Staffing (or finding, choosing and placing) good employees is difficult even at home. However, it becomes more difficult in other countries. For example, until recently in Russia, very few Russians had resumes available to give to prospective employers with vacant positions. Consequently, recruiting is often done only by word of mouth. Only recently have more sophisticated methods—such as structured interviews, testing or work samples—been used on a limited basis. More systematic selection is becoming necessary in Russia and many of the former Soviet-bloc countries as younger, more highly educated candidates are being needed by international firms.
Deciding on the mix of local employees, employees from the home country, and even people from third countries that will best meet organizational goals is a challenge. In staffing an overseas operation, cost is a major factor to be considered. The cost of establishing a manager or professional in another country can run as high as $1 million for a three-year job assignment. The actual costs for placing a key manager outside the United States often are twice the manager’s annual salary.
For instance, if the manager is going to Japan, the costs may be even higher when housing costs, schooling subsidies, and tax equalization payment are calculated. Further, if a manager or professional executive quits an international assignment prematurely or insists on a transfer home, associated costs can equal or exceed the annual salary. “Failure” rates for managers sent to other countries run as high as 45%.
Factors that are most likely to be causes of concern for an employee sent overseas are shown in Figure. The figure shows that only roughly two-thirds to three-fourths of employees sent to another country are satisfied with the way the top five support needs are being met.
To meet these needs, organizations are outsourcing various functions, citing gains in cost effectiveness, expertise, and efficiency. Several respondents to a survey on the subject suggested that outsourcing certain HR functions to international experts may be a long-term trend.
Types of International Employees
International employees can be placed in three different classifications.
- An expatriate is an employee working in a unit or plant who is not a citizen of the country in which the unit or plant is located but is a citizen of the country in which the organization is headquartered.
- A host-country national is an employee working in a unit or plant who is a citizen of the country in which the unit or plant is located, but where the unit or plant is operated by an organization headquartered in another country.
- A third-country national is a citizen of one country, working in a second country, and employed by an organization headquartered in a third country. Each of these individuals presents some unique HR management challenges. Because in a given situation each is a citizen of a different country, different tax laws and other factors apply. HR professionals have to be knowledgeable about the laws and customs of each country. They must establish appropriate payroll and record-keeping procedures, among other activities, to ensure compliance with varying regulations and requirements.
(An expatriate (in abbreviated form, expat) is a person temporarily or permanently residing in a country and culture other than that of the person’s upbringing.) (A person who leave one’s native country to live elsewhere)
Many MNEs use expatriates to ensure that foreign operations are linked effectively with the parent corporations. Generally, expatriates also are used to develop international capabilities within an organization. Experienced expatriates can provide a pool of talent that can be tapped as the organization expands its operations more broadly into even more countries. Japanese-owned firms with operations in the United States have rotated Japanese managers through U.S. operations in order to expand the knowledge of U.S. business practices in the Japanese firms.
Several types of expatriates may be differentiated by job assignment, because not all individuals who decide to work as expatriates are similar in the assignments undertaken.
- Volunteer expatriates: These are persons who want to work abroad for a period of time because of career or self-development interests. Often, these expatriates volunteer for shorter-term assignments of less than a year so that they can experience other cultures and travel to desired parts of the world.
- Traditional expatriates: These are professionals and managers assigned to work in foreign operations for one to three years. They then rotate back to the parent corporation in the home country.
- Career development expatriates: These individuals are placed in foreign jobs to develop the international management capabilities of the firm. They may serve one to three “tours” in different countries, so that they can develop a broader understanding of international operations.
- Global expatriates: The broadcast category comprises those individuals who move from one country to another. Often, they prefer to work internationally rather than in the home country.
Using host-country nationals is important for several reasons. It is important if the organization wants to establish clearly that it is making a commitment to the host country and not just setting up a foreign operation. Host-country nationals often know the culture, politics, laws, and business customs better than an outsider would. Also, tapping into the informal “power” network may be important. In one Southeast Asian country, foreign companies have learned that a firm’s problems are resolved more quickly if a family member of that country’s president is a consultant to the firm or a member of its management. But U.S. firms must take care that the individuals used actually perform work for the company; the “salary” must not be a disguised bribe paid in order to obtain contracts. Otherwise, the firms could be in violation of the FCPA addressing foreign corrupt practices. Another reason to use host-country nationals is to provide employment in the country. In many lesser-developed countries, compensation levels are significantly lower than in the United States, so U.S. firms can gain cost advantages by using host-country nationals to staff many jobs.
Recruiting the first group of local employees can be a challenge. The initial group helps create a culture for that organization—for better or worse. Yet, the opportunity for serious errors is great. For example, many countries have very different employment laws, which may make it difficult to dismiss an employee. In countries where there is a shortage of qualified candidates, good potential employees may be lost if not approached correctly. To accomplish successful hiring of host-country nationals, many firms form partnerships with local companies
to help with hiring.
Using third-country nationals emphasizes that a truly global approach is being taken. Often, these individuals are used to handle responsibilities throughout a continent or region. For instance, a major U.S.- based electronics company has its European headquarters in Brussels, Belgium.
While most employees on the clerical staff are Belgians, only about 20% of the professionals and managers are from Belgium. Most of the rest, except for five U.S. expatriates, are from other Western European countries.
It is unusual to find third-country nationals in a new multinational enterprise (MNE). These are usually staffed with qualified nationals and expatriates. Thirdcountry nationals are often first hired when a company has several foreign operations and decides to open another. The choice is often between transferring another expatriate from headquarters or transferring an employee from another overseas operation. Third-country nationals are more common in MNEs with headquarters in North America than in other regions.
TRANSNATIONAL PROJECT TEAMS
There has been a dramatic increase in the number and variety of multicultural or “transnational” teams. These teams may be temporary or somewhat permanent and are formed to solve a specific problem or to handle ongoing activities. They often include headquarters representatives, host-country nationals, and third-country nationals. They are useful not only as potentially valuable business units but also as development vehicles for leaders. Eastman Kodak formed a transnational team based in London to launch its photo CD at the same time in several European countries. The team dealt with complex strategic issues across geographic and cultural barriers.