Global Compensation Practices

For many companies, maintaining a domestic compensation program that supports the strategic goals of the organization and meets the needs of employees is a difficult challenge. This challenge is intensified when a similar program must be designed to operate in multiple countries with different cultures. For organizations competing in a global marketplace, managing compensation requires a through understanding of the taxation of compensation and benefits, differing state social systems, differences in living standards and employee values and expectations.

Some of the most challenging questions in compensation practices are following:

  1. How does a company pay expatriates from difference home countries brought together to work on a project?
  2. What about compensation packages for same country nationals sent to different regions of the world?

Traditional compensation systems for expatriates, such as the balance sheet approach and going  rate approach, may not be adequate for the company or expatriate in facilitating an case of transfer. Global enterprises require global compensation systems that allow the organization to maintain the flexibility and ease of transfer between countries and regions while providing employees a just wage. A compensation system must be designed to work regardless of where the expatriate is sent on assignment. To some degree, this requires rethinking the traditional focus on location and national culture in determining expatriate compensation.

Traditional Systems of Global Compensation

Of the traditional global compensation schemes, the balance sheet method is most commonly used. More than 85% of US companies use some variation of this method to compensate their expatriates. The objective of the balance sheet method is to keep the expatriate economically whole or to ensure that the expatriate doesn’t financially suffer or come out ahead as a result of the international assignment.… Read the rest

Syndicated Euro Credits

History of Syndicated Euro Credits

Syndicated Euro Credits are in existence since the late 1960s. The first syndicate was organized by Bankers Trust in an effort to arrange a large credit for Austria. During the early seventies, Euromarkets saw the demand for Euro credits increasing from non-traditional and hitherto untested borrowers. The period after first oil crisis was marked by a boom phase. To cope with the increasing demand for funds, lenders expanded their business without undertaking due credit appraisal of their clients or the countries thus financed. Further, the European banks had short-term deposits while bulk of borrowers required long-term deposits. These landings were at fixed rates thus exposing these banks to interest rate risks. The banks evolved the concept of lending funds for medium longterm i.e. 7-15 years on a variable interest rate basis linked to the  Interbank Rate (LIBOR). Revision of rates would take place every 3-6 months. These loans are extended in currencies denominated by US Dollar, Yen and Euro.  Amortization of the loan would be by way of half-yearly installments on completion of 2-3 years of grace period. At present, this instrument on a variable interest rate basis has emerged as one of the most notable and popular financing instruments in the international financial markets. Syndicated Credit remains as the simplest way for different types of borrowers to raise forex finance.

Types of Syndicated Euro Credits

Syndicated Euro Credits are classified into two types – club loans and syndicated loans. The club loan is a private arrangement between lending bank and a borrower. … Read the rest

Issues of International Technology Transfers

International technology transfer is the process by which a technology, expertise, know how or facilities developed by one business organization (MNC in the case of international business) is transferred to another business organization. There are many issues associated with the international technology transfer. The most important international technology transfer issues are; ways of technology acquisition, choice of technology, terms of technology transfer, and creating local capability.

Modes of Foreign Technology Acquisition

One of the major issues in technology transfer relates to the mode of acquisition. Developing new technology may conjure up visions of scientists and product developers working in R&D laboratories. In reality, new technology comes from many different sources, including suppliers, manufactures, users, other industries, universities, government, and MNCs . While every source needs to be explored, each firm has specific sources for most of the new technologies. For example, because of the limited size of most farming operations, innovations in farming mainly come from manufacturers, suppliers, and government agencies. In many industries, however, the primary sources of new technologies are the organizations that use the technology. Broadly the acquisition routes are three:

  1. Internal Technology Acquisition: This is result of technology development efforts that are initiated and controlled by the firm itself. Internal acquisition requires the existence of a technology capability in the company. This capability could vary from one expert who understands the technology application well enough to manage a project conducted by an outside research and development (R&D) group to full blown R&D department. Internal technology acquisition options have the advantages that any innovation becomes the exclusive property of the firm.
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Technology Transfer in International Business

Technology is a new variable in the equation of economic relations. Traditional theories of international business assumes that all nations have equal access to technology and, therefore, that there is no need to transfer technology from one county to another. Recent research findings have invalidated this assumption. In addition, they point to  technology differences as primary cause of international inequalities in economic achievements. To reduce the inequalities, technology capabilities of the backward nations must be strengthened. The quickest way to do so is to transfer technology from the developed to the developing nations.

Technology is any device or process used for productive purposes. In its broadest sense, it is the sum of the ways in which a given group provides itself with good and services, the group being a nation, an industry, or a single firm. There is a fundamental characteristic of technology that demands clear recognition. Q unites unlike commodities and capital, technology is not depleted or its supply diminished when it is transferred or used. It is usable but not consumable. Once created, technology is inexhaustible until it becomes obsolete. Therefore; export of technology need not cause the source country to reduce its use of the technology. Indirectly, a decline may result if the recipient country creates an industry large to change the global supply and demand equilibrium of the goods produced by the technology involved. For most technology sought by the developing nations this is not the case.

Contrary to the classical assumption, technology is not a free good but a valuable property, nor is it evenly distributed around the globe.… Read the rest

Multinational Corporations and Home Country Relations

Public attitudes toward Multinational Corporations (MNCs) are biased by a nation’s position as a home or host country. Historically, home countries have perceived MNC activities as desirable extensions of their domestic business systems. Conversely host countries have viewed MNCs as agents of foreign influenced and exploitation. This historic dichotomy is now shot through with conflicting perceptions of the MNCs. Different segments of society, such as labor, investors, consumers, traders, and farmers, see their interests affected in different ways. As a result, a multi-sided controversy about the societal merits and demerits of MNCs has grown in both host and home countries.

The most aggressive challenge to the traditionally supportive home country policies towards MNCs has come from organized labor.

Labor Conflict

Multi-nationalization has created for management new mobility and flexibility that have greatly enhanced its bargaining power vis-à-vis labor. Since the sourcing base of the multinational firm knows no national boundaries – it can draw anywhere in the world the capital, technology, raw materials, ideas, and labor that it needs – management is not dependent on any one country’s labor supply or labor union’s policies, but can choose from among a number of potential hosts for any particular operation. In the short run, this new managerial latitude may be limited by the relative immobility of investment in given facilities – the sunk cost constraint – but in the long run nearly all operations can be transferred from one location to another. More significantly, all new investment, whether for replacement or for replacement or for expansion of plant capacity, is internationally footloose and will seek domicile wherever the comparative advantages happen to lie.… Read the rest

Conflicts Between Multinational Corporations and Host Countries

Although the Multinational Corporations (MNCs) has no power over the host government, if may have considerable power under that government. By being able to influence certain factors, the MNC has the opportunity to help or harm national economics; in this sense, it may be said to have power against host governments. Critics of the MNC perceive these powers as potential perils to host societies. The strategic aspects of a host country’s national policy that are subject to the influence of the MNC include:

1. Planning and Direction of Industrial Growth

Host nations have viewed with concern the tendencies of many MNCs to centralize strategic decisions in their headquarters. For the host governments this signifies loss of control over industrial strategy to the foreign-based MNC. The MNCs allegiances are geocentric; their overall objectives are growth and profits globally rather than in the host economy. These objectives require efficiency in the functional areas of management – production, marketing, finance, and so on. Many MNCs have sought greater efficiency through centralization, with headquarters domination of affiliates as the unavoidable result.

  1. Risks of Excessive Centralization: Empirical evidence indicates that a high degree of centralization tends to lead to inflexibility of parent company polices. Decisions are made in headquarters regarding the product mix for each affiliate, extent of inter-affiliate sales of semi finished and finished products, export pricing, inter-affiliate sales, input procurement, packaging, long-rang planning, research and development, and particularly, financial management. When the authority over these vital business decisions is located beyond their jurisdictions, local authorities counter with restrictions on affiliate activities.
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