COURSE: GLOBAL BUSINESS MANAGEMENT MGT610 DR. DIMITRIS STAVROULAKIS PROFESSOR OF HUMAN RESOURCE MANAGEMENT DEPT OF ACCOUNTING TEI OF PIRAEUS Unit 8: Expatriate Management & Global Leadership Expat assignments The 20 Most Expensive Cities to Live in the World: 2010 1. Moscow 11.Milan 2. London (2009: #16) 12.St. Petersburg 3. Seoul 13.Paris 4. Tokyo (2009: #1) 14.Singapore 5. Hong Kong 15.New York City (2009: #8) 6. Copenhagen 16.Dublin 7. Geneva 17.Tel Aviv 8. Osaka 18.Rome 9. Zurich 19.Vienna 10. Oslo 20.Beijing The 30 Most Expensive Cities to Live in the World as an Expat: 2010 1. Tokyo 11.Bern 2. Oslo 12.Basel 3. Luanda 13.Libreville 4. Nagoya 14.Helsinki 5. Yokohama 15.Moscow 6. Stavanger 16.Paris 7. Kobe 17.Abidjan 8. Copenhagen 18.Abuja 9. Geneva 19.Tel Aviv 10. Zurich 20.Seoul 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. Stockholm Jerusalem Kinshasa Vienna Brussels Berlin Canberra Rio de Janeiro New York Sydney Best expat development Germany Canada Spain Least popular expat experience UAE China Best for wealth, luxury & accommodations Singapore UAE USA (2008) Best salaries India Hong Kong . Identifying International Managers: Parent Country Nationals Expatriate managers who are citizens Home-country Nationals of the country where the MNC is headquartered, with a more than 1year tenure. Sometimes called headquarters nationals, or ParentCountry Nationals (PCN). Separation allowance: Payment of overseas premium to employees who take on foreign assignments without families. Generally covers all excess expenses plus tax differential. When their assignment is completed and they come back, they are called thereafter repatriates. Pros & Cons of PCN Advantages: Impose the HQ policy and exercise control over subs. Share a common culture and educational background. Facilitate communication and coordination with the HQ. Disadvantages: Lack of knowledge about the host country (culture, language, customs, market, business environment). Cost of an expat may rise up to 200% of his/her salary at home, as it includes housing, school, travel, spousal allowances. Some countries scrutinize foreign employees and pose limits concerning their number. Identifying International Managers: Host Country Nationals (HCN) . Local managers hired by the MNC. They are familiar with the market, language & culture. Home-country Nationals They are less expensive than home- country personnel Hiring them is good for public relations Host-country Nationals In certain countries skilled personnel is hard to find.* HCN may be not familiar with the corporation culture and practices. Communication problems with the HQ may arise. Identifying International Managers: Third-Country Nationals (TCN) . Home-country Nationals Expats from one country working for a foreign MNC in a 3rd country (e.g. an Indian working for IBM in Korea). Particularly useful in countries of low social capital (Saudi Arabia, Turkey). Their cost is lower than the respective of Host-country Nationals PCN. Experts in their field & adjustable to international environments. Third-country Nationals They are familiar with the company culture and practices. May cause resentment among locals, as they limit chances of HCN to promotion. Identifying International Managers: Inpatriates . Home-country Nationals Individuals from a host country who are assigned to work in the HQ The use of inpatriates recognizes the need for diversity at the home office Host-country Nationals Employment of inpats helps MNCs to develop global competencies Third-country Nationals Inpatriates Expat management trends Microsoft, Siemens & Morgan Stanley among others have been shifting more and more activities to Russia, China & India, where they can find skilled, highly trained employees at considerably lower salaries than in their home country. Number of expatriates per country varies according to the domestic social capital. Among the USA MNCs, more than 60% of employees are American in Saudi Arabia, but less than 1% is American in Europe-based subs. The right mixture of PCN and HCN has to be discovered. For example, Unilever since the 30s had been developing competent HCN to replace costly PCN. However, it soon discovered that the cultural glue holding together the firm was dangerously diluted. By the time of creation of a new sub, the number of expats is very high. Subsequently it decreases, as local managers become familiar with operations. Thereafter it increases again, as local operations are incorporated within a global framework and experienced managers are required. Finally the number slumps, as competent managers are developed at the local level. Expats are eminent in the host country as “the people from HQ”, therefore they have to retain their status and image. International Experience & Promotions In most MNCs international experience is indispensable for promotion. In Colgate-Palmolive, Cargill, ExxonMobil, 3M, and IBM it is important to have international assignments early in a person’s career. Astra Zeneca encourages by all means employees to go international. Michael Angus, CEO of Unilever said: “Most people who rise toward the top of our business will have worked in at least two countries, probably three. They will probably speak another language and they most certainly will have worked in different product areas.” Few MNCs today limit their search for senior-level executive talent to their home countries: Bank of America former CFO Al de Molina began his ascent to the top in his native Cuba. USA is the most global corporate country in the world: Business programs of famous schools (Harvard, Stanford, MIT) are attended by foreign students at percentages ranging from 26% to 38%. US Corporations actively promote executives with diverse cultural backgrounds: o Five CEOs of Coca Cola had been foreign, including the present Turkish-born Muhtar Kent. In addition, eight of its top nine line executives are from outside the U.S. o Medtronic: CEO Omar Ishrak grew up in Bangladesh. o Avon: CEO Andrea Jung is Chinese-Canadian. o 3M: George Buckley, CEO, will be succeeded by Swedish-born Inge Thulin. Half of 3M's executive committee comes from outside America. By contrast, CEOs and executives of leading companies in Germany, India, Korea, Japan and China are almost all natives of their home countries. Women expats PepsiCo: Indira Nooyi (53) CEO since October 1, 2006. A Madras native and graduate of the Yale School of Management, Nooyi said she is “humbled” to be chosen as CEO by the PepsiCo board after serving since May 2001 as President and CFO*. Even though women compose 49% of the MNC workforce in the USA, only 6% are expats (or 13% according to another survey). A survey (“Passport to Opportunity: U.S. Women in Global Business”) found that respondents believed women aren’t as internationally mobile as men; yet 80% of female expatriates said they’ve never turned down a relocation assignment, compared with 71% of men. Inaccurate stereotypes may account for much of this discrepancy. Certain cultures are rather anti-feminist (Japan, China, Singapore, Hong-Kong), where it might be difficult for locals to take orders from a woman. Expats are sent abroad in order to perform the following tasks: CEO, Director or General Manager of a sub. Structure Reproducer: A person sent abroad in order to duplicate (start-up) the domestic operation in a foreign country. Technical Expert Troubleshooter: Sent abroad to solve business or personnel problems. Operative: Sent abroad to perform functional tasks (accounting, sales, manufacturing) usually as a supervisor. Another classification focuses on expat roles (Harzig): The bear is responsible for ensuring application of decisions made in the HQ. The bumble-bee undertakes to vaccinate the sub with company culture and to socialize local employees. To this end, Unilever encourages mobility of employees from country to country. The spider has to weave an informal communication network within the sub, but also between sub and HQ, as well as between subs. Selection Criteria for International Assignments General Criteria . Adaptability Education Decision skills Knowledge of local language Self-reliance Cultural sensitivity Physical & emotional health Motivation Age Support of spouse & children Experience Coaching capabilities Resourcefulness Negotiating skills Decision for International Assignment Self Evaluation and Preparation (1) . Focus on self-evaluation and general awareness Phase I include the following questions: Is an international assignment really for me? Does spouse and family support the decision to go international? Collect information on job requirements Decision for International Assignment (cont) Self Evaluation and Preparation (2) . Conduct a technical skills assessment – Do I have the technical skills required for the job? Get the approval of the company. In many MNCs Phase I Phase II the whole family has to undergo interviews by a committee with the participation of representatives from the host country. The candidate is also submitted to psychological tests, and may be examined by Assessment Centers. Start learning the language, customs, and etiquette of destination country Develop an awareness of the culture and value systems of the geographic area Decision for International Assignment (cont) Self Evaluation and Preparation (3) . Phase I Attend training sessions organized by the company. Confer with colleagues who have had experience in the assigned region. Phase II Visit the host country with spouse & kids before the formally scheduled departure. Phase III Expat Training Should begin 9–12 months in advance of the assignment. Besides the modules described below, additional courses may be offered. Even though English is spoken worldwide, it is never enough. Language training may be very costly. Siemens retains more than 400,000 employees abroad. Offers 10 language programs consisted of 8 levels; each level requires attendance of 80-100 hours. International meetings of ABB executives are conducted in English. Branches of Commerz Bank communicate in English. At least some training should be offered to the expat family. Local managers should also undergo training in order to adjust with expats. They might offer additional training to expats too. Components of expat training program: Cognitive level: Includes introductory issues and language principles. Affective level: Aims at providing necessary psychological and managerial skills through case studies, role-playing, and critical incidents. Impression level: Includes a family visit to the target country. Provides field experiences, insight into cultural nuances, and . . extended language training. Expat Training (cont) Cornerstones of expat training in Matsushita (SMILE): o Specialty: The needed skill, capacity, or knowledge. o Management ability: The ability to motivate employees. o International flexibility: Willingness to learn and ability to adapt. o Language facility o Endeavor: Vitality and perseverance in the face of difficulties. The Relocation Transition Curve 6. Search for Meaning Perceived Competence 3. Interest 1. Unreality The feeling that the relocation is a dream A deeper exploration of the environment and a realization that it is fundamentally different from home 2 2. Fantasia The feeling of enchantment and excitement in the new environment Beginning of Transition . 6 4 7 7. Integration of New Skills and Behavior Acceptance of the new environment 5 3 1 Understanding reasons for success and failure. New models/personal theories created 5. Experimentation and Testing of New Approaches Practice phase – trying to do things differently Feedback of results – success and failure 4. Acceptance of Reality / Cultural Shock “Letting go” of past comfortable attitudes and realizing you are a stranger in a strange land Time Factors backing expat success Expatriate Failure Expatriate failure is the premature (and unwanted) return of an expatriate manager to the home country. MNCs sometimes focus mostly on the technical background of candidates, downplaying the role of personality. Strong support to the expat during the adaptation period is necessary. Failure may be demonstrated through poor performance, personal dissatisfaction, inability to adjust, lack of acceptance by locals, inability to identify a local successor. Cost depends on the extent of failure and the status of the person involved. Roughly estimated, an expatriate failure may cost between $250,000 and $1 million, without including the impact on overseas operations. The assumption that people everywhere respond in similar fashion to the same images, symbols, and slogans has severely hurt USA MNCs till recently. Between 16% and 40% of American expatriates in developed countries fail; almost 70% of Americans assigned to developing countries fail. 18-28 Rates Of Expat Failure . Reasons of Expat Failure The main reasons for U.S. expatriate failure are: The inability of an expatriate's spouse to adapt The manager’s inability to adjust Other family-related reasons The manager’s personal or emotional maturity The manager’s inability to cope with larger overseas responsibilities The main reason for European expatriate failure is: The inability of the manager’s spouse to adjust The main reasons for Japanese expatriate failure are: The inability to cope with larger overseas responsibility Difficulties with the new environment Personal or emotional problems Lack of technical competence The inability of spouse to adjust . The Global Mindset Properties of the global executive (Barham and Heimer, 1998): Champion of international strategy Cross-border coach and mediator Intercultural mediator and change agent Global mindset is more a way of being than a set of skills. Or, a set of attitudes that predispose individuals to balance competing priorities (business, country, functional) in iternational situations. Global mindset in essense means balancing perspectives. “The global manager must not only be attentive to … organizational cultures, values, and beliefs that reach well beyond the manager’s own cultural, technical, and managerial background, but she/he must also be a consummate reframer of the boundaries of the world in which she/he works.” (Briscoe, Schuler, 2004: 288). . The Global Mindset (cont) The most essential experience towards acquiring a global mindset is to live and work in more than one radically different cultures. Cultural shock is an unpleasant necessity. John Pepper, former CEO and then Chairman of the board of directors of Proctor & Gamble stated: (reported by Briscoe & Schuler) “There are a few things that totally change your life, and taking my first international assignment in Italy was just that kind of experience. Of all the career changes that I have had, the international assignment was the most important and developmental. It changed me as a person.” Nevertheless, proximity to a foreign culture through conventional work does not suffice to this end. To develop cultural competency, one must take deliberate steps to learn about another country’s or culture’s practices and values. One must make a concerted effort to learn about the deep values that motivate people and provide the context for their actions*.