International Operations &

UNIT 13 INTERNATIONAL HUMAN Logistics Management

RESOURCE MANAGEMENT
Objectives
After reading this unit you should be able to:
 explain the role and nature of international human resource management
(IHRM);
 identify the cross-cultural issues in IHRM;
 describe the process of international recruitment and selection, and the need
for training and development;
 explain the need and process of managing expatriates and the methods for
appraising their performance; and
 state the objectives, approaches and components of compensation for
international human resources.
Structure
13.1 Introduction
13.2 Role and Nature of International Human Resource Management (IHRM)
13.3 IHRM: Definition and Scope
13.4 Cross-Cultural Issues in IHRM
13.5 International Recruitment and Selection
13.6 Managing Expatriates
13.7 Expatriate Training and Development
13.8 Expatriate Performance Appraisal
13.9 International Compensation
13.10 Summary
13.11 Key Words
13.12 Self-Assessment Questions
13.13 References/Further Readings

13.1 INTRODUCTION
Human Resource Management is crucial to organizational competitiveness and
productivity due to the growing diversity of the world’s workforce and the increasing
importance of the international workforce. There is far more interest and enthusiasm
among HR mangers to better manage the diversity in the workforce as businesses are
getting international. If an international organisation is to survive in today’s competitive
environment, it must successfully manage the increasing complexities of its human
resource. Human resource management is also growing in importance as the firms with
global ambitions are relocating their business operations to those geographical areas
where they enjoy advantages in scale, scope, systems and synergy.
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Functions 13.2 ROLE AND NATURE OF INTERNATIONAL
HUMAN RESOURCE MANAGEMENT (IHRM)
International business corporation(s) whether large or small, if intending to retain their
domestic operations and yet be competitive with respect to cost and quality, they will
have to improve their quality, genre and philosophy of their human resources. Talented
people must be attracted to join the organization, trained, motivated and developed to
perform at high levels, and encouraged to remain with the organization with loyalty and
commitment thus helping international business firms to achieve their core objectives.
Let us now understand Four C’s model by Manab, et.al (1997). This model will help
us in understanding how it can act as a catalyst for effective human resource management.
Four C’s Model of Human Resource Management: Effective human resource
management is essential for corporate success and it can be facilitated by applying the
Four C’s model for human resource outcomes: The Four C’s are: 1) commitment; 2)
competence; 3) congruence; and 4) cost-effectiveness. The model requires resolution
of key human resource issues. Let us discuss each ‘C’ one by one. Each ‘C’ requires
certain questions to be answered which are as follows:
Competence: How competent are our employees? Is more training required? To
what extent do our HR policies attract and retain good people?
Commitment: Just how committed are our workers to their jobs and to the growth
and development of the organisation? How do our HR policies promote worker’s
commitment to the job?
Congruence: Is there a congruence between the basic values and goals of the
organisation and that of its employees? Is there something that binds the spirits of all
employees into single vision, creating an environment of trust and respect for all?
Cost-Effectiveness: Are our HR policies cost-effective with respect to wages, benefits,
absenteeism, turnover, and so on?
Through the proper framing and execution of human resource (HR) policies, an
organisation can maximize the performance of its human assets. When the four C’s are
well managed, they provide a number of rich rewards to the organisation, the rewards
can be as follows:
1) High competence of the employees leads to: a) versatile skill-set of the
employees; b) capacity to assume higher roles when assigned; and c) capability
to respond enthusiastically to external challenges.
2) High commitment ensures: a) better communication between subordinates
and their superiors; b) mutual trust and respect between subordinates and
superiors; and c) mutual understanding of issues of all stakeholders.
3) High congruence leads to: a) a common purpose for all concerned; b)
collaborative approach to problem-solving; and c) concerted and cohesive
responses to environmental challenges.
4) High cost-effectiveness leads to: a) harmonious relations among employees
b) equitable remuneration and rewards leads to very low dissonance, c) overall
happy working environment.
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13.3 IHRM: DEFINITION AND SCOPE Resource Management

Typically, HRM refers to those activities that are undertaken by an organization to

utilize its human resources effectively. Some of these activities include:
 Human resource planning
 Staffing
 Training and development
 Performance management
 Compensation and benefits
 Labour relations
Figure 13.1 defines the scope of HRM functions and shows its various activities.

Human Resource Planning

Environmental Scanning
Business and Economic Forecasting
Competitive Advantage
Policies, Plans, Procedures
Technical Needs

Job Analysis

Forecasting Human Resource

Requirements

Forecasting Human Forecasting Internal

Resource Demands: Supply:

• Job Description • Skills Available

• Quantity • Promo ability
• Location • Trainability
• Timing • Key Personnel

Net Human Resource

• Requirements
• Job Descriptions
• Quantity
• Location
• Timing
• Criticality

Recruitment Training and Development

Selection Transfer and Job Rotation

Figure 13.1: Attracting an Effective Workforce

Source: Adapted from Thakur Manab, Gene E. Burton and B. N. Srivastava (1997).
International Management. Tata McGraw Hill Publishing Co. Ltd.
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International Business We now consider which activities change or has to be revisited when firms becomes
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global. An internationally engaged firm requires internationalization of HR polices,
activities and actions. An article by Morgan on the development of international HRM
presents a model of international HRM that consists of three dimensions:
1) The three broad human resource activities: procurement, allocation, and
utilization. (These three broad activities can be easily expanded into the six
HR activities listed in the beginning of Figure 13.1).
2) The three national or country categories involved in international HRM activities:
the host country where a subsidiary may be located, the home country where
the firm is headquartered, and “other” countries that may be the source of
labour or finance.
3) The three types of employees of an international firm: host-country
nationals(HCNs), parent-country nationals (PCNs), and third-country
nationals (TCNs).Thus, for example, IBM employs Australian citizens (HCNs)
in its Australian operations, often sends U.S. citizens (PCNs) to Asia-Pacific
countries on assignment, and may send some of its Singaporean employees
on an assignment to its Japanese operations (as TCNs).
Compensation Management of HCNs
While deciding on a compensation structure of host country nationals working in the host
country, the local culture and practices along with the prevailing government rules and
regulations are to be taken into consideration. Furthermore, due consideration should be
given to the general compensation policy of the parent company.Any kind of discrimination
in compensation policy between parent and host country nationals may lead to ill-feeling
and dissonance among the employees in the host country (ies). International HR managers
are required to work closely with both parent and host country HR team and exchange
information about the compensation packages among other things. A consideration is
made to expatriates who will be earning a much higher salary than their host country
peers for doing more or less the same work; but such a reward to expatriates is required
to bring talent and strive for growth of the company. One way of dealing with problem is
to pay equally to all the employees, i.e. expatriates from home or other countries and
host country’s professionals but offer a special allowance to expatriates to attract them
for specialized and specific works which they are assigned with. Expatriates can be
offered allowances or other rewards at the HQ so that employees at position of work are
not aware of what expatriates are getting as an extra compensation. In recent years,
there is a trend in favour of ‘Flexpatriates’, who are frequent flyers, foreign professionals,
who travel at a short notice for shorter time durations while maintaining their family and
personal lives at the home, i.e. in their country location.
Activity 1
Meet the HR manager of an MNC in your city and discuss about the disparity, if
any in the remuneration paid to Indian employees and foreign executives. Find
out whether the disparity is giving rise to disharmony among the workforce.
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13.4 CROSS-CULTRUAL ISSUES IN IHRM Resource Management

Culture
By culture, we mean the whole set of social norms and responses that condition a
population’s behaviour. It is cultural set-up that makes social environment different
from another and engross everyone in its unique and own colour. Culture is acquired,
in fact to be precise it is inculcated. It is the set of rules and behaviour patterns that an
individual learn and imbibe through his social interactions but does not inherit. For
every society; these norms and behavioural responses develop into a different and
unique cultural pattern that gets passed down through the generations with continual
embellishment and adaptations. Culture is largely inculcated through languages - spoken
or written. Language, then, becomes the medium of culture. It may even condition
what we see, oversee and observe in our informal communications with gestures, body
language and signs etc. Culture can be interpreted based on certain cultural patterns,
traits and customs. In nutshell; the fundamental precursors of culture are the interrelated
concepts of beliefs, values, attitudes, behaviour, language, non-verbal cues,
communication customs and trust customs. One factor leads to another in sequence,
however all the four factors are multifaceted, indicating that the consequences of a
given behaviour will have implications for each of the precursors which, in turn, define
culture.
International HR managers need to recruit and select the employees who shall be
working on international business deals, and needs to understand and comprehend
cultural aspects well. These employees have to negotiate business contracts, and
figure-out marketing strategies for the particular market. Hence, the employees for
international business operations must always be prepared for unexpected cultural
factors that they have to deal with. The following aspects of culture need to be
properly understood with:
1) Language: Language is an important basis to understand a culture. If someone
can speak the language of host countries, one can understand the expectations
of its employees, methods to deal with and address their concerns before it
becomes a problem. Furthermore; language helps us understand the business
paperwork especially related to tax laws, employment laws, and business
law and help manage operational decisions of the firm.
2) Religion: Religion also has important bearing on culture and largely shapes
the beliefs, values and customs of the society. Understanding of religion can
help avoid many challenges, for instance, Christians celebrate Christmas with
enthusiasm and aplomb and prefer not to work at least in second half of
December. Religion might be an important thing to take into consideration
when it comes to international business.
3) Etiquette: Etiquettes are integral part of any culture and one can understand
cultural sensitive through etiquettes. Etiquettes may differ even with a cultural
group as these are shaped how we are raised, educated, and work with.
Etiquettes shape a particular way of behaving and social guidelines which in
turn lead to specific pattern of thinking. For instance, colour green is preferred
colour of Muslims around the world except in Malaysia where it is distasted
upon. If one is making sound during eating, it might annoy a German but
Chinese believe that you are enjoying the food. 225
International Business 4) Negotiation: Communication and trust customs of a culture helps in business
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negotiation. Business negotiations are the most crucial business skills for
international business. Several studies have been conducted and they specify
the best way to approach international negotiation. Business negotiation tactics
should be in line with the culture and language along with the deeper
understanding of client’s business goals and motivations.
Role of Culture in International HRM
Culture plays an important role in international human resource management. We first
take up the elements of cross-cultural diversity.
Cross-Cultural Perspectives
Socio-economic and cultural variables influence management philosophy and practices
in all countries. It is not easy to transmit home country’s work culture, boss-subordinate
relationship, decision making process, value systems and techniques in other countries.
The issues relating to applicability, transferability and utility of advanced management
knowledge and practices therefore, have remained clouded. Cross cultural studies
have confirmed variations in management thinking and practices based on social,
economic and cultural differences. A few illustrations are given below:
1) Japanese culture places high premium on collective responsibility which is
described by the word ‘Shu-jo-hu-on’ (gratitude to nature and other human
beings for one’s success).This philosophy requires abandoning the idea of
individual power domination in favour of cooperative group action. This is not
so in Western culture which is based on individualism leading to the goal of
self-actualization and fulfilment for individual rather than a group as a whole.
Decision making in Japanese system is considered to be more time-consuming
than in American system. Under ‘ringi seido’ the formal process of decision
making may start at any level, but it normally starts at middle management
level and then works its way both laterally and horizontally. It results in reducing
the risk. The degree of participation, examination of detail and speed of
implementation is higher in this system compared to US-European system
where individuals play more important role, and make quick decisions, but
the accuracy and implementation may not be of that high order.
2) Work is regarded as an ‘end’ in itself in Anglo-American culture, but not so in
Mexico.
3) Whether it is the shortcomings, the US management is still considered to be
more democratic than the French, German and Indian management styles,
though it is conceded that the autocratic style is not always dysfunctional and
may be appropriate in a given situation.
4) Some studies indicate that in the economically backward countries,
authoritarian style of leadership in business has shown better results in terms
of productivity than the democratic style. It has also been found that managers
in these countries have a tendency to project their values on others in
comparison to the most managers in developed countries. Salary differences
between average and poor performers in these countries are low as compared
to developed countries where performance is an important criterion for
226 determining pay packet. The managers in developing countries are also found
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in developed countries stress objectives of growth and competition.
The studies confirm that there is no single way of doing things or managing
enterprises. Similarities may be explained in terms of cultural variables while
differences are looked into from socio-economic and cultural perspectives.
Elements of Cross-Cultural Diversity
The elements of cross-cultural diversity may relate to spoken language, unspoken
language, hand gestures and symbolism.
Spoken Language: Spoken language actually splits some nations into more than one
culture. In Belgium, there are two definable cultures based on the two languages -
French and Dutch - that are spoken there. Similarly, there are two cultures in Switzerland
matching its two languages - German and French. Canada is currently experiencing
serious political pressure to split the nation into two separate countries - one that
speaks English and another that speaks French. In the world of business, the spoken
language is critical for four reasons. Firstly, the language can be essential in the process
of collecting and evaluating information. Knowledge of the local business environment
should not be totally dependent upon the opinions of outsiders. A manager with the
ability to analyse the business situation first hand, through knowledge of the language,
has a tremendous market advantage. Secondly, although English is generally accepted
as the international language of business, a manager still needs to communicate with
other members of the local society and should have working knowledge of host country’s
language. Thirdly, if the managers do not have knowledge of host country’s language,
the internal company communications with non-English-speaking employees cannot
be accomplished effectively through interpreters. Fourthly, language goes beyond the
pure technical skills to help the manager(s) to understand the business context and
operational challenges.
Unspoken Language: Unspoken language, sometimes referred to as non-verbal
language, is an effective way of communicating our beliefs, values, and attitudes as well
as augmenting our verbal-messages. There are a number of ways to categorize the
many types of unspoken language, but the following examples are most widely
recognized - facial expressions, walking, posture, hand gestures, colour symbolism,
proximity, touching, eye contact, olfaction (smells), artefacts (jewellery), clothing,
hairstyles, cosmetics, and silence.
Hand gestures can be very expressive in some cultures, but they often have different
or even contradictory meanings.
Colour symbolism can be very confusing for the international manager. The colour
green, for example, is popular in the Muslim countries, but it symbolizes ‘disease’ and
‘pain’ in Malaysia. The colour red symbolizes love, joy and happiness in Chinese
culture and in many African cultures, it symbolizes death and grief. In Nigeria and
South Africa, red symbolizes violence and sacrifice.
Managing Cultural Diversity
Building a more diverse and effective workforce for the success of a corporation
demands that management has a programme to manage cultural diversity. Such a
programme will assist the firm during the testing times to plan effectively for recruiting
and selecting the best employees for managing the international business operations. A 227
International Business culturally-diverse workforce will maximize a company’s ability to deal with a culturally-
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diverse market place. Moreover, the culturally-diverse work teams can better deal
with culturally-diverse consumers. They can advertise better and leverage other marketing
techniques to attract diverse customers. Furthermore, they can better manage financial
institutions, labour unions, professional associations, and so on. Firms that are going to
be globally effective in business operations must develop cross-cultural training
programmes to help their employees become more sensitive towards other cultures
and their fellow employees. One popular form of cross-cultural training is the ‘cultural-
assimilation’ through which trainees respond to scenarios of particular situations in
specific countries. Such programmes have been most successful for Arab countries,
Iran, Thailand, Central America, and Greece.
Managing Individual and Workforce Diversity
In addition to learning to manage cultural diversity, the international HR manager must
also develop skills in the management of individual’s diversity. Needles to mention that
in each culture, there will still be many ways in which each individual will be uniquely
different from another. A trained HR manager will carefully and selectively apply the
American adage, “different strokes for different folks” to manage such individual(s)
who uniquely contributes to growth of the firm.
Managing a diverse workforce may sometimes result in challenges such as
miscommunication, mistrust, poor cohesiveness, and stereotyping. However, these
barriers of diversity can be overcome by a well-integrated system which plan, execute
and take care of needs of training, development, awareness and assimilation of specific
types of cultural sensitivities for its diverse workforce.
Critical enablers for successful management of cultural diversity would include the
following:
• Strong and visible support from the top management.
• Continuous efforts to assess the training needs to manage cultural diversity.
• Flexible programmes for recruitment, selection, training, retention, and upward
mobility of a diverse workforce.
• Programmes to accommodate family needs, such as crèche and care-centres
for the elderly.
• Alternative work schedules, including part-time work, job-sharing,
compressed work-weeks, flexi-time, etc.
• Telecommuting opportunities for non-conventional workers and foreign
workers who do not wish to immigrate.
• Diversity training.
• Language training.
• Mentoring or the use of high-level managers to guide high-potential women,
minorities, and fringe groups to promote diversity.
• Support groups that can help build minority networks for the support and
guidance of needy employees.
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 • Career development opportunities including promotions to maximize the International Human
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upward mobility of diverse employees to overcome the glass ceilings that
tend to hold them back.
Activity 2
What similarities and differences do you find in your own culture and some other
cultures, say Japanese or French? Discuss with your friends or colleagues and
note down the points hereunder.
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13.5 INTERNATIONAL RECRUITMENT AND

SELECTION
The IHRM literature uses four terms to describe MNE approaches to managing and
staffing their subsidiaries: ethnocentric, polycentric, region-centric, and geocentric. These
terms are taken from the seminal work of Perl mutter, who claimed that it was possible
to identify three primary attitudes among international executives. These are ethnocentric,
polycentric, and geocentric approaches to build and develop a multinational enterprise.
Perl mutter highlights these approaches to develop international organizations based
on certain assumptions of top management which will help them expand product
geographies and functional decision-making. To demonstrate these three approaches,
Perl mutter used aspects of organizational design, such as decision-making, evaluation
and control, information flows, and complexity of organization. He also included
“perpetuation,” which he defined as “recruiting, staffing, development.” A fourth attitude
– region-centric - was added later. You will recall that these four approaches were
earlier discussed in the context of managing international marketing decisions (i.e.,
how a firm strategize and adapt its products and services to international markets but
the context here is different).
Approaches to International HRM
A multinational enterprise uses any one of the following four approaches or a mix of
some of these to meet its manpower requirements:
1) Ethnocentric
2) Polycentric
3) Region-centric and
4) Geocentric
These terms, though explained in one of the pervious units, need to be discussed in the
context of human resource management.
Ethnocentric approach is characterized by MNEs preference for using home country
nationals for all senior positions and rewarding them more generously over the host 229
International Business country nationals. The discrimination if carried too far alienates and demoralizes the
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host country’s employees.
In polycentric approach the host country nationals are preferred for local positions.
The local units get greater degree of autonomy in recruiting personnel for managerial
and other positions. The knowledge of local language, culture and environment on the
part of local managers helps create a more favourable attitude among employees of
the local organization and also with the suppliers and customers. The risk associated
with too much localizing is that it may alienate the local unit(s) from the mainstream
organization.
In region-centric approach, managers are recruited on regional basis and these may
include some employees from parent country but a larger section from the host country
or region. For instance, an American multinational operation, in Europe may prefer to
have European managers at regional headquarters in Europe in large numbers instead
of sending all the business heads from the headquarters.
The geocentric approach is based on the philosophy of global outlook of the
management. It shows MNEs commitment to employ best brains available from
anywhere. The top positions even at the headquarters may go to host country or even
third country nationals. Very few multinationals follow this approach as the culture and
tradition of the corporation is built-over the years on the basis of certain objectives,
philosophies and practices.

13.6 MANAGING EXPATRIATES

An expatriate is a home country or third country national who is assigned to a host
country for managing business operations. Most expatriates are managers or highly-
trained technical experts.
The advantages of using expatriates are:
1) Expatriates usually have the necessary technical and managerial skills.
2) Expatriates enhance communication between the parent company and the
foreign subsidiary.
3) Expatriates are more familiar with corporate culture, vision and mission of the
parent company thus help promote parent-subsidiary relations.
4) Assigning expatriates to foreign posts is an essential part of the management
development programmes and it leads to their progress towards becoming an
“international manager.”
The disadvantages of using expatriates include:
1) The total compensation paid to an expatriate is usually much greater than
what is paid to a host country national.
2) Host country nationals do not require special training to adapt to the local
culture.
3) Host country nationals do not require work permits.
4) Using host country nationals enhances the firm’s local image.
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 5) Using expatriates with special employment contracts may block promotional International Human
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opportunities for the locals and may sometimes contradict the equal
employment opportunity regulations of host country (ies).
Factors in Expatriate Selection
An international HR manager has to select the right employees who can adjust and
perform their assigned responsibilities effectively in the host country. While selecting
the expatriates, an international HR manager should make sure that:
1) The selected employees are able to develop language fluency for the assigned
international assignment.
2) The selected employees are psychologically ready for the international
assignment and are willing to have an international experience. If required,
one can use psychological screening to assess the readiness of expatriates.
3) They are offered strong support before and during the assignment preferably
on setting their expectations and aligning them to firm’s business objectives.
Expatriates can be given the feedback of performance of some previous
managers and offered guidance, mentoring and assistance from such
employees.
4) The expatriates should be provided a time window to self-assess their readiness
and should be helped to set their realistic priorities and expectations for adjusting
to the host country.
5) They are allowed to maintain a connection with the parent company or where
they are currently posted so as to sail them through easily with the new country’s
business environment.
Further, one should also factor the following points while selecting the expatriates.
These are:
1) Technical ability
2) Cross-cultural suitability
3) Family requirements
4) Country-cultural requirements
5) MNE-requirements
6) Language
Activity 3
Suppose you are the head of HRM division of an international company. What
qualities you would look for while selecting employees for foreign assignments?
List out the qualities and rank them in order of importance.
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Functions 13.7 EXPATRIATE TRAINING AND DEVELOPMENT
MNEs need managers with a global outlook. No internationally engaged firm can
afford to have a system; which promotes inefficiency, inbreeding and narrowness for
its top management who have to take strategic and operational decisions for growth
and expansion of the firm. Hence; a structured process of selecting the right people for
international assignments should be encouraged. All managers who have the potential
to work overseas should be prepared for cross-national experience. The headquarters
should maintain a central inventory of international executives and monitor a continuous
career development programme.
There is no substitute to training the existing employees for future roles in a MNE. The
usual objectives of training programme for international executives may be summed up
as: transfer of knowledge, improvement in communication, understanding company’s
goals and way of operating, increasing sensitivity to cultural patterns that may be foreign
to their own experience and values, improving adaptability to the new environment.
The training programmes should have cross-national focus. Though, the training cannot
be a substitute for actual foreign living experience, it may however minimize the challenges
that employees may have to encounter and help adapt them to new system. Training
essentially helps avoid the damage that may be caused by the cultural shock.
The training programme should be chalked-out keeping in mind the training needs. In
one study Mary Johnston found that the human relations skills, understanding of other
cultures and ability to adapt were the most pressing training needs for overseas managers.
The conclusions were based on a survey of American workers assigned internationally
and their Asian colleagues.
The training programmes to meet specific needs of international managers may be
carried out internally as well as externally. The internally oriented programmes may
also be tailored to the needs of specific individuals and their specific job assignment.
The executive may be given on-the-job training under the supervision of the seniors.
The learning, in such cases, is real and not a mere intellectual exercise. It is an effective
way of seniors understanding the culture as well.
In addition to internal trainings, the externally-oriented programmes are aimed at
broadening the manager’s horizon beyond its own organization and job. Foreign
language training, for instance, is given by academic or institutions for foreign culture
but it may not equip the manager with specific terminology required for business. Hence;
the employees should be exposed to the seminars, conferences, workshops and other
important means of training the international managers on specific topics. For instance,
a workshop on transfer pricing may be very useful for MNE managers.
Various approaches to cross-cultural training have been used in the multinational
enterprises. However, it may be mentioned here that some training approaches are
more rigorous than others. Some approaches, e.g. simulation require the trainee to
participate directly in the learning experience while others e.g. listening to lectures of
experts/ trainers require far lower mental and emotional efforts to absorb the information
or specific-context. According to Black and Mendenhall, more rigorous approaches,
which require the trainee to exert significant cognitive and behavioural effort, are more
effective than less rigorous approaches. However, to effectively conduct rigorous training
programmes that even for employees assigned internationally, require significant amount
of time and money. Not all the firms or companies can afford to send their managers
232 for the ‘off-job’ training.
Expatriate Training generally involves two types of training: International Human
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• Pre-departure training, that is before the employee leaves his/her home country,
and
• HCN training, that is after the employee joins the firm in the host country.
Components of Effective Pre-departure Training Programmes: The components
of the effective pre-training programmes would include cultural awareness programmes,
preliminary visits, and language training.
Cultural Awareness Programmes: The components of cultural awareness
programmes vary according to country of assignment, duration, purpose of the transfer,
and the provider of such programs. The following components are included in cultural
awareness training programs:
• Area studies programs that include environmental briefing and cultural
orientation;
• Culture assimilators;
• Language training;
• Sensitivity training; and
• Field experiences.
Apart from cultural awareness programmes, Preliminary Visits may be highly useful.
Language Training may include the following points:
• The role of English as the Language of World Business.
• Host-country Language Skills and Adjustment.
• Knowledge of the Corporate Language.
HCN Training may include the following components:
• Specific Firm-based Training
• Building a Sense of Corporate Identity
• Specific Skill-building
Activity 4
Arrange a meeting with the Chief Executive of a multi-national subsidiary and
enquire about the: (i) objectives, (ii) nature, and (iii) contents of the training
programme meant for managerial and supervisory personnel. Ascertain in what
ways the training programme is influenced by the parent company (or
headquarters).
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International Business
Functions 13.8 EXPATRIATE PERFORMANCE APPRAISAL
A performance appraisal is the formal assessment of employee’s job performance.
Such appraisals are important to the employing institution because they: (1) provide
feedback to employees that will assist them in doing better and in planning their career-
path; (2) provide information that is needed to make employment decisions on such
issues as pay levels, promotions and training needs; and (3) provide information
necessary for human resource research tasks, such as validating selection methods
and training programmes. There are many performance appraisal methods, and they
can be divided into two categories, i.e. the objective appraisal methods and judgmental
appraisal methods.
Objective Appraisal Methods
Objective performance appraisal measures involve such objectives and quantifiable
outputs as sales volume, units produced, scrap rates, and so on. Yet another objective
measure is the score on some form of standardized performance test. These data are
fairly easy to obtain and compare, but they suffer from two major weaknesses. First,
these data may not measure performance related to many important organizational
goals, such as customer service or corporate image. Second, these data are subject to
“opportunity bias”, wherein some employees are in a better position to succeed than
others. For instance, a computer salesman in an underdeveloped country does not
have an opportunity to generate sales when compared with a salesman in a developed
community.
Judgmental Appraisal Methods
There are three commonly used judgemental performance appraisal methods: (1)
checklists; (2) graphic rating scales; and (3) behaviourally- anchored rating scales.
i) Check-lists – The simplest judgmental technique for evaluating job
performance is simply to check statements on a list or on a questionnaire. A
check-list should describe worker behaviour with short phrases and/or
adjectives that can be checked (yes) or not checked (no).
ii) Graphic Rating Scales – Because of the inherent limitations of the check-
lists, the graphic rating scales are developed to provide a method to rate
individual performance on rating scales.
iii) Behaviourally-Anchored Rating Scales – The behaviourally-anchored
rating scale (BARS) is a more sophisticated rating scale that is designed for a
particular job or group of jobs. Superiors are asked to construct the rating
scales around critical behavioural anchors i.e., the specific, observable
behaviours that define behaviours which are common to varying levels of
performance. According to Wikipedia BARS are normally presented vertically
wherein the scale points range from five to nine. BARS can be an effective
tool for performance appraisal provided the behaviourally-anchor statements
are accurately stated. BARS can add behavioural scale anchors to traditional
rating scales like graphic-rating.
Multinational Performance Management
While the general strategic position of a large corporation may be international,
multinational, global, or transnational (depending on its size, industry, geographic
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dispersal, etc.), the corporation makes strategic choices based on economic and political International Human
Resource Management
imperatives. Within this context, the multinationals have specific expectations for each
of its foreign affiliates in terms of market performance and contribution to total profits
and competitiveness.
When evaluating the performance of a subsidiary against these expectations, it is
important to recognize various constraints that may affect goal attainment. We identify
five major constraints.
1) Whole versus part performance appraisal
2) Non-comparable data
3) Volatility of the international environment
4) Separation by time and distance
5) Variable levels of maturity
Criteria Used For Performance Appraisal of International Employees:
The criteria used for performance appraisal of international employees have the following
goals:
 Hard Goals
 Soft Goals
 Contextual Goals
Who conducts the Performance Appraisal? The performance appraisal may be
conducted by the:
 Immediate superior back home?
 The immediate host-country superior?
 Multiple Raters or “360-degrees Feedback”?
How to Conduct Appraisal of HCN Employees?
The practice of performance appraisal confronts the issue of cultural applicability.
Performance appraisal in different nations can be interpreted as a signal of distrust or
even an insult. In Japan, for instance, it is important to avoid direct confrontation to
“save face,” and this custom affects the way in which the performance appraisal is
conducted. A Japanese manager cannot directly point-out a work-related problem or
a mistake committed by subordinate.
Instead, he is likely to start discussing with the subordinate about the strong points of
that person’s work, and further continuing with a discussion about the work on a
relatively general level. Then she/he might continue to explain the consequences of the
type of mistake committed by the subordinate, still without directly pointing out the
actual mistake of the individual employee. From all this, the subordinate is supposed to
understand his/her mistake and propose how to improve his/her work.
One way to overcome the dilemma of cultural adaptation is to use host-country nationals
to assist in devising a suitable system for appraising the local staff in the subsidiary and
to advice on the conduct of the appraisal. The need for local responsiveness may
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International Business affect the multinational’s ability to effectively implement a standardized approach of
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performance management at all levels in international business operations.

13.9 INTERNATIONAL COMPENSATION

In this section we talk about objectives, approaches, and key components of
international compensation.
A) Objectives of International Compensation
From the MNC point of view, the following may be the objectives:
1) The policy should be consistent with the overall strategy, structure, and business
needs of the multinational.
2) The policy must work to attract and retain staff in the areas where the
multinational has the highest needs and opportunities. Thus, the policy must
be competitive and recognize factors such as incentive for Foreign Service,
tax equalization, and reimbursement for reasonable costs.
3) The policy should facilitate the transfer of international employees in the most
cost-effective manner for the firm.
4) The policy must give due consideration to equity and ease of administration.
From the International Employees’ point of view, the following may be the
objectives:
1) The employees will expect that the policies offer financial protection in terms
of benefits, social security, and living costs in the foreign location.
2) The employee will expect that a foreign assignment will offer opportunities for
financial advancement through income and other savings.
3) The employee will expect that issues such as housing, education of children,
and recreation will be addressed in the policy.
B) Approaches to International Compensation
While working-out compensation or compensation packages for international
employees, the following approaches may be used:
i) The Going-rate Approach (also referred to as the Market Rate Approach)
The going-rate approach is based on —
 Local market rates.
 Relies on survey comparisons of:
 Local nationals (HCNs)
 Expatriates of same nationality
 Expatriates of all nationalities
 Compensation based on the selected survey comparison.
 Base pay and benefits may be supplemented by additional payments for
236 low-pay countries.
 ii) The Balance Sheet Approach International Human
Resource Management
The following are the features of Balance Sheet approach:
 Basic objective is the maintenance of home-country living standard, plus
financial inducement.
 Home-country pay and benefits are the foundations of this approach.
 Adjustments to home package to balance additional expenditure in host
country, if any.
 Financial incentives (expatriate/hardship premium) added to make the
package attractive.
 Most common system used by other similar multinational firms.
C) Key Components of an International Compensation Program
The following are the key components of an international compensation program:
 Basic Salary
 Foreign Service Inducement / Hardship Premium
 Allowances
- Cost of Living Allowances
- Housing Allowances
- Home Leave Allowances
- Education Allowances
- Relocation Allowances
- Spouse Assistance
 Other Benefits, as per the company policy
The above components are the basic components but the compensation programme
varies from organization to organization.

13.10 SUMMARY
IHRM is crucial for ensuring competitiveness and productivity for those firms which
enter into international business operations. IHRM helps internationally engaged firms
including MNEs to recruit, select, compensate, evaluate and retain the diverse workforce
for managing international business. The organization must be able to attract and retain
right people who can perform at higher levels and are loyal and committed to the
organizational objectives. The four C’s for effective management of human resources
are: commitment, competence, congruence and cost-effectiveness.
IHRM includes human resource planning, staffing, performance management, training
and development, compensation, and labour relations, etc. An international firm may
have three types of employees: host-country national (HCNs), parent country nationals
(PCNs), and third country nationals (TCNs). 237
International Business Culture means the whole set of social norms and responses that condition a population’s
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behaviour and includes beliefs, values, attitudes and behaviours. Elements of cross-
cultural diversity include spoken and unspoken language. As for managing diversity is
concerned, an international organization may have any of the four orientations:
ethnocentric, polycentric, region-centric, and geocentric. Managing cultural, individual
and workforce diversity are important issues in international management. In the matter
of recruitment and staffing, an international firm may be guided by the above four
approaches.
Recruitment of expatriate staff, particularly managers has become quite a common
practice these days, as several advantages may ensue to the recruiting company.
Expatriate failures can be minimized or managed through proper preparation, i.e., training
and development. The proper preparation may include cultural awareness, training
programmes, preliminary visits, and language training.
The performance appraisal may be based on objective or/and subjective methods.
Systematic tools have been developed to appraise the performance.
While deciding upon the compensation policy, objectives of the employer and employee
should be kept in mind. Compensation of work force, including managers, may be
based on ‘Market Rates’ or ‘Balance Sheet’ approaches. The components of
compensation package may include basic salary and several other allowances.

13.11 KEY WORDS

IHRM : International HRM refers to all the activities undertaken
by an organisation to effectively utilize its human resources
working at different locations all over the world.
Expatriate : An employee who is working in a country other than the
one he is a citizen of, in short, in a foreign country.
The Four C’s Model : A model of HRM that emphasizes on 4 C’s: i)
Commitment; ii) Competence; iii) Congruence; and iv)
Cost-effectiveness.
Cross-cultural : Diversity that arises because of several cultural factors,
Diversity primarily arising from spoken language and unspoken
language.
Ethnocentric Approach : A staffing pattern where key positions in foreign operations
are held by parent country nationals.
Polycentric Approach : A staffing pattern where foreign operations are managed
by nationals of host country.
Geocentric Approach : A staffing pattern where foreign operations are managed
by nationals of any country, i.e., who are most suitable for
the job. National identity does not matter.
Region-centric : A staffing pattern where foreign operations are managed
by nationals of a particular region.

238 Performance Appraisal : A formal assessment of employees’ job performance.

Objective Performance: Performance appraisal based on objective and quantifiable International Human
Resource Management
appraisal measures like output, sales volume, etc.
Judgmental : Performance appraisal is based on subjective measures.
Performance The judgemental appraisal tools include: Check List,
Graphic Rating Scales, and Behaviourally-Anchored
Scales.

13.12 SELF-ASSESSMENT QUESTIONS

1) What are the main similarities and differences between domestic and international
HRM?
2) Why is a greater degree of involvement of employees’ personal lives inevitable in
many international HRM activities?
3) Why is culture important in the context of international business? How does a firm
manage issues arising from cultural diversity?
4) Outline the main characteristics of the ethnocentric, polycentric, region-centric
and geocentric approaches to international staffing.
5) What criteria multinationals should use when selecting expatriates? What factors
may influence these criteria?
6) Discuss the major challenges associated with appraisal of expatriate managerial
performance.
7) Why is expatriate pre-departure training essential? Outline the key elements of a
pre-departure training programme for an employee who is going to be located in
Brazil.
8) Why do some multinationals appear reluctant to provide basic pre-departure
training?
9) What should be the main objectives of a multinational firm with regard to its
compensation policies?
10) What are the key differences in salary compensations for PCNs and TCNs? Do
these differences matter?

13.13 REFERENCES/FURTHER READINGS

• Shad Morris, James Oldroyd & Ram Singh (2021): International Business, Wiley
India Pvt. Ltd.
• Charles W. L. Hill, G. Tomas M. Hult & Rohit Mehtani (2018): International
Business: Competing in the Global Marketplace (SIE), 11th Edition.
• Ibraiz Tarique, Dennis R. Briscoe, Randall S. Schuler: International Human
Resource Management: Policies and Practices for Multinational Enterprises (Global
HRM), 5th Edition.
• Betty Jane Punnett (2012): International Perspectives on Organizational Behaviour
and Human Resource Management, 3rd Edition. 239
International Business • Dowling Peter J., Denice E. Welch and Randall S. Schuler (2001). International
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Human Resource Management, Third Ed., South Western College Publishing.
• Thakur Manab, Gene E. Burton and B. N. Srivastava (1997). International
Management. Tata McGraw Hill Publishing Co. Ltd.

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