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INTRODUCTION
International management encounters many
problems above those faced by a domestic
organization.
Geographic distance and a lack of close, day-to-day
relationships with headquarters represent a major
challenge to multinationals.
"It is essential, therefore, that special attention is
given to the staffing practices of overseas units"
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Many challenges exist when staffing a business that
functions globally.
Differences in cultures provide many opportunities
for establishing a diverse workforce.
If the parent company is located in the U.S and
separate offices are being established in other areas
of the world, the HR Manager will be responsible for
making sure that the goals and timeline to reach
those goals are met.
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Depending on the type of business, the HR Manager
will need to establish a way for the policies and
philosophy of the company to be consistent in all
branches, regardless of location.
The easiest, but probably the most costly, solution is
for the HR Manager to place home-country
employees in the foreign locations in an effort to
establish a program to meet the needs of the parent
company.
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Geographic differences will present issues for
communication,
time zone differences,
language difference and more.
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STAFFING
Staffing is the process of acquiring ,
deploying and retaining a workforce of
sufficient quantity and quality to create
positive impacts on the organization's
effectiveness

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FACTORS AFFECTING STAFFING
General staffing policy on key positions at
headquarters and subsidiaries

Constraints placed by host government

Staff availability
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3 DIFFERENT SOURCES OF EMPLOYEES
First, the company can send employees from its home
country, which are referred to as expatriates, expats or
home country nationals.
Second, it can recruit host country nationals (natives of
the host country),
Third, it can hire third country nationals who are natives
of a country other than the home country or the host
country.


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CHALLENGING ASPECTS
One of the challenges is staffing the operation.
Most times bringing employees from one country
to another is expensive for many reasons. First, the
initial cost of airfare, living expenses and
transportation in the host country. The second
expense incurred with bringing expatriates in to the
international operation is the training involved in
making sure the people going to the host country
are familiar with, laws, rules, culture, and
expectations in the new country. There are also
expenses incurred of the expatriate is not fluent in
the host countries language.
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The main challenge with hiring host-country
employees is their lack of understanding about how
the organization functions at home and what the
goals are. There may be challenges when having a
person from the host county come to train the
individual, and then leaving to allow this person to
run the operation with a short amount of training
from the organizations superiors.
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One of the challenges in hiring a third-country
national is the training and cost to relocate the
individual. Though many of these hires are smart
choices because of culture and language there are
still costs incurred in relocation and also in training.
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When international expansion of the company is in its
infancy, management is heavily relying on local staff,
as it is extremely respondent to local customs and
concerns.
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As the companys international presence grows,
home-country managers are frequently expatriated to
stabilize operational activities (particularly in less
developed countries). At later stages of
internationalization, different companies use
different staffing strategies; however, most employ
some combination of host-country, home-country,
and third-country nationals in the top management
team"
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STAFFING POLICIES OF MNCS
4 CATEGORIES
Ethnocentric policy
Polycentric policy
Geocentric policy
Regiocentric policy
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ETHNOCENTRIC POLICY
The ethnocentric staffing policy refers to the strategy of a
multinational company to employ managers for key
positions from the parent headquarters instead of
employing local staff
Strategic decisions are made at headquarters

Limited subsidiary autonomy

Key positions in domestic and foreign operations are held
by headquarters personnel

PCNs manage subsidiaries

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ADVANTAGES:

To ensure new subsidiary complies with overall
corporate objectives and policies
Has the required level of competence
Overcomes lack of qualified managers in host
nation
Unified culture
Helps transfer core competencies (and skills
back)

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DISADVANTAGES:

Limits the promotion opportunities of HCNs,
leading to reduced productivity and increased
turnover among the HCNs
Longer time for PCNs to adapt to host
countries, leading to errors and poor decisions
being made
High cost
Produces resentment in host country
Can lead to cultural myopia



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REASONS FOR RELYING ON PARENT COUNTRY
NATIONALS (PCNS)
The expatriates technical and business expertise.
Ability to transfer the headquarters culture to the foreign operation
(infusing central beliefs throughout the organization).
Political understanding of the headquarters organization.
Effective communication between headquarters and the subsidiary.
Lack of qualified host country nationals (HCNs).
Greater ability of expatriates to transfer know-how from the parent
to the subsidiary.
Measure of control over the subsidiary.
Career and promotion opportunities for PCNs.
Personnel development.
No need of well-developed international internal labor market.
Rapid substitution of expatriates possible.
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MAJOR PROBLEMS WITH THIS APPROACH
Parent country nationals (PCN)continue to experience difficulties to adjust
to international assignments.
The adaptation of expatriates is uncertain.
Complicated personnel planning procedures.
The private life of expatriates is severely affected.
Difficulties in constant mentoring during the stay abroad.
This approach to staffing limits the promotion and career opportunities of
local managers, which may lead to low moral and increased turnover.
PCNs are not always sensitive to the needs and expectations of their host
country subordinates.
Tensions between the expatriate executives and the HCNs (caused by
philosophical issues such as the clash of cultures and also by some fairly
hard issues such as the often substantial income gap).
Expatriates are very expensive in relation to HCNs.
Legal regulations of the host country.
Government restrictions.
Repatriation.
High failure rate.
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POLYCENTRIC
Each subsidiary is a distinct national entity with
some decision-making autonomy
HCNs manage subsidiaries who are seldom
promoted to HQ positions
PCNs rarely transferred to subsidiary positions.
Host-country nationals manage subsidiaries
Parent company nationals hold key headquarter
positions
Best suited to multi-domestic businesses
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ADVANTAGES:
Employment of HCNs eliminates language barriers,
reduces the need for cultural awareness training
programs
Employment of HCNs allows a multinational company
to take a lower profile in sensitive political situations
Employment of HCNs is less expensive
Employment of HCNs gives continuity to the
management of foreign subsidiaries (lower turnover
of key managers)
Alleviates cultural myopia.
Inexpensive to implement
Helps transfer core competencies

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DISADVANTAGES:
Difficult to bridge the gap between HCN subsidiary
managers and PCN managers at headquarters
(language barriers, conflicting national loyalties,
cultural differences)
HCN managers have limited opportunities to gain
experience outside their own country
PCN managers have limited opportunities to gain
international experience
Resource allocation and strategic decision making
will be constrained when headquarter is filled only by
PCNs who have limited exposure to international
assignment

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GEOCENTRIC
A global approach - worldwide integration
View that each part of the organization makes a
unique contribution
Best suited to Global and trans-national businesses
Nationality is ignored in favor of ability:
Best person for the job
Color of passport does not matter when it comes to
rewards, promotion and development.

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ADVANTAGES:
Ability of the firm to develop an international
executive team
Overcomes the federation drawback of the
polycentric approach
Support cooperation and resource sharing across
units
Enables the firm to make best use of its human
resources
Equips executives to work in a number of cultures
Helps build strong unifying culture and informal
management network

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DISADVANTAGES:
Host government may use immigration controls in
order to increase HCNs employment
Expensive to implement due to increased training and
relocation costs
Large numbers of PCNs, HCNs, and TCNs need to be
sent across borders
Reduced independence of subsidiary management
National immigration policies may limit
implementation
Expensive to implement due to training and relocation
Compensation structure can be a problem.
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REGIOCENTRIC
Reflects a regional strategy and structure;

Regional autonomy in decision making;

Staff move within the designated region,
rather than globally;

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ADVANTAGES:
Allow interaction between executives
transferred to regional headquarters from
subsidiaries in the region and PCNs posted to
the regional headquarters
Provide some sensitivity to local conditions
Help the firm to move from a purely
ethnocentric or polycentric approach to a
geocentric approach

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DISADVANTAGES:
Constrain the firm from taking a global stance

Staffs career advancement still limited to
regional headquarters, and not the parent
country headquarters

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TRANSFER OF STAFF FOR
INTERNATIONAL BUSINESS ACTIVITIES
Reasons for International Assignments

Types of International Assignments

Expatriate and Non-expatriates their roles

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REASONS FOR INTERNATIONAL ASSIGNMENTS
Position filling
Skills gap, launch of new endeavor, technology
transfer
Management development
Training and development purposes, assisting in
developing common corporate values
Organizational development
Need for control, transfer of knowledge,
competence, procedures and practices
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TYPES OF INTERNATIONAL ASSIGNMENTS
Short term: up to 3 months
Troubleshooting
Project supervision
A stopgap until a permanent arrangement is found
Extended: up to 1 year
May involve similar activities as short-term
assignments
Long term: varies from 1 to 5 years
The traditional expatriate assignment

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NON-STANDARD ASSIGNMENTS
Commuter assignments
Rotational assignments
Contractual assignments
Virtual assignments
Some of these arrangements assist in
overcoming the high cost of international
assignments but are not always effective substitutes
for the traditional expatriate assignment.
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ROLES OF AN EXPATRIATE
Agent of direct control
Agent of socialization
Network builder
Boundary spanner
Language node
Transfer of competence and knowledge
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ROLES OF NON-EXPATRIATES
People who travel internationally yet are not
considered expatriates as they do not relocate
to another country
Road warriors, globetrotters, frequent fliers

Much of international business involves visits
to foreign locations, e.g.
Sales staff attending trade fairs
Periodic visits to foreign operations

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NON-EXPATRIATES ENJOY POSITIVES AS:
A Glamorous life
Excitement and thrills of conducting business
deals in foreign locations
Life style (top hotels, duty-free shopping, business
class travel)
General exotic nature

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EXPERIENCE A HIGH LEVEL OF STRESS
Home and family issues
- Frequent absences
Work arrangements
Domestic side of position still has to be attended to
Travel logistics
waiting in airports, etc.
Health concerns
Poor diet, lack of sleep, etc.

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EXPATRIATE PROBLEM
Expatriate: citizens of one country working in another
Expatriate failure: premature return of the
expatriate manager to his/her home country
Cost of failure is high: estimate = 3X the expatriates
annual salary plus the cost of relocation (impacted by
currency exchange rates and assignment location)

Inpatriates: expatriates who are citizens of a foreign
country working in the home country of their
multinational employer
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REASONS FOR EXPATRIATE FAILURE
US multinationals
Inability of spouse to adjust
Managers inability to adjust
Other family problems
Managers personal or emotional immaturity
Inability to cope with larger overseas
responsibilities
European multinationals
Inability of spouse to adjust

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Japanese Firms
Inability to cope with larger overseas
responsibilities
Difficulties with the new environment
Personal or emotional problems
Lack of technical competence
Inability of spouse to adjust.
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Strategists - representing interests of the MNEs
headquarters

Daily Managers - run operations, to build local capabilities
and gain international management experience

Ambassadors - representing headquarters interests in the
subsidiaries and representing the interests of the subsidiaries
when interacting with headquarters

Trainers - for their replacements
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Expatriate Failure and Selection
(1) premature (earlier than expected) return
(2) unmet business objectives
(3) unfulfilled career development objectives

Using the relatively easy-to-observe measure of
premature return, studies in the 1980s reported that
76% of US MNEs have more than 10% expatriates
failures, and 41% and 24% of European and Japanese
MNEs, respectively, have a comparable number of
failure cases
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EXPATRIATE SELECTION
Reduce expatriate failure rates by improving
selection procedures

An executives domestic performance does not
(necessarily) equate his/her overseas performance
potential

Employees need to be selected not solely on
technical expertise but also on cross-cultural fluency

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FOUR ATTRIBUTES THAT PREDICT SUCCESS
Self-Orientation
Possessing high self-esteem, self-confidence and mental well-being
Others-Orientation
Ability to develop relationships with host-country nationals
Willingness to communicate
Perceptual Ability
The ability to understand why people of other countries behave the way
they do
Being nonjudgmental and being flexible in management style
Cultural Toughness
Relationship between country of assignment and the expatriates
adjustment to it

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COMPONENTS OF EXPATRIATE PAY
Base Salary
Same range as a similar position in the home
country
Foreign service premium
Extra pay for work outside country of origin
Allowances
Hardship, housing, cost-of-living and education
allowances
Taxation
Firm pays expatriates income tax in the host
country
Benefits
Level of medical and pension benefits identical
overseas

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Compensation
Benefits
Employment and
Taxation Laws
Organizations
Compensation Policy
Competitors
Standard of Living
Political and Social
Environment
Allowances
Economic
Conditions
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Expatriate costs may pose a multiple-fold expense in
relation to employees who are not sent as expatriates
to foreign destinations, and are usually significantly
higher than the compensation accorded to HCNs and
TCNs
a Chinese manager with 15 years experience costs less than
USD 70,000 per annum, while

a US expatriate manager with corresponding expertise would
cost his or her organization USD 300,000 per year

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Base Salary
The base salary is usually the main component in
international compensation, and is the main
benchmark used for other elements in an expatriate
compensation package, such as bonuses and
benefits

The base salary is either paid in the expatriates
home or parent country currency, or in the currency of
the expatriates host country

KEY COMPONENTS OF INTERNATIONAL
COMPENSATION PROGRAMME FOR
EXPATRIATES
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Hardship Premium
For expatriates (usually PCNs, TCNs) who will
encounter hardships caused by the transfer to a
foreign location, determining the appropriate level of
payment can be difficult
Factors determining the hardship premium, usually expressed
in terms of an expatriates base pay, are typically:
Assignment
Actual hardship
Tax consequences
Length of assignment

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Allowances: There are many types of allowances in
an international compensation package:
Cost of Living Allowance Payment made to the
expatriate with a view to compensating for
differences in expenditure between the home or
parent country and the host country. Factors such
as inflation differentials and the price level need to
be considered. Often, the cost of living allowance is
difficult to determine

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Housing Allowance Payment made to the
expatriate with a view to ensuring that he or she can
maintain their home-country living standard in the
host country. Alternatively, an organization may
provide housing facilities on a mandatory or optional
basis. Also, support services may be provided to the
expatriate, for example, by helping sell or rent the
expatriates house in the home country

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Home Leave Allowance Payment made to the
expatriate with a view to facilitating their visit back to
the home country, once or twice a year. Home leave
enables the expatriate to renew business, family and
social ties, and thus avoid adjustment problems
subsequent to repatriation
Relocation Allowance Payment made with a view to
enable the relocation of the expatriate to the
assignment location. Includes moving, shipping,
storage costs, subsidies for purchase of appliances
and (possibly) an automobile
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Education Allowance Payment made with a view to
supporting the education of the expatriates children,
i.e. tuition, language class, school enrollment fees,
books and supplies, transportation to educational
establishment, room and boarding, school uniforms
etc. Problems regarding the level of education
required and adequacy of schools in the host country,
and transportation to other localities may pose
significant problems for organizations
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Miscellaneous Allowances Depending on the level
of seniority of the expatriate, payments to him or her
for club memberships, sport associations,
maintenance of household staff etc. may be rendered

In addition, the organization may render financial
assistance to the spouse for her or his loss of income
as a result of the transfer of the expatriate
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Benefits Support rendered to an expatriate in
addition to the allowances provided. There are
several types of benefits, more prominent examples
being:
Social Security Benefits (home country or host
country?)
Paid Vacations for expatriate and family
Rest and Rehabilitation leave (especially for
expatriates based in hardship assignment
locations)
Emergency Cases (severe illness, death)
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APPROACHES
There are two basic approaches used to
determine an international compensation
package:

The Going Rate Approach

The Balance Sheet Approach
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THE GOING-RATE APPROACH
Based on local market rates
Relies on survey comparisons
Local nationals (HCNs)
Expatriates of same nationality
Expatriates of all nationalities
Compensation based on the selected survey comparison
Base pay and benefits may be supplemented by additional
payments for low-pay countries
Example: Should a Pakistani bank operating in London use
local British salaries, the salaries other Pakistani competitor
banks in London or the average salary offered by all foreign
banks operating in London as the reference point for the base
salary offered


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ADVANTAGES
Equality with local nationals

Simplicity

Identification with host country

Equity amongst different nationalities

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DISADVANTAGES
Variation between assignments for the same
employee
Rivalry between expatriates of same
nationality in getting assignments to some
countries
Potential reentry problems in the home
country

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Based on the premise that employees on overseas
assignments should have the same spending power
as they would in their home country.
The home country is the standard for all payments.
The objective is to:
Ensure cost effective mobility of people to global
assignments
Ensure that expatriates neither gain nor lose
financially
Minimize adjustments required of expatriates


BALANCE SHEET APPROACH
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The balance sheet approach is widely used by
international organizations to determine the
compensation package for expatriates:
Basic objective is the maintenance of home-country
living standard, plus financial inducement
Home-country pay and benefits are the foundations of
this approach
Adjustments to home package to balance additional
expenditure in the host country
Financial incentives (expatriate / hardship premium)
added to make the package attractive

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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 offset qualitative differences
between assignment locations
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OUTLAYS CONSIDERED IN THE B S A
BSA considers 4 types of outlays which are incurred by
expatriates:

Goods and services Outlays incurred in the home
country for food, personal care, clothing, household
furnishings, recreation, transportation & medical care

Housing All major costs associated with housing in
the host country
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Income Taxes Parent country & host country
income tax expenditures
Reserve Contributions to savings, payments for
benefits, pension contributions, investments,
education expenses, social security taxes, etc.

Where costs of host country > costs of
home country organization pays the expatriate to
make up the difference

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BALANCE SHEET APPROACH
Allowances,
paid by
company
Reserve
$1,000
Goods and
Services
$2,000
Housing
$2,000
Taxes
$2,000
Home Country Salary
$7,000
Reserve
Goods and
Services
$700
Housing
$1,000
Taxes
$1,500
Relocation
Bonus
Equivalent Salary and
Allowances, Host Country
$10,200
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ADVANTAGES
Equality between assignments & between
expatriates of the same nationality

Facilitates expatriate reentry

Easy to communicate To employees

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DISADVANTAGES
Can result in considerable disparities between
expatriates of different nationalities &
between expatriates & local nationals

Can be quite complex to administer (e.g.
changing economic conditions, taxation)

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OTHER APPROACHES
Negotiation
Localization
Lump Sum
Cafeteria Plan
Regional Systems
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Global compensation managers increasingly
deal with two areas of focus.
They must manage highly complex and turbulent
local details, while
Concurrently building and maintaining a unified,
strategic pattern of compensation policies,
practices and values.

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EXPATRIATE EXPECTATIONS
Financial protection in terms of benefits, social
security and living costs in the foreign location.

Opportunities for financial advancement through
income and/or savings.

Issues such as housing, education of children and
recreation to be addressed in the policy.

Career advancement and repatriation.

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KEY COMPONENTS OF INTERNATIONAL
COMPENSATION
The area of international compensation is
complex, primarily because multinationals
must cater to three categories of employees:
PCNs, TCNs and HCNs
Key Components:
Base salary
Foreign services inducement
Hardship premium
Allowances
Benefits
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EXPATRIATE COMPENSATION WORKSHEET
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EXAMPLE OF AN EXPATRIATE COMPENSATION
An expatriate working in a U.S. branch may
receive:
Base pay: $1,400/mon
Housing: up to $1,400/mon (Optional)
Itemized reimbursement: $500/mon
Discretionary expense (e.g., gifts & gratuity to
clients and partners): $1000/special holidays
Benefits: Social security/Medicare (Optional)
Health care: $200/mon paid by employer
Unemployment coverage
Workers comp

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REPATRIATION
process of facilitating career anxiety
experienced by repatriates (returning expatriates)
psychological contract - informal understanding of expected
delivery of benefits in the future for current services
repatriates also experience a loss of status, spouse and children
may also find it difficult to adjust back home
mentor - helps alleviate the out-of-sight, out-of-mind feeling by
ensuring that the expatriate is not forgotten at headquarters and
by helping secure a challenging position for the expatriate upon
return

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EXPATRIATION vs. INPATRIATION
Addressing the expatriation problem, one solution is
inpatriation relocating employees of a foreign subsidiary
to the MNEs headquarters for the purposes of
(1) filling skill shortages at headquarters and
(2) developing a global mindset for such inpatriates.
Most inpatriates are expected to eventually return to their
home country to replace expatriates. Unfortunately, many
are ineffective.
Inpatriates, just like expatriates, have their fair share of
problems and headaches.
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