International Salary. Head of the Sales Department at Tamiflex in Bangalore, India

Executive Summary

The objective of this paper is to provide John Maynard, head of the human resource department of Tamiflex, with a sound recommendation whether he should accept Marit Iyang’s application for the position as the head of the new sales department in Bangalore, India. Iyang, born in India and currently working as a sales manager in the company’s German headquarter, is highly qualified for the job due to her MBA-degree and three years of working experience as an expatriate in a sales office in China. Marit Iyang’s possible compensation as an expatriate manager in Bangalore is calculated using the balance sheet approach and considering the COLA index. In contrast the salary of a local sales manager with comparable qualifications is evaluated with an empirical, self-made survey. While Iyang’s compensation consisting of a base salary, cost of living allowance, overseas service premium, hardship allowance and housing allowance would add up to EUR 129,312, the total annual costs for a local sales manager would not exceed EUR 15,000. Thus the labor costs for Iyang are significantly higher but the company would benefit from her local background as well as from her working experience in the headquarter of Tamiflex. Marit Iyang should definitely be assigned as the head of the sales department in Bangalore, India.

Table of Contents

Executive Summary

List of Abbreviations

Introduction

1 List of Tables

2 International Compensation
2.1 The Balance Sheet Approach
2.2 Expatriate Sales Manager Salary in Bangalore, India

3 Local Compensation.

4 Advantages and Drawbacks of Hiring a Local vs. Expatriate Manager
4.1 International Staffing Policies
4.2 Ethnocentric vs. Polycentric Staffing for the New Sales Manager Position at Tamiflex’s Branch in India

5 Conclusion.

6 ITM Checklist

7 Bibliography.

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Tables & Figures

Table 1: Expatriate Compensation Worksheet Example for Marit Iyang

Table 2: Salary Range in Rs and EUR per annum

Figure 1: Annual Salary Range for a Local Sales Manager (in Rs)

1 Introduction

What is human resource management (HRM)? According to Dowling et al. (2008, p.3) “HRM refers to those activities undertaken by an organization to effectively utilize its human resources.” For domestic human resource management these activities can broadly be described as procurement, allocation and utilization. With respect to international human resource management (IHRM) there are two additional dimensions: (1) the different types of countries^[1] involved in IHRM and (2) the different types of employees^[2] of the internationally operating company. (Morgan, 1998, p. 44) Running a business in the different types of countries and engaging the different types of employees raises some challenging questions: With which type of employee should a vacant position be filled in international subsidiaries? What is an adequate compensation for expatriates?

In the case study under consideration Tamiflex, a Germany based pharmaceutical company, intents to set up its first extra-European branch office in Bangalore, India. On this account John Maynard, head of HR at Tamiflex, is looking for an eligible candidate to fill the vacant position of the head of the sales department. Marit Iyang, born in India and currently working as a sales manager in the company’s headquarter in Germany, applied for the job. Due to her MBA-degree and three years of working experience as an expatriate in a sales office in China she is highly qualified for the position.

The objective of this paper is to provide John Maynard with a sound recommendation whether he should accept Marit Iyang’s application or not. For this reason the appropriate compensation for Marit Iyang’s if she would get the job as an expatriate manager in Bangalore is calculated using the balance sheet approach and considering the COLA index. In contrast the salary of a local sales manager with comparable qualifications is evaluated with an empirical, self-made survey. Besides the obvious financial reasons this paper tries also to depict the pros and cons of an expatriate manager in comparison to a local manager regarding the overall HRM strategy of Tamiflex.

2 International Compensation

In order to successfully manage compensation and benefits, multinational companies like Tamiflex need to have broad knowledge of employment and taxation laws, customs, environment, employment practices, familiarity with currency fluctuations, the effect of inflation on compensation, and an understanding why, when and which special allowances can be paid in which countries. International compensation should meet both business needs and financial protection and advancement for the expatriate. International compensation is quite complex as it covers three types of employees: Host Country Nationals (HCNs), Parent Country Nationals (PCNs), and Third Country Nationals (TCNs). The next chapter will describe in more detail the expatriate pay based on the balance sheet approach.

2.1 The Balance Sheet Approach

Expatriate compensation consists of several components: base salary (same salary as Marit Iyang would receive for this position in Germany), foreign service inducement / hardship premium (additional pay for work in foreign country), allowances (e.g. cost of living, education, etc.), benefits (e.g. pension) and taxation (Dowling, Welch, & Schuler, 1999, pp. 183-187). The Balance Sheet approach is the most widely used approach for calculating expatriate pay and is aimed at preventing the expatriate from material loss due it his/her transfer to another country which can be summarized as follows:

- “Maintenance of home-country living standard” to equalize the purchasing power of expatriates with PCNs and TCNs, “plus financial inducement”
- “Home-country pay and benefits are the foundations of this approach”
- “Adjustments to home package to balance additional expenditure in host country”, such as goods and services, housing, income taxes, reserve
- “Financial incentives (expatriate / hardship premium) added to make the package attractive” (Dowling, Welch, & Schuler, 1999, p. 190).

The following major categories are incorporated in the balance sheet approach:

- Goods and services: food, clothing, transportation, etc.
- Housing
- Income taxes (income tax in host country paid by company)
- Reserve: pension contributions, education expenses, etc.

2.2 Expatriate Sales Manager Salary in Bangalore, India

The expatriate salary for a Sales Manager in Bangalore can be calculated based on the balance sheet approach as shown in Table 1 below. A base salary of 100,000 EUR in Germany was assumed for the Head of Sales Department in Bangalore, India. Bangalore has a COLA index of 64.4 compared to a COLA index for Munich of 107 which means cost of living in Bangalore is 39.81% cheaper than in Germany (Mercer, 2009) which leads to an adjustment of spendable income in terms of purchasing power with regards to the target salary. Due the difficult local conditions in India such as climate, traffic, hygiene, environmental conditions, etc., Bangalore qualifies for a hardship allowance of 30% in addition to the foreign service premium which could also include an allowance for travel (provision of a car or even a car plus driver). In addition to that, a housing allowance should be paid to cover costs for accommodation equal to the standard in Munich.

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^[1] According to Morgan (1998, p.44) there are three types of countries, which can be involved in IHRM: (1) the home-country where the headquarter of the company is located, (2) the host-country where a subsidiary of the company is based, and (3) other countries, which have an impact on the company’s business.

^[2] According to Morgan (1998, p.44) there are three types of employees, which can be involved in IHRM: (1) parent-country nationals, (2) host-country nationals and (3) third-country nationals.