Chapter 9

Staffing, Training, and

Compensation for Global
Operations

© 2006 Prentice Hall 9-1

 Learning Objectives:
To understand the strategic importance to the firm of the
IHRM function and its various responsibilities.
To learn about the major staffing options for global
operations and the factors involved in those choices.
To emphasize the need for managing the performance of
expatriates through careful selection, training, and
compensation.
To discuss the role of host country managers and the need
for their training and appropriate compensation packages.

© 2006 Prentice Hall 9-2

 Introduction
[In the new millennium], the caliber of the
people will be the only source of
competitive advantage.
—Allan Halcrow, Personnel Journal

Of the top 100 UK firms surveyed by Cendant

International Assignment Services, 63
reported failed foreign assignments.
- [Link]

© 2006 Prentice Hall 9-3

 Staffing Philosophies for Global
Operations
Firms using an ethnocentric staffing approach fill
key managerial positions with people from
headquarters – that is, parent-country nationals
(PCNs).
In a polycentric staffing approach, local managers
– host-country managers (HCNs) – are hired to fill
key positions in their own country.

© 2006 Prentice Hall 9-4

 Staffing Philosophies for Global
Operations
In the global staffing approach, the best
managers are recruited from within or
outside of the company, regardless of
nationality.
In a regiocentric staffing approach,
recruiting is done on a regional basis – say
within Latin America for a position in
Chile.

© 2006 Prentice Hall 9-5

 Problems with Expatriation
Selection based on headquarters criteria
rather than assignment needs
Inadequate preparation, training, and
orientation prior to assignment
Alienation or lack of support from
headquarters
Inability to adapt to local culture and
working environment

© 2006 Prentice Hall 9-6

 Problems with Expatriation
Problems with spouse and children – poor
adaptation, family unhappiness
Insufficient compensation and financial
support
Poor programs for career support and
repatriation

© 2006 Prentice Hall 9-7

 Training and Development
Challenges faced by expatriates
– China: a continuing problem for expatriates; one complained that
at his welcome banquet he was served duck tongue and pigeon
head
– Brazil: expatriates stress that cell phones are essential because
home phones don’t work
– India: returning executives complain that the pervasiveness of
poverty and street children is overwhelming
– Indonesia: here you need to plan ahead financially because
landlords typically demand rent two to three years in advance
– Japan: expatriates and their families remain concerned that
although there is excellent medical care, the Japanese doctors
reveal little to their patients.

© 2006 Prentice Hall 9-8

 Cross-Cultural Training: Culture
Shock
Culture shock is a state of disorientation and
anxiety about not knowing how to behave in an
unfamiliar culture. The cause of culture shock is
the trauma people experience in new and different
cultures, where they lose the familiar signs and
cues that they had used to interact in daily life and
where they must learn to cope with a vast array of
new cultural cues and expectations.

© 2006 Prentice Hall 9-9

 Cross-Cultural Training: Culture
Shock
Honeymoon – when positive attitudes and expectations, excitement,
and a tourist feeling prevail
Irritation and hostility – the crisis stage when cultural differences result
in problems at work, at home, and in daily living
Gradual adjustment – a period of recovery in which the “patient”
gradually becomes able to understand and predict patterns of behavior,
use the language, and deal with daily activities, and the family starts to
accept their new life
Biculturalism – the stage at which the manager and family members
grow to accept and appreciate local people and practices and are able
to function effectively in two cultures

© 2006 Prentice Hall 9-10

 Cross-Cultural Training: Sub-
Culture Shock
Subculture shock occurs when a manager is
transferred to another part of the country
where there are cultural differences –
essentially from what she or he perceives to
be a “majority” culture to a “minority” one.

© 2006 Prentice Hall 9-11

 Training Techniques
Area studies, that is, documentary programs about the
country’s geography, economics, sociopolitical history, and
so forth
Culture assimilators, which expose trainees to the kinds of
situations they are likely to encounter that are critical to
successful interactions
Language training
Sensitivity training
Field experiences – exposure to people from other cultures
within the trainee’s own country

© 2006 Prentice Hall 9-12

 Integrating Training with Global
Orientation

© 2006 Prentice Hall 9-13

 Integrating Training with Global
Orientation

© 2006 Prentice Hall 9-14

 Training Host-Country Nationals
We found that the key human resource role of
the MNC [in Central and Eastern Europe]
was to expose the local staff to a market
economy; to instill world standards of
performance; and provide training and
functional expertise.
Richard Peterson, “The use of Expatriates and Inpatriates in Central and
Eastern Europe Since the Wall Came Down,” Journal of World
Business, 2003.

© 2006 Prentice Hall 9-15

 Training Host-Country Nationals
Continuous training and development of HCNs
and TCNs for management positions is an
important factor for long-term success of the
multinational corporation
Ongoing development will facilitate the transition
to an indigenization policy
The company will have a well-trained
management staff with broad international
experience

© 2006 Prentice Hall 9-16

 Training Host-Country Nationals
Training to facilitate e-business adoption is
taking on increasing importance
Training in information and communication
technologies is particularly critical for firms
in new economy and emerging markets
List of training needs for managers in
Eastern Europe

© 2006 Prentice Hall 9-17

 Compensating Expatriates
Compensation is a crucial link between
strategy and its successful implementation
– Must be a fit between compensation and the
goals of the firm
Maintaining an appropriate compensation
package is more complex than it would
seem
– Little variation in typical salary but there is a
wide variation in net spendable income

© 2006 Prentice Hall 9-18

 Balance Sheet Approach

© 2006 Prentice Hall 9-19

 Compensating Expatriates
Salary – Local salary buying power and currency
translation, as compared with home salary;
bonuses or incentives for dislocation
Taxes – Equalize any differential effects on taxes
as a result of the assignment
Allowances – Relocation expenses; cost-of-living
adjustments; housing allowance for assignment
and allowance to maintaining house at home; trips
home for family; private education for children
Benefits – Health insurance; stock options

© 2006 Prentice Hall 9-20

 Compensating Host-Country
Nationals
A number of variable apply including local market
factors and pay scales, government involvement in
benefits, unions, and the cost of living must all be
considered
Eastern Europeans spend 35% to 40% of their
disposable income on food and utilities
– East European managers must have cash for about 65%
to 80% of their base pay
– US managers must have cash of about 40%

© 2006 Prentice Hall 9-21

 Compensating Host-Country
Nationals
To be competitive, MNCs can focus on
providing goods and services that are either
not available at all or are extremely
expensive.
It is important to make clear what benefits,
as well as salary, come with a position
because of the way compensation is
perceived and regulated around the world

© 2006 Prentice Hall 9-22

 Comparative Management in Focus:
Compensating Russians
Korean companies are cashing in by signing
up low-cost Russian engineers.
[Link], March 8, 2004

Russia is our No.1. destination for technology

outsourcing.
Cha Dae Sung, Samsung, March 8, 2004

© 2006 Prentice Hall 9-23

 Comparative Management in Focus:
Compensating Russians
Select Russian employees who are achievement-oriented
and willing to take risks
Tie individual bonuses to initiative and personal
accountability (to encourage individual goal setting).
Organize social events and other group activities.
Provide small-group incentives
Provide a mix of short- and long-term incentives
Tailor the compensation package to individual preferences

© 2006 Prentice Hall 9-24

 Training Priorities for E-
Business Development

Return
© 2006 Prentice Hall 9-25
 Looking Ahead
Chapter 10 – Developing a Global
Management Cadre
– Preparation, Adaptation, and Repatriation
– Global Management Teams
– The Role of Women
– Working within Local Labor Relations Systems

© 2006 Prentice Hall 9-26