Author: indiafreenotes

Cross Cultural Training refers to the training given to employees related to the cultural differences between nations, the awareness of which helps in running smooth business across the nations. Cross cultural training is essential for doing business in present scenario involving multiple nations and cultures. One needs in depth understanding of the culture of the country he/she is dealing with.

Cross-cultural training contributes in increasing ability of employees to understand culture of others, values and ethos of another culture. It develops the interest to understand employees own background and cultural heritage. They should feel good about own culture and similar way the employees should accept and appreciate culture of other employees.

Importance

Cross cultural trainings are very important where there is a need to work across various nations and cultures. It helps employees to be better prepared for the travel and gives context which will help work efficiently in the new country and culture. It also increases the knowledge and awareness of the individual and helps make better decisions. For companies where working across different nations is very important, cross cultural training should be a part of employee programs.

• Collaboration for working on one project with teams from other countries of different cultures.
• Working in different culture countries.
• Working of divisions or departments of the company in different countries.
• Customers located in different countries of different cultures.
• Suppliers from other countries for outsource activities.
• When partners and alliances with parties from diversified cultures.

Types:

Training for Dealing Cross-Cultural Challenges:

Diversity of cultures is creating a lot of challenges and opportunities. The difficult situation is to deal with the challenges and to be become more effective in job performance. The training imparted is with the objective to deal the challenges without any difficulty or less difficulty.

In this type of training the methods, techniques, strategies and practices used in different countries workplace are highlighted. The workforce is made aware regarding those things and in turn can be applied in future working. It explains the challenges arose due to cultural diversity, suggests ways to deal with such challenges and provides possible solution to those challenges so that the effectiveness of cross- cultural teams can be improved.

This would be in a position to create awareness, develop trust and confidence so that the team-spirit is developed among them. This ultimate would contribute to cooperation, smooth working and effective communication.

Training for Diversified Workforce:

Due to globalisation in business activities, a lot of job opportunities are made available across the world. The multinational companies during their business have employed talented employees from different countries. The workforce due to this has become highly diversified. The management faces an uphill task to deal with this diversified manpower.

For that purpose the management is provided training to develop awareness regarding cultural elements, values and behaviour. Human resource management team deals with the people and this training is especially useful for them. With proper knowledge of employees and their cultural background the HR manager finds himself in the position to deal with people from various cultural backgrounds.

This helps a lot in understanding people and contributes in maintaining good relationship at workplace. The peaceful working definitely improves the quantity and quality of the performance.

Training on Specific Country:

This depends on the situation of the business. When a company is having business in a particular country, there is need to know the culture of that country only. Training should be conducted to create awareness of culture of that country only. The training should be provided regarding geographical location, climate, culture, economy, behaviour of people of that countries, consumption pattern, social and moral values, etc.

This would create awareness of managers and help in dealing the customers, clients, partners, employees and consultant. If the knowledge regarding the specific country background is good, then difficulties would not be faced by dealing managers. Their effectiveness on jobs would definitely improve. If proper care not taken regarding this then at every step a lot of difficulties are to be faced and may leads to failure in that country.

This training is mainly for the managers working in that specific country or visiting to that country. This is specially designed for teams and personnel who need to visit overseas countries and interact with clients or teams from foreign cultures. This training covers, in details the particular values, ethos, morals, behaviour and business practices and customs of a particular country or an ethnic group.

Training in Management Practices:

Training is provided to the managerial staff for managing the business activities across the world in diversified cultures and manpower. The different practices, methods, techniques, strategies and philosophy used by management team in different countries are highlighted. There awareness is created so that these can be applied in managing projects across the world.

It enables the management to understand business management activities across the global markets and manage, guide and supervise the cross-cultural teams. This would help in performing the tasks smoothly without any difficulty. The effectiveness of management team over cross-cultural projects would improve definitely.

Training for Conducting Negotiations:

During business activities performed across the world market, the management takes a lot of decisions. For finalizing a deal relating to business they are involved in negotiation. For example, deciding partners, mergers, acquisitions, joint ventures, dealers, vendors and employees the negotiation process is involved. It is very difficult to deal with negotiation with parties of diversified culture.

In this type of training awareness is creating regarding cultural backgrounds and negotiation skills developed to deal with cross-cultural parties. This training is of a special type and helps to equip with negotiation skills relating to specific culture, negotiating team, clients, customers, employees.

Due to developed negotiation skills the deals can be finalized effectively or settlement can be made by negotiating on terms and conditions applicable to the deals. Without proper negotiation skills the agreements, settlements and deals cannot be finalized properly. Finally, these affect the business performance.

Effectiveness:

(a) Structure of the Programme:

Structure of cross-cultural education and training programme is to be designed to meet the requirement of business in different countries. The contents of the programmes should be according to the objectives, target group, skills needed, duration, position, responsibility and locations. These points are to be kept in mind to match the requirements.

The programme can be designed for executives, senior managers and top executives located in different countries. The programme can be of foundation, technical, team building, etc. The duration of course should vary with objectives and target group for whom the programme has been designed.

Contents and timing and duration of courses should as per the requirement of the target groups. If proper care is not taken then it may lead to mismatch and objectives of the programme would be defeated. Special care should be taken. In future, through review the programmes can be modified so the effectiveness can improve further.

(b) Continuity of the Programme:

The cross-cultural education and training programmes should be conducted till the objectives are fulfilled. These should not be stopped in between without achieving the objectives. Further one programme should be connected with the other programme in course-curriculum itself. The employees should know which course they are undergoing for a particular duration.

The programme should be completed properly and on completion of the course the candidates should be evaluated and certification should be done. This would improve morale of the employees. If not done so the effectiveness of the whole programme would go down and there would be wastage of time, efforts and money. It should not be taken lightly.

(c) Quality of Programme:

Quality means the pre-decided standards of performance are met properly and give satisfaction to the concerned parties. It can be said quality is defined as fitness for use. When the programme is designed, implemented, evaluated and completed should be as per the pre-decided standards. There should not be any deviation anywhere. If any deviation is there then immediately the remedial actions are to be taken.

The effectiveness of the system should not go down. Quality should be maintained in course structure, course pre-work, content, delivery, evaluation of performance according to standard of excellence. Special efforts should be put to complete the programme without any irregularities. Further, if responsible manager is not satisfied with any area of programme then immediate remedial action should be taken so that in future the effectiveness of the programme can be improved.

(d) Consistency of Performance:

When conducted cross-culture education and training programme the delivery should be proper. From one course to another course the standards of performance should be maintained. The quality is to be maintained. If quality is not maintained properly and regularly then the result would not be achieved. It would not be in a position to develop confidence in candidates.

The objectives of the programme would be defeated if consistency in performance and quality not maintained, Proper care should be taken for future so that effectiveness can be improved. If lapses are there in this the candidates would not take interest in such programmes.

(e) Properly Justified Programme:

The cross-cultural education and training programme can be designed and implemented for creating awareness among employees regarding different cultures, motivating their participation and developing good working environment. The programme should be justified properly.

The justification whether it is required or not, design and implementation for the target group is proper, course contents, training methods, involvement of technology, assessment methods, costs involved, time and efforts needed for completion of the programme. If the answer regarding these points is positive then it should be conducted otherwise not. There should be proper justification and should not face opposition in later stages.

(f) Suitable for Target Groups and Easy to Measure:

The structure of the programme should be designed in such a way that it is meeting the objectives of the programme. It may be for different parties such as managers, employees both in different locations. The contents, schedule, methods of conducting training programme, duration, etc., should be such that it becomes suitable to the target group to fulfil the objectives of training programme.

Time-to-time it should be adjusted as per the requirements of concerned parties. It should not mismatch to the requirements. It should be designed as tailor-made programme. Further, the impact of it on knowledge, awareness and performance should be measurable. If it is so then only the effectiveness of the programme can be measured and can say whether it is good or poor.

These two things are possible on the basis of feedback from the participants. After getting feedback the programme can be further tailor-made and the effectiveness and results of programme can be measured.

If the management takes proper care regarding the above mentioned points then the effectiveness of the programme would be good. If anywhere any deviation is found in feedback, then efforts can be put to improve the conditions. The effectiveness in future also can further improve.

Issues in Cross Cultural Training

Different Communication Styles

The way people communicate varies widely between, and even within, cultures. One aspect of communication style is language usage. Across cultures, some words and phrases are used in different ways. For example, even in countries that share the English language, the meaning of “yes” varies from “maybe, I’ll consider it” to “definitely so,” with many shades in between.

Another major aspect of communication style is the degree of importance given to non-verbal communication. Non-verbal communication includes not only facial expressions and gestures; it also involves seating arrangements, personal distance, and sense of time. In addition, different norms regarding the appropriate degree of assertiveness in communicating can add to cultural misunderstandings. For instance, some white Americans typically consider raised voices to be a sign that a fight has begun, while some black, Jewish and Italian Americans often feel that an increase in volume is a sign of an exciting conversation among friends. Thus, some white Americans may react with greater alarm to a loud discussion than would members of some American ethnic or non-white racial groups.

Different Attitudes Toward Conflict

Some cultures view conflict as a positive thing, while others view it as something to be avoided. In the U.S., conflict is not usually desirable; but people often are encouraged to deal directly with conflicts that do arise. In fact, face-to-face meetings customarily are recommended as the way to work through whatever problems exist. In contrast, in many Eastern countries, open conflict is experienced as embarrassing or demeaning; as a rule, differences are best worked out quietly. A written exchange might be the favoured means to address the conflict.

Different Approaches to Completing Tasks

From culture to culture, there are different ways that people move toward completing tasks. Some reasons include different access to resources, different judgments of the rewards associated with task completion, different notions of time, and varied ideas about how relationship-building and task-oriented work should go together.

When it comes to working together effectively on a task, cultures differ with respect to the importance placed on establishing relationships early on in the collaboration. A case in point, Asian and Hispanic cultures tend to attach more value to developing relationships at the beginning of a shared project and more emphasis on task completion toward the end as compared with European-Americans. European-Americans tend to focus immediately on the task at hand, and let relationships develop as they work on the task. This does not mean that people from any one of these cultural backgrounds are more or less committed to accomplishing the task, or value relationships more or less; it means they may pursue them differently.

Different Decision-Making Styles

The roles individuals play in decision-making vary widely from culture to culture. For example, in the U.S., decisions are frequently delegated that is, an official assigns responsibility for a particular matter to a subordinate. In many Southern European and Latin American countries, there is a strong value placed on holding decision-making responsibilities oneself. When decisions are made by groups of people, majority rule is a common approach in the U.S.; in Japan consensus is the preferred mode. Be aware that individuals’ expectations about their own roles in shaping a decision may be influenced by their cultural frame of reference.

Different Attitudes Toward Disclosure

In some cultures, it is not appropriate to be frank about emotions, about the reasons behind a conflict or a misunderstanding, or about personal information. Keep this in mind when you are in a dialogue or when you are working with others. When you are dealing with a conflict, be mindful that people may differ in what they feel comfortable revealing. Questions that may seem natural to you What was the conflict about? What was your role in the conflict? What was the sequence of events? may seem intrusive to others. The variation among cultures in attitudes toward disclosure is also something to consider before you conclude that you have an accurate reading of the views, experiences, and goals of the people with whom you are working.

Different Approaches to Knowing

Notable differences occur among cultural groups when it comes to epistemologies that is, the ways people come to know things. European cultures tend to consider information acquired through cognitive means, such as counting and measuring, more valid than other ways of coming to know things. Compare that to African cultures’ preference for affective ways of knowing, including symbolic imagery and rhythm. Asian cultures’ epistemologies tend to emphasize the validity of knowledge gained through striving toward transcendence.

The primary aim of this process is to measure and improve the performance of employees. But it has its own challenges that render its effectiveness futile:

Biased Perception

Employees think that performance management process is full of biases. The ratings are subject to the reviewer’s whims & favouritism, and fail to take into account the true estimate of an employee’s performance or potential. It is a challenge for organizations to convince employees about implementation of fair and equal performance system.

Review Period

Even today, a majority of organizations do performance management exercise once a year. This means that employees get late feedback on how they are performing and may not get enough opportunities to improve. On the other hand, ongoing feedback mechanism is trending wherein companies prefer weekly, monthly or quarterly performance discussions with employees. Many organizations have revamped their performance processes. But, establishing the right metrics and frequent changing of goals may be disadvantageous. So, whether performance system should be ongoing or yearly practice is another challenge.

Rating Method

The traditional bell curve is still the most acceptable rating method across the organizations. Here, the employees are categorised as top (reward), middle (training) and bottom (fire) performers. But, it has drawn criticism for its archaic methodology. HR experts have been recommending new practices and tools, but their effectiveness is not proven yet. Hence, the choice of rating method also remains a concern.

Lack of Standardisation

While there are goals/appraisal sheets and documented processes to implement performance management system, there is hardly any consistency. The employees don’t receive inputs on how to fill up their sheets, while managers don’t get trained on how to carry out the process or use the rating scale. There are also no clear standards on what level of performance, trait or behaviour will differentiate between successful, average and non-successful performers. This leads to lack of clarity among both parties and across the organization, resulting in ineffective and inaccurate system.

Challenges of International performance management

There are many challenges associated with expatriate performance management. Although we have listed some below, they are likely to vary by business. Ideally work to identify the challenges your company is likely to encounter and attempt to mitigate them in the expatriate performance management plan.

Environmental Variations

Performance management systems rarely work in the same way domestically and internationally. Environmental variations including; different growth rates, the immediate environment and differences in performance, usually mean international performance appraisals need to be unique to each expatriate manager.

Time and Distance

Improvements in technology make this less of an issue than it once was, but time differences and local infrastructure will impact on performance and appraisals. This is particularly true of expats working in underdeveloped countries.

Cultural Adjustment

The employee’s ability to adjust to the organisational culture within the subsidiary, as well as the wider culture within their new country, is likely to impact performance. An understanding of the local organisational culture by the HR team, the management team and the employee will facilitate the creation of a measurable international performance management system.

Inconsistency of implementation

Like all performance development, it will only be successful if implemented consistently in company subsidiaries. Oversight of this may be a challenge if most Human Resource functions are centralised to headquarters, meaning some employees thrive while others are left directionless.

Tips for International performance management

Developing a system that will work successfully across markets is a significant challenge for a global human resources manager. To further compound the situation, there is very little best practice research as existing studies do not focus on the same variables or countries.

Lack of Credibility

A strong performance management system relies on a trusting relationship between employees and supervisors. When the employees doubt the credibility of the supervisors, they also will distrust the results of any performance management metrics those supervisors produce. The lack of credibility may come from inexperienced management, poor communication skills or general incompetence, according to ERMA. The lack of credibility from supervisors can lead to employees “checking out” of the job, either by leaving or by marking time without putting forth any effort.

Lack of Consistency

Performance management issues can also stem from supervisors delivering inconsistent feedback. Mixed messages and shifting types of employee evaluation methods can cause confusion and resentment among employees, leading them to distrust the performance management reports. Small businesses are highly prone to the damage that mixed messages can cause, as the small number of employees are more likely to communicate those mixed messages to each other. Business owners must maintain consistent tone and content in their feedback to workers if they want to ensure implementation of any performance management recommendations.

Lack of Established Goals

Business owners must have clear goals they wish to meet to keep the business alive. If they have not established specific goals, the employees will have no idea whether or not they’ve accomplished their tasks. Entrepreneurs must also clearly communicate those goals to the workers for the performance management processes to be effective, according to Jazz HR. A goal of “more sales” is not specific enough, but a goal of “20 percent increase in sales in the next 90 days” gives employees a goal they can reach.

Lack of Clear Strategy

Just as a lack of clear goals can cause performance management problems, so can a lack of a clear strategy on how to achieve those goals. Small business owners function as leaders for their employees. Leaders must provide guidance and plans for their subordinates to follow. A clear strategy also gives the business owner “milestones” to measure the company’s progress toward its goals and alternative tactics if the current actions are ineffective.

Trade unions, also known as labour unions in the United States, are organizations of workers in a common trade who have organized into groups dedicated to improving the workers’ work life. A trade union generally negotiates with employers on behalf of its members, advocating for improvements such as better working conditions, compensation and job security. These unions play an important role in industrial relations the relationship between employees and employers.

History

The origins of trade unions can be found in guilds and fraternal organizations composed of people practicing a common trade, which date back hundreds of years. However, the modern conception of trade unions, in which unions represent a specific set of workers in negotiations with employers, dates back only to the 18th century. Membership in unions only became widespread in the United States and Europe in the 19th century.

Trade unions are associations of workers formed to represent their interests and improve their pay and working conditions.

Types

There are four main types of trade unions.

Craft unions

These represent workers with particular skills e.g. plumbers and weavers. These workers may be employed in a number of industries.

General unions

These unions include workers with a range of skills and from a range of industries.

Industrial unions

These seek to represent all the workers in a particular industry, for instance, those in the rail industry.

White collar unions

These unions represent particular professions, including pilots and teachers. Unions in a country, often belong to a national union organization. For example, in India, a number of unions belong to the All-India Trade Union Congress (AITUC).

This is the oldest and one of the largest trade union federations in the country. A number of them also belong to international trade union organizations such as the International Confederation of Free Trade Unions, which has more than 230 affiliated organizations in 150 countries.

Role of Trade Unions:

Unions carry out a number of functions. They negotiate on behalf of their members on pay scales, working hours and working conditions. These areas can include basic pay, overtime payments, holidays, health safety, promotion prospects, maternity and paternity rights and job security.

Depending on the circumstances, unions may try to protect or improve workers’ rights. They also provide information on a range of issues for their members, for instance on pensions. They help with education and training schemes and may also participate in measures designed to increase demand for the product produced and hence for labour.

Some also provide a range of benefits to their members including strike pay, sickness pay and unemployment pay. In addition, many get involved in pressurizing their governments to adopt a legislation, which will benefit their members or workers in general, such as fixing a national minimum wage.

Designing and developing a better compensation package for HR professionals for the international assignments requires knowledge of taxation, employment laws, and foreign currency fluctuation by the HR professionals. Moreover, the socio-economic conditions of the country have to be taken into consideration while developing a compensation package. It is easy to develop the compensation package for the parent country national but difficult to manage the host and third country nationals. When a firm develops international compensation policies, it tries to fulfils some broad objectives:

• The compensation policy should be in line with the structure, business needs and overall strategy of the organization.
• The policy should aim at attracting and retaining the best talent.
• It should enhance employee satisfaction.
• It should be clear in terms of understanding of the employees and also convenient to administer.

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

• He expects proper compensation against his competency and performance level.
• He expects substantial financial gain for his own comfort and for his family also.
• He expects his present and future needs to be taken care of including children’s education, medical protection and housing facilities.
• The policy should be progressive in nature.

Balance Sheet Approach:

The Balance Sheet Approach to international compensation is a system designed to equalize the purchasing power of employees at comparable position levels living abroad and in the home country and to provide incentives to offset qualitative differences between assignment locations. The balance sheet approach is widely used by international organizations to determine the compensation package of the expatriates. The basic objective is the maintenance of living standards of the home country plus financial inducement.

• Goods and Services: Outlays incurred in the home country for food, personal care, clothing, household furnishing, recreation, transportation, and medical care.
• Housing: All major costs associated with housing in the host country.
• Income Taxes: Parent country and host country income tax expenditures.
• Reserve: Contribution to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc.

Advantages:

• Equality between assignments and between expatriates of the same nationality.
• Facilitates expatriate re-entry
• Easy to communicate to the employees

Disadvantages:

• It can result in considerable disparities between the expatriates of different nationalities and between expatriates and local nationals.
• It can be quite complex to administer due to changing economic conditions, taxation etc.

Going Rate Approach

This is based on local market rates. It relies on comparisons of surveys of the local nationals, expatriates of same nationality and expatriates of all nationalities’ pay packages. In this approach, the compensation is based on the selected survey comparison. The base pay and benefits may be supplemented by additional payments for low pay countries.

Advantages

• Simplicity
• Equality with local nationals
• Identification with the host country
• Equity amongst different nationalities

Disadvantages

• Potential re-entry problems in the home country.
• Variation between assignments for the same employees.
• The rivalry between expatriates of the same nationality in getting assignments to some countries.

Lump Sum Approach:

This involves giving the expatriate a predetermined salary and letting the individual decide about how to spend it. Finally, there is the regional system, under which the MNC sets a compensation system for all expatriates who are assigned to a particular region. Thus, everyone going to Europe falls under one particular system and those going to South Africa come under a different system.

Citizen’s Approach:

In this approach, an international basket of goods is used for all expatriates, regardless of country of origin. The basket of goods includes food, clothing, housing, and so forth. However, expatriates are not provided salary adjustments that would allow them to purchase exactly the same items in the host country as in the home country. Rather, they receive adjustments that would allow them to purchase a comparable local product of the same nature; e.g., rather than a Mercedes (which they had in the home country), they would buy a local luxury car.

Alternatively called the global salary systems, the international citizen’s approach is appropriate when an MNC has a team of dedicated international managers Europeans, Americans or Asians – who are ready to move to any part of the globe easily and effectively. Global salary systems seek to provide worldwide equity in rewards and allow managers to move between countries with minimal effects on lifestyle.

Compensation is the remuneration received by an employee in returns of their contribution to the organization. Compensation is extrinsic reward for an employee. Extrinsic rewards include praise from a superior, salary, employee benefits, career progression etc.

International compensation refers to all forms of financial returns and tangible benefits that employees of an international organization receive from their employer in exchange for providing their labor and commitment.

Almost all the employees accept jobs in MNC’s take-up assignments in various countries, & take-up the risk, bear inconveniences & discomforts in foreign assignments mostly based on the compensation package.

Objectives:

• Recruit & Retain Competent Employees
• Consistency & Equity in Pay
• Employability in a Cost Effective
• Financial Protection to Employees
• Organizational Ability to Pay
• Comparative & Comparable
• Benefit Management
• Improve Organizational Performance

Internal Variables Affecting International Compensation Strategy

Goal orientation: UK-based foam manufacturer Zotefoam, where equality is a key aspect of HRM in the company’s mission, the only perks that differentiate executives from other workers are private health insurance and a car allowance MD of the firm sees the internationalizing firm as one with minimal status differences between levels in the org. hierarchy.

Capacity to pay: Cost constraints on the enterprise

Competitive strategy: If for eg., as part of the MNC competitive strategy, the IHRM strategy is to be a market leader in employee compensation in order to compete for the most competent candidates, then the levels of compensation might well be higher than if the competitive strategy is based on, say, the provision of secure employment.

Organization culture: It also influences the degree to which employees are compensated on the basis of seniority, in contrast to personal connections or performance.

Workforce characteristics: Age, education level, qualifications and experience, along with workforce tastes and preferences, and labor relations factors such as nature of employment relationship (level of TU involvement within MNCs) will result in different international compensation approaches.

External Variables Affecting International Compensation Strategy

Nationality of the parent country: In terms of culturally determined values and attitudes towards compensation policy and practices; local culture influences international compensation strategy through the dominant societal values, norms, attitudes and beliefs concerning for eg. bases for compensation differences (performance, family connections, gender), degrees of compensation differences between managerial and non- managerial employees, and the propensity for using particular types of compensation (pay incentives and benefits).

Labor market characteristics of supply and demand: Education and skill levels, ages and experiences of those in the labor market.

Role of home and host country government in labor relations affect the level of govt. regulation of the labor market and employment relationship, including compensation of the workforce.

Industry type

• Evidence from two global industries, scientific measuring and medical instruments suggest that MNCs competing in a global industry may be more likely to allocate rewards based on corporate and regional performance rather than on subsidiary performance, as favored by MNCs competing in a multi-domestic industry.
• Different industry sectors also have different norms and practices for international compensation (eg. service-sector and high technology MNCs have been more likely than manufacturers to incorporate equity- based options in their international compensation strategies.

Competitors’ strategies

Even if the MNC is not seeking to be a market leader in international compensation, it generally cannot afford to fall behind market rates across its locations, as it will risk losing valuable employees to competitors.

Objectives

The objectives of compensation package of MNCs are presented in Figure below MNCs manage the compensation and benefits with the following objectives.

• Consistency and Equity: MNCs design the salary and benefits package to secure consistency between pay and performance and equity among employees of different nationalities and categories, and employees of subsidiaries and parent company.
• Recruitment and Retention of suitable Employees: MNCs design and practice compensation and benefits in order to attract, and retain suitable employees in terms of job efficiency and cultural adaptability.
• Facilitate Mobility: MNCs design pay package in order to enable the employees to move from the parent company to foreign subsidiaries and from one foreign subsidiary to another foreign subsidiary.
• Organisational performance: MNCs pay package should work as motivator to enhance employee job performance, learning latest skills and contribute to the enhancement of organisational performance. In fact, performance-based pay package enhances organisational performance.
• Adaptability to Foreign Cultures and Environment: MNCs design pay package that motivates employees and his/her family members to willingly adapt to the cultures and environment of the foreign countries. For example, providing comfortable housing, highly reliable medical facilities, security facilities against odds and international standards schooling facilities encourage employee’s family members to adapt to the foreign country cultures and environment and allow the employee to concentrate on the job.

Importance of International Compensations

• Optimizing Cost of Compensation: It is to facilitate the transfer of International employees in the most cost-effective manner for the firm. Compensation management aims at optimizing the cost of compensation by establishing some kind of linkage with performance and compensation. It is not necessary that a higher level of wages and salaries will bring higher performance automatically but depends on the kind of linkage that is established between performance and wages and salaries.
• Attracting and Retaining Personnel: Most to attract and retain staff in the areas where the multinational has the greatest needs and opportunities, hence must be competitive and recognize factors such as the incentive for Foreign Services, tax equalization, and reimbursement for reasonable costs.
• Consistency in Compensation: It means to be consistent with the overall strategy, structure and business needs of the multinational. Compensation management tries to achieve consistency-both internal and external in compensating employees. Internal consistency involves payment of the basis of criticality of jobs and employees’ performance on jobs. Thus, higher compensation is attached to higher-level jobs. Similarly, higher compensation attached to higher performers in the same job. External consistency involves similar compensation for a job in all organizations. Though there are many factors involved in the determination of wage and salary structure for a job in an organization which may result into some kind of disparity in the compensation of a particular job as compared to other organization, compensation management tries to reduce this disparity.
• Motivating Personnel: Compensation management aims at motivating personnel for higher productivity. Monetary compensation has its own limitations in motivating people for superior performance.

Components of International Compensation Program

Base salary:

For expatriates, the term base salary means the primary component of a package of allowances which are:

(a) Foreign service premium

(b) Cost-of-living allowance

(c) Housing and utility allowance

(d) Basis for in-service benefits and pension contributions.

Base salary may be paid in home or local currency or in some hard currency like pound or dollar.

Foreign Service inducement/hardship premium:

Parent-country nationals often receive a salary premium as an inducement to accept a foreign assignment or as compensation for any hardship caused by the transfer. Such payments vary depending upon the assignment, actual hardship, tax paid to foreign governments and length of the assignment.

Education Allowances for Children:

Education allowances are given towards fees for the education of expatriates’ children. Education allowances include items such as tuition, language class tuition, books, transportation and uniforms.

Relocation Allowances and Moving:

Relocation allowances usually cover moving, shipping; temporary living expenses, and down payments or lease-related charges.

Tax Equalisation Payments:

Many international compensation plans attempt to protect the expatriate from negative tax consequences by using a tax equalisation plan. Under this plan, the company adjusts an employee’s base income so that the expatriates will not pay any more or less tax than if they had stayed in the home country.

Allowances:

Various allowances are paid to expatriates depending upon the assignment. They include:

(a) The cost-of-living allowance (COLA):

It involves a payment to compensate the differences in expenditures between the home country and the foreign country.

(b) Housing allowance:

Implies that employees should be entitled to maintain their home-country living standards (or, in some cases, receive accommodations)

(c) Home leaves and travel allowances:

Is given to cover the expense of trips (usually once in a year) back home. These trips allow the expatriates the opportunity to renew family and business ties, thereby helping them to avoid adjustment problems when they are repatriated.

Spouse Assistance:

To help guard against or offset income lost by an expatriate’s spouse as a result of relocating abroad. Multinationals generally pay allowances in order to encourage employees to take up international assignments.

International or global recruitment is simply the process involved in the searching and hiring of talented candidates from anywhere across the globe. The recruitment and selection process has a long history with man. We’ve always been involved in nominating and selecting representatives for sports, politics, associations, leadership, etc. Oftentimes, we always desire and opt for the most capable, skilled, efficient, and qualified individuals to champion the specific course as to which we are selecting people.

International Deployment of Staff:

Skills shortages in the home-grown market mean that certain sectors are looking outside the UK to fill posts. Other international companies are looking to scale up very rapidly overseas, to shift resources and develop talent in unknown markets. as a result in selecting assignees for alternative forms of international assignments, MNCs should be aware of the limitations associated with more traditional forms of international assignments and should work toward more sophisticated recruitment and selection techniques. An international assignment is a process whereby an employee is sent/ transferred overseas for a certain period of time.

With the increase in globalisation, it had become inevitable for organisations to be involved in the international transfer of staff. Due to globalisation, MNS’s are in a competition to groom managers to meet the challenges and demands of strategic global human resources management according to Mendenhall and Oddou (1995) expatriation comes as a result of the lack of skilled manpower within organisations.

International transfer of staff or expatriation is a tool to enhance exchange as well as transfer of knowledge thus enhancing organisation learning. Borg and Harzing (1995) perceives expatriation as holding advantages of transferring technical and well as administrative knowledge.

Edstrum A. and Galbraith J. (1997) explain the reasons why organisations engage in international assignments. They believe that the following three reasons are the key factors:

To fill a position ( Also to take into consideration that this can be for the purpose to train managers who can gradually take up more advanced posts with the parent organisation or at subsidiary abroad)

Management development; By giving the managers an international experience and training them for future important tasks in subsidiaries abroad or with the parent organisation. This kind of transfer often takes place when qualified host country national are available.

Organisational Development (the idea is that managers become less ethnocentric once they come into contact with a variety of culture. It is assumed that the large-scale transfer of managers of different nationalities between the parent organisation and its subsidiaries abroad will create international communication networks)

Hiring and selection of candidates internationally have a different twist when compare to local or domestic recruitment processes. The variation in market, culture, languages, policies, etc have given global recruiting of talents a new perspective. For instance, the rules and regulations binding employees’ hiring in Europe will have a different taste to the system used in America. For instance, the resume/CV format for job hiring in America doesn’t need information like date of birth, marital status, etc compared to how this information is required in some countries. Also, in America, most job CV/resume must be skill and result-driven compared to the duty-based resumes/CV required in some regions of the world.

Several factors are attached to international recruitment, and companies need to be aware of these factors. One of these factors is identifying and working with the best and reliable recruiter. The selected recruiter must have a good understanding of selection processes, compliance, foreign laws, and other global distinctions. Another factor company has to take note of is the development of a good understanding and expertise of foreign recruitment and selection. Furthermore, recruiters must be familiar with the company’s required skill sets and ideal candidates to aid the selection of the right candidates at the right time for the required job.

International recruitment and selection involve major approaches asking which are ethnocentric, polycentric, geocentric, and regiocentric. The ethnocentric approach involves companies hiring only talents that are citizens of their home country in their business locally and overseas. Polycentric involves companies hiring the citizens of a particular country as an employee where the company subsidiaries are located, for example, a California company, hiring Ghanaian citizens to manage its Ghanaian subsidiary. The geocentric approach is the most popular and it involves companies hiring talents across the globe without any nationality clause. Finally, regiocentric is a method that is used to hire talents from a specific region with a particular environment.

These are the major steps involved in international recruitment and selection

• Preparation and planning
• Development of recruitment strategies
• Talent sourcing
• Candidate interviewing
• Screening and examination
• Selection and recommendation

Reasons

Growth

When you desire to hire workers across borders, you are directly and indirectly positioning your organization for a robust phase of growth. This is because hiring internationally will provide you with candidates of different perspectives, innovation, and expertise. They will give your organization a reliable and trusted brand in foreign markets, thus increasing your market base.

An expanded community of talents and experts

Organizations are exposed to an expanded community of workers when they leverage global recruitments. Limiting your workforce to locals within your home country is not a recommended idea because it will limit you of the diversified benefits in which foreigners will bring onboard. Thus, exploring global recruitment will just give you access to specialized talents with exceptional skills and innovations.

Cultural Diversity

Hiring workers overseas will increase the power of diversity in any business. Diversity adds value to the team’s culture and structure. Foreign recruitment allows organizations to bring together people of different cultural background to enhance change, adaptability, working environment, and innovation.

Global Market Integration

Internationally hired workers will give your business better leverage in the new markets. These workers help in branding your business within the standard of the new market. They also provide you with a deeper understanding and knowledge of the ways through which you can boost and grow your businesses.

According to P. V. Morgan, International HRM is the result of an interplay among the three dimensions human resource activities, types of employees and countries of operation. The complexities of operating in various countries and employing different national categories of workers is an important variable that differentiates domestic and international HRM, rather than any major differences between HRM activities performed.

Broadly stated, IHRM is “The process of procuring, allocating and effectively utilising human resources in a multinational corporation”. When compared to domestic human resources management, the scope of IHRM is very wide.

For example, while compensating people in India, the American MNC must keep in mind the expectations of locals, the competitor’s compensation structure, taxation problems of repatriates, TCN’s aspirations and a host of other issues that have a bearing on the psyche of employees possessing different skills and having different cultural backgrounds (both within and outside the country).

IHRM, thus, requires a much broader perspective, encompasses a greater scope of activities and is subject to much greater challenges than is domestic HRM.

International HRM can be a challenging exercise because of fairly obvious reasons:

• Integration Issues:

It is difficult to push the right button at the right time, especially when managers operate from headquarters separated by distance. Controlling operations of subsidiary companies in different parts of the globe through remote control can be really taxing especially in coordinating effort and put the same on track in sync with the established policies of a company.

• Heterogeneous Functions:

International HRM can be very challenging when one takes a look at what international HR managers are supposed to handle in terms of variety and complexity; including issues relating to international hiring, placement, culture-specific training, compensation relating problems, administrative services to expatriates, carrying out appraisals from time to time, offering growth opportunities to the talented ones, putting out fires with labour, resolving conflicts and maintaining health labour-management relations, etc.

The employees sent abroad on an assignment need to be taken care of in a special way. Their families too need to be taken care of including medical, educational, insurance, transportation benefits, etc. HR issues relating to the above are going to be impacted by a variety of factors which demand a closer examination.

Some of the more basic issues involved in pertinent areas of global human resource management are explained below:

1. Staffing, Recruitment and Selection:

There are basically three ways to meet the requirements of manpower in foreign ventures. First, a foreign company may send persons of its home country to manage its affairs in the host country. Second, it can hire people of the host countries to meet its human resource requirements there. Third, it can also utilise the services of third country nationals. International HRM is now accepted as the key source of competitive advantage for international business.

In all cases, there have emerged certain norms regarding basic characteristics in international staffing. These are as follows:

(i) Cultural adaptability.

(ii) Strong communication skills.

(iii) Technical competence

(iv) Professional expertise

(v) Global experience

(vi) Inter-personal skills

(vii) Family flexibility

(viii) Country or region specific considerations.

Most of the multinational companies vie with each other to recruit candidates for technical and managerial positions from highly reputed technical and management institutes offering them lucrative compensation packages and try to retain the services of the most talented ones.

Some of the advantages of staffing from the home country nationals are as follows:

(i) Greater control over activities of the organisation.

(ii) Acquisition of experience in local markets.

(iii) Greater efficiency in implementing business strategy.

(iv) Adequate understanding of culture of the host country.

The disadvantages include the following:

(i) Difficulty in adoption to the foreign environment.

(ii) Problems of family adjustability.

(iii) Friction resulting from language barriers.

The major advantages of staffing from amongst the host country nationals are as follows:

(i) Elimination or reduction of language barriers.

(ii) Better understanding of host country’s laws and regulations.

(iii) Reduction of hiring cost.

(iv) Reduced compensation package.

The disadvantages include:

(i) Poor understanding of business objectives of host-country organisation and (ii) Possibility of biases and favouritism in appointments.

The advantages of third country nationals in staffing are as follows:

(i) Better equipped with the use of international perspectives.

(ii) Possibility of low cost of hiring.

Disadvantages are as follows:

(i) Poor understanding of political situations and national hostilities.

(ii) Resistance from the government and local people and functionaries in the organisation.

In India, major requirements of various categories of manpower needed by foreign companies are met by the people of the country itself. India has a bountiful of software engineers and analysts, technical and managerial personnel with adequate expertise and specialisation, skilled and unskilled workers. Most of the foreign MNCs operating in India utilise the services of the local people to manage their businesses in the country.

The use of information technology, Internet and the services of specialised and professional organisations have considerably made the task of hiring easy and convenient. Only in the case of top positions, the foreign companies generally prefer to fill them by personnel of their home countries.

Foreign companies having their business in India also have the advantage of not facing the rigours of laws related to management of human resources such as the Civil Rights Act of the USA, compulsions of co-determination of Germany and a few European countries and compulsory collective bargaining as in existence in the USA and a few European countries. Besides, they do not have to face the problems of visa restrictions, rigid immigration laws and regulation of supplies.

There are, however, legal constraints on dismissing, discharging, retrenching or otherwise separating specified categories of employees under the Industrial Disputes Act, 1947. Besides, most of these countries do not have to face problems of language and skill and expertise of personnel needed for manning positions at various levels. These companies also have the advantage of outsourcing of specific operations, the facilities of which are in abundance in the country.

The Indian companies having their businesses abroad do not have to face many problems in recruitment and selection of suitable candidates for their enterprises as a sufficient number of qualified and competent people with managerial and technical skills and specialisation are available in the country for foreign assignments.

They can conveniently be sent to countries having English as the major language. Many of the Indian students acquire efficiency in different foreign languages, which do not only enhance their career prospects, but also contribute to the success of the enterprises in the host countries.

Only in a few cases, both the Indian and foreign companies avail of the services of third-country nationals.

2. Training and Development (T&D):

Training and Development is an important area which calls for special attention in international human resource management. Although a sufficient number of qualified people with requisite academic background is available in India, they need suitable training to develop skills and capabilities commensurate with requirements of jobs assigned to them.

Different foreign and Indian companies have their own specific areas of operations, and their needs for equipping employees with essential capabilities vary. In the situation of fierce competition among firms, it becomes imperative for them to keep their employees at the level of maximum efficiency.

It is the task of training and development programmes to ensure that employees at all levels of organisational hierarchy are effectively trained and developed keeping organisation’s objective at the forefront.

Some more notable areas of T&D programmes in international businesses comprise the following:

(i) Language efficiency

(ii) Understanding of the social and political environment of the host countries; (iii) Awareness of the cultural and social environment.

(iv) Adaptability to changing situations

(v) Efficiency in the use of the computers, Internet and other electronic devices.

(vi) The needs of employees’ career development.

As the extent and dimension of competition, technology job requirements, market conditions and government policies change, so also it is necessary to arrange for suitable training programmes on a continuing basis. Some of the methods used for training of managers and executives in international perspective comprise job rotation training, simulation, conferences, case study and Internet-based training.

Many reputed companies have started laying increasing emphasis on professional development in order to enable employees to achieve their carrier-related goals. T&D programmes must also cover proper understanding of legal framework of the host countries including labour and social security laws and those related to compensation and personnel matters.

3. Compensation:

In international human resource management, compensation issues are of vital importance. Companies engaged in foreign businesses must offer lucrative compensation packages to all categories of employees in order to attract and retain talented and competent personnel.

It must also be emphasised that labour cost has increasingly become an important component of the total cost of business operations. Although the use of improved technology in various areas of business activities has tended to replace manpower by electronic and other devices, the total expenditure on wages and salaries has continued to rise.

While formulating compensation policies and determining compensation packages, it is necessary to give due consideration to the standard of living, prevailing rates of remuneration, statutory regulation of wages and fringes benefits, cost of medical care and income tax laws of the host countries. People of various countries prefer to work in gulf countries as their emoluments are income-tax free.

Labour laws of many countries also lay down minimum standards related to paid holidays, vacation time pay, maximum daily and weekly hours, minimum rates of wages statutorily fixed, liability of the employers in regard to social security benefits and payment of gratuity and bonus. As there are wide variations in practices in different countries of the world, international human resource management must take into account the implications of these variations.

Other pertinent aspects that deserve particular attention in international compensation management, especially in regard to higher positions, include the following; remuneration paid by competing firms; consistency with international standards; need for career development of employees; simplicity in administration; and stability in the retention of talents with a view to maintain the services of talented and indispensable executives. Many MNCs have started offering stock ownership and equity-based compensation, long-term incentives, profit-sharing and team-based remuneration to them.

4. Performance Appraisal:

Regular performance appraisal of various categories of functionaries in foreign business is also important in international human resource management. It is rather very difficult for the home- country management to evaluate performance of employees working abroad. The task of performance appraisal of such employees may be entrusted to competent appraisers of the host country.

However, the home-country management may formulate guidelines and lay down the standards for key jobs. Certain guidelines for appraisal may be related to objectives of assignment, emphasis on quantifiable measurement for the assignment, converting qualitative behaviour into quantifiable measurements, evaluating employees’ performance on these measurements and making calculations of return on investment (ROI).

It is always desirable to provide feedback which can be helpful in making appraisal objective and transparent. Foreign companies sometimes have to face the problem of biases and prejudices by host-country appraisers, impact of unforeseen situations and also group-pressures. Many foreign companies have started increasing adoption of 360° appraisal. Email has generally been helpful in making both the appraiser and appraisee aware of the relevant issues in performance appraisal.

Certain Other Areas in International Human Resource Management:

A specific area deserving attention in international human resource management is the standards set by international and regional organisations in regard to the use of human resources. A particular mention may be made of the role of the ILO, European Union, (EU), South Asian Association for Regional Cooperation (SAARC), Association of South East Cooperation (APEC) and BRICS (Brazil, Russia, India, China and South Africa).

The ILO creates international standards of labour in the forms of Convention and Recommenda­tion. Conventions are obligation-creating instruments. The member states ratifying a Convention are under the obligation to give effect to its provisions by enacting labour law or under collective agree­ment or in other ways. The MNCs operating in foreign countries must abide by the provisions of ratified Conventions as embodied in labour law, collective agreement or other instruments.

Similarly, the European Union also creates norms in various areas related to the use of human resources in the member countries. Some of these norms are related to industrial relations, workers’ participation in management and rights and obligations of employers and unions. Some of the norms adopted by or­ganisations in the Asian countries also have direct or indirect relevance to the use of human resources.

The areas of activities in domestic and international human resource management are not dissimilar, but the international HRM requires revamping and modifying them taking into account the dissimilarities in the cultural, political, economic and legal environment of the countries in which they operate.