As the organizations continue to grow globally at a rapid pace, nations are increasingly permeable to the international exchange of knowledge, capital, goods and services, giving rise to more complexities and uncertainties. Intensified rate of globalization is evident from the changing trends in foreign direct investment which is increasingly indicating a shift toward developing economies like China and India. Growing internationalization is breaking down organizational and geographical boundaries with business processes and structures undergoing complete transformation. This has brought the role of human resources to the fore as the competitiveness of these organizations is contingent on their ability to adapt and design human resource strategies that can sustain global nuances and dynamics. International human resource management (IHRM) from an organization’s perspective is defined as the effective management of human resources in global markets for multinational companies(MNCs), in order to gain a key source of competitive advantage and to be globally successful. IHRM has always been based on the study of organizations called multinational corporations.
A multinational corporation (MNC) is defined as an organization that has its operations expanded to more than one country and has centralized business management in one home country. MNCs go through various stages in the internationalization process and MNCs may take any of the four forms: (1) they may adopt international strategy in which the home country develops and builds on the parent companies’ technology or research and development expertise; (2) they could also adopt decentralized or multi domestic strategy in which subsidiaries have the freedom to follow local practices; (3) the third form is the global strategy, in which, subsidiaries replicate the parent company’s practices where the control is centralized; (4) and finally in the transnational strategy, both the parent and host country follow global standards and practices . During the progression of an organization through the above stages, the role of IHRM varies based on the stage of internationalization. For example, in decentralized MNCs, IHRM is more involved in managing and developing informal methods by equipping human resources and leadership to manage the global challenges and changes.
MNCs need to manage their workforce globally and develop strategies considering the complexities they might face in recruiting, deploying and managing employees in their subsidiaries. Employees employed in overseas subsidiaries with little or no supervision from the home country are known as Host Country Nationals (HCN); those staffed overseas and located at the headquarters are known as Expatriates or Parent Country Nationals (PCN); and the Third Country Nationals (TCN) neither belong to the host country nor to the home country. Strategic perspectives of MNCs to choose between a parent company national and host country national has an impact on IHRM practices such as staffing. MNCs may choose to adopt ethnocentric, polycentric or geocentric staffing models. In Ethnocentric MNC, control lies with the parent company and they deploy a PCN for international assignments. The focus of IHRM remains sourcing and retention as the turnover rate of expatriates is usually very high.
In Polycentric MNC, subsidiaries are managed locally and they mostly appoint a host county national. Geocentric organizations follow global practices and approach a TCN where IHRM has the opportunity to recruit and select the best talent as geocentrics fill their roles from the global talent pool. The choice of a resource for international assignments is influenced by factors such as skills and expertise of a PCN especially in roles involving research and development, availability of resources in home country, and high uncertainty avoidance approach. While traditionally expatriates have been the most preferred international assignee approach, lately, cost implications and decline in willingness to accept international assignments have compelled MNCs to consider alternative methods to expatriations.
MNCs are exploring alternatives to expatriation which are increasingly gaining acceptance. These are inpatriate, short term, commuter, self-initiated transfers and frequent international business travelers. Inpatriate transfer involves the movement of an employee from a subsidiary location to the headquarters. The employee is expected to understand the working of the parent company while adding to the PCNs international perspective. Other alternative, short term international assignments, last for up to twelve months and are shorter than the expatriate assignment. The key objectives of short-term assignments are career development by providing international exposure, and skills transfer such as technological and project consulting. In such scenario, IHRM’s implication is on staffing as prospective candidates for such assignments are usually self-identified or known to the selectors and it may carry the risk of inadequate ground work on candidate screening. In commuter assignments, employees frequently travel between the host and the home country on a weekly or biweekly basis, and they do not involve family relocation. Employees on such assignments, experience travel fatigue and challenges to work life balance. Role of IHRM includes but is not limited to addressing issues such as tax management and preparing employees to deal with cultural differences for rapid adaptation to the host nation’s culture.
In self-initiated expatriation, an employee self identifies an opportunity and moves to the other country for work, which could be for specific time period or for good. Here, professional IHRM practices can help an employee in faster cultural adjustment, assist in family education and training, advice on children’s school and education, accommodation, and visa assistance for the family. Frequent international business travelers have international travel written in to their job description. These employees usually travel to implement a project, troubleshoot technical issues or develop cross border alliances. Such visits are likely to be higher if an employee is supporting businesses in emerging economies like Russia, India and China. Positives associated to such assignments are international exposure, personal development and enhancement in lifestyle. Some of the areas that need IHRM focus are safety concerns, especially related to the travel, harassment and discrimination of female employees and challenging work demands. Increased need and value of global human resources is on a rise, where managing human resource deployment through international assignments carries implications for the multinational corporations and international human resource managers.
The need to attract and retain experienced and capable expatriates is becoming increasingly critical to an organization’s success, and IHRM plays a vital role in making this successful. Traditionally IHRM’s role was concerned with expatriate management, however, today, it is responsible for cross cultural management, development of global policies and practices such as performance management, reward management, compensation design, and management of the careers of international assignees. While such policies and practices may be developed at global levels there is always freedom allowed to modify or adopt practices basis local context provided they are consistent with global policy. Depending on the stance of a firm in terms of the degree of control on subsidiary, remit of IHRM activities varies and becomes challenging. Some of the challenges faced by IHRM in managing a global work force are related to career and adaptation issues of an expatriate like cultural adaptation, dual career, international compensation design, and family member’s adjustment to the foreign country. Amongst the above issues, one that is the most strenuous and complex is that of managing and designing international remuneration package for an international assignee. Besides compensation design, the other issue that is contemporary and gaining momentum as a cause of debate for scholars and practitioners is of women representation in international assignments. Both these aspects are sensitive, complex and heavily dependent on the political, social and regulatory systems compounded with cultural difference in different operating countries. These make this task daunting for the functions of IHRM. Next section discusses some of the key challenges and salient issues inherent in the international compensation design for expatriates and short term assignees.
One of the biggest motivators for the globalization of business for a firm is the labor cost advantage, and an international Human Resources manager that could leverage to create effective compensation packages for the expatriates. However, it has been observed that designing an effective compensation package carries complexities and turns out to be a daunting task for international HR managers as the compensation of expatriates varies across the labor markets of various nationalities. And this can result in the rise of intense internal conflicts and perception of injustice amongst employees, these wide variations amongst the home country and host country nationals create a dilemma and concern for the HR managers. For instance, in Australia unions play an important role in determining wages through negotiations with the government; and in Hong Kong the wage rates are determined by free market. A closer look at the fundamental issues in designing expatriate package is that the organization’s have a dual or conflict of goals in terms of escalating costs and the package being competitive and motivating enough for the employee. Overall, it is a challenging issue for the organization’s as despite ensuring that the package is lucrative and effective enough it is hard to gain equivalent returns on the performance of for international assignees.
Some of the core elements that add to the complexity and should be taken in to account in the process of designing remuneration package of an expatriate. Firstly, the compensation package must be attractive and competitive enough to retain and motivate an employee and must provide an incentive for relocation. From an organization’s point of view, expatriation is commonly perceived as an expensive way to manage international assignments, hence, financial pressure to reduce such costs may lead to the alteration of the remuneration design resulting in employee dissatisfaction and additional issues in staffing. It must provide equivalence in the employee’s economic status pre and post relocation which is dependent on the local context and the environment of the subsidiary. It also must be in alignment with the organizational and business strategy and goals, to facilitate the above expectation performance by the expatriate. Finally, the compensation must take into consideration the impact of repatriation on the career and compensation design at the end of the international assignment. Depending on the organization’s strategy and the geographies of operations, MNCs design and develop international remuneration for their employees on varied principles, some of which are discussed in next section.
Organization’s adopt various approaches to design the compensation which are the balance sheet approach, the destination based approach and the home country approach. The balance sheet or home based approach is one of the most universal and oldest approaches used to design expatriate compensation. This method is mostly used in the United States with almost 85% of organization’s adopting it. It has also been observed that this has also been increasingly adopted in European and Japanese organization’s. It is built on the home country’s salary of an employee with added non-monetary benefits and some allowances like housing allowance, expatriate allowance, car and education allowance or some additional incentives. In case of deployment of an expatriate to a country where there could be hardships arising due to some unusual living or cultural conditions, organization may include “hardship allowance” in the compensation.
Some organization’s may adopt the host country approach, in which, an assignee is treated as an employee of the host country and is paid a salary, benefits and other pay based incentives according to the polices and regulations of the assigned country. This approach helps in addressing the pay inequality issues with respect to the colleagues in the home country colleagues and is the most cost effective solution for the organization’s. However, the success of this method is contingent on some factors, like unwillingness to forego luxurious allowances and incentives in the home country and apprehensions about repercussions on career pathing post their return. To make it effective IHRM must share post return career pathing clarity and possibilities, it must maintain the selection procedure transparency and disseminate a clear message that such transfers could translate in to a great career opportunity and may be beneficial as a career move. Some of the organization’s who have implemented this approach and have seen the progressive results from cost effectiveness perspective are AT&T and Xerox. The success of this method lies in slow, selective, constant and consistent communication about the process with the concerned parties.
Home country approach is based on the approach of inclusion and equity. Expatriates from different countries are paid as if they all originated from the same headquarters, regardless of the country of origin, and they are paid the required benefits. While this approach brings in equity between employees across geographies, organization’s may find it challenging to continue with this approach once expatriates gain experience. For example, young expatriates find international assignments a wise career move to gain experience and the package is lucrative. As they gain experience and grow across ladders, they may begin to negotiate the package and failure to meet their demands, may result in losing them to the competitors. All of the above discussed approaches are specific to the expatriate compensation design, and the next section discusses compensation design aspects related to alternatives to expatriates such as short term assignments and frequent international business travelers.
In case of short-term assignments, the salary payment responsibility rests with the home company and the compensation benefits are in line with the travel policy of the organization. Other components that may be offered as allowances are per diem allowances. These are tax free daily allowance and living cost allowances in cases where the home country’s base pay is very low in comparison to the host country. In situations where the job or project a person is involved in is very stressful and difficult or if the place of stay is tough to stay, hardship allowance could also be included as part of the compensation. The most common advantage of the short-term assignment is that it is comparatively easy to send an employee due to the ease of compensation design involved. It does not include complex salary designs and calculations, and contracts between the parties are not draw upon. It is cheaper to deploy an employee on a short term assignment as compared to expatriation as it does not include most of the compensation components like club memberships, or allowances. This is perhaps the reason why many organization’s are opting for short term assignees.
Intricacies in design of the international compensation package for expatriates are multiple and adopting standard practices could result in administrative challenges and ambiguity. Lack of information related to the industry segmentation, international job pricing leaves HR managers with limited inputs to effectively design a compensation package. As compared to a small size organization, it is easier for the global mind-set organization’s to establish synchronization and acceptability of practices across geographies. In case of small sized forms, due to the lack of complete information around the international compensation design, managers are expatriated with some verbal agreement and ambiguous assurances around the compensation design. This has always turned out to be expensive for an organization from the cost implication and impact on the motivation levels of an employee as they and their families may find it frustrating to come to terms with the reality once they start living in the country.
Factors that have been found to be heavily contributing in the compensation variations are related to the local regulations, laws, cultural diversity, varied benefits and incentives structure, role of labor unions and government, level of economic development of the country. MNCs and international human resources managers need to consider the most effective way to assemble an appropriate expatriate package by developing a strong linkage between the international HR policies and the strategic goal of the organization, ensuring expatriates stay motivated while staying cognizant about the cost implications. In all, global mobility and strategical approach to leverage global resources is gaining prominence as the key competitive advantage for MNCs and has resulted in growing need for international managers. While there has been an increased participation of women in global labor market, there are striking disparities between men and women expatriates. With global assignments and exposure becoming essential for the growth in an organization in the corporate ladder, under representation of women in international assignments has become the focus of attention in last 15 years.
Although women represent half of the population of any country and actively participate in the labor force, yet 85 to 95 percent of international managers are men and only 2.2% women are fortune 500 CEOs. Overt yet impermeable barriers, also known as corporate glass ceilings not only act as barriers to women’s career progression, it also deprives organization’s to utilize leverage the benefits of diversity. Explanations of women under representation in international assignments include gender stereotyping, societal barriers, perceived issues related to their capability and time management. Self-induced barriers include low career development focus, pressure to perform better than their male counterparts, lack of guidance and networking relationships, sexual and work place harassment issues. Career path of women is linked to their life stages, it is Kaleidoscope, circular or spiral, begins with the career focus in early working life, followed by a decrease due to mid-career demands like child rearing and after that exists the freedom to explore attractive career opportunities. Hence, women are rarely able to take up expatriate assignments, women’s career path and options differ from men by virtue of the compromise, not because of their choice.
While the MNCs may offer career progression opportunities to women in home country, in case of international assignments it is extended to few. Corporate barriers to the international career of women still exist and are stronger in some of the European countries. These barriers could be in the form of recruitment and selection, formal or informal policies and practices, gender stereotyping. As compared to men, women face more issues related to career pathing and re-entry issues at the time of return to their home country. Selection criteria adopted by MNCs depict a split between the theoretical approaches and the practically adopted practices. Broadly, selection methods adopted are of two variation, open which is a formal and structured system and a closed system which is informal and influenced by the preferences of an individual selector. There could be bias in the design of the organizational structure which could involve typecasting women for senior level or managerial roles and could be due to the perception that women may not been keen to take up such or similar responsibilities due to family care obligations. For example, the cultural prejudice of North American managers of women expatriates may not being as efficient as men expatriates, lead to the exclusion of women from international assignments.
Broadly dual career couples have been viewed as a problematic area for both men and women, as dual couple career has the higher potential to act as a limiting factor to a woman’s international career. This could be based on the traditional social norm and perception about being homemaker. Women have been observed to experience high stress and challenges arising out of the pressure to perform well in both domains, take care of her family besides perform well at work. Additionally, spouse of a woman expatriate may find the role transition in terms of being the secondary bread winner for the family as unacceptable and also securing a satisfactory assignment in foreign country could be a challenging task. Notion of challenges related to the issues with sending women employees for international assignments if they are in dual career couple has led the organization’s to choose this as a reason for preferring men for such assignments as compared to women.
While studies indicates that unconscious gender bias is inherent in MNC culture and their policies, women also to some extent play inadequate role in breaking the glass ceiling. Many female employees display a passive approach towards their career development, demonstrate low self-confidence, resulting in their exclusion from expatriate assignments. Similarity attraction theory suggests that the top level leadership which is usually dominated heavily by men with heavy tendency to promote people like them, women constantly need to adapt themselves behaviorally and fight these prejudices. As per the Executive women research 2002 survey, corporate culture was cited as the number one reason for women to leave their job. Furthermore, as per the survey conducted for women who successfully broke the glass ceiling, their ability to adapt and develop a working style comfortable to their male managers helped them succeed. This consequently signifies that the ethical argument that women need not behaviorally adapt themselves to gain equality for international assignments may not hold true. Increasing awareness of the underlying issues for under representation of women as a part of the overall talent pool, have led to the need to provide practical solutions that must be implemented by the multinational organization’s and the International HR managers.
IHRM practitioners need to review the pre-assignment, on assignment and post assignment strategies to strengthen expatriate gender diversity. A starting point is to eliminate any subtle or evident gender bias behavior or practices in the selection process by training the selectors on diversity and cross-cultural inclusion benefits. Perceptions such as dual career issues are an impediment to a female manager’s performance shouldn’t be the reason for selectors to prelude female candidate. Assessment process must be transparent. Pre-departure training to the assignee and family plays a pivotal role in expatriate adjustment. IHRM also needs to develop strong social networking platforms beneficial for women to develop stronger understanding of international work environment. Since women may find it difficult to fit themselves in a male dominated network themselves, organization support is vital.
Continuous training and mentoring are crucial to the performance of a female expatriate, and IHRM must develop strong reward programmes to encourage female participants in mentoring programme. There are not enough women in senior international managerial positions yet to act as mentors for other women. Many returning expatriates quit their jobs as there are no opportunities to use their expertise and overseas learnings which leads to dissatisfaction. Policies covering harassment and discrimination issues for female employees on an expatriate assignment must be given serious attention and must be incorporated in education for management programme and part of the policies. Furthermore, building the diversity and inclusion cultures can be attained through constant culture and diversity based trainings, career pathing programmes, workshops, mentoring programmes. IHRM has a significant role to play in developing equal employment opportunity culture by attracting and retaining talent, developing desired skills, and providing requisite support to help women succeed in international assignments.
In conclusion, increasing demand of international assignees carries with it the complex dynamics of strategic deployment of global human resources. International human resource management has multiple dimensions which covers human resource functions in domestic environment and also constitutes global aspect of knowledge transfer, diversity management, sustainability management of strategic business partners like subsidiaries. Growing recognition of diversity and inclusion, multi-generational workforce, work casualization and influx of women employees in corporate workforce requirements has resulted in talent shortage. Hence, IHRM is witnessing a change in global economic context in terms of the global talent war. Such sweeping changes will compel IHRM function to develop innovative solutions in order to attract, retain and integrate a globally diverse workforce.