Case study related to international human resource management

Case Study Unit 8

Using your textbook, read the case study provided on pages 305-311. Once you have completed reading the case study, answer the questions on pages 310-311.

Your Case Study should be at least 1-2 pages in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. Include an APA format title page and reference page with the assignment. The title page and reference page are not included in the required page length

Dowling, P., Festing, M., & Engle, Sr., A. (2013). International human resource management (6th ed., 305-310). Andover, Hampshire: Cengage Learning.

INTRODUCTION

In this book, we have explored the IHRM issues relating to managing people globally. To that end, we have focused on the implications that the process of internationalization has for the activities and policies of HRM. We now turn our attention to developments that have not previously been emphasized in the general IHRM literature and the challenges they present to IHRM: international business ethics, mode of operation, nongovernment organizations (NGOs), and the developing role of IHRM in contributing to safety, security and dealing with global terrorism. In a sense, a number of these topics reflect what some Japanese MNEs refer to as the 'general affairs' aspect of IHRM - in Japan it is common to use the term 'Human Resources and General Affairs' for the HR function1 because there is an expectation that the human resource function will be the first line of defense in dealing with unpredictable and emergent issues from the many and varied environments and constituency groups that make up the complexity of MNEs.

In the sections that follow we return to a discussion of some issues that distinguish HRM in MNEs and revisit the framework of strategic HRM in MNEs presented in Chapter 1 - see Figure 10.1. These topics include issues associated with external factors and organizational factors that impact on the HR function and practices as these issues relate to strategic HRM in the MNE.

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( MNE Performance 1 Financial performance • Social performance 1 Enterprise resilience )

FIGURE 10.1 A model of strategic HRM in multinational enterprises External Factors

HR Function

· Global corporate HR role

· HR practices

· Crisis management and coordination

· PESTLE

· Organizational links with other MNEs and with national goverments

· Asymmetric events

· Environmental dynamics

Organizational Factors

· MNE balance of global integration and local responsiveness

· MNE structure

· Firm size and maturity

· MNE Strategy

· Corporate governance

· Headquarter's international orientation

· MNE culture

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·

Source: De Cieri, H. and Dowling, P. J. 2012. 'Strategic human resource management in multinational enterprises: Developments and directions', In G. Stahl, I. Bjorkman and S. Morris (eds) Handbook ofResearch in International Human Resource Management, 2nd Ed. (Cheltenham, UK: Edward Elgar). Reproduced with permission from Helen De Cieri and Peter J Dowling.

External factors: International business ethics and HRM

Global business organizations face a key challenge: should they apply their own values everywhere they do business, irrespective of the cultural context and standard of local practices? To appreciate the dilemma, take the situation of a multinational that has assigned a PCN to manage its operations in a host country where bribery is commonly practiced, child labor is used and workplace safety is inadequate by Western standards. Whose standards should prevail? Should they be the standards of the MNE's parent country or the host country?

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There are three main responses to this question. The first involves ethical relativism, the second ethical absolutism and the third, ethical universalism. For the ethical relativist, there are no universal or international rights and wrongs, it all depends on a particular culture's values and beliefs. For the ethical relativist, 'when in Rome, one should do as the Romans do'. Unlike the relativist, the ethical absolutist believes that 'when in Rome, one should do what one would do at home, regardless of what the Romans do'. This view of ethics gives primacy to one's own cultural values. Opponents of this view argue that ethical absolutists are intolerant individuals who confuse respect for local traditions with ethical relativism. It must be noted that while some behaviors are wrong wherever they are practiced (e.g. bribery of government officials), other behaviors may be tolerated in their cultural context (e.g. the practice of routine gift giving between Japanese business people). In contrast to the ethical relativist, the ethical universalist believes there are fundamental principles of right and wrong which transcend cultural boundaries, and that MNEs must adhere to these fundamental principles or global values.

The existence of universal ethical principles can also be seen in the agreements that exist among nations that are signatories to the United Nations Declaration of Human Rights and a number of international accords such as the Guidelines for Multinational Enterprises adopted by the Organization of Economic Cooperation and Development (OECD). The need for international accords and corporate codes of conduct has grown commensurately with the spread of international business and the considerable growth of offshoring (as noted in Chapter 9), but translating ethical principles and values into practice in the international business domain is an enormous task in the absence of a supranational legislative authority. Efforts to make progress in this area have centered on regulation, the development of international accords and the use of education and training programs.

New global developments on the criminalization of bribery

Bribery and corruption tend to top the list of the most frequent ethical problems encountered by international managers.2 Bribery involves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage. Bribery can be distinguished from so-called 'gifts' and 'facilitating' or 'grease' payments. The latter are payments to motivate agents to complete a task they would routinely do in the normal course of their duties. While most people do not openly condone bribery many argue for a lenient approach based on the view that bribery is necessary to do business (the ethical relativist's argument). However, it is now generally agreed that bribery undermines equity, efficiency and integrity in the public service; undercuts public confidence in markets and aid programs; adds to the cost of products; and may affect the safety and economic well-being of the general public.

For these reasons, there has been an international movement to criminalize the practice of bribery. In 1977 the United States enacted the Foreign Corrupt Practices Act (FCPA) to prohibit US-based firms and US nationals from making bribery payments to foreign government officials. In addition, payments to agents violate the Act if it is known that the agent will use those payments to bribe a government official. The Act was amended in 1988 to permit 'facilitating' payments but mandates record-keeping provisions to help ensure that illegal payments are not disguised as entertainment or business expenses. The FCPA has in the past been criticized for placing US firms at a competitive disadvantage since European and Asian firms did not face criminal prosecution for paying bribes to foreign officials3 but the evidence on the competitive disadvantage of the FCPA is mixed. The FCPA has also been criticized by some for being ethnocentric while others see this law as evidence of moral leadership on the part of the USA.4

In the absence of adequate international self-regulation to control bribery and corruption, the US has lobbied other nation-states over many years to enact uniform domestic government regulation to provide a level playing field. These efforts met with some success in December 1996 when the United Nations adopted the Declaration Against Corruption and Bribery in International Commercial Transactions which committed UN members to criminalize bribery

and deny tax deductibility for bribes. A year later, the Declaration was endorsed by 30 OECD member nations and four non-member nations with the adoption of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention). Under the OECD Convention members agreed to establish domestic legislation by the end of 1998 criminalizing the bribing of foreign public officials on an extraterritorial basis. The OECD Convention came into force in February 1999 and as of 2009 had been ratified by 38 countries. Each member state is required to undergo a peer review and to provide a report reviewing its implementation of the Convention. Country reports are available on the OECD website. The OECD Convention requires sanctions to be commensurate with domestic penalties applicable to bribery of public officials.

Given the seriousness of offences and penalties in the OECD Convention, it is imperative that enterprises involved in global business take active steps to manage their potential exposure. Also, although the OECD Convention currently addresses the supply side of corruption in the public sector, it is likely that the scope of the Convention will be expanded to include bribery in the private sector as well as the demand side of bribery. HR professionals have an important role to play in instituting a strategic plan for legal compliance and developing corporate codes for voluntary compliance. They can also provide training in understanding the difference between corrupt bribery payments, gifts, and allowable facilitation payments and the development of negotiation skills to handle problem situations that may arise in sensitive geographical regions and industries. The debate over payments to foreign officials is likely to continue for many years to come.5

The Berlin-based non-government lobby group, Transparency International (TI) publishes an annual Corruption Perceptions Index. The index measures perceptions, not actual levels of corruption for over 50 countries and is based on international surveys of business people and financial journalists. Each country is scored from 10 (highly clean) to 0 (highly corrupt). Table 10.1 shows the country rank of the top 20 least corrupt countries in descending order from the 2010 index. Denmark, New Zealand and Singapore (all small population advanced economies) are the top equal-ranked three least corrupt countries. The countries perceived to be most corrupt are Guinea, Iraq, Myanmar and Haiti which are ranked at the bottom of the list of 163 countries.6

The public and financial consequences of a bribery scandal can be significant for an MNE. The IHRM in Action Case 10.1 provides a sense of the actual and reputational costs of unethical conduct for a MNE. This case was first made public in late 2006 and in December 2008 US authorities fined Siemens a record US$800 million and German authorities issued a fine for 395 million Euros over the failure of its former board to fulfill its supervisory duties. The total cost of this case for Siemens was 2.5 billion Euros. Action was also taken against individual Siemens managers by German authorities in early 2010 when two former managers were given suspended prison sentences and large fines for their roles in this corruption scandal.7 Recently, The Economist magazine entered into the debate on international bribery and corruption, noting that 'Firms are increasingly fed up with the way America's Foreign Corrupt Practices Act (FCPA) is written (confusingly) and applied (vigorously)'.8 Comparing the FCPA to the recent British Bribery Act passed in 2010 which covers both domestic and international bribery cases, The Economist stated that although the British law makes no allowance for 'facilitation payments', it does allow a 'compliance defense' that allows a firm to avoid the harshest penalties if the wrongdoer is a junior employee and the firm otherwise has a strict anti-bribery policy that is clearly communicated to employees and effectively administered.

Ethics-related challenges for the HR function of the multinational enterprise

Managers involved in international business activities face many of the same ethical issues as those in domestic business, but the issues are made more complex because of the different social, economic, political, cultural and legal environments in which MNEs operate. Firms which opt

contractor wages, health-care benefits, working conditions and job security, and the competitive impact of Wal-Mart's 'super-stores' on traditional local retail establishments, city center infrastructure and small-population communities have initiated a worldwide discussion of the economic, social and political consequences of global business.10

Little is presently known about the evolving roles and responsibilities for HRM in balancing the economic imperatives of cost control and global standardization with the social and institutional realities of citizenship in a widening range of diverse contexts - particularly in terms of the development of labor sourcing, compensation and employee relations strategies.11 However, it seems clear that these are likely to remain dominant issues in international business in the twenty-first century - particularly with regard to the complex issue of evaluating the overall performance of foreign subsidiaries and their senior management team.12

Organizational factors: Structure, strategy and IHRM

We have stressed the need to broaden the scope of IHRM beyond that of subsidiary operations. While not downplaying its importance, for many MNEs, managing and staffing subsidiary units is only one aspect of international business operations, though the weighting given to subsidiary management will vary significantly according to the nature of international activities and the size of the internationalizing firm (see Chapters 1 and 3). The fact that external parties are involved in contractual modes, joint ventures and strategic alliances imposes management and HR constraints that are not usually present in wholly owned operations. While the HR implications of international joint ventures have received considerable attention in the literature,1 there remains a need for studies that consider the HR implications of contractual modes where the firm is operating at arm's-length. Training, for instance, is often an important part of contractual modes, playing a key role in the transfer of technology and systems, inculcation of company culture, and acting as a screening process (for example, in selecting suitable franchisees). As a result, staff may be primarily involved in short-term assignments to deliver training in foreign locations, rather than as traditional expatriates.14

Non-government organizations (NGOs)

We have already identified the importance of NGOs in Chapter 9 when discussing the importance of the institutional context in influencing the strategies and decisions of MNEs. We noted that the globalization of trade and business has provoked a vigorous debate within national states with events such as anti-globalization rallies and protests. The activities of environmental groups illustrate how these organizations have also become internationalized and interact with the key MNEs in a range of global industries. For example, a visit to the home page of Greenpeace International illustrates the range of issues and industries that this NGO is focusing on and the key MNEs in various global industries that Greenpeace is seeking to influence. Recently, the importance of NGOs was recognized by The Global Journal (http://theglobaljournal.net) which released its inaugural "Top 100 NGOs" list. The top 10 NGOs in this list contain some well-known NGOs such as The Wikimedia Foundation (#1), Oxfam (#3) and Care International (#7) but it also contains NGOs that are less familiar such as BRAC (formerly known as the Bangladesh Rural Advancement Committee) which is now a global organization with over 110 million beneficiaries. This diversity of activities and focus across a range of industries further illustrates the impact and influence of NGOs which will continue to be of importance to the activities of MNEs.

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External factors: Challenges in an uncertain world: Safety, security and counterterrorism15

Traditionally, many domestic and international human resource managers have been responsible for legal compliance and training issues related to safety in the workplace.16 As national and international regulations related to workplace safety expanded, specific professional standards of practice, reporting mechanisms and roles were specified in the area of corporate risk management.17 Risk categories associated with natural disaster protocols, emergency and disaster preparedness plans for MNE plant and facilities, workplace violence policies, industrial theft and sabotage protocols, and 'hardening' individual facilities to enhance in-house security have emerged and a growing body of professional and academic literature exists. Less clear are the particular roles, expectations and portfolios of responsibilities that IHRM managers and directors have been called upon to incorporate into their existing responsibilities. Intuitively, in smaller MNEs - operating in less sensitive industries and less turbulent markets - the IHRM generalists will be called on to incorporate these protocols by outsourcing technical security systems and personnel as required.18 In larger organizations, particularly MNEs operating in more public and sensitive industries and/ or more socially and politically turbulent regions of the world, significant investment in developing integrated, coordinated and specialized risk management practices within the HR function is warranted. Many MNEs have developed their own idiosyncratic systems and processes in response to a history of 'critical incidents' which the firm has experienced over years or even decades - e.g. the kidnapping of an executive, a natural disaster impacting a key facility, or an airline or private aircraft disaster that decimated the executive cadre of the MNE.

Not surprisingly, executives in most MNEs are unwilling to discuss the protocols, processes, systems and structures in place in this sensitive area. More recently emerging risk categories relate to cyber-terrorism, political terrorist groups targeting specific firms and industries and the risks inherent in pandemics, such as SARS, avian flu and airborne contaminants (as discussed in Chapter 1). For a recent overview of the area of conflict, security and political risk in international business, see the Special Issue of Journal of International Business Studies edited by Henisz, Mansfield and Von Glinow.19

As a working set of corporate risk assessment categories, a starting point for a MNE-specific audit, would include the following five areas:

In-facility emergency and disaster preparedness - including being in compliance with local safety laws and standards (e.g. occupational safety and health administration rules in the USA), creating a command center and triage area, protocols for transport-evacuation and the systematic location of employees, liaison with public-sector emergency workers and media relations.

In-facility security - comprised of perimeter security, search protocols into and out of facilities (truck inspections, deliveries, etc.), internal search protocols (lockers, etc.), bomb threat procedures, risk control for violence in the facility and threats to management (including training on warning signs, protection of property and equipment and safeguarding executives), protection and lighting in parking areas and the use of cameras in the workplace.

Industrial espionage, theft and sabotage - activities to secure internal communications (emails, telephones, etc.), open records protection, employee privacy regulations, clearly defined physical inspections and search processes.

Cyber-terrorism - hardware, software and human systems to deal with hacking, information theft, internal sabotage, the sabotage of software systems and the development and maintenance of an architecture of back-up systems and multiple independent operations for information systems.

Out-of-facility fire and travel risks - providing traveling managers with portable five-minute air packs, travel policies prohibiting employees staying in hotel rooms above the seventh floor (most aerial ladders on Are trucks only reach to the sixth floor), policies prohibiting top-level managers from traveling on the same airline flight/private aircraft, hotel evacuation training if traveling teams of employees are staying at the same hotel.20

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According to Czinkota et al., analytically, IHRM managers may be able to assess the potential risk from terrorist threats at three levels of analysis: primary - 'at the level of the individual person and firm'; at the micro level - 'specific regions, industries or levels in international value chains'; and at the macro level - 'the effect of a terrorist attack on the global environment. . . the world economy, consumer demand for goods and services, and reactions by supranational organizations such as the United Nations'.21 As an example of micro-level risk analysis, the travel/hospitality industry is particularly sensitive to terrorist events or natural disasters that may inhibit travel in general, travel to a certain region or country, or to specific travel destinar tions.22 On the primary and micro levels:

It is useful to distinguish the most vulnerable links in firm's value chains. From the individual [firm's] perspective, it is more useful to view terrorism at the micro level wherein input sourcing, manufacturing, distribution, and shipping and logistics are likely to be the most vulnerable areas.23

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There is little doubt that terrorism is perceived to be a significant threat by MNEs. The World Economic Forum Global Risks Landscape 2011 report rated the perceived likelihood of terror-

ism as 'Very likely' and the perceived financial impact was approximately US200 Billion. A Delphi study in 2008 by Czinkota and Ronkainen found that the five business functions within MNEs that will have the most influence on global business in the future will be: 1. Logistics; 2. Marketing; 3. Human Resources; 4. Finance; 5. Communications.25 By systematically analyzing people and processes, IHRM professionals may contribute to 'stabilizing risk'2 through recommendations that 'harden' processes in the value chain, recruit people with capabilities and skills relevant for these kinds of processes and train employees in these processes and systems.

In a similar vein, Gillingham presents risk analysis in terms of partitioning security risk into an external environmental dimension (geographic region of operation) and an internal firm dimension (industry, firm media profile, national affiliation associated with the MNE). Low-risk firms in low-risk environments do not need to invest as heavily in security systems and protocols. High-risk firms in low-risk environments should follow security strategies that focus on hardening individual sites. Low-risk firms in high-risk environments can follow security strategies that disperse activities across the region and build redundant infrastructure, so that value chain activities in the high-risk region can be provided by out of region units. High-risk firms in high-risk environments must invest much more in quite elaborate risk management strategies.27 Much remains to be understood in this rapidly evolving area, and the expectations, standards and practices of IHRM executives and professionals as they relate to safety and security are in flux. According to Czinkota et al.:

In depth case studies on firms directly affected by terrorism will also serve to provide grounded information as to the nature of the relationships between types of terrorism and their specific effects, and facilitate the development of models and theory.28

A similar conclusion can be reached in terms of the need for a better understanding of these challenges facing IHRM in MNEs.

The evolving field of IHRM

The field of IHRM has been criticized as being slow to develop as a rigorous body of theory. There are a number of reasons for this. One reason is that compared to studies in one national context, there are major methodological problems involved in the area of international management and IHRM. These problems greatly increase the complexity of doing international research and, as Adler29 noted some years ago, it is often quite difficult to solve these problems with the rigor usually required of within-culture studies by journal editors and reviewers.

CASE 5

LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

By Maike Andresen2

CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

305 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

Akiko Nishimura is upset and exhausted. She prepares a fresh juice and wants to relax a bit. It is three o'clock in the afternoon and she just came back to her apartment situated in a suburb of New Delhi. Today she had an appointment with her HR manager, Mrs Puja Malik, that lasted three hours. Akiko is more than upset about the offer the HR manager made and does not understand the world any more.

Akiko is 40 years old and was bom in Tokyo. After her studies in management at the University of Tokyo and Wharton Business School in the USA she started her career with a German multinational manufacturing company in Tokyo in the controlling department. Two years ago her boss offered her to go on an expatriate assignment to New Delhi, India, in order to gain international experience and develop her talent further. Her husband Hiroshi and two daughters, at that time 12 and 10 years old, immediately agreed to change locations and followed her. Hiroshi interrupted his career as a broker in a multinational bank.

After two years in New Delhi, Hiroshi still could not find an adequate job. Although the whole family enjoyed living in India and Akiko liked her job, Hiroshi became impatient and could not stand his inactivity any more. Through a former client he got to know about a challenging job opportunity in Singapore and successfully applied for the position. Akiko shared Hiroshi's happiness and felt that she wanted to follow him to Singapore. So she contacted her HR manager, Puja Malik, a few weeks ago and started to talk to various people within the organization in her personal network, to find out what the options would be and let people know that she is looking. Yesterday, Puja Malik called her and asked for an appointment. They met today in order to talk about several opportunities and the conditions. Whereas the positions were very appealing to Akiko, the conditions were absolutely unreasonable in her perspective. After two hours Akiko became angry, but her HR manager defended the offer with the restructuring of the company and new policies that came up. 'As you know, Akiko, the company started up as a technology venture about 120 years ago with its production located in Germany. In order to be profitable their production and sales needed to increase. Due to limitations in the home market, they expanded internationally in the 1920s starting with France and quickly followed by several other countries in each of the five continents. In the 1970s the company employed 300000 people, with more than two-thirds of these outside Germany. Due to this extensive expansion worldwide as well as an increasingly diverse product line, the idea of controlling the entire organization from the German headquarters was seen as an impossible task. There was a need to organize into smaller, more flexible and more manageable units. Hence, the decision was made to set up a "national organization" in every country where there were active enterprises. These national organizations were supported by the international organization at headquarters. In the course of the last 20 years these national organizations grew to be very independent. The executive board saw the need to start focusing on a more user-oriented policy of globalization. In this reorganization process the product divisions gained a more prominent role in the structure. Today, you still see a clear role of both the product divisions but also the country organizations in the corporate structure.' Puja Malik points a finger at the annual report and outlines the organizational chart, (see Figure 1.)

Puja Malik continues: 'Although the compa" wants to act as one company, it always has to foc-s on the challenge to work with three quite indepenoe" sectors. Today, the company is situated in arou^ d : countries worldwide with more than 116 000 emc : -ees. The HR department is currently involve: - ? change process, moving toward offering more serv-ices from shared service centers. One reason for ft : is the request to be more effective and efficier: - --.

FIGURE 1

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

( Product Division 1 ) ( Product Division 2 Product Division 3 Corporate Departments / BusinessX V Unit J ) ( / Business\ / Business\ VUTit^ \^Unit^ V ^ JJnit^ )

Country A

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

Country B

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

( J Business\_ ) ( / Business\ )

Country C

_/Business\

Vuiit^ V^Unit^

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

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CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS

process especially with the vision to be "one company".'

Up to current time, when people have been moving across countries through the company, the standard has been that people mostly moved on a home-based expatriate contract. This rule also applied to Akiko when she expatriated to New Delhi. However, her HR manager recently informed her that there are new rules and that according to this new policy her expatriate contract would not be renewed when going to Singapore. Puja Malik argues: 'I think in terms of transfer, until a few years, we were quite generous with our expat policy. So when there was a need to, let's say, shift talent - just like you, Akiko -, or people with scarce knowledge around the globe we just gave them an expat package. But I think people in general are more open for moving around the globe, instead of going a few years and then wanting to come back. I can see that more people are looking for a career across borders. And this may not be in the form of full expat packages in our company.'

Puja Malik obviously sees the need to give a further explanation. She adds that after a long upturn period, the company also has to face the problems of the current economic crisis. This tendency is now forcing the company to rethink their strategy in regards to what they are providing for their employees who are going abroad in order to manage the costs involved. Until recently handling international assignments mostly with expatriates seemed the right way of doing things. But the company is facing a new population, those who stay abroad for a longer term or even permanently. 'You need to know, Akiko', Puja Malik goes on, 'we have employees that have been in the same country for eight years on an expat package. But they are not expats anymore! And then you have the globetrotter, those who have had three or four different expat assignments. So they have left their country for more than ten years and we don't know when and if they are coming back. What do you do with them?'

Puja emphasizes that this change was placing the company in a position where they were forced to go through and analyze their current policies in regards to international mobility. The intention was to create a cost effective alternative for this new emerging population.

Akiko's first expatriate assignment to New Delhi

Akiko thinks back to her first move from Tokyo to New Delhi. Things were dealt with differently two years ago. She was part of the talent pool (and still is) and

received special treatment. Today this expatriate population comprises about 750 people.

The company uses expatriation for two main reasons: First, as a career assignment for talent to gain international experience and, second, as a job assignment to transfer knowledge across borders. Whereas the company wishes to have 70 per cent of expatriates in a career assignment and 30 per cent on a job assignment, it is now evenly distributed. Moreover, to be able to give an international assignment to as many employees as possible, the company has implemented a policy saying that assignments should be a maximum of three years, and that one employee should not cumulate too many different assignments. Although originally Akiko asked for an assignment of five years in order to facilitate the change of jobs for her husband, this request was turned down. She remembers that she has been told 'If you stay longer in a country, then you block the career of someone else'. Akiko agreed and signed a contract for three years.

Her expatriate package is home based. This means that she was meant to return home to Tokyo after the assignment, Akiko was kept under her home social security, health insurance and pension plan. The expatriate package comprises all the usual expatriate facilities and services. Akiko got to know that this expatriate package has additional cost for the company of about three times the base salary. That is also why the company wants to limit the extent of these expensive expatriate assignments only to critical positions.

'Akiko', Puja Malik argues, 'the company has created different types of packages for different types of international work. When you move to Singapore, the balance between the business and the employee

FIGURE 2 The Local International Policy Costs to be covered by the company:

interest leans more in the direction of you. Hence, we offer a different contract and package to you that is called local international contract.' Akiko knows what all this is about and she gets upset. She feels that the company wants to minimize a number of costs by making some of them optional. She thinks that this is not fair as she is still growing in her career and investing a lot into the company in terms of energy and working hours while giving up her easy life in Tokyo. It was the firm's idea to send her to New Delhi! Moreover, her husband risked his career and her two daughters had to change school and lost contact with their grandparents back in Tokyo.

What is this new Local International Policy about?

Puja Malik expands on the new policy: 'The local international policy came about last year as a response to an emerging need especially in Asia. We saw that owing to globalization there were many foreigners coming here on an expatriate assignment, and many of these foreigners also had a wish to stay. This resulted in a need for using a locally based contract, but that would still attract foreigners to travel. As a pure local contract would not be able to attract these employees, we decided to provide some extra benefits to these local international hires. The local international contract fits between an expatriate and a local package. Even though these transfers are partly employee initiated, we provide a slow landing into the new country. This means that the host country provides some kind of support.' (see Figure 2.)

· Individual host country based salary and incentives according to local scheme.

· Settling-in allowance (to cover the incidental miscellaneous expenses of a move, e.g. temporary accommodation and meals on arrival, school uniforms and books for school-age children).

· Medical check up.

· Visa and permits (based on country standards).

· Travel costs (outward journey; one home trip during first year).

· Optional: Allowance for housing and school (-50% after year 1, 0% after year 2).

· Optional: Retention bonus.

· Optional: Allowances according to local needs.

·

FIGURE 3

Akiko understands that the thought behind the local international package is to provide an alternative to the expatriate package for those cases where it is a permanent relocation of an international manager. As the local international package is really a locally based package, the salary is also based on the local salary system in the host country. Puja Malik adds: 'For the expat package, you know from your own experience, Akiko, that we have a balance sheet approach, where we want to ensure that the purchasing power from the home country is maintained in the host country ... But for the local international contract, we do not want to link to the home country.' Akiko sees a major problem in that and immediately asks what would happen if an international hire moves from a high income country to a low income country and Puja Malik confirms that this would lead to a lowering of the salary although the company is aware of the fact that under these conditions it might be difficult to attract foreigners on a purely local salary.

Akiko is irritated and concludes that she would not accept a decrease in her income when going to Singapore. Still she wants to understand why all this happens. 'Puja, apart from the salary level, what do you mean by the "slow landing" that you mentioned before?' Puja replies, 'This means that in addition to your salary, the company will give you some extra benefits such as relocation support, settling-in allowance and one home trip during the first year.' Puja points to her computer screen and shows Akiko what she can expect when moving to Singapore:

Akiko becomes aware that in contrast to her current expatriate contract no pre-assignment visit is paid for, she needs to arrange the house hunting, negotiation, school search, etc. by herself and all 'normal' costs of living, such as housing or schooling, are to be handled by herself; any financial support ends after two years when she will be on a normal local contract. 'But, Puja, why does this new rule apply to me? I am currently on an expatriate contract - why should I opt out of it now?' Akiko interjects. 'This is', replies Puja, 'due to our rules. The following elements justify a local international contract: The person in question is an internal employee who is relocated. And the person is not what the company considers a talent or a top potential employee. Your case, Akiko,

is exceptional as you are a talent or top potential but', Puja Malik emphasizes, 'your relocation to Singapore is not a career or job assignment. You know, Akiko, your position in Singapore could just as well be filled by a local employee. In addition, we expect these employees to localize.' Akiko intervenes resolutely: 'But things can change fast and I might want to make another move after three to five years if a great opportunity comes up!' Puja Malik reacts: 'Yes, but for the time being we treat it like a permanent relocation. And, finally, it is based more on your own initiative and decision to move. Look and see - this is our decision tree.' (see Figure 3.) Once again, Puja Malik points to her computer screen where she uploads the decision-making tree on assignment type.

Puja Malik stresses that these decisions are not easy to make. She illustrates that first of all, in a constantly changing environment it is of key importance for the company to keep their employees mobile. Akiko understands that in a localization process it is therefore of great importance to think ahead whether the person that is to be put on a local contract is likely to get a new assignment in another country later on in his or her career. If first a person is localized, the bonds to the new country may often be stronger as some might buy a house or send the children to local school.

'So, you see, we have our idea and rules. However', Puja Malik adds, 'I have to admit that I and some of my colleagues in other countries alter the content of the package, and thereby also the applicability, according to where one is coming from. We say that we have a local international contract, but it might not be applica-b\e for Chinese or \ndians to Singapore because these are lower salary countries. I mean, the high salary in Singapore should be able to take care of your cost of living without having to compensate it... The business unit in Singapore may just pay for the one way ticket and the shipment to get you there, but they will not be giving you support for the housing and education.'

It seems Puja Malik is in her element as she continues without drawing a breath: 'By the way, a major challenge with the local international contract appears to be its applicability in China! China has a lower income rate and a lower social security system than other countries. A current solution to this issue is to provide some extra support for those on a local international contract in China, like extension of education support and housing. Nevertheless, there are still some issues regarding social security which needs to be addressed. With China having much lower social security, the risk is that we might lose possible employees as they feel they are sacrificing too much of their own security. This is also the case for pension. In some countries, foreigners are not obliged to contribute to state pension, and in others they are not allowed. Local international employees are therefore given a cash equivalent to the state pension and are encouraged to invest in a private fund. But this is a different story. In principle, we need for a mere standardized practice when it comes to pension in the future

Do these new rules make sense?

Akiko zones out at this point in the extensive conversation and does not follow Puja Malik's explanations as attentively as she should do. She realizes that some of the challenges of her local international package will only be apparent after the first year when the scaling down starts and the package becomes more like a local package. At that time she will truly start to notice the difference. Before this point, the package is very similar to her current expatriate package. 'I will practically be "poorer" after the scale down of the benefits', Akiko reflects silently. 'The only way out would be to start looking for another local international assignment elsewhere to start on a full local international package again or to go on an expatriate assignment. But Hiroshi and the two girls will not like it.'

She starts to think about her family: 'The two girls will perceive the language barrier to be very scary when going to Singapore. They will need to attend the international school - at least in a transition period. The company needs to realize that it's not just about moving an employee, it's about moving a whole family!' Akiko sees the relocation of the family as the biggest hurdle for her. 'We need to feel safe, and know that we are covered if anything happens.' Akiko remembers her relocation to New Delhi two years ago. Just the practical things that needed to be taken care of when they moved seemed endless: where to live, schooling, visa, etc., all the paperwork they needed to fill out. Meanwhile they had to deal with a new language and new customs.

Akiko summarizes in her mind: 'These are very practical things that will not be organized for me when going to Singapore. I will have to do everything on my own. So that will be a big challenge and it is very time consuming, keeping me from doing my actual job!'

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She realizes the difference between moving as an expatriate and moving on a local contract. Moving on expatriate conditions means that more or less everything is taken care of by the company, whereas going on a local contract you need to take care of most things yourself.

Akiko is startled out of her thoughts. 'Akiko?' Puja Malik looks directly into her eyes. 'Just let me be very honest. Of course, corporate has made it very clear that the number of people put on expat contracts has to be reduced. The background for this is to cut down the costs for these very expensive expatriates. But it is also about creating more equity with the local employees. Put yourself into the shoes of the local employees. Would you, as a local person, accept that you ceaselessly earn less than a foreigner although you do the same job?' Akiko murmurs: 'No, of course not'. She thinks that this is an interesting and important aspect.

She asks herself which contract her husband would get according to this system when going to Singapore. Akiko gazes at the decision tree on the computer screen. She realizes that as Hiroshi is changing employers and would therefore enter the company as a new employee, he would automatically get a local contract without any extras. The family's situation would be even worse! She asks herself whether this new further distinction of different types of assignments is really fair or whether it is about creating a second and third class of expatriates.

Akiko feels that she is not concentrated any more and is overloaded with information. And somehow she is also overtaxed by these implications. She does not really know what to do. She wants to finish the conversation but Puja Malik already continues. 'I think that in these localization processes it is important that the pros and cons are explained carefully to people because things are difficult to compare. You need to understand that you will maybe have to give up something, but in return get something else. For example you might face a decrease in salary in return for a more favorable pension model, social security system or lower cost of living. It takes a lot of time and needs to be explained by someone who has a deep understanding of all the aspects that are part of a package.' For a second Akiko wonders whether Puja Malik is fishing for compliments and is expecting her to admire her competence. Akiko decides not to react at all.

Puja Malik continues to lecture about the policies: 'For some it might be an attractive opportunity to organize themselves, but for others this will definitely be something they expect the company to take care of. And of course we need to be self-critical: Even if this approach seems more simple it is unclear whether such a policy corresponds with the present culture of the company where it is an aim to take care and support people in a moving process. We need to explain to people what the consequences might be', Puja Malik repeats herself.

Akiko takes the chance to end the appointment and stresses that the most important factor with regards to the conversion in contracts has to do with communication. She feels that the loss of the benefits she will receive on a local international contract will not affect her much if she receives adequate information about what a change in contract will involve before the move. Akiko stresses that, 'It is more important to be clear on managing expectations, from both sides since the very beginning, than the actual amount in the end'. She stands up, says goodbye to her HR manager Puja Malik and leaves the office silently. She is confused and feels that she is not in the mood to continue her daily work today; Akiko decides to go back home to her apartment situated in a suburb of New Delhi and to talk to her husband Hiroshi tonight about the situation in order to get an additional perspective.

Assignments

1 Describe the content of a 'traditional' expatriate package, and the reasons of the company to provide such benefits! What limitations do you see in this contract when it comes to handling the company's emerging needs?

2 Make a SWOT analysis of the Local International policy using information from the case study.

3 Compare the employers' and employees' needs regarding international mobility on a local international contract. What elements would have to be included in a package if they were to answer to these needs?

4 To what extent do you believe the distinction between the three groups of assignment packages (expatriate contract for expatriates, local international contract for local international hires and local contract for external international new-recruits) to be fair? To this end (a) refer to equity theory and determine the referent person in each of the three cases and (b) discuss the role of procedural justice! What can the company do to

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