I have a model which I use its friendly id as slug:
extend FriendlyId
friendly_id :slug_candidates, :use => :scoped, :scope => :account
def slug_candi
There's a Rails API method for that transliterate
Example use:
transliterate('Ãrøskøbing')
# => "AEroskobing"
By default it only supports latin-based languages and Russian but you should be able to find rules for other alphabets as well (as explained in the linked doc)
EDIT
To achieve the same behaviour as wordpress you can simply use url encoding, as in example below
URI::encode('שלום') => "%D7%A9%D7%9C%D7%95%D7%9D"