International Human Resource Management
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HR specialists must consider several factors, setting the wages for British expatriate managers and engineers and local staff in Russia, India and Australia. These factors include economic situation in the country, duration of the job contract, cultural and other differences. Besides, it is important to take into account whether expatriate goes alone or with his family.
Influence of Economic Factors
First of all, HR management must take into account country’s economic factors such as exchange rate and inflation. Moreover, the less stable economy is, the more important economic factors are for HR management. For example, exchange rate for Euros and USD to Russian Ruble is changeable. In addition to that, inflation rises or reduces constantly. Besides, these factors affect demand for labour force, because if the country’s economy has stable growth, companies can afford to hire new employees and offer them competitive wages. On the other hand, if the economy experiences recession, demand for employees reduces, supply increases, therefore, companies can propose lower wages. The same situation happens in India, where economy is not stable as well. However, “India’s industrialists are fighting a sharp rise in salary demands as they strive to hold on to scarce talent in the world’s fastest growing large economy after China” (Lamont 2011). Moreover, “traditionally, salary increases in India are directly linked with the level of economic activity and talent demand and supply, but this year rising (2011) inflation is also playing a role in determining salary increase budgets,” said Sandeep Chaudhary, Aon Hewitt’s regional practice leader for compensation consulting. On the other hand, Australia as a country with stable economy does not have sharp fluctuations of salaries. For example, “the average annual growth rate in average Wage and salary income in Australia was 4,8% from 2003-04 to 2008-09” (Australian Bureau of Statistics 2012), whereas India had “average salaries rose 15 per cent” only from 2009 to 2010 (Lamont 2011).
Therefore, HR must primary consider economic factors in countries, where economies are not stable. For instance, if exchange rate and inflation grow, HR can offer lower wages, but when economy has strong growth rates like in Australia the salary must be high. The economic rates of United Kingdom remind more Australian than Russian or Indian. For instance, the inflation rate in Australia was recorded at 2,20% in January of 2013, in United Kingdom – 2,70%, in India – 6, 62%, in Russia – 7,30% (Trading Economics). Thus, wages will be higher in United Kingdom than Russia or India.
Apart from that, HR must consider differences in economic systems. "In free enterprise systems, for instance, the need for efficiency tends to favor HR policies that value productivity, efficient workers, and staff cutting where market forces dictate. Moving along the scale toward more socialist systems, HR practices tend to shift toward preventing unemployment, even at the expense of sacrificing efficiency”.
Influence of Cost of Living in Australia, India, and Russia on the Wage
Apart from economic factors, HR management must consider cost of living in a country. For example, if the cost of living is low, the wages will be smaller than in countries with high living expenses. According to survey (2011), Delhi (India) ranked the 85th most expensive place to live, Moscow (Russia) placed the 4th and Sydney (Australia) was the 14th (Stancati 2011). Therefore, despite high inflation rate, the life in Russia is even more expensive than in stable Australia. However, HR management must consider that cost of life in Russian capital differs greatly from life in other country’s cities and towns. Thus, if the company wants to save money, it is better to open new sites in towns far from Moscow. Besides, HR management may consider reducing wages by providing free accommodation for potential employees as housing in Moscow is high and workers have to spend a big part of their income on it. Besides, HR management of food processing company may think of free or cheap lunches for the employees. In addition to that, HR should consider general employment situation in the country, because high unemployment on the bigger territory of a country and high demand for labour force in few cities may lead to increasing of rent and other expenses. However, counties where many cities are well-developed with strong demand for labour force accommodation cost does not play key role.
To sum up, employer clearly should consider cost of living in the countries, where he is going to open new sites. However, he must also take in account the employment rate on the whole territory, because it affects the total cost of living in such countries as Russia or India. One way to handle the problem is to pay a similar base salary and then add various allowances according to individual market conditions (Stoner & Freeman 1989).
The Duration of Work and Wages
HR management spends different sum of money on expatriates who work for a long term and short term, because full-scale relocation of an employee involves relocation of his or her family. Therefore, it is cheaper to pay for “frequent extended business trips with corresponding time spent back at home; short-term assignments of from three to twelve months with frequent home leave; and the dual household arrangement where the employee’s family remains at home and the employee sets up a small household for him or herself in the foreign country” (Yeargan & 2002). On the other hand, if an employee moves to another country with the family, then HR management must pay for education of worker’s children, big household etc. Moreover, modern tendency of prevailing short term contracts fully reflects this peculiarity. Besides, work for a short time not only saves money of a company, but also reduces efforts and time that HR specialists spend on pre-departure training of families and further support in foreign countries.
The Influence of Families on the Wages
The wage of an expatriate who is going with his family clearly differs from the wage of a worker who is leaving on his own. To start with, the most common approach to setting expatriate pay is balance sheet approach. Its basic idea is that employers should provide their employees with the same living conditions as at home. Moreover, any additional expenses are paid by the employer (Hill 2012). Consequently, HR has to pay for such costs of expatriate with a family as children’ education and flat or house, which is able to host at least few people. However, wage of an employer that goes alone usually includes only housing, necessary for one person, car and tax payment.
Wages that Competitors are Paying in the Host Countries
Employers in countries with unstable economics tend to pay lower wages than multinational companies that work in those countries. Local competitors actually do not have to pay higher salaries than average in the country, because unemployment rate is high. As a result, there is constant supply of labor force. However, foreign companies must provide expatriates with equal compensations in order to motivate them to work abroad. Moreover, they often add incentives to the salaries. On the other hand, British companies that start their sites in economically developed countries like Australia set more or less the same salaries as local competitors, because average income in the UK and Australia are on the similar level.
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Reasons of Expatriate's Fail in Host Countries
Culture and climate in such countries as India, Russia and Australia are obviously different from British. For example, expatriates would suffer from low temperature in Russia or hot climate in India and Australia. Besides, some British employees might feel unsafe in Russian capital due to high level of crime. Russia is also characterized by corruption in all areas, which may cause problems to unprepared British employers. In addition, culture shock may lead to such problems as homesickness, boredom, withdrawal, depression, compulsive eating and drinking, irritability, marital stress, family tension and conflict (Bross & Wise 1999). Therefore, expatriates must have obligatory trainings before going abroad. Besides, they should possess specific personal qualities like flexibility and stress resistance. Failures of expatriates made employers invent some methods of employees’ motivation. For example, some companies tend to pay incentive to expatriates in order to discourage them from leaving their work abroad. Average incentives are about 15% of base salary. However, they can rise to 30 or 40% for difficult locations like African countries. Moreover, 20% of companies now pay some part of at the beginning of an assignment and the rest of money at the end of a contract (Canadian HR Reporter 2011).
Comparison of Local Staff Salary with the UK Expatriate'
“The average cost of sending an employee and family on an overseas assignment is reportedly between three and five times the employee’s pre-departure salary” (Hill 2012). The cost of sending of an expatriate includes compensation, benefits, and paying cost in two countries. Besides, HR assists an expatriate with shipment and storage of household goods, maintenance of person’s home and automobiles etc. Moreover, employer should provide family support. It includes cultural orientation, educational assistance and emergency provisions before going abroad (Fadel & Petti 1997).
Therefore, high cost is one of major factors why expatriates represent a minority of managers. Thus, “most managerial positions are filled by locals rather than expatriates in both headquarters and foreign subsidiary operations” (Daniels, Radebaugh & Sullivan 2011). Apart from higher cost of using expatriates, HR management prefers to hire local management because many employees reject to work in a foreign country (Phatak 1994).
In conclusion, I am as the IHRM Director of a British Multi-National food processing company, which is opening new sites in Australia, Russia and India, must consider certain number of factors, setting wages for my employees. First, I need to take into consideration the level of country’s economic development, exchange rate, inflation, unemployment rate etc. However, I can adjust wages only of local staff, because I must preserve equity of British expatriates in order to encourage them to work abroad. Moreover, employees that are willing to work in poorer countries will have even more benefits than those who want to work in high-developed ones due to motivation policy of my company. However, employees who apply for Australian site will also have high bonuses, because all expatriates usually suffer from culture shock, political issues and climate conditions. Therefore, I need to give everybody additional privileges. Apart from that, it is reasonable to consider work for a short term without moving expatriate’s family abroad, because it will reduce costs. Moreover, a hiring of local engineers, managers and manufacturing staff will help to make expanses three times lower due to absence of trainings, household cost etc. On other hand, I may experience lack of specialists with special qualifications like engineers among local employees. Therefore, I cannot fully avoid using of British employees from headquarter of my company. In addition, they are valuable not only by their job experience, but also due to their loyalty to the company’s principles. Besides, it would be reasonable to set slightly higher wages for the local staff than my competitors offer. Such step will motivate my employees to work harder and make them value their workplaces. Lastly, I also think that our new sites in Australia, India and Russia must set basic salaries and then constantly provide local employees with trainings, additional bonuses for qualitative work. They must understand that have opportunities to get promoted and become top managers in their countries.
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