IHRM - The Process of Foreign Assignments

Abbreviations

Abstract

1. Introduction

2. Personnel recruitment and selection
2.1. Personnel recruitment
2.2. Personnel selection

3. Contractual conditions of the employment abroad
3.1. Elements of a contract
3.2. Compensation

4. Preparation and support
4.1. Preparation
4.2. Support

5. Repatriation
5.1. Problems and influencing factors of the repatriation process
5.2. Reintegration measures - efficient re-entry planning

6. Practical Study - The process of foreign assignments illustrated by the example of a Japanese Company (JC)
6.1. Background Information
6.2. Expatriation program

7. Comparison of theory and the expatriation program of JC Germany

References

Questionnaire

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

Abstract

This paper deals with the process of foreign assignments within the scope of IHRM. It will give a broad overview of the phases seen from the angle of reducing expatriate failure rates. The expatriation process can be divided into the following stages: personnel recruitment and selection, contractual conditions, preparation and support, as well as repatriation. An interview with a MNC compares theory and practice and points out possible reasons for failure.

1. Introduction

Strategically designed international assignments can enhance the global competitiveness of firms by increasing coordination and control across units, transferring innovations across geographical boundaries, and developing future executives with global perspectives and local market responsiveness. To obtain these strategic results, firms are increasing the number of managers sent on international assignments as expatriates (Selmer, 1995).

Although companies spend a significant amount of money on the expatriates and select the best people for their assignments, success is far from guaranteed. Studies conducted on US based companies have shown that: on average, 20% of expatriates return before the scheduled end of their assignments (Ioannou, 1994). Up to 50% of expatriates who remain in their positions until the end of their assignments operate on a low level of effectiveness (Black, Mendenhall, 1990). The statistics indicate that less than 40% of expatriates succeed in their mission abroad. A company invests 3 to 4 times a manager’s salary paid in Germany when sending him abroad. With a probability of success below 40% it is clear that expatriate assignments are a financial risk. Therefore, it is of major importance to cover the general activities for the sojourn abroad beforehand (selection, contractual conditions and preparation), the support during the long- term assignment, as well as a dynamic reintegration planning, to avoid failures. The expatriation process begins with the questions of who should be recruited and how can be assured that the best person possible will be selected to avoid mistakes already in the beginning.

Recruiting personnel externally is often used when no suitable candidate can be found within the company. But it often brings along the risk of insufficient commitment or corporate identity of the candidate (Scherm, 1999). The selection function provides the possibility to sort out the candidates. A detailed job description and person specification build the basis for a successful evaluation of the candidate’s required characteristics and qualifications. The most widespread general requirements for expatriates are professional competence, personal attributes, cultural open-mindedness and family-related criteria (Wagner, Zander, Hauke, 1992). The last mentioned criterion does not only refer to the recruitment, but to every other stage of the process as well. For closing the recruitment phase the contractual conditions have to be clarified. Within an employment abroad questions in accordance with industrial law represent an important problem area in forming contractual conditions that should not be neglected. The fundamental legal difficulty lies in the fact that an employee of a MNC is crossing the boarders of a territorial area in which one national system of laws is operative to work within another national system of laws (Oechsler, 2000). The finding of a proper compensation as part of the contractual conditions plays an important role within the personnel management’s fields of functions. Several models for adopting an international remuneration policy are thinkable which should go hand in hand with the company’s strategic corporate goals. With incentives a major possibility is given to control employees’ readiness for deployment and performance (Weber, Festing, Dowling, Schuler, 2001). To prepare the chosen candidate adequately for his new environment, training is of primary importance. Projects carried out abroad create special problems with managers in dealing with multiethnic workforces, operating with social, linguistic, political, economic and religious trades of the host country. Therefore, expatriates must have a broader and deeper training than that is required to perform the similar works in the familiar home environment (Choudhury, 2001). Literature indicates that socio - cultural mishaps affect the productivity of international projects (Datfar, Gustavsson, 1993). To make expatriates adjust more quickly to their host environment, to be more satisfied and effective and to protect them from premature return, various kinds of trainings can be made available to them.

However, research clearly shows that business expatriates are regularly assigned to all parts of the world without any training at all (Black, Gregersen & Mendenhall, 1992).

Once arrived in the host country the expatriate has to cope with the adjustment to the new culture and surrounding. The greater the difference between home and host country the more complicated is the adjustment (Scherm, 1999). Hence the expatriate’s support on-site is essential. More or less severe changes of environment and his new job make him and his family struggle with their surroundings. Besides, support is a major aspect in several areas: job-related, HR-related, and personal-related (Mendenhall, Kühlmann, Stahl, Osland, 2002). Nevertheless, it takes a long time to adjust and without help from others the foreign assignment might fail.

The final stage of a foreign assignment describes the process of repatriation, reintegration, resettlement or re -entry. It indicates the completion of the foreign assignment, i.e. the return of the deployed employee to the company’s headquarters without paying attention to his functional or hierarchical position (Scherm, 1999). Sometimes returning home poses even larger problems than the foreign assignment itself (Harvey, 1982; Forster, 1994). The repatriate must face re-establishing himself within the home organization and readjusting to the home culture.

Failure to do so, for whatever reason can also be regarded as expatriate failure (Harzing, 1995).

As many companies disregard this part, the successful and effective implementation of this stage is of essential importance for the whole process. Solomon (1995) argues that repatriation is often overlooked as a career issue instead of being seen as the final link in an integrated, circular process. "Often when they return home, expatriates face an organization that does not know

what they have done for the past several years, does not know how to use their knowledge and does not care" (Solomon 1995, p. 29).

It is conceivable that the process of foreign assignment is very complex. To not exceed the scope of the study, each chapter gives only a holistic overview of the single phases.

2. Personnel recruitment and selection

2.1. Personnel recruitment

Basically there are two different models for personnel recruitment. The eligible personnel can be scanned within, as well as outside the company. However, internal recruiting dominates because of the high risks at the selection itself. According to an empirical survey within the scope of the Cranfield Project on Strategic IHRM mainly the middle management (75,8% out of 3165 interviewed companies) and the lower management (64,0% out of 3165 interviewed companies) is hired internally.

As the survey shows, only half of the interviewed companies revert to external recruitment. Those companies predominantly have been smaller ones, which have not been operating internationally for a long time (Weber et al., 2001).

2.1.1. Internal recruitment

According to Scherm (1999) the recruitment for a foreign assignment within the company is often connected with promotion or relocation of the employee. Advantages of internal recruitment are a minimum of orientation-specific costs and a lower selection-risk.

Establishing potential-analyses, based on evaluations using the classical assessment measurements as well as portfolio estimations from managers or assessment centers weakens the risk for recruiting in house (Kumar, 1998). But this requires a systematic, up-to-date and accessible database as a softwarebased personnel information system, which stores and collects data of the employees continuously.

An internal candidate already possesses corporate-specific knowledge and procedures. He is therefore familiar with the corporate culture. Internal recruitment can also cross borders but has to fit in the environmental conditions as well as in the internationalization model. Candidates can be obtained from three sources: the parent company, the host country’s company or a third country company (Scherm, 1999).

2.1.2. External recruitment

External recruitment ideally should be based on a very detailed requirement analysis (Kumar, 1998). To select personnel from the external market always bears a great probability of not choosing the suitable person for the job. Candidates can be approached directly at job fairs. An indirect approach to possible candidates happens through recruitment agencies or employment centers.

Several other problems may occur if the external recruitment is extended internationally. Then the degrees and qualification vary and the differences are ignored in many cases. To support the international search, personnel consulters or personnel agencies are called in. They often have more competence to provide a thorough analysis of the selection process and the capability of the applicants (Scherm, 1999).

2.2. Personnel selection

Taken from research, many companies do not provide a detailed job specification for expatriate positions. As a consequence there are no criteria for the selection of the applicants. The difficult planning of management tasks can be seen as a reason but not as an excuse. The high dropout rates of assignments abroad and the immense costs for deployment force a well-established selection decision (Scherm/Süß, 2001).

2.2.1. Selection process and criteria

The starting point is a job description that entails special features of the job and a person specification to find a suitable candidate for the position. It should also include the objectives, targets and deadlines set up by the executives. The general emphasis still is on the professional competence, but to choose one just for the professional qualifications can lead to a high dropout rate (Wagner et al., 1992; Scherm, 1999). For selecting an expatriate one has to pay close attention to the personal qualification requirements. Open-mindedness for other cultures, acceptance of foreign behavior, adaptation to the surroundings, physical and mental ability to work under pressure as well as a familial flexibility have to be considered and assessed as strong as professional competence if not even stronger (Oechsler, 2000).

2.2.2. Final selection instruments

Companies primarily use individual evaluation and interviews with the HR department abroad for selection. The assimilation of the job requirements and the personal profile is most important to avoid any gaps and misunderstandings already in the beginning.

If then a company decides to recruit the expatriate internally, an analysis of his previous career based on a performance review is an instrument of the evaluation of the applicant. Those data are often already available. However, it has to be considered that the performance reviews are based on inland tasks and are not always applicable exactly to the circumstances or tasks abroad. For evaluating the international qualification a biographical questionnaire can be used. It includes mainly the personal development and the ability to cope with different situations. An assessment center is also an instrument for giving a usable prognosis for the selection. But to increase the success of the method the international orientation has to be heeded (Oechsler, 2000).

It is very important to involve the partner, spouse or family already in the beginning of the process. The family keeps the expatriate grounded, but can also bear stress if the family is not able to find their way in. Therefore, not only the future expatriate but also the spouse or partner should be interviewed. His or her motivation and openness towards other cultures also plays a role in the evaluation and selection process (Wagner, 1992).

3. Contractual conditions of the employment abroad

3.1. Elements of a contract

The problem areas of the individual industrial law which consists of the appropriate industrial law as well as the contractual arrangements for the assignment abroad need to be considered in order to provide best coverage for a deployment. Therefore, contractual principles are on the one hand regulated by deployment directives and on the other hand by detailed individual contracts. When speaking about a displacement instead of a delegation the employment contract will be secluded with a foreign subsidiary. Then the following precepts apply:

- Adequate allowance in consideration of intangible burden
- Generous and fair adjustment of additional charges abroad
- Social security and sufficient support for the expatriate and his family

If a German parent company deploys their employees within a foreign subsidiary further conditions exist:

- Reemployment promise
- Retirement provisions
- Salary partially paid in Euro (if deployed outside the Euro -countries)
- Insurance coverage (social security, casualty insurance, life- and risk insurance)

The employment contract with the parent company may then be inactive for that period or be cancelled. Also a “rest-work contract” continues to exist arranging special terms like a right to return and the continuation of internal retirement provisions.

In an inactive work contract the main responsibilities become inapplicable; however the auxiliary responsibilities remain (Oechsler, 2000).

3.2. Compensation

The consistence of an expatriate’s salary as well as the choice of a remuneration model present substantial part of the contractual conditions

3.2.1. Models of international remuneration policy

So as to assist the chosen compensation model it should be designed transparently and contain calculations that are comprehensible. As general conditions may need to be adjusted quickly in various countries the remuneration package has to be flexible and matched regularly.

Basically several models are possible which all feature different assets and drawbacks; hence none of them is superior to the others (Scherm/Süß, 2001). It can be distinguished between the home-based pay approach, the host-based pay approach and the geocentric model. Ideally its composition should be based upon the company’s state of internationalization. According to this an orientation towards the standards of the parent country, the host country or worldwide guidelines are applicable (Weber et al., 2001).

Corresponding to Michael Armstrong (1999) the home-based pay approach aims to ensure that the value of the expatriate’s salary is the same as in the home country. It may be a notional one for long-term assignments. This approach influences the remuneration design by sending employees of the parent company on assignments abroad. One advantage is made up of the possibility to compare the salary system of the parent company with the salaries of those employees in similar positions. Thus the reintegration is simplified as well by using the base salary - minus allowances and other expenses which will regularly be adjusted and, where required augmented by a promotion after the assignment abroad. A disadvantage is that the salary of a PCN might be considerably higher as that of a HCN. Local employees could therefore become de-motivated (Weber et al., 2001).

The host-based pay approach provides a salary in line with that given to nationals of the host country in similar jobs (Armstrong, 1999).

Here country-specific distinctions shape the composition of the reward policy. Not only the respective absolute amount of the remuneration for comparable positions is under consideration but also other elements of the reward policy. These are characteristics such as seniority, salary intervals between different remuneration levels, the impact of performance-related remuneration properties etc.

With this system the salaries of employees within one organization or entity within the subsidiary are made comparable but not of those working for the parent company (Weber et al., 2001).

The host-based method is certainly equitable from the viewpoint of local nationals and can be less expensive than the home-based pay. But it might be much less attractive as an inducement for employees to go on an assignment abroad, especially in unpleasant locations (Armstrong, 1999).

Another problem of this approach could be that by not using a uniform remuneration policy the realization of the worldwide business objectives might not be supported enough as the employees’ behavior is not bound to go in the same direction and internationally made experiences cannot be built up systematically. The geocentric model neither considers the standards of the parent country nor those of the host country. On the basis of elements of both surroundings a consistent approach of the international remuneration policy is being developed. This method is binding worldwide and supports the strategic corporate goals. It can also be defined as a fit between corporate identity and remuneration-political orientation. In an area with a strategic emphasis on product innovations the compensation could be coupled with the reduction of “time-to-market”. As advantageous within this approach the comparison of the salary for certain positions on a worldwide level proves to be most notable. Furthermore such a system increases the employees’ international mobility by offering transparency to all parties. A problem could be the development of the worldwide prevailing standards because many cost intensive coordination processes are requisite in order to guarantee the acceptance of the system.

In commercial practice one hardly finds the presented approaches in their undiluted form. Although corporate guidelines often exist, restrictions for the implementation due to local requisitions (for example laws) or costs lead to mixed forms (Weber et al., 2001).

3.2.2. Compensating expatriates

The practical configuration of international compensation packages is multifarious and complex. Normally three factors determine the salary on a national as well as on an international level:

- The value of the function which can be acquired through an evaluation of the position,
- The market value, resulting of a comparable salary and the
- Job performance which can be gathered within the scope of an assessment of performance

In international activities more factors have to be taken into account:

- Depending on the quality of life in the deployment country a
- supplementary allowance for displacement will be added
- Differences within the standards of the living costs will be taken into consideration by the use of a buying-power-compensation This process is object of the Balance Sheet Approach, confronting the hitherto comparable salary with the future salary in a tax-neutralized form (Weber et al., 2001).

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