image1.jpg

Compensation and Rewards

There are a few options when choosing compensation for a global business. The first option is to

maintain companywide pay scales and policies, so for example, all sales staff are paid the same no

matter what country they are in. This can reduce inequalities and simplify recording keeping, but it

does not address some key issues. First, this compensation policy does not address that it can be much

more expensive to live in one place versus another. A salesperson working in Japan has much higher

living expenses than a salesperson working in Peru, for example. As a result, the majority of

organizations thus choose to use a pay banding system based on regions, such as South America,

Europe, and North America. This is called a localized compensation strategy. Microsoft and Kraft Foods

both use this approach. This method provides the best balance of cost-of-living considerations.

However, regional pay banding is not necessarily the ideal solution if the goal is to motivate expatriates

to move. For example, if the employee has been asked to move from Japan to Peru and the salary is

different, by half, for example, there is little motivation for that employee to want to take an assignment

in Peru, thus limiting the potential benefits of mobility for employees and for the company.

One possible option is to pay a similar base salary companywide or regionwide and offer expatriates an

allowance based on specific market conditions in each country. [9]This is called the balance sheet

approach. With this compensation approach, the idea is that the expatriate should have the same

standard of living that he or she would have had at home. Four groups of expenses are looked at in this

approach:

1. Income taxes 2. Housing

3. Goods and services

4. Base salary

5. Overseas premium

The HR professional would estimate these expenses within the home country and costs for the same items in

the host country. The employer then pays differences. In addition, the base salary will normally be in the same

range as the home-country salary, and an overseas premium might be paid owing to the challenge of an

overseas assignment. An overseas premium is an additional bonus for agreeing to take an overseas assignment.

The Balance Sheet Approach to Compensation

Chicago, IL Tokyo Allowance

Tax rate 30% 35% 5% or $288/month

Housing $1250 $1800 $550

Base salary $5400 $5,750 $350

Overseas premium 15% $810

Total allowance $1998

Total salary and allowance

$5400 $7748

Other compensation issues, which will vary greatly from country to country, might include the following:

1. The cost of benefits in another country. Many countries offer universal health care (offset by higher

taxes), and therefore the employee would have health benefits covered while working and paying taxes

in that country. Canada, Finland, and Japan are examples of countries that have this type of coverage. In

countries such as Singapore, all residents receive a catastrophic policy from the government, but they

need to purchase additional insurance for routine care. A number of organizations offer health care for

expatriates relocating to another country in which health care is not already provided.

2. Legally mandated (or culturally accepted) amount of vacation days. For example, in Australia twenty

paid vacation days are required, ten in Canada, thirty in Finland, and five in the Philippines. The average

number of US worker vacation days is fifteen, although the number of days is not federally mandated by

the government, as with the other examples.

3. Legal requirements of profit sharing. For example, in France, the government heavily regulates

profit sharing programs.

4. Pay system that works with the country culture, such as pay systems based on seniority. For

example, Chinese culture focuses heavily on seniority, and pay scales should be developed

according to seniority.

5. Thirteenth month (bonus) structures and expected (sometimes mandated) annual lump-sum

payments. Compensation issues are a major consideration in motivating overseas employees.

A systematic system should be in place to ensure fairness in compensation for all expatriates.

Chapter 2 Expatriate Adjustment and Expatriate Learning

2.1 International Assignments

2.1.1 Definition and Classification of International Assignments

International work experience is one of the major requirements for promotion to higher-level managerial positions. International assignments are a powerful mech- anism through which managers acquire new business skill sets, international per- spectives, and basic cross-cultural assumptions (Furuya et al. 2009). The topic of international assignments (IAs) has an established pedigree in the international management literature and has in particular dominated the research agenda of international human resource management (IHRM) for over three decades (Collings et al. 2007; Stahl and Bjorkman 2006). It has been argued that entrepreneurs have recognised the importance of physically relocating managers to foreign locations where business operations are based since approximately 1900 B.C. (Collings et al. 2007). Owners of international organisations realised the benefits of utilising people known to them and socialised into the organisation in minimising the agency problems associated with managing spatially diverse organisations from an early stage. This is because these individuals had built a level of trust with their superiors and thus were considered to be more likely to act in the best interests of the organisation, relative to local managers from the host country who were largely an unknown quantity. Thus, international assignments were used as a means of addressing agency issues as a result of the separation of ownership and management and their amplification through distance.

The most widely recognized and long-standing typology of international assignments is that of Edstrom and Galbraith (1977). Edstrom and Galbraith (1977) proposed a distinctive three-fold subdivision of international assignments based on assignment purposes: fill positions, develop organization, and develop managers.

© Springer Science+Business Media Singapore 2016 Y. Li, Expatriate Manager’s Adaption and Knowledge Acquisition, DOI 10.1007/978-981-10-0053-9_2

7

Firstly, fill positions refers to when suitably qualified host country nationals were not available. Secondly, as a means of organisational development, aim at increasing knowledge transfer within the MNC and modifying and sustaining organizational structure and decision processes. Thirdly, as a means of management development, aim at developing the competence of the individual manager. Although it is important to note that assignments generally have more than one rationale (Sparrow et al. 2004), Edstrom and Galbraith’s (1977) typology provides a useful point of departure for the consideration of why MNCs use international assignments and expatriates. Hocking et al. (2004) argue that Edstrom and Galbraith (1977)’ classification of international assignments lack a strong concep- tual framework to explain the underlying strategic significance of the categories and their relationships. They reclassify the principal strategic purpose of international assignments and present the underlying relationships. According to Hocking et al. (2004, 2007), international assignments’ principal purposes comprise three cate- gories: business applications, organization applications, and expatriate learning. In particular, expatriate learning refers to either business- or organization-related knowledge acquisition by the expatriate, which equivalent to the two knowledge application categories: business applications and organization applications.

Alongside the conventional international assignment (usually more than one year and involving the relocation of the expatriate), there is the emergence of a portfolio of alternatives to the traditional international assignment, referred to as a non-standard international assignment including: short-term assignments (SIAs); commuter assignments; international business travel; and virtual assignments (Brookfield Global Relocation Trends 2005; Collings et al. 2007). Research sug- gests there is little evidence of a significant decline in the use of long-term (tra- ditional) international assignments but does identify the growing use of alternative forms of international assignments (Collings et al. 2007). A recent survey by Brookfield Global Relocation Trends (2005) reported that 62 % of respondents suggested that their organizations were seeking alternatives to long-term assign- ments. This suggests that what is happening is the emergence of a portfolio of international assignments within the MNC (Roberts et al. 1998).

The most popular form of non-standard assignments appears to be the short-term international assignment (SIA). Compared to traditional assignments, SIA has three key advantages: flexibility; simplicity; and cost effectiveness. Long-term IAs had uncertain benefits and potential drawbacks. Many expatriates felt that they had to work harder to preserve the home network and their social capital suffered through the traditional IAs. Short-term international assignment seems to be a better choice (Tharenou and Harvey 2008). Managers can be assigned to some challenging tasks in a foreign country. They are not away from the headquarters for a long period of time and can be assigned to several different countries before they are appointed to some important managerial position. Such an approach optimizes the economic efficiency of human resources—providing required skills and developing interna- tional capabilities simultaneously (Tharenou and Harvey 2008). However, Yamazaki and Kayes (2007) claim that if MNCs expect their expatriates to perform successfully within their assignment periods, they may need to provide the

8 2 Expatriate Adjustment and Expatriate Learning

expatriates with at least a three-year tenure. Therefore, this study adopts a pseudo longitudinal research method that examines expatriates with different lengths of assignment tenure to investigate whether short-term international assignments are as effective for expatriate adjustment and learning as traditional long-term interna- tional assignments.

2.1.2 Expatriates and International Assignments

An expatriate is the person that MNCs assign to an international assignment. Expatriates usually are home country nationals or third country nationals. Edstrom and Galbraith (1977) define expatriates as individuals who, irrespective of their national origin, are transferred outside their native country to another country specifically for employment purposes. Expatriates are usually classified into three broad categories based on their national origin relative to that of the parent com- pany (Shaffer et al. 1999). Parent country nationals (PCNs) are expatriates who are from the home country of the MNC; third country nationals are non-PCN immi- grants in the host country (e.g., those transferred between foreign subsidiaries); inpatriates are employees from foreign subsidiaries who are assigned to work in the parent country. There are several reasons why MNCs select various types of expatriates. For example, parent country nationals facilitate communication between corporate and foreign offices, while third country nationals tend to be more sensitive to cultural and political issues.

Harzing (2001) identified three specific control roles of expatriates, namely: the bear, the bumble-bee, and the spider. Bears act as a means of replacing the cen- tralisation of decision-making in MNC and provide a direct means of surveillance over subsidiary operations. The title highlights the degree of dominance these assignees have over subsidiary operations. Bumble bees fly ‘from plant to plant’ and create cross-pollination between the various ‘offshoots’ (Harzing 2001:369). These expatriates can be used to control subsidiaries through socialisation of host employees and the development of informal communication networks. Finally spiders, as the name suggests control through the weaving of informal communi- cation networks within the MNC. Significantly, Harzing (2001) argues that although expatriates generally appear to perform their role as bears regardless of the situation, the study suggests that their roles as spiders and bumble bees tend to be more contexts specific. Specifically, the bumble bee and spider roles appeared to be more significant in longer established subsidiaries (longer than 50 years) while the bumble bee role appeared to be important in newly established subsidiaries also. Besides, the level of localization of subsidiary operations and further lower levels of international integration (the subsidiary was not greatly reliant on the headquarters for sales and purchases) were positively related to the likelihood of expatriates performing the bumble bee and spider roles.

2.1 International Assignments 9

2.1.3 Cultural Differences Between Nations

2.1.3.1 High-Context Versus Low-Context Cultures

Hall (1977) claims a cultural classification of high-context culture and low-context culture based on how, in each individual, identity rests on total communication frameworks. In high-context cultures, surrounding situations, external physical environments, and non-verbal behaviours are all important for its members to determine the meanings of messages conveyed in communication. Covert clues in these contexts make differences to the members and are used to search for a real meaning beyond verbal messages. In a high-context culture, its members tend to be related to each other in relatively long lasting relationships. For their effective communications, high-context culture requires its members to become sensitive to immediate environments through feelings. Yamazaki (2005) contends that the communication patterns in high-context cultures are conceptually associated with the Concrete Experience learning mode. Chinese, French, Japanese, and Arabic countries are classified as high-context cultures (Hall 1977).

In a low-context culture, on the other hand, surrounding situations, external physical environments, and non-verbal behaviours are relatively less important in generating and interpreting meanings, whereas explicit verbal messages are crucial in communication (Hall 1977). Most information is conveyed in explicit codes and therefore, explicit communicative styles in logical forms are placed with high importance. In low-context culture, interpersonal relationships last for a relatively shorter period. The communication patterns of low-context cultures focus less on interpersonal relationships while more on rationally detached analyses. Yamazaki (2005) contends that the communicative traits of low-context culture are consonant with the characteristics of the Abstract Conceptualization learning mode and thereby, individuals in low-context culture are likely to learn by logical thinking and analytical cognition. The United States, the United Kingdom, Canada, Australia, Germany, and Switzerland are classified as low-context cultures (Hall 1977). In the present research, the sample of western expatriates constitutes: 35.5 % of the sample comes from the United Kingdom, 29.8 % from the United States, 21.5 % from Canada, 9.1 % from Australia, and 4.1 % from other countries. Basically, western expatriate managers participated in this research are assigned from countries with low-context cultures to a country with high-context culture, China.

2.1.3.2 Collectivism Versus Individualism Cultures

Hofstede (1997) proposes five dimensions of cultural differences: individualism versus collectivism, masculinity versus feminity, long-term orientation versus short-term orientation, power distance, and uncertainty avoidance (see Fig. 2.1). This section begins with a discussion of the dimension collectivism versus individualism.

10 2 Expatriate Adjustment and Expatriate Learning

Hofstede (1997) defines the collectivism and individualism cultural dimension as ‘the degree to which a society reinforces individual or collective achievement and interpersonal relationships’. The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. It has to do with whether people’s self-image is defined in terms of ‘I’ or ‘we’. A high score on individualism indicates that individuality and individual rights are paramount within the society. In individualistic cultures, individuals tend to form a large number of looser relationships and they are supposed to look after themselves and their direct family only (Hofstede 2010). On the other hand, a low score on indi- vidualism, or a high score on collectivism, indicates that the society has a more collectivist nature with close ties between individuals. In collectivist cultures, the society reinforces extended families and collectives and everyone takes responsi- bility for fellow members of their group. Markus and Kitayama (1991) examined the culturally different self-construal and proposed two classifications: interdependent-self and independent-self, each of whose attributes differs among cultures. Interdependent-self is represented as the self-construal of people in Asian, African, Latin American, and many southern European cultures, while independent-self is exemplified as the self-construal of those in American culture as well as many western European cultures (Markus and Kitayama 1991). Triandis (1995) and Hofstede (1997) categorized this cultural dimension of interdependent-self versus independent-self as analogous to that of collectivism versus Individualism. Anderson (1988) supports this cultural dimension from a cognitive perspective. He illustrates that Eastern cultures are holistic, relational, and field-dependent, while Western cultures are analytical and field-independent.

People with collectivism cultures have the strong sense of belongingness to social contexts and relationships (Hofstede 1997). Markus and Kitayama (1991) claim that individuals with interdependent-self tend to base the relationship with others as a crucial and functional unit of conscious reflection and, they have a strong tendency to seek information about others’ perception about self in the relationship. In contrast, independent-self, the American and western European

Cultural differences

Power distance

Uncertainty avoidance

Individualism vs. collectivism

Masculinity vs. feminity

Long-term orientation

Fig. 2.1 Hofstede’s 5 cultural dimension model

2.1 International Assignments 11

notion of self, is seen as separate from context (Markus and Kitayama 1991). There is a widespread belief that people are inherently detached and distinct in individ- ualistic cultures where the cultural norm is to become independent from others and to express one’s uniqueness. Collectivistic cultures, such as the cultures of most Asian countries, emphasize a communication style in which ‘most of the infor- mation is either in the physical context or internalized in the person’ (Hall 1976: 79), whereas individualistic cultures, such as those of the United States, Germany, and the United Kingdom, use a ‘low-context’ communication style (Hall 1976). Chinese and Japanese are classified with high collectivist culture, while the North American and most western European countries are classified with individualistic cultures (Hofstede 2010). According to the national culture comparisons of Hofstede (2010), China is a highly collectivist culture where people act in the interest of the group and not necessarily of themselves. In-group considerations affect hiring and promotions with closer in-groups (such as family) are getting preferential treatment. Whereas relationships with colleagues are cooperative for in-groups, they are cold or even hostile to out-groups. In China, personal rela- tionships prevail over task and organization (Hofstede 2010).

In the present research, western expatriate managers are assigned from countries with individualistic cultures to a country with a high collectivist culture, China. As we can see, the collectivists’ cultural characteristics of China may present a major obstacle for western expatriates. The researcher suggests that an awareness of the history, culture, and behaviour of Chinese people would reduce expatriates level of frustration, anxiety, and concern.

2.1.3.3 Power Distance

Hofstede (1997) defines power distance as ‘the degree of equality, or inequality, between people in the country’s society’. Power distance refers to ‘the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally’ (Hofstede 1997). High scores on a Power distance index indicate that inequalities of power and wealth have been allowed to grow within the society. These societies are more likely to follow a caste system that does not allow significant upward mobility of its citizens. Low scores on a Power distance index, on the other hand, indicate that the society deempha- sizes the differences between citizen’s power and wealth. In these societies, equality and opportunity for everyone is stressed.

According to the national culture comparisons in Hofstede centre (Hofstede 2010), China sits in the higher rankings of his Power Distance Index, i.e. a society that believes that inequalities amongst people are acceptable. The subordinate-superior relationship tends to be polarized and there is no

Related Tags