3. Choosing an Approach to IHRM
• Corporate international strategy
• Political and legal concerns
• Level of development in foreign locations
• Technology and the nature of the product
• Organizational life cycle
• Cultural differences
4. Ethnocentric
• Key positions are filled with home country
nationals
• It is common for multinational firms in the
early stages of internationalization
5. Why Ethnocentric
• Lack of qualified host country managers
• Desire to maintain a unified corporate culture
and tight control,
• Desire to transfer quickly the parent firms core
competencies to foreign subsidiaries
6. Disadvantages of using ethnocentric
approach
• Conflicts with host country nationals as all top
positions are held by foreigners
• Cultural differences may results to some
difficultness among expatriates hence failure
• It is very expensive to pay an expatriate
• It limits the promotion opportunities of HCNs,
which may lead to reduced productivity and
increased turnover among that group
8. Advantages of polycentric
• Employing HCNs eliminates language barriers;
avoids the adjustment problems of expatriate
• Less expensive as compared to having an
expatriate
• Employment of HCNs allows a multinational
company to take a lower profile in sensitive
political situations.
• This approach gives continuity to the
management of foreign subsidiaries and avoids
the turnover of key managers that.
10. Disadvantages of polycentric
• Host country managers may find it difficult to
cope the parent company’s culture
• Parent company nationals do not get exposure
and experience to foreign jobs. As a result
their career growth may remain restricted to
their own country
• There may be lack of understanding between
parent firm and its foreign subsidiaries.
11. Geocentric Approach
• Nationality is no longer important in hiring
employees in MNCs subsidiaries
• Under this approach, the best people are
employed in all key positions throughout the
organization regardless of their nationality
12. Advantages of geocentric
• It enables an MNC to develop an international
executive team which assists in developing a
global perspective and an internal pool of
labor for deployment throughout the global
organization.
• It overcomes the ‘federation’ drawback of the
polycentric approach.
• This approach supports cooperation and
resource sharing across units.
13. Disadvantages of geocentric
• Expensive as it may use international
expatriates
• Strict immigration polices are likely to affect
the approach
• Failure to build a strong organization culture
similar to that at home country company
14. Regiocentric Approach
• Like the geocentric approach, it utilizes a
wider pool of managers but in a limited way
• Staff may move outside their home countries
but only within the particular geographic
region
• Regional managers may not be promoted to
headquarters positions but enjoy a degree of
regional autonomy in decision making.
15. Advantages of using a regiocentric
• There are better interaction between
executives from parent country and those
from host countries.
• It facilitates shift from a purely ethnocentric
approach to geocentric approach.
• The approach reflects some sensitive to local
conditions
16. Disadvantages in a regiocentric
• It can produce federalism at a regional rather
than a country basis and constrain the MNE
from developing a more global perspective
• Career prospects at regional level are
hampered as no chances of managers to be
transferred to HQ.
17. Who is an expatriate?
• Is an employee within a company who
undertake international assignments and that
are of the same nationality as where the MNC
is headquartered
• Is an employee who has left his native country
and is working and temporary residing in a
foreign country
18. Why expatriate?
• The decision has to be made whether to use
expatriates or home country nationals
• Some of the key issues that may compel a
MNCs to use expatriates includes; the absence
of skilled personnel in host country, maintain
the company culture, to have direct control
etc.
19. Criteria for an Expatriate selection
• Job knowledge and motivation
• Relation skills
• Flexibility / Adaptability
• Extra – cultural Openness
• Family Situation
• Communication skills
• Gender
• Age
• Ethnicity
20. Procedures for selecting expatriates
• 1st step; to form a team of at least three
members
• 2nd step; members define the purpose of
foreign assignment and set selection criteria
based on cultural aspects
• 3rd step; review of candidate pool
• 4th step; use of standardized test and feedback
instruments to get the required number
21. Procedures for selecting expatriates
• 5th step; interview of few qualified candidates
and their spouse (if any) and prepare for
training and preparation for journey
22. Methods for selecting successful
expatriates
• Interviews (executives and psychologists)
• Assessment centers (exercises)
• Tests (language and special tests
• Role of family
23. International staff compensation
• One of the most difficult problems in
managing compensation in multinationals is
establishing a consistent compensation
measure between countries that builds
credibility and is fair and equitable
• This is due to differences in living costs among
countries
24. Key components of an international
compensation program for expatriates
• Base salary, for an expert includes foreign
service premium, cost-of-living allowance,
housing allowance as well as the basis for in-
service benefits and pension contributions,
spouse allowance, children education
allowance, rellocation allowance
25. Key components of an international
compensation program for expatriates
• Benefits; Expatriate ‘benefits’ includes health
care, pension plans/social security, life
insurance, child allowances and profit
sharing/stock option plans
26. Approaches to international compensation
of expatriates
• There are two main options in the area of
international compensation – the Going Rate
Approach (also referred to as the Market Rate
Approach) and the Balance Sheet Approach
(sometimes known as the Build-up Approach)
27. The going rate approach
• With this approach, the base salary for the
international transfer is linked to the salary
structure in the host country
28. Characteristics of going rate approach
• Based on local market rates
• Relies on survey comparisons among:
- 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 low-pay countries
29. Advantages of going rate approach
• Equality with local nationals
• Simplicity
• Identification with host country
• Equity among different nationalities
30. Disadvantages of going rate approach
• Variation between assignments for same
employee
• Variation between expatriates of same
nationality in different countries
31. The balance sheet approach
• It involves maintenance of home-country
living standard plus a financial inducement to
make the package attractive.
• This approach links the base salary for
expatriates to the salary structure of the
relevant home country
• E.g. a Tanzanian who is working at Bakheresa
subsidiary in Somalia will be paid according to
home salary rates
32. Characteristics of balance sheet
• Basic objective is 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
• Financial incentives (expatriate/hardship
premium) added to make the package attractive
• Most common system in usage by multinational
firms
33. Categories of outlays incorporated in the
Balance Sheet Approach
• Goods and services – home-country outlays for
items such as food, personal care, clothing,
• Household furnishings, recreation, transportation
and medical care.
• Housing – the major costs associated with
housing in the host country.
• Income taxes – parent-country and host-country
income taxes.
• Reserve – contributions to savings, payments for
benefits, pension contributions, investments,
education expenses, social security taxes, etc.
34. Advantages of the balance sheet
approach
• Equity
- Between assignments
- Between expatriates of the same nationality
• Facilitates expatriate re-entry
• Easy to communicate to employees
35. Disadvantages of the balance sheet
approach
• Can result in great disparities
- Between expatriates of different nationalities
- Between expatriates and local nationals
• Can be quite complex to administer
36. Repatriation
• Repatriation refers to the process of returning
back to the parent company and country from
the foreign assignment
• Repatriation is quite often a bitter sweet
experience for the returning employee
• Repatriates may come back either due to
failure adjusting to the foreign culture or after
the successful completion of the overseas
assignment
37. Necessary conditions for successful
repatriation
• Make an agreement guaranteeing that the
overseas assignment will be for a specific
period and on return the employee will be
given mutually acceptable job
• Assign the sponsor that will look after the
interests of the employee in his/her absence
• Provide career counseling to ensure that the
employee’s job assignments meet his/her
need upon return
38. Necessary conditions for successful
repatriation
• Keep in touch with the employee
• Offer financial and other support for finding
accommodation and children’s education.
• Organize re-orientation programme to
facilitate adjustment back into the home
culture
39. Challenges dealing with international
staff.
• Cultural issues
• Expenses
• Failure of experts
• Requires more attentions
• Different taxations policies and laws etc.
