsourcing of work to high-tech employees in lower-cost countries, has created political and social challenges for MNCs seeking to manage their international human resources efficiently and effectively. All of this suggests an ongoing need for attention to and investment in this challenging area. Economic Pressures It is important to note that the human resources function within MNCs is itself changing as a result of ongoing pressures for reduced costs and increased efficiencies. There was a time when human resources departments handled every staffing need at a company, from hiring and firing to administering benefits and determining salaries. According to a 2015 study by Bloomberg BNA, HR personnel-to-staff ratios dipped from 1.3 per 100 in 2014 to 1.1 per 100 in 2015. At large companies, defined as having 2,500 employees or more, the ratio of HR personnel-to-staff drops to just 0.6 per 100. Further, some of what in-house HR departments oversaw is now being outsourced, due to increased scrutiny of the costs associated with these “staff” (versus revenue-generating “line”) functions. The 2015 Bloomberg BNA study found that two-thirds of employers outsourced at least one HR activity.26 The actions that companies take during an economic recession, in regards to employee compensation and benefits, vary based on a multitude of factors. However, looking back to the 2009–2010 global recession can provide some clues as to how companies may react during future economic downturns. Pay freezes or reductions, along with hiring freezes, were quite common during the global recession. A survey taken Chapter 14 Human Resource Selection and Development Across Cultures 513 during the global recession by Towers Perrin (now Willis Towers Watson) found that 42 percent of organizations were planning hiring freezes and reductions as well as pay cuts. Another survey, an update to ECA International’s Salary Trends Survey, conducted annually for more than 50 countries, found that 40 percent of companies planned to freeze pay. On average, salary increases were half as high as anticipated before the economic crisis set in. In Canada, increases dropped from 4 percent to 1 percent. Salary increases in Western Europe averaged around 2 percent, according to the survey, while those in Eastern Europe were just under 5 percent. Russia, Romania, and Latvia saw the greatest increases, while workers in Lithuania, the Irish Republic, and Switzerland were expected to receive the smallest pay raises in the region. Likely due in part to the pay and hiring freezes utilized by many companies to improve financial metrics, employers expressed concern over long-term talent retention during the global recession. Sixty-two percent of companies in the Towers Perrin survey stated that they were worried about the potential impact on their ability to keep highperforming talent or those in pivotal roles. In response, organizations reserved their salary increases and cash rewards for their most talented and top-performing employees, even while pay is cut for the rest of the workforce. ■ Sources of Human Resources MNCs can tap four basic sources for positions: (1) home-country nationals, (2) hostcountry nationals, (3) third-country nationals, and (4) inpatriates. In addition, many MNCs are outsourcing aspects of their global operations and in so doing are engaging temporary or contingent employees. The following sections analyze each of these major sources. Home-Country Nationals Home-country nationals are managers who are citizens of the country where the MNC is headquartered. In fact, sometimes the term headquarters nationals is used. These managers commonly are called expatriates, or simply “expats,” which refers to those who live and work outside their home country. Historically, MNCs have staffed key positions in their foreign affiliates with home-country nationals or expatriates. For many companies and for the most senior positions, that trend persists. Major U.S. and European companies such as Cisco Systems and IBM have been sending expats to India. According to a 2015 estimate, about 30,000 expat managers are there now, with that number expected to grow by 10 to 15 percent per year.27 However, some research has shown that in many instances, host-country nationals may be better suited for the job. Richards, for example, investigated staffing practices for the purpose of determining when companies are more likely to use an expatriate rather than a local manager. She conducted interviews with senior-level headquarters managers at 24 U.S. multinational manufacturing firms and with managers at their U.K. and Thai subsidiaries. This study found that local managers were most effective in subsidiaries located in developing countries or those that relied on a local customer base. In contrast, expatriates were most effective when they were in charge of larger subsidiaries or those with a marketing theme similar to that at headquarters.28 There are a variety of reasons for using home-country nationals. One of the most common is to start up operations. Another is to provide technical expertise. A third is to help the MNC maintain financial control over the operation.29 Other commonly cited reasons include the desire to provide the company’s more promising managers with international experience to equip them better for more responsible positions; the need to maintain and facilitate organizational coordination and control; the unavailability of managerial talent in the host country; the company’s view of the foreign operation as short lived; the host country’s multiracial population, which might mean that selecting a manager of either race would result in political or social problems; the company’s conviction that it must maintain a foreign image in the host country; and the belief of some companies that a home-country manager is the best person for the job.30 home-country nationals Expatriate managers who are citizens of the country where the multinational corporation is headquartered. expatriates Managers who live and work outside their home country. They are citizens of the country where the multinational corporation is headquartered. 514 Part 4 Organizational Behavior and Human Resource Management In recent years, there has been a trend away from using home-country nationals, given the costs, somewhat uncertain returns, and increasing availability of host-country and third-country nationals and inpatriates. Host-Country Nationals host-country nationals Local managers who are hired by the MNC. Host-country nationals are local managers who are hired by the MNC. For a number of reasons, many MNCs use host-country managers at the middle- and lower-level ranks. One reason in particular is that many countries expect the MNC to hire local talent, and the use of host-country nationals is a good way to meet this expectation. Also, even if an MNC wanted to staff all management positions with home-country personnel, it would be unlikely to have this many available managers, and the cost of transferring and m ­ aintaining them in the host country would be prohibitive. In some cases government regulations dictate selection practices and mandate at least some degree of “nativization.” In Brazil, for example, two-thirds of the employees in any foreign subsidiary traditionally have to be Brazilian nationals. Additionally, the Brazilian Labor Code states that pay to foreigners must not exceed one-third of the company’s total payroll. Brazil is not alone; many countries exert real and subtle pressures to staff the upper-management ranks with nationals. In the past, these pressures by host countries have led companies such as Standard Oil to change their approach to selecting managers. These regulations have substantial costs in that shielding local employees from international competition may create a sense of entitlement and result in low productivity. Sony is trying the host-country approach in the United States. Employees are encouraged to accept or decline styles that emerge from Japanese headquarters, depending on American tastes. Furthermore, innovative creations are birthed at the U.S. site, all with an American flavor. Sony believes that local citizens are the best qualified for the job, as opposed to Japanese managers, because they already have a working knowledge of the language and culture, and it may be difficult for Sony to understand preferred styles otherwise.31 The International Management in Action box “Important Tips on Working for Foreigners” gives examples of how Americans can better adapt to foreign bosses. Third-Country Nationals third-country nationals (TCNs) Managers who are citizens of countries other than the country in which the MNC is headquartered or the one in which the managers are assigned to work by the MNC. Third-country nationals (TCNs) are managers who are citizens of countries other than the country in which the MNC is headquartered or the one in which they are assigned to work by the MNC. Available data on third-country nationals are not as extensive as those on home- or host-country nationals. A number of advantages have been cited for using TCNs. One is that the salary and benefit package usually is less than that of a home-country national, although in recent years, the salary gap between the two has begun to diminish. A second reason is that the TCN may have a very good working knowledge of the region or speak the same language as the local people. This helps explain why many U.S. MNCs hire English or Scottish managers for top positions at subsidiaries in former British colonies such as Jamaica, India, the West Indies, and Kenya. It also explains why successful MNCs such as Gillette, Coca-Cola, and IBM recruit local managers and train them to run overseas subsidiaries. Other cited benefits of using TCNs include 1. TCN managers, particularly those who have had assignments in the headquarters country, can often achieve corporate objectives more effectively than expatriates or local nationals. In particular, they frequently have a deep understanding of the corporation’s policies from the perspective of a foreigner and can communicate and implement those policies more effectively to others than can expats. 2. During periods of rapid expansion, TCNs can not only substitute for expatriates in new and growing operations but also offer different perspectives that can complement and expand on the sometimes narrowly focused viewpoints of both local nationals and headquarters personnel. International Management in Action Important Tips on Working for Foreigners As the Japanese, South Koreans, and Europeans continue to expand their economic horizons, increased employment opportunities will be available worldwide. Is it a good idea to work for foreigners? Those who have done so have learned that there are both rewards and penalties associated with this career choice. Following are some useful tips that have been drawn from the experiences of those who have worked for foreign MNCs. First, most U.S. managers are taught to make fast decisions, but most foreign managers take more time and view rapid decision making as unnecessary and sometimes bad. In the United States, we hear the cliché, “The effective manager is right 51 percent of the time.” In Europe, this percentage is perceived as much too low, which helps explain why European managers analyze situations in much more depth than most U.S. managers do. Americans working for foreign-owned firms have to focus on making slower and more accurate decisions. Second, most Americans are taught to operate without much direction. In Latin countries, managers are accustomed to giving a great deal of direction, and in East Asian firms, there is little structure and direction. Americans have to learn to adjust to the decision-­ making process of the particular company. Third, most Americans go home around 5 p.m. If there is more paperwork to do, they take it with them. Japanese managers, in contrast, stay late at the office and often view those who leave early as being lazy. Americans either have to adapt or have to convince the manager that they are working as hard as their peers but in a different physical location. Fourth, many international firms say that their official language is English. However, important conversations www.overseasjobs.com always are carried out in the home country’s language, so it is important to learn that language. Fifth, many foreign MNCs make use of fear to motivate their people. This is particularly true in manufacturing work, where personnel are under continuous pressure to maintain high output and quality. For instance, those who do not like to work under intense conditions would have a very difficult time succeeding in Chinese auto assembly plants. Americans have to understand that humanistic climates of work may be the exception rather than the rule. Finally, despite the fact that discrimination in employment is outlawed in the United States, it is practiced by many MNCs, including those operating in the United States. Women seldom are given the same opportunities as men, and top-level jobs almost always are reserved for home-office personnel. In many cases, Americans have accepted or accommodated to this ­ethnocentric (nationalistic) approach. Nevertheless, as Chapter 3 discussed, ethics and social responsibility are becoming a major issue in the international arena, and these moral challenges must be met now and in the future. Sources: Martin J. Gannon, Understanding Global Cultures, 2nd ed. (Thousand Oaks, CA: Sage, 2001); Richard D. Lewis, When Cultures Collide (London: Nicholas Brealey, 1999); Roger E. Axtell, ed., Do’s and Taboos around the World (New York: Wiley, 1990); John Holusha, “No Utopia but to Workers It’s a Job,” New York Times, January 29, 1989, sec. 3, pp. 1, 10; Faye Rice, “Should You Work for a Foreigner?” Fortune, August 1, 1988, pp. 123–124; Jeanne Whalen, “American Finds Himself Atop Russian Oil Giant in Turmoil,” The Wall Street Journal, October 30, 2003, p. B1. 3. In joint ventures, TCNs can demonstrate a global or transnational image and bring unique cross-cultural skills to the relationship.32 In recent years, a new term has emerged in international management—inpatriates. An inpatriate, or inpat, is an individual from a host country or a third-country national who is assigned to work in the home country. Even Japanese MNCs are now beginning to rely on inpatriates to help them meet their international challenges. Harvey and Buckley report: The Japanese are reducing their unicultural orientation in their global businesses. Yoichi Morishita, president of Matsushita, has ordered that top management must reflect the cultural diversity of the countries where Matsushita does business. Sony sells 80 percent of its products overseas and recently recognized the need to become multicultural. It has appointed two foreigners to its board of directors and has plans to hire host-country nationals who are to be integrated into the top management of the parent organization. At the same time, the Chairman of Sony has stated that in five years the board of directors of Sony will reflect the diversity of countries that are important to the future of the company. Similarly, Toshiba plans to have a more representative top management and board of directors to facilitate long-run global strategies.33 inpatriates Individuals from a host country or third-country nationals who are assigned to work in the home country. This growing use of inpats is helping MNCs better develop their global core competencies. As a result, today a new breed of multilingual, multiexperienced, so-called global managers or transnational managers is truly emerging.34 These new managers are 515 516 Part 4 Organizational Behavior and Human Resource Management part of a growing group of international executives who can manage across borders and do not fit the traditional third-country nationals mold. With a unified Europe and other such developments in North America and Asia, these global managers are in great demand. Additionally, with labor shortages developing in certain regions, there is a wave of migration from regions with an abundance of personnel to those where the demand is strongest. Subcontracting and Outsourcing Other potential sources of international management talent are subcontracting and offshore outsourcing (introduced in Chapter 1). Offshore outsourcing is made possible by the increasing organizational and technological capacity of companies to separate, coordinate, and integrate geographically dispersed human resources—whether employed directly by the firm or contracted out—across distant geographic borders. The development of this capacity can be traced to the earlier growth of international subcontracting as well as to the international diffusion of lean production systems (which originated with Japanese auto manufacturers) to other manufacturing and service sectors. In particular, service industries are exploiting inexpensive telecommunications to transmit engineering, medical, legal, and accounting services to be performed in locations previously viewed as remote. Rising levels of educational attainment in developing countries such as China, India, and the Philippines, especially in the scientific and technical fields, make offshoring increasingly attractive for a range of international human resource needs. These developments are not without controversy, however. On the one hand, offshore outsourcing, as well as the hiring of temporary workers from abroad on special visas, similar to inpatriates, presents significant opportunities for cost savings and lower overhead. On the other hand, the recent wave of media attention has focused on widespread concern that in an age of cheap telecommunications, almost any job—professional or blue collar—can be performed in India for a fraction of U.S. wages. In particular, as discussed in Chapter 1, union groups, politicians, and NGOs have challenged MNCs’ right to engage in labor “arbitrage.” Offshoring is reaching a new era, and while the top reason that MNCs look to other countries for labor is still to save money, there has been a decline all around in qualified personnel, which has brought about an emerging focus on other factors, notably access to qualified personnel. Moreover, although the cost for a computer programmer or a middle manager in India remains a small fraction of the cost for a similar employee in the United States (a programmer with three to five years’ experience makes about $25,000 in India but about $65,000 in the United States), the wage savings do not necessarily translate directly into overall savings because the typical outsourcing contract between an American company and an Indian vendor saves less than half as much as the wage differences would imply.35 Microsoft faced this challenge when it hired two Indian outsourcing companies, Infosys and Satyam, to provide skilled software architects for its projects. In this case, the work of software architects and developers was being done by employees of the Indian companies working at Microsoft facilities in the United States. Although the actual employees were paid much less than U.S. counterparts ($30,000 to $40,000), Microsoft was billed $90 an hour for software architects, or at a yearly rate of more than $180,000. The onsite work was done by Indian software engineers who came to the United States on H-1B visas, which allow foreign workers to be employed in the United States for up to six years. Microsoft also contracted work in India through the firms, with billing rates of $23 to $36 an hour.36 Though politically controversial, outsourcing can save companies significant costs and is very profitable for firms that specialize in providing these services on a contract basis. U.S.-based firms such as EDS, IBM, and Deloitte have developed specific competencies in global production and HR coordination, including managing the HR functions that must support it. These firms combine low labor costs, specialized technical capabilities, and coordination expertise. Outsourcing can also create quality control problems for some companies, as demonstrated by British telecom giant BT’s decision in 2016 to repatriate some of its callcenter staff from India to the U.K. due to quality control problems. The move, costing Chapter 14 Human Resource Selection and Development Across Cultures 517 BT roughly £80 million, aims to improve customer satisfaction by increasing the number of customer calls answered in the U.K. from 50 percent to 80 percent. Roughly 1,000 positions will ultimately be transferred back to the U.K.37 Despite the limitations, offshore subcontracting will remain an important tool for managing and deploying international human resources. A recent study by the Hackett Group estimated that U.S. and European companies sent an average of 150,000 jobs offshore every year between 2002 and 2016.38 Although subcontracting provides important flexibility in the human resource practices of MNCs operating globally, it also requires skilled international managers to coordinate and oversee the complex relationships that arise from it. This is especially true as offshoring begins a new generation. In a survey by Duke University’s Offshoring Research Network, significant differences were found in the perspectives of home (source) and host (destination) countries. Specifically, individuals in home countries were often worried about losing jobs to host countries, exacerbated by the fact that higher-end jobs are now being shipped overseas.39 This is not the case from the organizations’ point of view. It is becoming increasingly difficult for managers to find the appropriate talent. More and more, companies are looking overseas in areas such as R&D and procurement to supplement the lack of experts in the home country. This does not take jobs away from home countries; it simply opens jobs globally as managers attempt to fit the skills of the worker to the job itself.40 Furthermore, companies are very specific about which country they search when looking to fill particular job functions. Figure 14–1 provides a graphical depiction of this reality. Overall, offshoring is a trend that does not appear to be on its way out, but instead is evolving through alternative motivators and continuing to innovatively help the company grow. Locations Mapped by Cost of Labor, Talent Availability, and Nature of Work Offshored High Skills MNCs Seek within Countries Western Europe Australia Middle East Canada Eastern Europe Cost of Labor Africa China Other Asia Mexico Latin America India Philippines Low Low Figure 14–1 High Access to Qualified Talent Virtually all offshore implementations in these countries are entirely for commodity work Offshore implementations in these countries are focused equally on commodity and high-end work Offshore implementations in these countries are focused largely on commodity work Offshore implementations in these countries are heavily skewed towards high-end work Source: Arie Y. Lewin and Vinay Couto, Next Generation Offshoring: The Globalization of Innovation, 2006 Survey Report (Durham: Duke Center for International Business Education and Research, 2007). 518 Part 4 Organizational Behavior and Human Resource Management ■ Selection Criteria for International Assignments international selection criteria Factors used to choose personnel for international assignments. Making an effective selection decision for an overseas assignment can prove to be a major problem. Typically, this decision is based on international selection criteria, which are factors used to choose international managers. These selections are influenced by the MNC’s experience and often are culturally based. Sometimes as many as a dozen criteria are used, although most MNCs give serious consideration to only five or six.41 Table 14–1 reports the importance of some of these criteria as ranked by Australian, expatriate, and Asian managers from 60 leading Australian, New Zealand, British, and U.S. MNCs with operations in South Asia.42 General Criteria Some selection criteria are given a great deal of weight; others receive, at best, only lip service. A company sending people overseas for the first time often will have a much longer list of criteria than will an experienced MNC that has developed a “short list.” Typically, both technical and human criteria are considered. Firms that fail to consider both often find that their rate of failure is quite high. For example, Peterson, Napier, and Shul-Shim investigated the primary criteria that MNCs use when choosing personnel for overseas assignments and found that the Japanese and American MNCs in their survey ranked both technical expertise and interpersonal skills as very important.43 The following sections examine some of the most commonly used selection criteria for overseas assignments in more depth. Adaptability to Cultural Change Overseas managers must be able to adapt to change. They also need a degree of cultural toughness. Research shows that many managers are exhilarated at the beginning of their overseas assignment. After a few months, however, a form of culture shock creeps in, and they begin to encounter frustration and feel confused in their new environment. This may be a good sign because it shows that the expatriate manager is becoming involved in the new culture and not just isolating himself or herself from the environment. As this initial and trying period comes to an end, expatriates tend to identify more with the host-country culture, which only increases as managers become more adept at Table 14–1 Rank of Criteria in Expatriate Selection 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Ability to adapt Technical competence Spouse and family adaptability Human relations skill Desire to serve overseas Previous overseas experience Understanding of host-country culture Academic qualifications Knowledge of language of country Understanding of home-country culture Australian Managers (n = 47) Expatriate Managers* (n = 52) 1 2 3 4 5 6 7 8 9 10 1 3 2 4 5 7 6 8 9 10 Asian Managers (n = 15) 2 1 4 3 5 7 6 8 9 10 *U.S., British, Canadian, French, New Zealand, or Australian managers working for an MNC outside their home countries. Source: From Raymond J. Stone, “Expatriate Selection and Failure,” Human Resource Planning 14, no. 1 (1991). Chapter 14 Human Resource Selection and Development Across Cultures 519 Figure 14–2 Mastery Time in assignment Evolution of Parent and Host Culture Identification Parent Culture Host Culture Transitional Novice Identification Source: Juan Sanchez, Paul Spector, and Cary Cooper, “Adapting to a Boundaryless World: A Developmental Expatriate Model,” Academy of Management Executive 14, no. 2 (2000), p. 100. the position. As seen in Figure 14–2, upon first arrival, the expatriates identify almost wholly with the home country. Over time, they become more familiar with their surroundings and become more of an integral part of the environment. This integration can lead to a higher sense of satisfaction with the job and a lessening of stress and alienation.44 Organizations examine a number of characteristics to determine whether an individual is sufficiently adaptable. Examples include work experiences with cultures other than one’s own, previous overseas travel, knowledge of foreign languages (fluency generally is not necessary), and recent immigration background or heritage. Others include (1) the ability to integrate with different people, cultures, and types of business organizations; (2) the ability to sense developments in the host country and accurately evaluate them; (3) the ability to solve problems within different frameworks and from different perspectives; (4) sensitivity to the fine print of differences of culture, politics, religion, and ethics, in addition to individual differences; and (5) flexibility in managing operations on a continuous basis despite lack of assistance and gaps in information. In research conducted among expatriates in China, Selmar found that those who were best able to deal with their new situation had developed coping strategies characterized by sociocultural and psychological adjustments including (1) feeling comfortable that their work challenges can be met, (2) being able to adjust to their new living conditions, (3) learning how to interact well with host-country nationals outside of work, and (4) feeling reasonably happy and being able to enjoy day-to-day activities.45 And ­Caligiuri, after examining how host nationals help expatriates adjust, reported that certain types of personality characteristics are important in this process. In particular, her findings suggest that greater contact with host nationals helps with cross-cultural adjustment when the person also possesses the personality trait of openness. She also found that sociability was directly related to effective adjustment.46 Physical and Emotional Health Most organizations require that their overseas managers have good physical and emotional health. Some examples are fairly obvious. An employee with a heart condition or a nervous disorder would not be considered. The psychological ability of individuals to withstand culture shock, if this could be discerned, would be an issue, as would the current marital status as it affected an individual’s ability to cope in a foreign environment. 520 Part 4 Organizational Behavior and Human Resource Management For example, one U.S. oil company operating in the Middle East considers middle-aged men with grown children to be the best able to cope with culture shock, and for some locations in the desert, considers people from Texas or southern California to be a better fit than those from New England. Age, Experience, and Education Most MNCs strive for a balance between age and experience. There is evidence that younger managers are more eager for international assignments. These managers tend to be more “worldly” and have a greater appreciation of other cultures than older managers do. By the same token, young people often are the least developed in management experience and technical skills; they lack real-world experience. To gain the desired balance, many firms send both young and seasoned personnel to the same overseas post. Many companies consider an academic degree, preferably a graduate degree, to be of critical importance to an international executive; however, universal agreement regarding the ideal type of degree is nonexistent. MNCs, of course, use formal education only as a point of departure for their own training and development efforts. For example, Siemens of ­Germany gives members of its international management team specific training designed to help them deal more effectively with the types of problems they will face on the job. Language Training The ability to speak the language of the country in which a manager is doing business can be extremely valuable. One recognized weakness of many MNCs is that they do not give sufficient attention to the importance of language training. English is the primary language of international business, and most expatriates from all countries can converse in English. Those who can speak only English are at a distinct disadvantage when doing business in non-English-speaking countries, however. In other words, language can be a very critical factor. Traditionally, managers from English-speaking countries have done very poorly in the language area. However, in recent years, expatriates have made an effort to improve their conversational skills. According to the 2015 HSBC Expat Explorer, 63 percent of employees on an international assignment ultimately learned the local language. The level of development within the host country appears to significantly impact whether or not expatriates work to improve their speaking skills; in developed countries, 67 percent of expatriates made an attempt to learn the host country’s language, while only 51 percent of those in developing nations made an attempt.47 For many expatriates, being able to speak with locals in their own language is a major milestone in finally feeling connected to the foreign country. This is especially important for countries like Russia, where successful integration is heavily dependent on being able to converse in Russian; of expatriates surveyed there, more than 70 percent were making an effort to improve their speech skills.48 Motivation for a Foreign Assignment Although individuals being sent overseas should have a desire to work abroad, this usually is not sufficient motivation. International management experts contend that the candidate also must believe in the importance of the job and even have something of an element of idealism or a sense of mission. Applicants who are unhappy with their current situation at home and are looking to get away seldom make effective overseas managers. Some experts believe that a desire for adventure or a pioneering spirit is an acceptable reason for wanting to go overseas. Other motivators that often are cited include the desire to increase one’s chances for promotion and the opportunity to improve one’s economic status. For example, many U.S. MNCs regard international experience as being critical for promotion to the upper ranks. In addition, thanks to the supplemental wage and benefit package, U.S. managers sometimes find that they can make, and especially save, more money than if they remained stateside. Chapter 14 Human Resource Selection and Development Across Cultures 521 And while many may romanticize the expatriate life, it is clear that the travel mystique continues to motivate professionals to desire and seek an assignment abroad. A recent survey found that at least 40 percent of Britons say that they would like to work or retire abroad. And according to a report in the British Daily Telegraph: And it’s not just about the sunshine. Becoming an expatriate is an adventure, a new beginning, a fresh start, and it is in human nature to want to explore. Global mobility is as old as humankind itself. The ancient migration routes of our earliest ancestors are well documented and the distances travelled by primitive man still continue to amaze. There were even expatriates in the Bible—consider the exodus from Egypt for example. Indeed, the forced expatriation of Adam and Eve from the garden of Eden is the starting point for the entire Biblical narrative. Was Eve the very first “trailing spouse”? In more recent times entire civilizations have been influenced by explorers such as Marco Polo, Christopher Columbus, Captain Cook and the Pilgrim Fathers. So moving across continents is nothing new but its continued rise has been underpinned by the drive towards globalization aided by the revolution in communication throughout the 20th century. Technologies have allowed companies to globalize in ways which were simply unimaginable in earlier times. Indeed such is the commitment to globalization, that many major companies now structure their reporting lines along global delivery lines rather than local geographic control.49 Spouses and Dependents or Work-Family Issues Spouses and dependents are another important consideration when a person is to be chosen for an overseas assignment. If the family is not happy, the manager often performs poorly and may either be terminated or simply decide to leave the organization. Shaffer and her associates recently collected multisource data from 324 expatriates in 46 countries and found that the amount of organizational support that an expatriate feels he or she is receiving and the interplay between the person’s work and family domains have a direct and unique influence on the individual’s intentions regarding staying with or leaving the enterprise.50 For this reason, some firms interview both the spouse and the manager before deciding whether to approve the assignment. This can be a very important decision for the firm because it focuses on the importance of family as a critical issue to a successful assignment. One popular approach in appraising the family’s suitability for an overseas assignment is called adaptability screening. This process evaluates how well the family is likely to stand up to the rigors and stress of overseas life. The company will look for a number of things in this screening, including how closely knit the family is, how well it can withstand stress, and how well it can adjust to a new culture and climate. The reason this family criterion receives so much attention is that MNCs have learned that an unhappy executive will be unproductive on the job and the individual will want to transfer home long before the tour of duty is complete. These findings were affirmed and extended by Borstorff and her associates, who examined the factors associated with employee willingness to work overseas and concluded that 1. Unmarried employees are more willing than any other group to accept expat assignments. 2. Married couples without children at home or those with non-teenage children are probably the most willing to move. 3. Prior international experience appears associated with willingness to work as an expatriate. 4. Individuals most committed to their professional careers and to their employing organizations are prone to be more willing to work as expatriates. 5. Careers and attitudes of spouses will likely have a significant impact on employee willingness to move overseas. 6. Employee and spouse perceptions of organizational support for expatriates are critical to employee willingness to work overseas.51 adaptability screening The process of evaluating how well a family is likely to stand up to the stress of overseas life. 522 Part 4 Organizational Behavior and Human Resource Management Table 14–2 Activities That Are Important for Expatriate Spouses (scale: 1–5, 5 = Very important) Mean Score Activity Average from All Respondents 4.33 4.28 4.24 4.23 4.05 3.97 3.93 3.76 3.71 3.58 3.24 3.11 3.01 2.90 Company help in obtaining necessary paperwork (permits, etc.) for spouse Adequate notice of relocation Predeparture training for spouse and children Counseling for spouse regarding work/activity opportunities in foreign location Employment networks coordinated with other international networks Help with spouse’s reentry into home country Financial support for education Compensation for spouse’s lost wages and/or benefits Creation of a job for spouse Development of support groups for spouses Administrative support (office space, secretarial services, etc.) for spouse Financial support for research Financial support for volunteer activities Financial support for creative activities Average from Male Spouses 4.86 4.71 4.71 4.57 4.29 4.29 3.86 3.71 3.71 3.43 3.14 3.14 3.00 Employment networks coordinated with other international organizations Help with spouse’s reentry into home country Administrative support (office space, secretarial services, etc.) for spouse Compensation for spouse’s lost wages and/or benefits Adequate notice of relocation Counseling for spouse regarding work/activity opportunities in foreign location Predeparture training for spouse and children Creation of a job for spouse Financial support for volunteer activities Financial support for education Financial support for research Financial support for creative activities Development of support groups for spouses Source: Adapted from Betty Jane Punnett, “Towards Effective Management of Expatriate Spouses,” Journal of World Business 33, no. 3 (1997), p. 249. These findings indicate that organizations cannot afford to overlook the role of the spouse in the expat selection decision process. What, in particular, can be done to address their concerns?52 Table 14–2 provides some insights into this answer. Additionally, the table adds a factor often overlooked in this process—situations in which the wife is being assigned overseas and the husband is the “other” spouse. Although many of the concerns of the male spouse are similar to those of spouses in general, a close look at Table 14–2 shows that some of the concerns of the males are different in their rank ordering. Leadership Ability The ability to influence people to act in a particular way—leadership—is another important criterion in selecting managers for an international assignment. Determining whether a person who is an effective leader in the home country will be equally effective in an overseas environment can be difficult, however. When determining whether an applicant has the desired leadership ability, many firms look for specific characteristics, such as maturity, emotional stability, the ability to communicate well, independence, initiative, creativity, and Chapter 14 Human Resource Selection and Development Across Cultures good health. If these characteristics are present and the person has been an effective leader in the home country, MNCs assume that the individual also will do well overseas. Other Considerations Applicants also can take certain steps to prepare themselves better for international assignments. Tu and Sullivan suggest the applicant can carry out a number of different phases of preparation.53 In phase one, they suggest focusing on self-evaluation and general awareness. This includes answering the question, Is an international assignment really for me? Other questions in the first phase include finding out if one’s spouse and family support the decision to go international and collecting general information on the available job opportunities. Phase two is characterized by a concentration on activities that should be completed before a person is selected. Some of these include (1) conducting a technical skills match to ensure that one’s skills are in line with those that are required for the job; (2) starting to learn the language, customs, and etiquette of the region where one will be posted; (3) developing an awareness of the culture and value systems of this geographic area; and (4) making one’s superior aware of this interest in an international assignment. The third phase consists of activities to be completed after being selected for an overseas assignment. Some of these include (1) attending training sessions provided by the company; (2) conferring with colleagues who have had experience in the assigned region; (3) speaking with expatriates and foreign nationals about the assigned country; and (4) if possible, visiting the host country with one’s spouse before the formally scheduled departure. ■ Economic Pressures and Trends in Expat Assignments Despite the economic stagnation in many markets across the globe, most MNCs continue to make overseas assignments. A 2015 survey of 143 MNCs, conducted by ­Brookfield Global Relocation Services, found that 95 percent of all international assignments were successful. Additionally, the companies surveyed appeared optimistic about their global business outlook, with nearly 90 percent stating that they anticipated increasing or holding steady their number of international assignments. The most commonly cited objective of expatriate assignments was filling a managerial or technical gap (49 percent), though career development and local relationship building were also mentioned by many employers as intended goals. Employees also reported strong benefits from international assignments, including faster promotions, higher pay, stronger performance ratings, and more mobility within the company upon assignment completion.54 Despite the relatively high reported success rate, international assignments can fail. More often, employees reject expatriate opportunities when they arise. Not surprisingly, issues relating to employees’ families were cited as the most common reasons for assignment refusal. In total, 38 percent of those surveyed stated that family concerns were their primary reason for assignment refusal. Another 17 percent indicated that their spouse’s career was their number one reason to reject an overseas assignment. When asked about overcoming the challenges that their expatriate programs faced, 40 percent of employers responded that helping employees overcome family adjustment issues was “very critical.” Overcoming educational challenges faced by employees’ children was rated equally as high. If employers are aiming to decrease assignment rejection due to family concerns, they may need to improve the familial benefits that they provide. For example, of the employers surveyed, only eight percent provided assistance to help support elderly family members while employees were away on assignment. Additionally, less than half of the companies surveyed offered any kind of spousal support in the areas of obtaining a work permit, providing employment search services, assisting with education, or identifying local support networks.55 International assignments can be incredibly expensive. Three-quarters of the companies survey in 2015 stated that they were facing increasing pressure to reduce the overall cost of their expatriate programs. Part of this pressure may be due to the fact that traditional financial metrics, such as return on investment, are not utilized by the 523 524 Part 4 Organizational Behavior and Human Resource Management o­ verwhelming majority of companies when evaluating the success or failure of their overseas program. The primary objectives of most international assignments are not directly profit-based, and more than half of the employers surveyed indicated that return on investment would be difficult to quantify. Other findings from the survey included ∙ ∙ ∙ ∙ ∙ ∙ ∙ ∙ ∙ ∙ 19 percent of expatriates were women. 71 percent of expatriates were 30 to 49 years old. 74 percent of expatriates were married, higher than the 66 percent historical average. 52 percent of expatriates had children accompanying them. Spouses and partners accompanied 80 percent of expatriates, representing a slight decrease over the last decade. Nearly half of the spouses were employed before an assignment but not during it. Only four percent were employed during an assignment but not before; 11 percent were employed both before and during the assignment. 56 percent of expatriates were relocated to or from the headquarters country, and nearly two-thirds were relocated to a country outside of their region. The United States, China, and the United Kingdom were the most frequently cited locations for expatriate assignments. Brazil, China, and the U.A.E. were the primary emerging destinations. China, India, and the United Kingdom were cited as the locations with the highest assignment failure rates.56 ■ International Human Resource Selection Procedures MNCs use a number of selection procedures. The two most common are tests and interviews. Some international firms use one; a smaller percentage employ both. Theoretical models containing the variables that are important for adjusting to an overseas assignment have been developed. These adjustment models can help contribute to more effective selection of expatriates. The following sections examine traditional testing and interviewing procedures and then present an adjustment model. Testing and Interviewing Procedures Some evidence suggests that although some firms use testing, it is not extremely popular. For example, an early study found that almost 80 percent of the 127 foreign operations managers who were surveyed reported that their companies used no tests in the selection process.57 This contrasts with the more widespread testing that these firms use when selecting domestic managers. Many MNCs report that the costs, questionable ­accuracy, and poor predictive record make testing of limited value. Many firms do use interviews to screen people for overseas assignments. One expert notes: “It is generally agreed that extensive interviews of candidates (and their spouses) by senior executives still ultimately provide the best method of selection.”58 Tung’s research supports these comments. For example, 52 percent of the U.S. MNCs she surveyed reported that in the case of managerial candidates, MNCs conducted ­interviews with both the manager and his or her spouse, and 47 percent conducted interviews with the candidate alone. Concerning these findings, Tung concluded: These figures suggest that in management-type positions which involve more extensive contact with the local community, as compared to technically oriented positions, the adaptability of the spouse to living in a foreign environment was perceived as important for successful performance abroad. However, even for technically oriented positions, a sizable proportion of the firms did conduct interviews with both candidate and spouse. This lends support to the contention of other researchers that MNCs are becoming increasingly ­cognizant of the importance of this factor to effective performance abroad.59 Chapter 14 Human Resource Selection and Development Across Cultures The Adjustment Process In recent years, international human resource management specialists have developed models that help to explain the factors involved in effectively adjusting to overseas assignments.60,61 These adjustment models help to identify the underpinnings of the effective selection of expatriates. There are two major types of adjustments that an expatriate must make when going on an overseas assignment: anticipatory and in-country adjustments. Anticipatory adjustment is carried out before the expat leaves for the assignment and is influenced by a number of important factors. One factor is the pre-departure training that is provided. This often takes the form of cross-cultural seminars or workshops, and it is designed to acquaint expats with the culture and work life of the country to which they will be posted. Another factor affecting anticipatory adjustment is the previous experience the expat may have had with the assigned country or with countries with similar cultures. The organizational input into anticipatory adjustment is most directly related and concerned with the selection process. Traditionally, MNCs relied on only one important selection criterion for overseas assignments: technical competence. Obviously, technical competence is important, but it is only one of a number of skills that will be needed. If the MNC concentrates only on technical competence as a selection criterion, then it is not properly preparing the expatriate managers for successful adjustment in overseas assignments. As a result, expats are going to go abroad believing that they are prepared to deal with the challenges awaiting them, and they will be wrong. In-country adjustment takes place once the expatriate is on site, and a number of factors will influence his or her ability to adjust effectively. One factor is the expat’s ability to maintain a positive outlook in the face of a high-pressure situation, to interact well with host nationals, and to perceive and evaluate the host country’s cultural values and norms correctly. A second factor is the job itself, as reflected by the clarity of the role the expat plays in the host management team, the authority the expat has to make decisions, the newness of the work-related challenges, and the amount of role conflict that exists. A third factor is the organizational culture and how easily the expat can adjust to it. A fourth is nonwork matters, such as the toughness with which the expatriate faces a whole new cultural experience and how well his or her family can adjust to the rigors of the new assignment. A fifth and final factor identified in the adjustment model is the expat’s ability to develop effective socialization tactics and to understand “what’s what” and “who’s who” in the host organization. Another model of expatriate adjustment emphasized the formation of network ties in the host country to obtain critical informational and emotional support resources, proposing a five-stage process model that delineates how expatriates form adjustmentfacilitating support ties in a culturally unfamiliar context. These include ∙ ∙ ∙ ∙ ∙ Stage 1: Factors influencing actors in the host country. Stage 2: Factors influencing toward actors. Stage 3: Factors influencing provide support. Stage 4: Factors influencing Stage 5: Factors influencing expatriates’ motivation to seek support from expatriates’ selection of and support seeking contacted actors’ ability and willingness to expatriates’ utilization of received support. expatriates’ addition of actors to network.62 These anticipatory and in-country factors will influence the expatriate’s mode and degree of adjustment to an overseas assignment. They can help to explain why effective selection of expatriates is multifaceted and can be very difficult and challenging. But if all works out well, the individual can become a very important part of the organization’s overseas operations. McCormick and Chapman illustrated this by showing the changes 525 526 Figure 14–3 Part 4 Organizational Behavior and Human Resource Management Perceived Competence 7. Integration of new skills and behavior. Acceptance of the new environment. The Relocation Transition Curve 2. Fantasia The feeling of enchantment and excitement in the new environment. 3. Interest A deeper exploration of the environment and a realization that it is fundamentally different from home. 1. Unreality The feeling that the relocation is a dream. Beginning of transition 6. Search for meaning. Understanding reasons for success and failure. New models/personal theories created. 5. Experimentation and testing of new approaches. Practice phase, trying to do things differently. Feedback of results, success and failure. 4. Acceptance of reality “Letting go” of past comfortable attitudes. The realization that you are a stranger in a strange land. Time Source: Adapted from Iain McCormick and Tony Chapman, “Executive Relocation: Personal and Organizational Tactics,” in Managing Across Cultures: Issues and Perspectives, ed. Pat Joynt and Malcolm Warner (London: International Thomson Business Press, 1996), p. 368. that an expat goes through as he or she seeks to adjust to the new assignment.63 As seen in Figure 14–3, early enthusiasm often gives way to cold reality, and the expat typically ends up in a search to balance personal and work demands with the new environment. In many cases, fortunately, everything works out well. Additionally, one of the ways in which MNCs often try to put potential expats at ease about their new assignment is by presenting an attractive compensation package. ■ Compensation One of the reasons there has been a decline in the number of expats in recent years is that MNCs have found that the expense can be prohibitive. Reynolds estimated that, on average, “expats cost employers two to five times as much as home-country counterparts and frequently ten or more times as much as local nationals in the country to which they are assigned.”64 As seen in Figure 14–4, the cost of living in some of the major cities is extremely high, and these expenses must be included somewhere in the compensation package. The recession of the late 2000s placed additional pressure on firms to control costs associated with expatriate assignments. Mercer reported in 2009 that nearly 40 percent of MNCs were planning on revising their current international assignment policy in the face of declining corporate growth and profitability, as well as an uncertain economic environment. The increasing trend toward localization reflects companies’ efforts to either tap into the local talents or to offer less generous packages to locally hired foreign workers. This localization approach was quite consistent among regions and countries around the world, including for companies operating in emerging markets (such as China, India, and Vietnam), where the local compensation and benefits packages are less generous than home-country plans. In terms of expatriate benefits and allowances, the elements that are least likely to be eliminated for localized employees are housing allowances and education benefits. Mercer did find that localization is practiced in Europe and in Chapter 14 Human Resource Selection and Development Across Cultures 527 September 2014 5 years earlier 10 years earlier Cost-of-living index New York, September 2014–100 (September 2014 rank out of 133 cities, 1=most expensive) 0 20 40 60 80 100 120 140 Singapore (1) Paris (2) Oslo (3) Zurich (4) Sydney (5) Melbourne (6) Geneva (7) Copenhagen (8) Hong Kong (=9) Seoul (=9) New York (=22) Algiers (124) Kathmandu (125) Tehran (=126) Damascus (=126) New Delhi (128) Chennai* (128) Caracas (=130) Mumbai (=130) Karachi (=132) Bangalore* (=132) *Introduced in 2014 Source: Economist Intelligence Unit. North America more than in Latin America and Asia Pacific. In recent years, however, localization has picked up in the Asia Pacific region, particularly as companies want to tap into the regional talent pool and contain costs.65 Common Elements of Compensation Packages The overall compensation package often varies from country to country. As Bailey noted: Compensation programs implemented in a global organization will not mirror an organization’s domestic plan because of differences in legally mandated benefits, tax laws, cultures, and employee expectation based on local practices. The additional challenge in compensation design is the requirement that excessive costs be avoided and at the same time employee morale be maintained at high levels.66 There are five common elements in the typical expatriate compensation package: base salary, benefits, allowances, incentives, and taxes. Base Salary Base salary is the amount of money that an expatriate normally receives in the home country. In the United States, this has often been in the range of $200,000– $300,000 for upper-middle managers in recent years, and this rate is similar to that paid to managers in both Japan and Germany. The exchange rates, of course, also affect the real wages. Figure 14–4 Cost-of-Living Index 528 Part 4 Organizational Behavior and Human Resource Management Expatriate salaries typically are set according to the base pay of the home countries. Therefore, a German manager working for a U.S. MNC and assigned to Spain would have a base salary that reflects the salary structure in Germany. U.S. expatriates have salaries tied to U.S. levels. The salaries usually are paid in home currency, local currency, or a combination of the two. The base pay also serves as the benchmark against which bonuses and benefits are calculated. Benefits Approximately one-third of compensation for regular employees is benefits. These benefits compose a similar, or even larger, portion of expat compensation. A number of thorny issues surround compensation for expatriates, however. These include 1. Whether MNCs should maintain expatriates in home-country benefit programs, particularly if these programs are not tax-deductible. 2. Whether MNCs have the option of enrolling expatriates in host-country benefit programs or making up any difference in coverage. 3. Whether host-country legislation regarding termination of employment affects employee benefits entitlements. 4. Whether the home or host country is responsible for the expatriates’ social security benefits. 5. Whether benefits should be subject to the requirements of the home or host country. 6. Which country should pay for the benefits. 7. Whether other benefits should be used to offset any shortfall in coverage. 8. Whether home-country benefits programs should be available to local nationals. Most U.S.-based MNCs include expatriate managers in their home-office benefits program at no additional cost to the expats. If the host country requires expats to contribute to their social security program, the MNC typically picks up the tab. Fortunately, several international agreements between countries recently have eliminated such dual coverage and expenses. Additionally, MNCs often provide expatriates with extra vacation and with special leaves. The MNC typically will pay the airfare for expats and their families to make an annual visit home, for emergency leave, and for expenses when a relative in the home country is ill or dies. Allowances Allowances are an expensive feature of expatriate compensation packages. One of the most common parts is a cost-of-living allowance—a payment for differences between the home country and the overseas assignment. This allowance is designed to provide the expat with the same standard of living that he or she enjoyed in the home country, and it may cover a variety of expenses, including relocation, housing, education, and hardship. Relocation expenses typically involve moving, shipping, and storage charges that are associated with personal furniture, clothing, and other items that the expatriate and his or her family are (or are not) taking to the new assignment. Related expenses also may include cars and club memberships in the host country, although these perks commonly are provided only to senior-level expats. Housing allowances cover a wide range. Some firms provide the expat with a residence during the assignment and pay all associated expenses. Others give a predetermined housing allotment each month and let expats choose their own residence. Additionally, some MNCs help those going on assignment with the sale or lease of the house they are leaving behind; if the house is sold, the company usually pays closing costs and other associated expenses. Chapter 14 Human Resource Selection and Development Across Cultures 529 Education allowances for the expat’s children are another integral part of the compensation package. These expenses cover costs such as tuition, enrollment fees, books, supplies, transportation, room, board, and school uniforms. In some cases, expenses to attend postsecondary schools also are covered. Hardship allowances are designed to induce expats to work in hazardous areas or in an area with a poor quality of life. Those who are assigned to Eastern Europe, China, and some Middle Eastern countries sometimes are granted a hardship premium. These payments may be in the form of a lump sum ($10,000 to $50,000) or a percentage (15 to 50 percent) of the expat’s base compensation. Incentives In recent years, some MNCs have also been designing special incentive programs for keeping expats motivated. In the process, a growing number of firms have dropped the ongoing premium for overseas assignments and replaced it with a one-time, lump-sum premium. For example, in the early 1990s, over 60 percent of MNCs gave ongoing premiums to their expats. Today that percentage is under 50 percent and continuing to decline. Peterson and his colleagues, for example, examined the human resource policies of 24 U.S., British, German, and Japanese subsidiaries and found that in only 10 of the cases did the multinational have a policy of paying expatriates higher compensation than they would have received if they had stayed in their home country.67 The lump-sum payment has a number of benefits. One is that expats realize that they will be given this payment just once—when they move to the international locale. So the payment tends to retain its value as an incentive. A second is that the costs to the company are less because there is only one payment and no future financial commitment. A third is that because it is a separate payment, distinguishable from regular pay, it is more readily available for saving or spending. The specific incentive program that is used will vary, and expats like this. Researchers, for example, have found that some of the factors that influence the type and amount of incentive include whether the person is moving within or between continents and where the person is being stationed. Table 14–3 provides some of the latest survey information related to worldwide employer incentive practices. Finally, it is important to recognize that growing numbers of MNCs are beginning to phase out incentive premiums. Instead, they are focusing on creating a cadre of expats who are motivated by nonfinancial incentives. Taxes Another major component of expatriate compensation is tax equalization. For example, an expat may have two tax bills, one from the host country and one from the Table 14–3 Employer Incentive Practices around the World Percent of MNCs Paying for Moves within Continents Type of Premium Asia Europe North America Total Ongoing Lump sum None 62% 21 16 46% 20 27 29% 25 42 42% 23 32 Percent of MNCs Paying for Moves between Continents Type of Premium Asia Europe North America Total Ongoing Lump sum None 63% 24 13 54% 18 21 39% 30 27 49% 26 22 Source: Derived from Geoffrey W. Latta, “Expatriate Incentives: Beyond Tradition,” HR Focus, March 1998, p. S4. 530 Part 4 Organizational Behavior and Human Resource Management U.S. Internal Revenue Service, for the same pay. IRS Code Section 911 permits a deduction of up to $100,800 on foreign-earned income. Top-level expats often earn far more than this, however; thus, they may pay two tax bills for the amount by which their pay exceeds $100,800. Usually, MNCs pay the extra tax burden. The most common way is 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 then are computed and compared with the taxes due on the expat’s income. Any taxes that exceed what would have been imposed in the home country are paid by the MNC, and any windfall is kept by the expat as a reward for taking the assignment. Tailoring the Package balance-sheet approach An approach to developing an expatriate compensation package that ensures the expat is “made whole” and does not lose money by taking the assignment. localization An approach to developing an expatriate compensation package that involves paying the expat a salary comparable to that of local nationals. lump-sum method An approach to developing an expatriate compensation package that involves giving the expat a predetermined amount of money and letting the individual make his or her own decisions regarding how to spend it. cafeteria approach An approach to developing an expatriate compensation package that entails giving the individual a series of options and letting the person decide how to spend the available funds. regional system An approach to developing an expatriate compensation package that involves setting a compensation system for all expats who are assigned to a particular region and paying everyone in accord with that system. Working within the five common elements just described, MNCs will tailor compensation packages to fit the specific situation. For example, senior-level managers in Japan are paid only around four times as much as junior staff members. This is in sharp contrast to the United States, where the multiple is much higher. A similar situation exists in Europe, where many senior-level managers make far less than their U.S. counterparts and stockholders, politicians, and the general public oppose U.S.-style affluence. Can a senior-level U.S. expat be paid a salary that is significantly higher than local senior-level managers in the overseas subsidiary, or would the disparity create morale problems? This is a difficult question to answer and must be given careful consideration. One solution is to link pay and performance to attract and retain outstanding personnel. In formulating the compensation package, a number of approaches can be used. The most common is the balance-sheet approach, which involves ensuring that the expat is “made whole” and does not lose money by taking the assignment. A second and often complementary approach is negotiation, which involves working out a special, ad hoc arrangement that is acceptable to both the company and the expat. A third approach, localization, involves paying the expat a salary that is comparable to the salaries of local nationals. This approach most commonly is used with individuals early in their careers who are being given a long-term overseas assignment. A fourth approach is the lump-sum method, which involves giving the expat a predetermined amount of money and letting the individual make his or her own decisions regarding how to spend it. A fifth is the cafeteria approach, which entails giving expats a series of options and letting them decide how to spend the available funds. For example, expats who have children may opt for private schooling; expats who have no children may choose a chauffeur-driven car or an upscale apartment. A sixth method is the regional system, under which the MNC sets a compensation system for all expats who are assigned to a particular region, so that (for example) everyone going to Europe falls under one particular system and everyone being assigned to South America is covered by a different system.68,69 The most important thing to remember about global compensation is that the package must be cost-effective and fair. If it meets these two criteria, it likely will be acceptable to all parties. As a result of the 2008–2010 recession, many companies are making changes to their expatriate staffing and compensation practices. While many companies have developed short-term assignment and business-travel policies to more efficiently fill their staffing needs, more comprehensive measures, such as shifting home-country employees working in foreign locations from expatriate to “local plus” packages, are becoming more common.70 Participants in two surveys by HR consultancy ORC Worldwide—Survey on Local-Plus Packages in Hong Kong and Singapore and Survey on Local-Plus Packages for Expatriates in China—report a growing trend toward expatriate “light” or “local-plus” packages. “These alternative packages often base the assignee’s salary on host country pay structures,” says Phil Stanley, managing director of ORC Worldwide’s Asia-Pacific region, “but then tack on a few expatriate type benefits, such as some form of housing assistance and possibly an allowance to partially cover children’s education.”71 Chapter 14 Human Resource Selection and Development Across Cultures ■ Individual and Host-Country Viewpoints Until now, we have examined the selection process mostly from the standpoint of the MNC: What will be best for the company? However, two additional perspectives for selection warrant consideration: (1) that of the individual who is being selected and (2) that of the country to which the candidate will be sent. Research shows that each has specific desires and motivations regarding the expatriate selection process. Candidate Motivations Why do individuals accept foreign assignments? One answer is a greater demand for their talents abroad than at home. For example, a growing number of senior U.S. managers have moved to Mexico because of Mexico’s growing need for experienced executives. The findings of one early study grouped the participating countries into clusters: Anglo (Australia, Austria, Canada, India, New Zealand, South Africa, ­Switzerland, United Kingdom, and United States); Northern European (Denmark, ­Finland, Norway); French (Belgium and France); Northern South American ­(Colombia, Mexico, and Peru); Southern South American (Argentina and Chile); and Independent (Brazil, Germany, Israel, Japan, Sweden, and Venezuela).72 Within these groupings, researchers were able to identify major motivational differences. Some of their f­ indings included 1. The Anglo cluster was more interested in individual achievement and less interested in the desire for security than any other cluster. 2. The French cluster was similar to the Anglo cluster, except that less importance was given to individual achievement and more to security. 3. Countries in the Northern European cluster were more oriented to job accomplishment and less to getting ahead; considerable importance was assigned to jobs not interfering with personal lives. 4. In South American clusters, individual achievement goals were less important than in most other clusters. Fringe benefits were particularly important to South American groups. 5. Germans were similar to those in the South American clusters, except that they placed a greater emphasis on advancement and earnings. 6. The Japanese were unique in their mix of desires. They placed high value on earnings opportunities but low value on advancement. They were high on challenge but low on autonomy. At the same time, they placed strong ­emphasis on working in a friendly, efficient department and having good physical working conditions. Another interesting focus of attention has been on those countries that expatriates like best. A study conducted by Ingemar Torbiorn found that the 1,100 Swedish expatriates surveyed were at least fairly well satisfied with their host country and in some cases were very satisfied. Five of the countries that they liked very much were Switzerland, Belgium, England, the United States, and Portugal.73 These countries are still popular today, which makes sense because they are included in the top tier of countries with the highest quality of life. The criteria include such things as family life, economic life, unemployment rates, political stability, and so forth to determine how safe or attractive the country is. Host-Country Desires Although many MNCs try to choose people who fit in well, little attention has been paid to the host country’s point of view. Whom would it like to see put in managerial positions? One study that compared U.S., Indonesian, and Mexican managers found that 531 532 Part 4 Organizational Behavior and Human Resource Management Figure 14–5 Comparative Positive Managerial Behavior by Country Provides clear work expectations Indonesia Provides regular feedback Mexico Flexible to individual employee needs Shows confidence in employees Shows respect for employees Is honest with employees Shows loyalty to employees United States Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from Charles M. Vance and Yongsun Paik, “One Size Fits All in Expatriate Pre-departure Training? Comparing the Host Country Voices of Mexican, Indonesian and U.S. Workers,” Journal of Management Development 21, No. 7–8 (2002), p. 566. behaviors can distinguish them from one another and that host countries would prefer a managerial style similar to that of their country.74 For example, positive managerial behaviors, such as honesty and follow-through with employees, distinguish Indonesian and U.S. managers from Mexican managers. As seen in Chapter 4, this could partially be due to the power distance suggested by Hofstede. Furthermore, negative managerial behaviors, such as public criticism and discipline toward employees, also distinguish Indonesian and U.S. managers from Mexican managers. It has been suggested that the dynamic in the workplace has to do with the familial structure, namely that Mexican workers place a higher value on family over work than do their U.S. or Indonesian counterparts. This can be a factor in how the positive and negative behaviors are expressed in each country, as outlined in Figures 14–5 and 14–6. Overall, it is important for managers to take the host-country perspectives into consideration, or it could result in an ineffectual endeavor. Figure 14–6 Comparative Negative Managerial Behavior by Country Indonesia Engages in unfair discrimination Flaunts power Disciplines & criticizes in public Mexico Practices favoritism Does not understand employee values & traditions United States Source: Original graphic by Ben Littell under supervision of Professor Jonathan Doh based on data from Charles M. Vance and Yongsun Paik, “One Size Fits All in Expatriate Pre-departure Training? Comparing the Host Country Vices of Mexican, Indonesian and U.S. Workers,” Journal of Management Development 21, No. 7–8 (2002), p. 566. Chapter 14 Human Resource Selection and Development Across Cultures 533 ■ Repatriation of Expatriates For most overseas managers, repatriation, the return to one’s home country, occurs within five years of the time they leave. Few expatriates remain overseas for the duration of their stay with the firm.75 When they return, these expatriates often find themselves facing readjustment problems, and some MNCs are trying to deal with these problems through use of transition strategies. Reasons for Returning The most common reason that expatriates return home from overseas assignments is that their formally agreed-on tour of duty is over. Before they left, the expatriates were told that they would be posted overseas for a predetermined period, often two to three years, and they are returning as planned. This is considered a successfully completed assignment. According to a 2015 study by Brookfield Global Relocation Services, 94 percent of all expatriate assignments were completed as intended.76 Though infrequent, early returns do occur. The most common reason, accounting for 23 percent of all terminated assignments, is family concerns. This encompasses a variety of issues common to many expatriate families, including spouses who have difficulty acclimating to a new culture and expatriates who want their children educated in a home-country school.77 The second most common reason for expatriates to return early is due to company restructuring. Business opportunities change rapidly, and the usefulness of an overseas assignment might decline if a company changes strategy. In these instances, the expatriate may have had every intent on staying and completing his or her full assignment. Per Brookfield Global Relocation Services, this accounts for about 19 percent of all early returns.78 Common fears that many expatriates and their families have before embarking on an overseas assignment rarely pose an issue once the expatriate arrives in the host country. For example, only 3 percent of all failed assignments were due to security concerns, and just 5 percent of expatriates faced cultural challenges that resulted in an early leave. Over the last several decades, MNCs have continually improved their selection process of suitable employees for expatriate experiences; as a result, the overwhelming majority of international assignments succeed.79 Readjustment Problems Many companies that say they want their people to have international experience often seem unsure of what to do with these managers when they return. One recent survey of midsize and large firms found that 80 percent of these companies send people abroad and more than half of them intend to increase the number they have on assignment overseas. However, responses from returning expats point to problems. Three-­quarters of the respondents said that they felt their permanent position upon returning home was a demotion. Over 60 percent said that they lacked the opportunities to put their foreign experience to work, and 60 percent said that their company had not communicated clearly about what would happen to them when they returned. Perhaps worst of all, within a year of returning, 25 percent of the managers had left the company.80 These statistics are not surprising to those who have been studying repatriation problems. In fact, one researcher reported the following expatriate comments about their experiences: My colleagues react indifferently to my international assignment. . . . They view me as doing a job I did in the past; they don’t see me as having gained anything while overseas. I had no specific reentry job to return to. I wanted to leave international and return to domestic. Working abroad magnifies problems while isolating effects. You deal with more problems, but the home office doesn’t know the details of the good or bad effects. ­Managerially, I’m out of touch. I’m bored at work. . . . I run upstairs to see what [another returning colleague] is doing. He says, “Nothing.” Me, too.81 repatriation The return to one’s home country from an overseas management assignment. 534 Part 4 Organizational Behavior and Human Resource Management Other readjustment problems are more personal in nature. Many expatriates find that the salary and fringe benefits to which they have become accustomed in the foreign assignment now are lost, and adjusting to this lower standard of living is difficult. In addition, those who sold their houses and now must buy new ones find that the monthly cost often is much higher than when they left. The children often are placed in public schools, where classes are much larger than in the overseas private schools. Many also miss the cultural lifestyles, as in the case of an executive who is transferred from Paris, France, to a medium-sized city in the United States, or from any developed country to an underdeveloped country. Additionally, many returning expatriates have learned that their international experiences are not viewed as important. Many Japanese expatriates, for example, report that when they return, their experiences should be downplayed if they want to “fit in” with the organization. In fact, reports one recent New York Times article, a substantial number of Japanese expatriates “are happier overseas than they are back home.”82 Other research supports the findings noted here and offers operative recommendations for action. Based on questionnaires completed by 174 respondents who had been repatriated from four large U.S. MNCs, Black found the following: 1. With few exceptions, individuals whose expectations were met had the most positive levels of repatriation adjustment and job performance. 2. In the case of high-level managers in particular, expatriates whose job demands were greater, rather than less, than expected reported high levels of repatriation adjustment and job performance. Those having greater job demands may have put in more effort and had better adjustmen…

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