Principal Investigator

Co-Principal Investigator

Paper Coordinator

Content Writer

Prof. S P Bansal Vice Chancellor

Maharaja Agrasen University, Baddi

Prof YoginderVerma

Pro–Vice Chancellor

Central University of Himachal Pradesh. Kangra. H.P.

Prof. Rajeev Jain

Department of Commerce and Management

University of Kota, Kota

Dr. Pragya Dheer

Department of Commerce and Management

University of Kota, Kota

Paper: 01, Human Resource Management

Module: 38, International Human Resource Management

Items Description of Module

Subject Name Management

Paper Name Human Resource Management

Module Title International Human Resource Management

Module Id Module no. 38

Pre- Requisites Basic knowledge of what International Human Resource Management is.

Objectives To study the basic concepts of International Human Resource Management

Keywords

QUADRANT-I

Module 38: International Human Resource Management

Learning Outcome

1. Introduction

2. Meaning and Definition

3. Features of International Human Resource Management

4. Reasons for the growth of International Human Resource Management

5. Need/Characteristics of International Human Resource Management

6. Complexities/Challenges of International Human Resource Management

7. Stages of International Human Resource Management

8. Model of International Human Resource Management

9. Functions of International Human Resource Management

References

Learning Outcomes: The aim is to familiarize the tools and methods of Human Resource Management in

an International environment.

Understanding the relationship between (international) strategic objectives, organizational performance

and human behaviour should enable students to better motivate and understand International Human

Resource Management (IHRM) phenomena’s and to diagnose and analyze complex behaviour in a

different cultural setting.

Objectives are for:

Being able to understand HR challenges in international management.

Know how the HRM function can contribute to the firm’s international strategy.

Have an understanding how to appraise and evaluate in an international environment.

Know how to prepare, train and develop employees for international posts.

Identify the main trends regarding international compensation for executives.

Understand major ethical and SCR in international business.

38.1. Introduction:

When human resource management assumes a global

perspective, it becomes international human resource

management. Several factors like new technologies and

new markets are driving changes in the various aspects of

an organisation. But the advent of globalization in recent

decades has provided a decisive momentum to

international human resource management as an

increasing number of companies are realizing that their

future success and growth depend on their ability to

internationalize their operations. http://www.sociologydiscussion.com/globalisation/globalisation-social-dimensions-of-globalisation-explained/977

In the global village, organisations have crossed the boundary of the country in terms of their business

operations. The liberalization process in India, has thrown enormous opportunities for foreign companies

to come to India and Indian companies to expand the market beyond the country. Infact, many Indian

multinationals are performing extraordinarily well outside the country.

Globalisation of business has probably touched the HR manager more severely than any other functional

head. The HR executive needs to give international orientation to whatever he or she does employee

hiring, training and development, performance review, remuneration, motivation, welfare or industrial

relations. International orientation assumes greater relevance as businesses get increasingly interlinked

across nations.

Just as the success of a domestic business depends on its human resource, so is the case with an

international business. The type of people, the willingness with which they work and the commitment

they exhibit towards the organisation determine the competitive edge of an MNC in the international

market. The international firm may have the best of resources at its headquarters. The resources cannot be

effectively utilized or transferred to foreign affiliates

without using the human power.

38.2 Meaning and Definition:

International Human Resource Management (IHRM) is

defined as the interplay between the three important

dimensions of human resource management – types of

employees, human resource activities and the country of

operation. It is the complexities of operating in different

countries and employing different national categories of

workers, which essentially differentiates domestic and

international HRM.

An international business must procure, motivate, retain

and effectively utilize services of people both at the

corporate office and at the foreign plants. The process

of procuring, allocation and effectively utilizing human

resource in an international business is called international human resource management (IHRM). www.slideshare.net/SoumyaSahoo1/international-hrm-15512350

International Human Resource Management (IHRM) is the process of acquiring, developing, allocating

and utilizing human resources in a global corporation to achieve organizational objectives irrespective of

geographical boundaries. In global firms, human resource managers must achieve two somewhat

conflicting strategic objectives i.e.,

i. They must integrate human resource policies and practices across a number of subsidiaries in

different countries so that overall corporate objectives can be achieved.

ii. The approach to HRM must be sufficiently flexible to take care of significant differences in

business conditions and culture.

38.2.1. Definition:

According to P.V. Morgan, “International Human Resource Management (IHRM) is the interplay among

three dimensions – human resource activities, types of employees and countries of operations.”

According to Nancy Wong, “International human resource management involves carrying out, on a

worldwide basis, activities like candidate recruitment and selection, assignment terms and documentation,

relocation processing and vendor management, immigration processing, cultural and language orientation

and training, compensation administration and payroll processing, tax administration, career planning and

development and handling of spouse and dependent matters.”

According to Micheal Armstrong, “International human resource management is the process of

employing and developing people in international organisations which operate globally. It means working

across national boundaries to formulate and implement resourcing, development, career management and

remuneration strategies, policies and practices applicable to international workforce.”

38.3. Features of International Human Resource

Management (IHRM):

1. IHRM involves employment of the right people at

the right positions, irrespective of geographical

locations.

2. It requires the development of a long – term HR

plan to make sure of an effective alignment of the

HR strategies with the corporate objectives.

3. It requires the development of a diversified range

of skills for employees, especially for those who

need to work beyond national boundaries.

4. It necessitates the determination of compensation

for host -, home – and third – country nationals on

the basis of country – specific factors.

5. It requires the creation of centralized reporting relationships around the world for faster

information sharing. www.civilserviceindia.com/subject/Management/notes/international-human-resource-management.html

6. It requires the introduction of formal and informal methods to integrate the different parts of the

global business effectively.

7. It requires the development of a well – organized evaluation system to assess the performance of

employees across different locations and nations

8. It is necessary to understand the cultural dimensions of host nations that influence the HR

operations.

9. It is essential to maintain good communication among all the parts and people of the organisation

at the global level.

10. The perceived value of the HR activities generally varies across the different locations of

international companies.

38.4. Reasons for the growth of International Human

Resource Management (IHRM):

Factors that have contributed to the growth of International

Human Resource Management (IHRM) are:

1. The advent of globalization has increased the growth

of multinational companies and international business

operations, which has contributed to the global

mobility of human resources.

2. A growing shortage of human resources with

international exposure and experience affects the

companies’ global preparedness in human resource

management. This has forced the international

companies to assign a larger role for global human

resource management activities in their organisation.

3. In a significant number of cases, the successes of

international operations of companies are determined

by the performance of the expatriates and other employees working in a foreign country. This has

made the organisations attach a greater significance to IHRM activities.

4. Since the failure of international operations often proves costly to the organisation, companies

take additional precautionary measures in training and compensating human resources. This

necessitates the establishment of a full – fledged international HR department.

5. Differences in the people, process, tax computation, organizational structure and culture of

different nations force the companies to undertake several complex HR activities like tax

planning, orientation, training and compensation fixation.

38.5. Need / Characteristics of International Human

Resource Management (IHRM):

These are the various factors which represents the need

/ characteristics along with the factors which

differentiate between domestic human resource

management and international human resource

management:

38.5.1. The need for a broader perspective:

HR managers working in a domestic environment

generally function in a single government scenario

managing the employees of only the host country. In

multinational platform, the HR managers have to take a

broader view of different international issues, such as

expatriates’ benefits and cross – cultural work dynamics in managing people.

Globalisation

Shortage of Human Resource with international

exposure

Significant number of cases

Failure of international operations

Difference in people, process,

tax computation & culture.

Broader Perspective

Involvement in employee’s

personal lives

Emphasis changes in the

workplaceRisk exposure

More external influences

38.5.2. More involvement in employee’s personal lives:

High degree of personal involvement in the employees’ personal lives is necessary for the selection,

training, placement and effective management of both Parent Country Nationals (PCNs) and Third

Country Nationals (TCNs) employees. The role of the HR department is to make the expatriate employees

understand their housing, health care, work culture, compensation and all other matters so that they feel

comfortable at the new places.

38.5.3. Emphasis changes as the workplace mix of expatriates and locals varies:

As international operations of companies gain experience, the emphasis put on the various human

resource activities changes.

38.5.4. Risk Exposure:

The consequences of failure in international operations are more severe than the domestic business. The

failure of an expatriate in terms of performance or his premature return from the assignment costs the

company heavily and has tremendous impact over the market share and international customer

relationship.

38.5.5. More external influences:

The influence of the external factors, such as different types of governments, state of economy and

business policies and practices of various host countries are quite high, and therefore, pose a great

challenge for HR professionals to manage. Depending on the attitude of the government towards

international firms in their country; the HR policies of the MNC changed.

38.6. Complexities / Challenges of

International Human Resource

Management (IHRM):

38.6.1. Need for Broader Perspective:

In the international business, the HR managers

require a broader view of various international

issues such as expatriated benefits, cross

culture work dynamics in managing people,

etc.

38.6.2. Ethical and Corporate Social

Responsibility:

Ethics and corporate social responsibility in

the international business environment are always debatable. MNCs have been accused of being

indifferent to the problems of host countries as they are more concerned about the profitability of their

companies. MNCs have to balance the ethics and moral of their country and host country. It includes:

Complexities / Challenges

of IHRM

Broader Perspective

Ethical & Corporate Social Responsibilities

BriberyCode of conduct for international

business

38.6.2.1. Ethical Relativist:

They believe that there is no right or wrong. What is right in a particular situation in one place may not be

so in another. Relativism offers flexibility but may prove to be disastrous in the long run for an MNC.

38.6.2.2. Ethical Absolutist:

An MNC which believes in this approach is strongly influenced by the practices and policies of its home

country. They do not give much importance to the culture and values of the host country. Ethical

absolutists have been criticized for their arrogance and for showing little respect to the traditions and

cultures of the host countries.

38.6.2.3. Ethical Universalist:

An Ethical Universalist believes that there are fundamental rules which help us differentiate between right

and wrong. These rules need to be adhered to in any country and in any situation. An ethical universalist

believes that cultural variations between countries should not lead to any wrongdoing on the part of the

MNCs. There is a distinction between practices which are culturally different and ones which is morally

wrong.

38.6.3. Bribery:

According to survey conducted by J. Macken, developed countries give around $85 billion to

underdeveloped countries in form of bribes. MNCs from developed countires have been accused of

bribing government officials. Hence, countries should frame laws to prevent corruption.

38.6.4. Code of conduct for international business:

The first step in framing code of conduct for international business players came in the form of the “Caux

Roundtable Conference” on “Principles for Business Conduct” held in 1994. It was a conference on

international business ethics, held at Caux, Switzerland and was attended by the business leaders from all

countries. The focus was to formulate a set of rules and ethical codes which would be used for

benchmarking global business practices. The main aim of Caux conference as given in the charter is, “to

further the twin value of living and working together and human dignity by promoting free trade,

environmental and cultural integrity and prevention by bribery and corruption.

38.7. Stages of International Human Resource Management (IHRM):

From an organizational viewpoint, the international human resource development and usage process

generally goes through four stages viz,

38.7.1 Transfer:

The 1st stage involves the transfer of an executive or executives from the home country to fill key

positions in a foreign operations.

38.7.2. Mixed Resources:

In this 2nd Stage, sometimes due to pressures from

foreign government (or because foreign nationals have

been suitably trained for the work), most foreign

operation jobs are held by local personnel.

38.7.3. Unitary Resources:

At this stage, in the evolution process, the entire

operation is staffed by foreign nationals including the

top management positions. In other situations, the

organisations’ operations may have matured to the

point at which foreign nationals at all levels have been

trained to handle all jobs effectively.

38.7.4. Interchange:

In this final stage, there is the recognition that a manager’s skill and competence rather than his or her

passport should be the basis of advancement, privileges and rewards. In other words, there is not only the

opportunity for home country managers to obtain international assignments, but foreign managers within

the organisation are given assignments at the home office.

38.8. Model of International Human Resource Management (IHRM):

Morgan has presented a model to highlighted the broad function of international human resource

management. This model consists of the following 3 dimensions:

38.8.1. Human Resource Activity: procurement, allocation and utilization.

38.8.2. Country of Operation: the host country where a subsidiary may be located, the home country in

which the firm’s headquarters are located and a third country which may be the source of labour, finance

etc.

38.8.3. Types of employees of an international firm: host country nationals, parent country nationals and

third country nationals.

Thus, international human resource management is the interplay between three dimensions namely human

resource activities, the country of operation and the types of employees. International human resource

management differs from domestic HRM due to the complexities of operating in different countries and

employing workers belonging to different nations.

Transfer

Mixed Resources

Unitary Resources

Interchange

Fig 38.1 Model of International HRM

Sources: P.V. Morgan, 1986, “International Human Resource Management: Fact or Fiction”, Personnel

Administrator, 31 (9), Page no. 44.

38.9. Functions of International Human Resource Management (IHRM)

Recruitment and Selection

Performance Management

Compensation

Repatriation

38.9.1. International Recruitment:

The response of an international firm to an international

recruitment and selection depends on:

i. Its general staffing policy on key positions in

headquarters and subsidiaries.

ii. Its ability to attract the right candidate, and

iii. The constraints placed by the host government

on hiring policies.

Thus, there are 4 major approaches to multinational staffing decisions:

38.9.1.1. Ethnocentric Approach:

Under this parent nation employees fill all key positions in a multinational. While this approach may be

common for firms at the early stages of internationalization, there are business reasons for pursuing such

an approach:

a. A perceived lack of qualified host nation employees ,and

b. The need to maintain good communication, coordination and control links with corporate

headquarters.

International Recruitment

International Selection

International Performance Management

International Compensation

International Repatriation

Normally, when a multinational company acquires a firm in any other country it wishes to replace local

managers with the parent company nationals to ensure that the culture and values to be uniform in all the

units of the MNC throughout the globe. But sometimes, based on the competency of the local people they

may be inducted to the company to have the local understanding in terms of managing people and market

dynamics.

Disadvantages:

a. It limits the promotion opportunities of host country nationals, which may lead to decline

productivity and high labour turnover.

b. The parent company nationals being placed in the host country take lots of time in understanding

the local dynamics leading to faculty decisions.

c. The salary structure of the parent company nationals, create a feeling which is much better its

employees in other countries, discrimination and frustration among the employees from the host

country.

38.9.1.2. Polycentric Approach:

This approach is basically taken up while employing host country nationals in the subsidiary of the MNC

operating in that country and its basic premise is that parent country nationals will only hold positions in

the corporate headquarters. This policy resolves many disadvantages of ethnocentric approach and has the

following advantages:

a. There would be no language barrier.

b. Managing local politics and administration will be very easier.

c. This is less expensive than the ethnocentric approach.

It has few disadvantages:

a. Maintaining understanding between the corporate and the subsidiary management becomes

difficult.

b. It also becomes difficult to imbibe the original culture of the company.

c. This will not provide the opportunity to the host country employees to get exposure and

experience outside their own country, which will minimize their growth and development in the

organisation beyond their own country.

38.9.1.3 Geocentric Approach:

This approach subscribes the view of employing the best people in key positions throughout the

organisation without the consideration of any nationality. This addresses the disadvantages of both

ethnocentric and polycentric approach. It is not necessary that the competent people are available only in

the host or parent nations. They may be available in any part of the globe. Moreover, it helps the

organisation to develop core competency taking the best talents in the core area.

Drawbacks:

a. Constraints in terms of the employment policy of the particular country.

b. Paper work involved in hiring a foreign national instead of a local nationals.

c. Hassles of obtaining work permit for dependents of the employees.

d. Expensive in terms of the investment toward training and development of the individual.

e. Benchmarking the salary with the international compensation package, which is definitely more

than the salary to be given to the individual in home country.

38.9.1.4. Regiocentric Approach:

This approach advocates the division of operations of the multinational company on the basis of some

geographical regions & allows the transfer of employees within a particular region.

Its main advantages:-

(a) A major motive for using such an approach is that it allows interaction between executives transferred

to regional headquarters from subsidiaries & parent country nationals posted to regional headquarters.

(b) It also reflects some senstivity to local conditions.

(c) Another advantage is that such an approach can prove highly effective for a multinational to move

from a purely ethnocentric to geocentric approach.

Disadvantages:-

(a) It can produce ‘federalism’ at a regional rather than a country basis.

(b) While this approach does improve career prospects at the national level, it only moves the barrier to

the regional level.

Table 38.1 Four approaches to IHRM

Aspects of Orientation

the Enterprise Ethnocentric Polycentric Regiocentric Geocentric

HR Strategy Uniform strategy

across units

Diverse strategies

across units

Regional

integration of

strategy, but

differentiation

across region

Global

overarching

strategy on key

issues but

differentiated

policies on more

local issues

Performance

criteria Evaluation

& Control

By home country

headquarters

By local subsidiary

management

Coordinator across

countries in the

region

Global as well as

local standards and

control

Information &

Resource flows

Mainly from

headquarters to

local subsidiaries

Little among

subsidiaries, little

between subsidiary

and headquarters

Little between

subsidiary &

headquarters

medium to high

among subsidiaries

in region

Inflows and

outflow between

and among

headquarters and

subsidiaries

Staffing mix Home country

managers

Host country

managers

Host and third

country national

from within the

region

Best people where

they can be best

used

Career

Development

Home country

managers

developed to work

anywhere

Totally within

subsidiary career

path and

development

Regional career

paths and

development

Managers

anywhere

developed to work

anywhere

Purpose of

socialization

process

Gain loyalty

commitment and

understanding of

headquarters

Gain loyalty and

commitment to the

subsidiary

Gain loyalty and

commitment to the

region

Gain loyalty,

commitment and

understanding of

the total firm and

its diverse units.

Sources:- DA Heenan & Howard v Perlmutter, “Multinational Organisation Development”, (Reading, Mass:

addision-wesley, 1979) pp.18-19. Ken Kamoche , “The Integration- differentiation Puzzle: A Resource –capability

perspective in international Human Resource Management”, The International Journal of Human Resource

Management, Vol.7(I), 1996, pp 230-244.

38.9.2. International Selection:-

A very crucial function of IHRM, selection of people of the parent company nationals for their home

country operations placements is normally a general function carried out by the HR department. The

selection of expatriates is even more crucial since it has to follow international recruitment & selection

standards.

38.9.2.1 Expatriate Selection:-

This area is extremely complex & receives a lot of attention from the multinationals. Predicting future

performance potential when hiring or promoting staff, especially in foreign environment is very difficult

at the best of times. In this context, there’s a concept called ‘expatriate failure’ .This refers to the

premature return of an expatriate from an international assignment. This may be due to a selection error or

absence of proper training on cultural issues and self-adjustment. There are two major categories of costs

associated with expatriate failure-direct cost & indirect cost. Direct cost include airfare & associated

relocation expenses, salary & training costs. However, these cost precisely depends on

(a) Level of position concerned

(b) Country of destination

(c) Exchange rates

Indirect costs are harder to quantify but are often more expensive for the company.

38.9.2.2 Criteria for Selection:-

A chance of failure & the risk involved being high, the selection criteria for expatriate is a serious

function of IHRM. Utmost care requires to be taken in selecting highly motivated people in terms of

strong emotions & high level of competence.

The various factors that are widely accepted to have a major impact on the probability of success in

international assignments are based on the model proposed by Dowling, Welch and Schuler(1999).

Individual situation

Fig 38.2 Factors Impacting Probable Success of International Assignment

(i)Technical Ability:

The important parameter to judge any individual for a foreign assignment is the performance. Expatriate’s

technical skills& managerial competency need to be judged during selection process meticulously to

avoid incompetency at work after the posting. The competency demanded by the job need to be studied

carefully, and based on the key competencies, proper matching has to be done.

(ii) Cross-cultural suitability:

Competency is not the sole criteria for success. An individual is able to perform well only when he gets

acclimatized in the new environment, which might be in the opposite pole of the cultural continuum.

Cross-culture ability is very important in determining effectiveness of the individual at work in foreign

assignment.

(iii) Family requirements:

It is an established fact that spouse acceptability & comfortability toward foreign assignment is an

important variable in determining the success of the expatriate manager. Worldwide dissatisfaction & lack

of adjustment by the spouse has caused failure of expatriate manager.

(iv) Language:-

It is an effective communication drives. It has been seen that people having competency over the host

country language have drawn better mileage than their counterparts having no language knowledge.

Especially, People being posted in senior cadre management position in MNC subsidiaries should have

the knowledge of the host country language.

(v) Country/Cultural requirement:-

Selection decision

Language

Family requirement

MNE reqiurements

Technical ability

Country / cultural

requirement

requirement

Cross Culture

Suitability

The culture & employment policies of multinational companies have an influence over the selection &

recruitment decisions. The company may have certain policies of recruiting certain percentage of people

from the home country as expatriates according to their corporate philosophy.

Other situational factors influencing selection criteria:

1. Negotiated agreement by the local partner may create some constraints to depute expatriates.

2. Duration of the assignment will determine the selection decision.

3. Amount of knowledge transfer inherent in the expatriate’s job in the foreign operation.

38.9.3 International Performance Management:

One of the most challenging aspects for a firm operating is an international environment is managing the

performance of its various international facilities. Monitoring performance & ensuring conformance to

agreed standards are important elements of IHRM.

Fig 38.3 Basic Components of performance Management

Various constraints that may affect goal attainment are:-

38.9.3.1 Whole as against part:

A multinational company operates in different countries through its subsidiaries which function in a

multicultural environment. As a result, the integration & control imperatives often place it in a position

where it may decide that good of the whole is more important than one subsidiary’s short term profits.

38.9.3.2 Volatility of international environment:-

Global market is mostly dynamic & unpredictable in nature. Hence, the long term goal fixation &

persuasion need to be emphasized rather than having extra ordinary importance on short term ups &

down.

38.9.3.3 Variable levels of maturity:

Without the supporting infrastructure of the parent organisation, market development in foreign

subsidiaries is generally slower & more difficult to achieve than at home. This is because at home, there

are established brands that support new products & therefore, new businesses can be cross subsidized by

other division.

Factors associated with individual performance and appraisal in an international context:

1. Compensation package:

Perceived financial benefits along with career progression potential associated with international

assignment are often important motivating factors which drive the employee to accept international

assignments.

2. Task (assignment variables & the role of the expatriate):

Four main expatriate task roles have been identified in the literature on IHRM against the following

positions:

(i) Chief executive officer (CEO) overseas the entire foreign subsidiary operation.

(ii) Structure reproducer carried out the assignment of replicating the structure similar to the one in the

parent country in the foreign subsidiary.

(iii) Troubleshooter is normally sent by the parent company to a foreign subsidiary to analyse & solve a

particular operational problem.

(iv) operative performs functional job tasks in an existing operational structure & usually at lower level of

the organisational hierarchy.

3. Headquarter’s support:

International assignments are different from domestic ones in many respects. One of them is due to the

fact that the former involves relocation of the employee along with his/her family into a totally foreign

environment.

4. The environment in which performance occurs:

The international context with its differing legal, economic, societal, technical & political demands are a

major determinant of expatriate performance.

5. Cultural Adjustment:

The process by which an expatriate adjusts to the culture of the foreign country is extremely important.

The longer it takes for expatriate & his/her family to adjust to the new environment, the most costly it is

to the organisation as it affects their performance.

Every individual goes through a cultural adjustment cycle as shown in figure 38.4 while on an

international assignment.

Fig 38.4 Cultural Adjustment Cycle Source: H. De Cieri, P.J. Dowling and K.F.Taylor, 1991, The psychological Important of Expatriates Relocation on

Partners, International Journal of Human Resource Management, 2(3), 380.

Phase 1: Just getting the offer throws stimulating emotions associated with pleasant excitements, anxiety,

sense of adventure & range of positive & negative emotions.

Phase 2: The moment the initial excitement is over, the person encounters reality which gets translated to

homesickness leading to possible negative appraisals of the situation & a period of crisis.

Phase 3: Slowly, the present work demands help the expatriate to gain motivation, who gets adapted to

the new environment & begins to adjust.

Phase 4: As the person gets adjusted to the new environment, his performance improves & he is in a state

of healthy recovery.

38.9.4 International Compensation Management:

When a firm develops international compensation policies, it tries to fulfill some broad objectives:

(i) The compensation policy should be in line with the structure, business needs & overall strategy of the

organisation.

(ii) The policy should aim at attracting & retaining the best talent.

(iii) It should enhance employee satisfaction.

(iv) It should be clear in terms of understanding of the employee & also convenient to administer.

The employee also has a number of objectives that he wishes to achieve from the compensation policy of

the firm:

(i) He expects proper compensation against his competency & performance level.

(ii) He expects substantial financial gain for his own comfort & for his family also.

(iii) He expects his present & future needs to be taken care of including children’s education, medical

protection & housing facilities.

(iv) The policy should be progressive in nature.

Major components of an international compensation package are:

(i) Base salary:

This term has a slightly different meaning in an international context than in a domestic one. In the latter

case, it denotes the amount of cash compensation that serves as a benchmark for other compensation

elements like bonus, social benefits.

(ii) Foreign service inducement premium:

This is a component of the total compensation package given to employees to encourage them to take up

foreign assignments. This is with the aim to compensate them for the possible hardships they may face

while being overseas.

(iii) Allowances:

One of the most common kinds of allowances internationally is the cost of living allowance (COLA). It is

typically involves a payment to compensate for the difference in the cost of living between the two

countries resulting in an eventual difference in the expenditure made.

Approaches to International Compensation:

There are two main options in the area of international compensation:

(i) Market rate approach:

Under this, the base salary is linked to the structure in the host country. The multinational obtains

information from local compensation surveys & decides whether local employees, expatriates of different

nationalities will be the points of reference for benchmarking of the compensation.

Advantages:-

(i) It is a simple approach to follow.

(ii) Identification with the host country is possible.

(iii) Equality with local nationals.

(iv) Equality amongst people of different countries.

Disadvantages:-

(i) There is a possibility of variation in the compensations offered to expatriates from the same country in

different countries.

(ii) It can pose problem when the expatriate is repatriated back to his country where the salary structure is

lower than that in the host nation.

(iii) There is also a danger of variation between assignment for same employee.

(ii) Balance Sheet approach:

This approach tries to maintain relativity to parent country employee colleagues & compensating for the

costs of an international assignment. The key assumption of this is that employees going for foreign

assignments should not suffer any kind of tangible loss due to working in a new environment.

Under this approach, 4 main categories of expenditure incurred by expatriates are covered:

(a) Goods & Services – home country outlays for food, personal care, clothing, household furnishing etc.

(b) Housing – cost associated with housing in the host country.

(c) Income tax – host country & parent country taxes.

(d) Resources – contributions to savings, payments for benefits, pension contribution etc.

Advantages:

1. Equity between foreign assignment & expatriates of the same.

2. Repatriation of expatriates.

Disadvantages:

1. Complicated to administer & involves high cost.

2. Result in huge disparities between expatriates of different nationalities.

38.9.5 Repatriation:

Though the people face difficulty in acclimatizing & developing adjustment with the new culture of the

new country, still they do not feel comfortable in quitting job & going back to the home country by

accepting the failures. This happening creates more psychological frustration than continuing in the new

environment. This phase in always treated as the final stage of expatriation process.

The repatriation process (figure 38.5) is divided into four related phase (Welch, Adans, Batchley &

Howard, 1992):

(i) Preparation:-

It involves developing plans for the future & gathering information about the new position. The

organisation may provide a checklist to the employee for all the steps to be followed before his return to

his home country.

(ii) Physical relocation:-

This stage involves shifting the personal belongings, travelling to the next posting which usually is to the

home country.

(iii) Transition:-

In this stage, the person starts the process of setting down in the new setting. This involves settlement of

new house, education of the children, social adjustment with the new friends & colleagues.

(iv) Readjustment:-

It Involves coping with the reverse culture shock & career depends. This phase is very critical for the

repatriates in terms of adjusting to the new environment.

Fig 38.5 Repatriation Process

Source: D. Welch, T.Adams, B.Betchley & M.Howard, 1992, “The view from the outer side: The handling of

repatriation & other expatriation activities by the Royal Australian Airforce, Proceeding of the Academy of

International Business Southeast Asia Conference, June, Brisbane.

Summary:

Globalisation is the process of extending business activities to foreign countries. It has significant

implications for employment, HRD, compensation, labour relations etc. The model of international HRM

comprises of three variables – HR activities, country of operation and type of employees. Thus, there are

four approaches to international recruitment – ethnocentric, polycentric, geocentric and regiocentric.