Exchange Rate and Cross-Border Human Resource Management

This chapter explores the interaction between international economics and human resource management (HRM) in the context of ongoing globalization. It analyzes the fundamental concepts of exchange rates and the balance of payments using a macroeconomic theoretical framework, then connects these to the practical challenges faced by HR professionals in managing a cross-continental workforce. The discussion begins by outlining the mechanisms of foreign exchange rate determination, under both fixed and floating exchange rate regimes, and dissects the components of the balance of payments that record a country's international transactions. Subsequently, the chapter mathematically explores the impact of exchange rate fluctuations on expatriate compensation and demonstrates how multinational corporations protect their employees' purchasing power through various compensation mechanisms, such as the balance sheet approach. Also discussed is the concept of purchasing power parity (PPP), along with an illustration of the Big Mac Index as an instrument for establishing global pay equity standards. The chapter concludes with a comprehensive analysis of the phenomenon of offshoring and global outsourcing from the perspectives of cost efficiency and the ethical dimensions of its implementation.