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Compensation and Benefits Many companies are expanding their operations to international markets in today's globalized markets for many reasons. As they expand, these organizations must develop attractive compensation programs that will attract top talents while maintaining a competitive advantage, The Role of International Activities in Creating a Competitive Advantage In today’s globalized business environment, international activities are crucial in creating an organization's competitive advantage. Expansion beyond domestic boundaries can help companies tap into new markets, diversify their customer base, and get access to a broader pool of resources, talent, and opportunities (Katsikeas et al., 2020). Exposure to the international market environment can contribute to a competitive advantage in many ways. International activities enable organizations to access scarce resources in their home country. Organizations are exposed to more raw materials, better technologies, expertise, and specialized labor. The wide pool of resources can be used to enhance efficiency and gain a competitive advantage in terms of innovation, efficiency, and sustainability. International markets can help organizations achieve economies of scale, resulting in cost savings and improved competitiveness (Katsikeas et al., 2020). Organizations can benefit from increased production volumes, streamlined supply chains, and enhanced purchasing power by expanding their production or sourcing globally. These economies of scale can lead to lower production costs, better pricing strategies, and improved profitability compared to competitors confined to a single market.
International activities provide organizations with access to a larger talent pool. People from different countries and backgrounds bring diverse perspectives, expertise, and skills to a company, which can make it more adaptive and responsive to consumer needs and preferences, ultimately delivering a human capital competitive advantage. International activities expose companies to new markets, business practices, and cultural contexts. This exposure stimulates learning, knowledge transfer, and cross-pollination of ideas and best practices. Organizations can leverage this knowledge and experience to enhance their products, services, and processes, enabling them to outperform competitors who lack the same international exposure. Expanding internationally can enhance a company's brand reputation and image (Tien et al., 2019). Operating in multiple countries can signify a global presence, stability, and expertise, which can be perceived positively by customers, investors, and partners. A strong international brand image contributes to customer loyalty, trust, and a competitive edge in the market. Considerations when Designing an International Compensation Program An international compensation program must take into account several important considerations. Firstly, local labor laws, regulations, and practices in each country where the program will be implemented must be understood (Maley et al., 2020). This includes compliance with minimum wage requirements, overtime regulations, taxation laws, and social security contributions. Adhering to local laws ensures legal compliance and avoids potential penalties or disputes. Secondly, it is essential to consider the cost of living and market competitiveness in each target country. Salary levels and benefits packages should be designed to attract and retain best
ensures that employees clearly understand the compensation program and feel valued and rewarded for their contributions. Components of an International Compensation Program An international compensation program typically consists of various components that aim to attract, motivate, and retain employees across different countries. The following are some common elements found in international compensation programs: Base Salary: This is the foundation of an employee's compensation package. It includes the fixed monetary amount paid to employees in exchange for their services. The base pay is typically determined based on job responsibilities, skills, experience, and market rates in the respective country. Allowances: Allowances are additional payments provided to Employees on international assignments as additional compensation for specific factors or expenses related to international assignments, such as housing allowance, cost-of-living allowance, and education allowances for the employee’s dependents. Incentives and Bonuses: Incentives are designed to motivate and recognize employees for their achievements and contributions. Annual performance bonuses, sales commissions, are profit-sharing plans are examples of bonuses and incentives. Benefits: Benefits include a range of non-monetary rewards provided to employees, such as health and life insurance, retirement plans, paid time off, and disability coverage. When designing international benefits, organizations must consider local laws, regulations, and cultural expectations regarding benefits provision.
Performance Management: Performance management systems help evaluate and reward employee performance. They include processes such as goal setting, performance appraisals, and career development discussions. In an international context, performance management may involve adapting performance metrics and evaluation criteria to suit cultural differences and local market dynamics. Balance Sheet Approach for US Expatriates' Compensation Packages The balance sheet approach aims to ensure that employees maintain their standard of living while on international assignment. The approach creates balanced and equitable compensation by considering factors such as salary, benefits, and allowances (Bonache et al., 2023). The first component of the balanced sheet approach is home-based compensation. An employee's base salary, bonuses, and other benefits they would receive if they were working in their home country are included in this component. The home-based compensation serves as a benchmark. The second component includes all the allowances given to an employee as compensation for working away from their home country. These allowances typically include housing allowance, cost-of-living allowance (COLA), and hardship allowance. Hardship allowance is provided in cases where the host country poses exceptional challenges or risks. The third critical component of the balanced approach is tax equalization. Tax equalization aims to eliminate double taxation or unfair tax burdens on expats. The employer provides a tax equalization payment to cover the difference between employees' tax liability in their home country and the host country to ensure they are not treated unfairly.
References Bonache, J., Zárraga-Oberty, C., & Stirpe, L. (2023). The Compensation of Corporate Expatriates. In Readings and Cases in International Human Resource Management (pp. 243-264). Routledge. Katsikeas, C., Leonidou, L., & Zeriti, A. (2020). Revisiting international marketing strategy in a digital era: Opportunities, challenges, and research directions. International Marketing Review , 37 (3), 405-424. Maley, J. F., Moeller, M., & Ting, A. F. (2020). Sustainable expatriate compensation in an uncertain environment. Journal of International Management , 26 (3), 100776. Tien, N. H., Phu, P. P., & Chi, D. T. P. (2019). The role of international marketing in international business strategy. International journal of research in marketing management and sales , 1 (2), 134–138.
