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“International Human Resource Management, 5e by Ibraiz Tarique, Dennis Briscoe and Randall Schuler has long been regarded as one of leading resources in the field. This new edition reinforces that reputation and brings the content up to date with contemporary trends in research and practice. Written by three of the leading scholars in the area, the volume is distinguished by its combination of insights from academic research and rich insights into IHRM in practice. It is comprehensive, accessible and authoritative, and should be required reading for any student or reflective practitioner of IHRM.”
–David Collings, Dublin City University, Ireland, and Senior Editor of the Journal of World Business
“This excellent book, a leader in the field, comprehensively covers the field of International Human Resource Management and focuses on the HRM issues and challenges facing firms as they internationalise their business operations. Each chapter provides a clear exposition and critique of the specialist literature, and case studies are used to provide rich insights into current practice. The combination of sound theory and examples from practice around the globe provides an important and up to date contribution to the field. The book is well geared to students interested in the international dimensions of HRM, and the excellent links between international strategy and HRM give students an in depth knowledge of the people management challenges faced by MNC managers in a globalised business world.” –Hugh Scullion, Established Professor of International Management, Cairnes School of Business and Economics,
NUI Galway, Ireland
“This edition of the book does a wonderful job of framing IHRM issues in the evolving, strategic context of running an international business. Pedagogically, the many practical applications and graphical presentations beautifully illustrate concepts and frameworks that will help readers grasp the rich content that the book provides.”
–Wayne F. Cascio, Robert H. Reynolds Chair in Global Leadership, University of Colorado Denver, USA, and Senior Editor of the Journal of World Business
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International Human Resource Management Fifth edition
Thoroughly updated and expanded, the fifth edition of International Human Resource Management focuses on international human resource management (IHRM) within multinational enterprises (MNEs). The book has been designed to lead readers through all of the key topics of IHRM in a highly engaging and approachable way. In addition to the key topics and rich pedagogy students have come to expect, chapters have been updated, including an expanded chapter on Comparative and National Culture. Uncovering precisely why IHRM is important for success in international business, and how IHRM policies and practices function within the multinational enterprise, this comprehensive textbook provides an outstanding foundation for understanding the theory and practice of IHRM. It is essential reading for all students, instructors, and IHRM professionals.
Ibraiz Tarique is an Associate Professor of Management and Director of Global HR programs at the Lubin School of Business, at Pace University in New York City, USA. He teaches at the executive, graduate, and undergraduate levels.
Dennis Briscoe is Professor Emeritus of International Human Resource Management at the University of San Diego, USA, and owner/consultant at International Management and Personnel Systems (IMAPS).
Randall Schuler is Distinguished Professor of Strategic International Human Resources at the School of Management and Labor Relations at Rutgers University, USA, and Research Professor at the Lancaster University School of Management, UK, as well as the University of Zurich, Switzerland.
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Routledge Global Human Resource Management Series Edited by Randall S. Schuler, Susan E. Jackson, Paul Sparrow and Michael Poole
Routledge Global Human Resource Management is an important new series that examines human resources in its global context. The series is organized into three strands: content and issues in global human resource management (HRM); specific HR functions in a global context; and comparative HRM. Authored by some of the world’s leading authorities on HRM, each book in the series aims to give readers comprehensive, in-depth and accessible texts that combine essential theory and best practice. Topics covered include cross-border alliances, global leadership, global legal systems, HRM in Asia, Africa, and the Americas, industrial relations, and global staffing.
Managing Human Resources in Cross-Border Alliances Randall S. Schuler, Susan E. Jackson and Yadong Luo
Managing Human Resources in Africa Edited by Ken N. Kamoche, Yaw A. Debrah, Frank M. Horwitz and Gerry Nkombo Muuka
Globalizing Human Resource Management Paul Sparrow, Chris Brewster and Hilary Harris
Managing Human Resources in Asia-Pacific Edited by Pawan S. Budhwar
International Human Resource Management, Second edition Policy and practice for the global enterprise Dennis R. Briscoe and Randall S. Schuler
Managing Human Resources in Latin America An agenda for international leaders Edited by Marta M. Elvira and Anabella Davila
Global Staffing Edited by Hugh Scullion and David G. Collings
Managing Human Resources in Europe A thematic approach Edited by Henrik Holt Larsen and Wolfgang Mayrhofer
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Managing Human Resources in the Middle-East Edited by Pawan S. Budhwar and Kamel Mellahi
Managing Global Legal Systems International employment regulation and competitive advantage Gary W. Florkowski
Global Industrial Relations Edited by Michael J. Morley, Patrick Gunnigle and David G. Collings
Managing Human Resources in North America Current issues and perspectives Edited by Steve Werner
Global Leadership Research, Practice, Development Edited by Mark Mendenhall, Gary Oddou, Allan Bird and Martha Maznevski
Global Compensation Foundations and Perspectives Edited by Luis Gomez-Mejia and Steve Werner
Performance Management Systems: A Global Perspective Edited by Arup Varma, Pawan S. Budhwar and Angelo DeNisi
Managing Human Resources in Central and Eastern Europe Edited by Michael J. Morley, Noreen Heraty and Snejina Michailova
Global Careers Michael Dickmann and Yehuda Baruch
Global Leadership (2nd edition) Research, Practice, Development Mark E. Mendenhall, Joyce S. Osland, Allan Bird, Gary Oddou, Martha L. Maznevski, Michael J. Stevens, Günter K. Stahl
Manager-Subordinate Trust A Global Perspective Edited by Pablo Cardona and Michael J. Morley
Managing Human Resources in Asia-Pacific (2nd edition) Edited by Arup Varma and Pawan S. Budhwar
Human Resource Management and the Institutional Perspective Edited by Geoffrey Wood, Chris Brewster, and Michael Brookes
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International Human Resource Management (5th edition) Policies and Practices for Multinational Enterprises Ibraiz Tarique, Dennis Briscoe, and Randall Schuler
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International Human Resource Management
Policies and Practices for Multinational Enterprises
Fifth edition
Ibraiz Tarique Dennis R. Briscoe Randall S. Schuler
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First published 1995 by Prentice Hall Fifth edition published 2016 by Routledge 711 Third Avenue, New York, NY 10017
and by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 1995, 2004, 2008, 2012, 2016 Taylor & Francis
The right of Ibraiz Tarique, Dennis R. Briscoe, and Randall S. Schuler to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.
[First edition published by Prentice Hall 1995]
[Fourth edition published by Routledge 2011]
Library of Congress Cataloguing-in-Publication Data
Briscoe, Dennis R., 1945– International human resource management : policies and practices for
multinational enterprises / Ibraiz Tarique, Dennis R. Briscoe, Randall S. Schuler. — 5th edition.
pages cm Includes bibliographical references and index.
1. International business enterprises—Personnel management. I. Tarique, Ibraiz. II. Schuler, Randall S. III. Title.
HF5549.5.E45B74 2012 658.3—dc23 2015001046
ISBN: 978-0-415-71052-7 (hbk) ISBN: 978-0-415-71053-4 (pbk) ISBN: 978-1-315-88500-1 (ebk)
Typeset in Berling Roman and Futura
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by Apex CoVantage, LLC
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Contents
List of Figures List of Exhibits List of Case Studies List of IHRM in Actions List of End-of-Book Integrative Cases List of Acronyms Acknowledgments Foreword
Introduction
SECTION 1: STRATEGIC CONTEXT
Introduction to Section 1
1 The Internationalization of Human Resource Management
2 Strategic International Human Resource Management
3 Design and Structure of the Multinational Enterprise
4 International Mergers and Acquisitions, International Joint Ventures, and Alliances
SECTION 2: NATIONAL AND CULTURAL CONTEXT
Introduction to Section 2
5 Country and Company Culture and International Human Resource Management
6 International Employment Law, Labor Standards, and Ethics
7 International Employee Relations
SECTION 3: GLOBAL TALENT MANAGEMENT
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Introduction to Section 3
8 International Workforce Planning and Staffing
9 International Recruitment, International Selection, and Repatriation
10 International Training and Management Development
11 International Compensation, Benefits, and Taxes
12 International Employee Performance Management
13 Well-being of the International Workforce and International HRIS
14 Comparative IHRM: Operating in Other Regions and Countries
SECTION 4: ROLE AND FUTURE OF IHRM
Introduction to Section 4
15 The IHRM Department, Professionalism, and Future Trends
Integrative Cases Index
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Figures
I.1 Chapter Map 1.1 Who Needs International Human Resource Management? 2.1 Basic Elements of the Strategic Management Process 2.2 Evolution of the Multinational Enterprise 2.3 Auxiliary Methods of Internationalization 2.4 MNE Business Strategy 2.5 Headquarters’ International Orientation (Senior Executives) 2.6 MNE IHRM Strategy 2.7 Integrative Framework of Strategic International Human Resources
Management in MNEs 3.1 MNE Organizational Structure 3.2 Functional Structure 3.3 Product Structure 3.4 Geographic Structure 3.5 Matrix Structure 4.1 International Mergers and Acquisitions Process of Combination 4.2 HR Issues in the Three Stages of IM&As 4.3 Four Approaches to Integration in International Mergers and Acquisitions 4.4 Four-stage Model of HR Issues in International Joint Ventures 5.1 The Three Layers of Culture 5.2 Development of Cross-cultural Competence 6.1 Umbrella of CSR Programs 8.1 The International Workforce Planning and Staffing Process 8.2 Factors that Impact International Workforce Planning 9.1 Successful Expatriate Experience 9.2 Organizational Support for Repatriates 10.1 Effectiveness of Homogeneous and Heterogeneous Teams 11.1 The Balance Sheet 12.1 A Model of IPM in an MNE
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Exhibits
1.1 Drivers of Internationalization of Business 1.2 The World’s Top 20 Non-financial TNCs (Ranked by Foreign Assets) 1.3 IHRM Questions for International Strategy 3.1 Best Practices for the Effective Management of Cross-border and Virtual Teams 5.1 Geert Hofstede’s Cultural Dimensions 5.2 Trompenaar’s and Hampden-Turner’s Cultural Dimensions 5.3 Global Leadership and Organizational Behavior Effectiveness (GLOBE):
Cultural Dimensions 6.1 ILO Declaration on Fundamental Principles and Rights at Work 6.2 United Nations Global Compact Principles of Interest to IHRM 6.3 The Scope of Selected European Union Directives Affecting the Labor and
Social Policy of Businesses Operating in Member States 6.4 Protected Classes for Discrimination Prohibition in Select Countries 6.5 Guidance on How an MNE Might Design a Code of Conduct and Ensure an
Effective Implementation of Ethical Standards for Worldwide Operations 7.1 Trade Union Membership, Selected Countries 7.2 Seven Approaches to Labor/employee Relations in the Global Context 7.3 Local Union Environment Issues That MNEs Need to Consider 8.1 International Staffing Approaches 8.2 Traditional International Assignees and Local Nationals 8.3 Types of International Assignees 8.4 Questions to Better Manage a Global Workforce 9.1 Employment Options for International Transfers 9.2 The 21st-century Expatriate Manager Profile 9.3 Definition of Expatriate Failure 9.4 Reasons for Expatriate Failure 9.5 Best Practice in IA Selection 10.1 The Match of Training Techniques to Country Culture 10.2 Skills of the Transnationally Competent Manager Versus Those of the
Traditional International Manager 10.3 Five-Phase Process for Designing Effective CCT Programs 11.1 Hourly Compensation Costs for Production Workers in Manufacturing, 2011 11.2 Average Annual Hours Per Year Per Person in Employment 11.3 Paid Vacation Days and Legally Mandated Paid Holidays
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11.4 Types of Equity Compensation 11.5 The 10 Most Expensive Countries/cities in the World 11.6 Balance Sheet Example 11.7 Cost Estimate for Three-year Assignment 11.8 Average Tax Wedge 12.1 Shifts in Western PM 12.2 Globalization of Key Elements in the Design, Implementation, and Evaluation
of the PM System of an MNE 12.3 Criteria for Appraisal of International Assignees 12.4 Raters of International Assignee Performance 12.5 Use of Different Types of Rater in PAs of Expatriates 13.1 Issues to Consider When Designing Expatriate Crisis Management Programs 14.1 World’s 30 Largest Cities (2015 and 2025) 14.2 Population and Labor Force Characteristics (Europe) 14.3 Population and Labor Force Characteristics (North America) 14.4 Population and Labor Force Characteristics (Asia) 14.5 Population and Labor Force Characteristics (Latin America and Caribbean) 14.6 Population and Labor Force Characteristics (Africa) 15.1 International Relocation Services 15.2 The Datafication of HR
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Case Studies
1.1 Yarn Paradise: World’s Biggest Online Yarn Store (Turkey) 2.1 The Early Evolution of Manufacturing Firms: Ford Motor Company Goes
International* (USA) 3.1 Capgemini: A Transnational Organization (France) 4.1 BCE’s Acquisition of Teleglobe International (Canada) 5.1 Internationalization and Cross-cultural Expansion of a Local Manufacturer:
Barden (US) and FAG (Germany) 6.1 Non-Compete Agreements and Intellectual Property: Value Partners SA (Italy)
and Bain & Company (USA) Conflict in Brazil 7.1 Global Industrial Relations at Ford Motor Company (USA/Global) 8.1 Firms Woo Executives from “Third” Countries (Global) 9.1 A World Marketplace for Jobs in Project-Based Work Environment (Global) 10.1 Management Training in Africa (Malawi) 11.1 Compensation Problems with a Global Workforce (Global, Thailand,
Philippines, Japan, Bolivia) 12.1 Cross-Cultural Performance Evaluation in Thailand: The Case of Richard
Evans, Expatriate Managing Director (Switzerland/Thailand/UK) 13.1 Global Health and Safety Concerns (Global, Romania, UK, Ghana) 14.1 The Impact of HR on Innovation: A Six-Country Comparison (Global) 15.1 Becoming an HR Transnational at Germany’s OBI (Germany)
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IHRM in Actions
IHRM in Action 1.1 Creating a Global Accounting Firm IHRM in Action 1.2 CEOs’ Perspectives on Globalization IHRM in Action 1.3 Developing a Global Appetite for Fish and Chips IHRM in Action 2.1 Implementing a Global Strategy at a Japanese Pharmaceutical IHRM in Action 3.1 Moving HR from International to Global IHRM in Action 4.1 Lessons Learned by GE in Cross-Border Acquisitions IHRM in Action 5.1 Turning McDonalds into a Global Brand IHRM in Action 6.1 Developing Global Labor Standards at Levi Strauss IHRM in Action 7.1 Cross-Border Worker Representation at Hewlett-Packard IHRM in Action 8.1 Dealing with Labor Shortages in the Netherlands IHRM in Action 9.1 Locating Near the Talent with a Global Workforce IHRM in Action 9.2 Repatriation at Monsanto IHRM in Action 10.1 Global Management Development Program at Colgate
Palmolive IHRM in Action 11.1 Developing a Global Compensation Program at Colgate
Palmolive IHRM in Action 12.1 Expatriate Performance Management at Nokia IHRM in Action 13.1 The Need for Emergency Medical on Travel in Niger IHRM in Action 15.1 IHRM in a Global Mining Company
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End-of-Book Integrative Cases
Case 1 Fred Bailey: An Innocent Abroad Case 2 Bavarian Auto Works in Indonesia (Germany/Indonesia)
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Acronyms
ADA Americans with Disabilities Act ADEA Age Discrimination in Employment Act APEC Asia-Pacific Economic Cooperation ASEAN Association of South East Asian Nations BOK Body of Knowledge BRIC Brazil, Russia, India, China BT Business Traveler C&B Compensation and Benefits CBT Computer-Based Training CEE Central and Eastern Europe CEO Chief Executive Officer CFO Chief Financial Officer CIPD Chartered Institute of Personnel and Development COLA Cost of Living Allowance CSR Corporate Social Responsibility EEA European Economic Area EFTA European Free Trade Agreement EPI Efficient Purchaser Index ESOP Employee Stock Ownership Plan ESPP Employee Stock Purchase Plan ETUC European Trade Union Confederation EU European Union FCN Friendship, Commerce, and Navigation Treaty FCPA Foreign Corrupt Practices Act FDI Foreign Direct Investment FTAA Free Trade Area of the Americas Fx Exchange Rate GATT General Agreement on Trade and Tariffs GEC Global Employment Company GHRIS Global Human Resource Information System
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GI Global Integration GLOBE Global Leadership and Organizational Behavior Effectiveness GPHR Global Professional in Human Resources GUFs Global Union Federations HCN Host-Country National HQ Headquarters HR Human Resources HRCI Human Resource Certification Institute HRIS Human Resource Information System HRM Human Resource Management IA International Assignee or International Assignment IB International Business ICC International Chamber of Commerce ICFTU International Confederation of Free Trade Unions IE International Employee IHR International Human Resources IHRM International Human Resource Management IJV International Joint Venture ILO International Labor Organization ILP International Labor Organization IMF International Monetary Fund INS Immigration and Naturalization Service IPM International Performance Management IPO Intellectual Property Office IT Information Technology ITUC International Trade Union Confederation JV Joint Venture LR Local Responsiveness M&A Merger and Acquisition MNE Multinational Enterprise NAALC North American Agreement on Labor Cooperation NAFTA North American Free Trade Agreement NGO Non-Governmental Organization OECD Organization for Economic Cooperation and Development OEEC Office of European Economic Cooperation PA Performance Appraisal
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PCN Parent-Country National PCT Patent Cooperation Treaty PM Performance Management PRC People’s Republic of China R&D Research and Development SAR Stock Appreciation Rights SEC Securities and Exchange Commission SHRM Society for Human Resource Management SIHRM Strategic International Human Resource Management SME Small- and Medium-sized Enterprises SOX Sarbanes-Oxley TCN Third-Country National T&D Training & Development TI Transparency International TNC Transnational Corporation TUAC Trade Union Advisory Committee UN United Nations UNCTAD United Nations Conference on Trade and Development UK United Kingdom US United States
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Acknowledgments
We are grateful to many individuals who have provided valuable information, insights, cases, and assistance in completing this book. They include: Susan E. Jackson, Rutgers University; Paul Sparrow and Cary Cooper, Lancaster University Management School; Jyotsna Bhatnagar and Rakesh Sharma, Management Development Institute India; Chris Brewster, Reading University; Yadong Luo, University of Miami; Ingmar Björkman, the Swedish School of Economics; James Hayton, University of Warick; Shaun Tyson and Michael Dickmann, Cranfield School of Management; Gary Florkowski, University of Pittsburgh; Cal Reynolds, Calvin Reynolds & Associates; Hugh Scullion, National University of Ireland; Dave Collings, Dublin City University; Vlad Vaiman, California Lutheran University; Stu Youngblood, Texas Christian University; Bruno Staffelbach, University of Zurich; Bill Castellano, Rutgers University; Ed Schuler, The Schuler Group; Gerold Frick, Aalen University; Manfred Stania, Stania Management; Martin Hilb, University of St. Gallen; Christian Scholz, University of Saarlandes; Mark Saxer, Saxer Consulting; Nigel Shaw and Nadia Wicki de la Puente, Novartis; Michael Morley, University of Limerick; Charles Galunic and Isable Assureira, INSEAD; Simon Dolan, ESADE; Georges Bachtold, Blumer Machines Company; Darryl Weiss, Lockheed Martin Orincon, San Diego; Jerry Edge, RMC Consultants; Joann Stang, Solar Turbines (retired); Bernie Kulchin, Cubic Corporation; Ben Shaw, Bond University; Ed Watson, KPMG; Gardiner Hempel, Deloitte & Touche; Wayne Cascio and Manuel Serapio, University of Colorado-Denver; Bob Grove, San Diego Employers’ Association (retired), Jason Exley, MSI, Denver, CO; Shaista Khilji, The George Washington University; Akram Al Ariss, Toulouse Business School; and Elaine Farndale, Pennsylvania State University.
A special thanks to Lisbeth Claus, Willamette University, for her permission to use her contributions to the fourth and fifth editions.
Dr. Schuler thanks many students at Rutgers University in the Department of Human Resource Management for their teaching and writing suggestions, and the department’s webmaster, Renee Walker, for her work on the construction of his global website.
Dr. Briscoe thanks his graduate students at the University of San Diego and at the many other schools in the some 19 countries where he has taught IHRM, and particularly his most recent graduate assistant, Chanyu Miao, for her help in research into IHRM and country HR practices.
Dr. Ibraiz Tarique is indebted to his father, Dr. Asif Tarique, who passed away in January 2015, for teaching him the value of cultural diversity. Dr. Asif Tarique (an
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international marine biologist by profession) was a global citizen who had a true passion for cultural diversity developed from living in numerous countries and experiencing different cultures, people from all walks of life, poetry, and languages. Dr. Ibraiz Tarique is grateful to his father for an upbringing as a “third culture kid” (a child who grows up in a culture other than that of his or her parents).
Dr. Ibraiz Tarique gives thanks to his family for providing unwavering support to work on this book. He is thankful to both co-authors for providing the guidance, encouragement, and support to contribute to the fifth edition. For Dr. Ibraiz Tarique, working with Dr. Schuler and Dr. Briscoe has been one of the best experiences. Dr. Ibraiz Tarique is thankful to all the individuals who helped in the research for this book. He would like to thank the Lubin School of Business, Pace University, and his excellent colleagues for supporting his interests in international human resource management. Finally, he would like to thank his students (both current and past) who continuously inspire him and remind him every day that learning is a lifelong process.
And last, Dr. Briscoe acknowledges the support from his wife, Georgia, who provided inspiration and example during a particularly difficult time for her during the writing of this fifth edition as well as the example being set by his son, Forrest, who is now showing his father how the role of professor can be so fulfilling. He also acknowledges how great it has been to work with his co-authors, Ibraiz Tarique and Randall Schuler. They went above and beyond the call of duty to provide the support and effort necessary to complete the project within tight deadlines. Their contributions made the final product much better.
Finally the authors thank the many great people at Routledge for their wonderful assistance and support throughout this project, in particular, the Global HRM Series senior editor, Sharon Golan.
Thank you all!
Ibraiz Tarique Dennis Briscoe Randall Schuler
January 2016
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Foreword
Global HRM is a series of books edited and authored by some of the best and most well-known researchers in the field of human resource management. This series is aimed at offering students and practitioners accessible, coordinated and comprehensive books in global HRM. To be used individually or together, these books cover the main areas in international and comparative HRM. Taking an expert look at an increasingly important and complex area of global business, it is a groundbreaking series that answers a real need for useful and affordable textbooks on global HRM.
Several books in the Global HRM series are devoted to human resource management policies and practices in multinational enterprises. Some books focus on specific areas of global HRM policies and practices, such as global leadership, global compensation, global talent management and global labor relations. Other books address special topics that arise in multinational enterprises, such as managing HR in cross-border alliances, managing global legal systems, and the structure of the global HR function. There is also a book of global human resource management cases. Several other books in the series adopt a comparative approach to understanding human resource management. These books on comparative human resource management describe HRM topics found at the country level in selected countries. The comparative books utilize a common framework that makes it easier for the reader to systematically understand the rationale for the similarities and differences in findings across countries.
The fifth edition of International Human Resource Management, written by Ibraiz Tarique, Dennis Briscoe and Randall Schuler, serves as the foundation book for all the other books that focus on specific areas of global HRM policies and practices, and for the books that address special topics such as alliances, strategies, and structures and legal systems. As such, its 15 chapters provide the broadest possible base for an overview of all the major areas in the field of international human resource management. As with all the books in the Global HRM series, the chapters are based upon the most recent and classic research, as well as numerous examples of what multinational enterprises are doing today. This latest edition of this foundation book contains numerous updates and revisions that make the book even more relevant and useful to the reader, whether university student or practitioner. More material has been put into tables and exhibits to help summarize a lot of information, thus making it more quickly accessible and more interesting
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for the reader. This Routledge series, Global HRM, is intended to serve the growing market of
global scholars and practitioners who are seeking a deeper and broader understanding of the role and importance of human resource management in companies that operate throughout the world. With this in mind, all books in the series provide a thorough review of existing research and numerous examples of companies around the world. Mini-company stories and examples are found throughout the chapters. In addition, many of the books in the series include at least one detailed case description that serves as convenient practical illustrations of topics discussed in the book. The companion website for this book contains additional cases and resources for students and faculty to use for greater discussions of the topics in all the chapters.
Because a significant number of scholars and practitioners throughout the world are involved in researching and practicing the topics examined in this series of books, the authorship of the books and the experiences of the companies cited in the books reflect a vast global representation. The authors in the series bring with them exceptional knowledge of the human resource management topics they address, and in many cases the authors are the pioneers for their topics. So we feel fortunate to have the involvement of such a distinguished group of academics in this series.
The publisher and editor have played a very major role in making this series possible. Routledge has provided its global production, marketing and reputation to make this series feasible and affordable to academics and practitioners throughout the world. In addition, Routledge has provided its own highly qualified professionals to make this series a reality. In particular, we want to indicate our deep appreciation for the work of our series editor, Sharon Golan. She has been very supportive of the Global HRM series and has been invaluable in providing the needed support and encouragement to us and the many authors and editors in the series. She, and the entire Routledge staff, has helped make the process of completing this series an enjoyable one. For everything they have done, we thank them all. Together we are all very excited about the Global HRM series and hope you find an opportunity to use International Human Resource Management, fifth edition, and all the other books in the series!
Randall S. Schuler, Rutgers University and the Lancaster University School of Management
Susan E. Jackson, Rutgers University and the Lancaster University School of Management
Paul Sparrow, Manchester University Management School July 2015
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Introduction
This book is about international human resource management (IHRM). That is, it is about human resource management in a global context. The conduct of business is increasingly global in scope, and managing human resources has become even more important in the successful conduct of global business. The motives for writing this book originally—to provide a professional and academic overview for an understanding of the design and implementation of IHRM policy and practice— continue in this edition. This fifth edition has also been written to update this most important but fast changing discipline. As with the previous editions, the majority of the book discusses the IHRM issues faced by multinational enterprises (MNEs) of all sizes, primarily—but not exclusively—from the perspective of the parent company or headquarters. But it also provides increasing attention to other forms of international organizations as well, such as governments, non-profits, and non- governmental organizations (NGOs). Since MNEs increasingly manage their workforces on a global basis, this edition not only examines global management of parent companies’ workforces, with globalized policies, shared services, and global centers of HR excellence, but also provides increased focus on management of workforces in subsidiaries, international joint ventures, and global partnerships.
In the previous two editions, a major effort was made to obtain relevant examples from many different countries. This effort has continued in the fifth edition. So the examples in the chapters as well as the end-of-chapter cases (in the book and on the text website) draw from many small and medium-sized companies (many of which will be new to the reader) from many countries, as well as some traditional and well-known large firms, which come from both large and small countries.
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Sections and chapters
This book is divided into four sections (see Figure I.1 to understand how the topics relate to each other) and 15 chapters. The first two sections set the scene for International Human Resource Management: Policies and Practices for Multinational Enterprises, fifth edition, and explain why IHRM is so important to the success of international business, describing the context of global business as it relates to IHRM. Section 1 “Strategic Context,” describes the key strategic components of the context within which IHRM operates. Each of these components represents a critical part of the global environment that determines the nature of IHRM. Section 2, “National and Cultural Context,” describes three important aspects of the country and/or national environments that determine the cultural and legal contexts within which IHRM operates. Then Section 3, “Global Talent Management,” describes the IHRM policies and practices that are shaped by the context described in the first two sections. These seven chapters provide a comprehensive and thorough overview of the policies and practices of IHRM. These policies and practices are described both from a centralized, headquarters- focused perspective, as well as from the local perspective of subsidiaries, joint ventures, partnerships, and contractors. Finally Section 4, “Role and Future of IHRM,” describes the nature of today’s IHRM department, the professionalization of IHRM, and takes a look at future trends in the field. Now we describe the chapters briefly.
Chapter 1 introduces the globalization of business and describes how that has changed the nature of IHRM. It describes the evolving nature of IHRM as it meets the needs of changing multinational enterprises and explains how this has led to the development of strategic IHRM in helping MNEs attain sustainable competitive advantage in the global marketplace. This chapter also describes the basic nature and development of IHRM, differentiates IHRM from domestic HRM, and discusses some of the difficulties experienced in that development.
Chapter 2 describes the various responsibilities of IHRM and links them to the pursuit of international business strategies. The strategic decision to “go international” is one of the most important components of the IHRM environment. IHRM must understand these strategic choices and should contribute input to them in order to contribute to their successful achievement. This chapter also examines IHRM strategy and its relation to overall MNE business strategy, focusing on how varying approaches to MNE business strategy affect the nature of IHRM strategy. Finally this chapter explains how IHRM changes and contributes to the development of those various MNE strategies.
Chapter 3 discusses the growing complexities in designing the structure of multinational firms and the important role that IHRM plays in those design
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decisions. The conduct of international business is increasingly complex, involving the need to—at the same time—focus on central control and influence and local adaptation to customers and culture. Too often these efforts fail, at least partially because of inadequate attention to issues within the responsibility of IHRM. This chapter describes the contributions that IHRM can and should make to the success of these organizational choices.
Chapter 4 describes the role of IHRM in cross-border mergers and acquisitions, international joint ventures, and international alliances. Cross-border acquisitions, joint ventures, teams, and alliances of various sorts are increasingly the means by which firms choose to go international and thus they constitute one of the most important components of the context for IHRM. Much of the chapter describes the role of IHRM and the IHR professional in designing, facilitating, and implementing these four specific types of cross-border
Figure I.1 Chapter Map International Human Resource Management, 5th ed. Tarique, Briscoe, Schuler.
combinations. All four types of these combinations are increasingly used and
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IHRM can and should play a major role in helping ensure the success of their design and implementation.
Chapter 5, starting Section II, expands the theme that is revisited frequently throughout the text: the critical importance of country and corporate culture. Cultural differences impact everything that is done in international business and are, if possible, even more important to everything that IHR managers do. Success in international business requires a thorough understanding of cultural factors, and IHRM is involved both with helping provide that expertise to the firm as well as having to incorporate such understanding in its own global activities. Thus this introduction to IB and IHRM, by necessity, includes an introduction to the concepts of country and corporate culture. The chapter also discusses the importance of culture in both the conduct and the interpretation of IHRM research, explaining how culture affects both our understanding of IHRM and its impact. Like everything else, culture influences what we know and what we think we know about IHR.
Chapter 6 describes international aspects of the legal and regulatory environment, another of the key components in the context of IHRM. Just as is true for HRM in a domestic context, there are many aspects of law that impact the practice of human resource management when working in the global arena. This chapter discusses five of these aspects:
■ international employment law and the institutions that develop and apply it;
■ major legal systems and their key differences; ■ goals of the various international trade agreements ■ major issues international employment issues impacting HR; ■ immigration/visas, personal, data protection, anti-discrimination,
harassment, ethical standards, CSR, and corporate governance.
All of these areas of the legal and regulatory environment related to the conduct of IHRM are increasingly important to the successful contribution of IHR managers and all have a growing impact on IHR and firms operating in the global business environment.
Chapter 7 examines the broad nature of international labor standards, global employment law and regulations, and international ethics and social responsibility. First, this chapter looks at the institutional context of international business. International organizations have promulgated labor standards for MNEs. Next, this chapter looks at the global legal environment in which the MNE operates. It focuses on compliance with national and supranational laws. Further, a number of comparative regulatory issues are discussed that affect the MNE such as immigration controls, data protection, anti-discrimination and harassment,
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termination and reduction in force, and intellectual property. Finally, this chapter looks at international ethics, its relation to culture, and how ethical dilemmas must be solved
Chapter 8 provides an introduction to the overall concern with planning, forecasting, and staffing the global enterprise. Chapter 8 begins by providing a description of the constantly changing labor markets around the world and discusses how MNEs plan for creating their workforces from those labor markets. The nature of those markets in various countries, in terms of their demographic characteristics, the skills and abilities of their individuals, and their accessibility and cost varies dramatically from country to country and region to region and can be a major determinant in the success of international decisions such as where to locate operations. Chapter 8 also provides an overview of the many options that MNEs have available to them for that staffing.
Chapter 9 focuses on the IHRM responsibility for staffing, but primarily on the issue of expatriation and repatriation, the movement of employees of MNE from either the parent company to a foreign subsidiary or from a foreign subsidiary to another subsidiary or to the parent firm. This chapter examines the difficulties experienced in the selection and management of expatriates and repatriates and suggests some of the approaches successful MNEs use to ensure positive experiences with those expatriates and repatriates. In addition, the chapter discusses problems that MNEs are experiencing with women and other types of non-traditional expatriates.
Chapter 10 focuses on the training and development of the MNE’s global workforce. This includes training of host-country workforces, training and preparation of international assignees, and global management development, including the nature and development of a global mindset, the competencies of global managers, and the nature of management development programs in a global context. This chapter has provided both many examples and research and writing of what firms from around the world are currently doing to offer successful global training and development programs. It is now up to IHR managers in other firms to use what was described here to develop successful global training and development programs in their own organizations.
Chapter 11 describes the complex area of compensation, benefits, and taxes for both international assignees as well as for local workforces. The chapter presents IHRM practices related to the development of compensation and benefit programs among MNEs and describes seven alternative approaches to compensation for expatriates. The chapter also discusses the many problems that MNEs confront as they try to design and implement global compensation and benefit programs throughout their global operations. Lastly, the chapter discusses many of the various approaches taken to compensation and benefits, such as vacation and pension practices, in a number of different countries.
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Chapter 12 addresses the crucial issue of performance evaluation and performance management for international assignees and managers in foreign operations. It describes the many difficulties encountered in trying to implement an effective PM system in the international arena, not the least of which is figuring out how to accommodate in the evaluation process factors stemming from the nature of the local cultural environment. It is clear that it is inadequate to simply apply a PM process designed at the home-country level for domestic use to the international setting. The chapter ends with a discussion of a number of suggestions and guidelines for improving the process of implementing an effective IPM system.
Chapter 13 describes topics of importance to the IHR manager: employee health and safety in the context of the foreign subsidiary and joint venture, and health, safety, and security for global business travelers and employees on international assignments and their families. Often, because health and safety practices differ so much from country to country, responsibility for them is left in the hands of subsidiary (local) HR managers. Nevertheless, MNEs must understand and cope with local and international health and safety regulations, the widely variable practices faced in different countries, and strategic business decisions that may influence workforces and employee relations in multiple locations. This chapter also discusses the important topic of HRIS.
Chapter 14 provides an overview of the wide variances in HR practices from country to country and region to region. International enterprises have the necessity to understand local HR policies and practices so as to make intelligent decisions as to the practical fit of headquarters’ policies with tradition and law in local jurisdictions. This chapter focuses on five specific regions: Europe, North America, Asia, Latin America, and Africa. Within each region, key HRM issues are examined with implications for HRM policies and practices. In addition, this chapter discusses various HRM issues that converge among regions and countries, including managing two generations of employees including older workers, discrimination and the glass ceiling, and gaps in talent supply and demand.
Chapter 15, the last chapter, provides a glimpse at the challenges that confront IHRM. These challenges include the organizational advancement and the professionalization of IHRM. International HR managers have to further develop their understanding of their global enterprises and, as a consequence, will become better integrated into the planning and strategic management of those enterprises. As these challenges are met and IHR managers further develop their global HR competencies, multinational firms will find themselves developing world-class IHR departments. What this chapter demonstrates is that only when such an integrated, responsive, and accepted IHRM is developed will IHRM reach its potential and take its rightful place in the management of today’s successful global enterprises.
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Terminology
In the 15 chapters of this fifth edition of International Human Resource Management, a number of terms are used to refer to organizations that conduct international business. In general, the term MNE (multinational enterprise) is used to refer to all organizations that conduct business outside their countries of origin. Today, this can apply to bricks-and-mortar firms as well as virtual firms with primarily only a website. The term MNE is used rather than MNC (multinational corporation—which is often a more commonly used term) because in many countries there is no form of legal ownership equivalent to the American corporation, from whence derives the term MNC. So we chose a term that can be used with wider application without being tied technically to the legal structure of one particular country. Thus, in this text the generic term “enterprise” is used to refer to any type of organization involved with international business. For small- and medium-sized MNEs, the term SME is sometimes used. Generally, the term MNE is used throughout the book. When appropriate, SME will be used to highlight special characteristics of small- and medium-sized MNEs. We have also increased the discussion of non-business organizations, such as governments, NGOs, and non-profit organizations, many of which have more international exposure than do many business enterprises.
MNEs can be described as operating multi-domestically, internationally, globally, or transnationally. While these terms often seem to be used interchangeably, some distinctions can be made (for details about the differences as they relate to IHRM, refer to Chapter 3). For example, the term “global” refers to enterprises that operate all over the world and have consistent policies and practices throughout their operations. Such MNEs have a high percentage of international turnover or sales (over 50 percent outside their home countries) and a high percentage of employees outside their home countries, as well, with operations in a large number of countries, and a global perspective and attitude reflected in their business strategies and in their mission statements. These firms tend to have a highly centralized (or, at least, regionalized) policy, at least as it applies to financial issues and sharing of resources and innovations and world-class standards for their global products and services.
In contrast, transnational firms are global in scope but decentralized and localized in products, marketing strategies, and operations. That is, they take advantage of their global presence to gain access to resources (ideas, technology, capital, people, products, and services) and develop economies of scale, while at the same time maintaining a local presence that is seen as comparable to that of domestic competitors. The other terms, such as “multinational” or “international,” generally refer to MNEs that have not yet developed their levels of international
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operations to this extent. Because more and more enterprises are moving in the direction of being more global, in thought at least, if not in action, the word “global” is used in the title of the series of which this book is a part. But the word “international” is used in the title and chapter headings of this text to reinforce the reality that IHRM policies and practices are often and mostly not standardized and centralized, as might be implied with the use of the term “global.”
Thus most of the topics, policies, and practices discussed throughout this text are currently applicable to most enterprises, and are likely to soon apply to most others. In this text, if the terms global, multinational, or international enterprise make a difference to the particular topic, policy, or practice being discussed, then an attempt is made to make it clear through explanation or the use of the terminology as to which type of enterprise is being described.
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Pedagogy
Each chapter begins with “Learning objectives.” These are the main objectives that we would like to see you focus on as you consider the material in the chapter. Although key terms are defined in the chapter when they first appear, they are also defined on the website under “Glossary.” Of course you will learn more than these particular objectives and terms.
Each chapter offers a case study at the end that illustrates the current experiences of a particular multinational enterprise.
Each chapter contains a case study at the end illustrating current experiences of multinational enterprises. In addition, at the end of each chapter there are “Discussion questions” that might be answered individually or in small teams. These are provided to allow the reader to apply many of the ideas in the chapter to other situations. To help instructors and readers identify cases and IHRM in Actions from specific regions or countries, there are two matrices that list countries down the left side and with IIA and cases vertically across top.
The end-of-book materials include the notes that are used in each of the chapters. These materials reflect the relevant classic and contemporary academic research worldwide and the experiences and stories of multinational enterprises. To add even more relevant information as it unfolds, the reader is encouraged to visit numerous websites that are available and suggested here. Additional websites and other materials are found on the website designed for this book: www.routledge.com/textbooks/globalhrm.
At the end of the book are two integrative cases. These cases illustrate the challenges in trying to become a successful MNE, the importance of international human resource policies and practices, and the impact of the local country environment on the effectiveness of those policies and practices.
Finally there are author and subject/company indexes. These are to provide the reader with further information about the various topics covered in this book as well as the many authors whose work has been used to compile this book.
There is an extensive website for this book, which includes:
■ history of the development of IHRM; ■ list of major websites for research on IHRM topics; ■ instructor’s manual, with slides for lectures, sample syllabi, exam questions,
and discussion guides for end-of-chapter discussion questions and for the discussion questions that accompany the cases in the text.
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Section 1 Strategic Context
The first section of the book, “Strategic Context,” has four chapters:
■ Chapter 1: The Internationalization of Human Resource Management ■ Chapter 2: Strategic International Human Resource Management ■ Chapter 3: Design and Structure of the Multinational Enterprise ■ Chapter 4: International Mergers and Acquisitions, Joint Ventures, and
Alliances
These chapters set the scene for International Human Resource Management: Policies and Practices for Multinational Enterprises, fifth edition, and explain why international human resource management is important for the success of international business. Together they describe the important components of the strategic context within which international human resource management policies and practices are designed and implemented. Each of these components represents an important part of the strategic context that determines the nature of IHRM. Chapter 1 describes the content and importance of international human resource management practices and policies. Chapter 2 links these international human resource management practices and policies to a multinational enterprise’s (MNE’s) business strategy. Chapter 3 describes the various choices MNEs have in the ways they divide themselves across geographically dispersed units around the world and the implications for the design and implementation of international human resource management practices and policies. Chapter 3 also describes the various structure options available to the MNE in combining those geographically dispersed units and the implications for the design and implementation of international human resource policies and practices. Finally, Chapter 4 describes the role of international human resource management practices and policies in three unique international structures of MNEs: international mergers and acquisitions, international joint ventures, and international alliances.
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Chapter 1 The Internationalization of Human Resource Management
In the future, there will be no markets left waiting to emerge.
HSBC Corporation1
A company’s actions should be consequent to its beliefs. We believe that our ability to win is due in no small part to our people, whom we consider a competitive advantage.
Peter Brabeck-Letmathe Chairman, Nestle2
Learning Objectives
This chapter enables the reader to:
■ Describe the many drivers of the internationalization of business. ■ Describe the growth and spread of internationalization. ■ Describe the different settings of international human resource
management. ■ Explain the development of international human resource
management.
Over the last 50 years, the economies of the world have become increasingly integrated.3 This has been driven by many forces and led by what is now referred to as the multinational enterprise (MNE)—and more recently contributed to by internationalized government agencies (such as the United Nations and the World Trade Organization), small- and medium-sized enterprises (SMEs), countries through their state- and family-owned enterprises, born-global organizations, and non-governmental organizations (NGOs). As all forms of organization have increased their global activities, all of their management functions have required adaptation to the global environment, including human resource management (HRM). This book is about the policies and practices of HRM in those organizations that operate in the global economy.
This first chapter introduces the concept of internationalization and how it has
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impacted HRM, how that led to the development of international human resource management (IHRM), and why IHRM has become so critical to the success of global organizations. In addition, this chapter explains why IHRM is so different from traditional and purely domestic HRM. Broadly defined, the field of international human resource management is the study and application of all human resource management activities as they impact the process of managing human resources in enterprises in the global environment. HRM in the MNE is playing an increasingly significant role in providing solutions to business problems at the global level. Consequently, there is a need to examine how HRM policies and practices can best support the rapid advance of globalization. That is, this chapter is about the internationalization of HRM (referred to in this text as International HRM or IHRM).4
International human resource management is the study and application of all human resource management activities as they impact the process of managing human resources in enterprises in the global environment.
The following provides a short summary of what is driving the internationalization of business and its impact on HRM. Markets for most goods and services are global—with every firm or industry experiencing competitors from multiple countries; increasing cross-border investment; expanding number and value of cross-border joint ventures, partnerships, and alliances; increasing numbers of small, internet-based, multinationals (often referred to as micro- MNEs); and increasing numbers of people who cross borders (legally and illegally). Thousands of firms and millions of people work outside their countries of origin and millions of people work in their home countries for foreign-owned enterprises. Firms everywhere face foreign competition. And inputs to business activity (financial, labor, materials, technology, supplies, and consultancies) are now available everywhere at world-class quality, price, and speed, creating global standards and competition in virtually every industry and sector.
5.27 million Americans worked for foreign-owned subsidiaries in 2010 in the United States (the most recent data published by the Bureau of Economic Analysis: http://www.bea.gov/scb). A similar number of foreigners worked for foreign subsidiaries of American firms overseas. This phenomenon can be found in many countries.
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What this implies is that every business and every person confronts constant global pressure for competitive excellence. Business, as well as other activities such as politics, travel, environmental concerns, and sports, has become a truly international activity, with every aspect of every organization affected, including HRM. Thus the purpose of this introductory chapter is to provide a framework for understanding how this pervasive internationalization is affecting HRM—and to introduce how IHRM today is carrying out its new obligations and how it is changing to meet the demands of this interconnected world.
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The Drivers of Internationalization of Business
Many enterprises, large and small, from all countries (developed economies and emerging) are already global—or are in the process of going global. There are many drivers of this internationalization of business, the most important of which include the items listed in Exhibit 1.1.
Exhibit 1.1: Drivers of Internationalization of Business
Driver Impact on internationalization
Decreased trade barriers through trade agreements and treaties
Negotiated to facilitate and increase trade between member countries (e.g., WTO, EU, NAFTA, ASEAN, MERCUSOR)
Search for new markets and reduced costs
New markets and lower-cost operations found in other countries
Rapid and extensive global communication
Made possible with new technologies and facilitates international collaboration and easier communication and control among dispersed operations
Rapid development and transfer of new technology, including improved transportation
Technological advances are now global, created everywhere, and shared across borders, making global commerce possible
Increased travel and migration, exposure to new countries and cultures
Billions of people experience other countries and cultures every year and develop new attitudes and expectations
Knowledge sharing across borders
With global education, travel, trade, and the Internet, knowledge and ideas are spreading across borders rapidly
E-commerce By its nature is international and is increasing rapidly
Homogenization of culture and consumer demands
Increasingly, consumer demands are the same everywhere
Global Internet and social media, television,
All media are now shared everywhere and
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music, movies, sports, publications, news
expectations
Competitiveness of emerging market MNEs and SMEs
Internationalization largely came from developed countries; now there are innovative and competitive firms everywhere; much world economic growth is now located in emerging markets
Together these drivers are creating new global realities for all organizations— large and small, publicly traded, privately held, family-owned, government-owned, web-based, and NGOs. When businesses internationalize (for more about this process, refer to Chapters 2 through 4), HRM responsibilities, such as recruiting and hiring, management development, performance management, compensation, employee benefits, health and safety, and labor relations, take on international characteristics, requiring international HRM professionals to facilitate HRM practices with a global focus.
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The Growth and Spread of Internationalization
Because of the rapid development of these drivers, internationalization is spreading faster than ever. It has led some observers to refer to it as globalization and to define it as:
the inexorable integration of markets, nation-states, and technologies to a degree never witnessed before—in a way that is enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before and in a way that is enabling the world to reach into individuals, corporations, and nation-states farther, faster, deeper, and cheaper than ever before.5
Both terms—internationalization and globalization—refer to the ever-increasing interaction, interconnectedness, and integration of individuals, companies, cultures, and countries. The expanding connections between people, companies, countries, and cultures are real, powerful, all-encompassing, and increasing in importance. Because of this, international business continues to grow in terms of the numbers and types of enterprises conducting business across borders, the amount of foreign direct investment (FDI), and the value of trade between countries.
The United Nations estimates (2010) that there are more than 82,000 large multinational enterprises (referred to by the UN as transnationals) with more than 870,000 affiliates that employ more than 77 million people worldwide (not counting sub-contractors and outsourcing).6 And these numbers grow every year. Even though the amount of new FDI dropped rather dramatically during the 2007– 2009 global economic and financial crisis, it began to recover by 2010 and by 2012– 2013 it had recovered to the pre-crisis level.7 Even during the crisis, the economic and financial health of the major emerging markets, such as the BRIC(S) countries (Brazil, Russia, India, and China—to which South Africa has been added), remained fairly robust. Indeed, emerging markets are now providing the major growth in the world’s economy.
Internationalization began with large firms from the major developed countries, primarily the US, the UK, Germany, France, and Japan. But international business is no longer only—or even primarily—the domain of well-known firms from the large or developed countries. Surveys show that enterprises from small, or developing and emerging markets are also contributing increasingly to global trade as are the tens of thousands of entrepreneurial but global micro-MNEs. For an example, refer to IHRM in Action 1.1, which illustrates how a small—200- employee—accounting business in Salem, Oregon, grew into a global business (now one of the top 100 accounting firms in the US, with branches in a number of other locations, including other countries. In addition, for another example, refer to the case at the end of the chapter, which profiles Yarn-Paradise, a small,
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entrepreneurial business—referred to as a micro-MNE—in Turkey, with Internet customers around the world.
IHRM in Action 1.1: Creating a Global Accounting Firm
A 200-employee accounting firm may not top your list of global businesses with IHRM issues, but it should. Aldrich Kilbride & Tatone (AKT), an Oregon, US, accounting firm, has operated since 1973 in the small town of Salem. Wanting to grow the business, it made a number of strategic decisions to add services and locations. It opened two offices in Mumbai and Coimbatore (India) and merged with Grice Lund & Tarkington, an accounting firm based in San Diego, California. Rather than outsourcing, a route commonly used by accounting firms, AKT decided to establish its Indian offices through direct investment and hire its own year-round staff. Yet, because of the cyclical nature of the tax business, it had to overcome major hurdles to increase efficiency and create sustainable careers for its employees, regardless of location. The biggest hurdles, initially, included computer security, file sharing, and time zones. But it soon realized that culture differences and maintaining a similar organizational culture in each of its locations was an additional challenge. While AKT encourages each office to form teams of experts who can focus on specific customer needs, it also early on faced the challenge of deploying its Indian tax professionals when the frantic US tax season was done. AKT decided to partner with one of England’s top firms. Now, from May through December (the heavy time pressure for the US tax season ends in April), AKT’s India staff work to prepare the tax returns of their English partner’s clients. The global expansion of this small US accounting firm (now one of the top 100 accounting firms in the US with partnerships and offices all over the US and world) proved to be successful for employees and customers alike, because of the attention paid to people issues.
Fifty years ago the US economy accounted for 53 percent of global Gross Domestic Product (GDP), but today it accounts for less than 28 percent of global GDP (or less than 20 percent in terms of global purchasing power parity), albeit both of a much larger US GDP and of a very much larger global economy.8
Not only is the world economy much larger in absolute terms, but an ever- increasing number of countries are participating in a significant way. For many, the world is becoming flat (in the sense that no country has a commercial advantage in any particular industry), and we are entering an era of globality, with everyone competing with everyone from everywhere for everything.9 For example, one
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measure of this is the ever-growing number of countries whose publicly held enterprises are represented among the world’s largest MNEs (and, of course, there are also many thousands more SMEs and family-owned enterprises—from large and small and both developed and emerging economies—that don’t show in the surveys or rankings but that also play a significant role in the conduct of international commerce). The next couple of paragraphs summarize a number of these rankings and illustrate how quickly globalization is expanding.
For example, the Fortune Global 500 (which is a ranking of the largest publicly traded and reported firms in the world, based on their revenues) now (2013) includes companies from 38 countries—obviously including firms from a number of emerging markets.10 A dozen years ago there were only 25 countries represented. Today (2013), Forbes’ Global 2000 list (a ranking of the largest public companies based on a composite of sales, profits, assets, and market value) includes firms from 63 countries.11 All regions of the world are represented, indicating how global business has become: Asia-Pacific (715 companies), Europe/Middle East/Africa (606), United States (543), and the Americas (143). In 1999, the Wall Street Journal began a list of the largest firms as determined by their market capitalization. The largest 25 firms (based on this metric) were from five countries [US (19), Japan (3), Germany (1), UK (1), and Finland (1)].12 But by 2013, there were seven (quite different) countries represented [US (14), China (4), UK (2), Switzerland (2), Australia (1), Brazil (1), and the Netherlands (1)].13 In addition, the London Financial Times developed a list of the top Global 500 firms (based on market capitalization in all the major stock markets from around the world). In 2013, the FT list included firms from 35 countries.14
When business publications first started developing these lists, their primary focus was on ranking the largest global firms. But with the increasing integration of the global economy, these publications have become additionally interested in analyses of more specific characteristics. For example, Fortune magazine developed a list of the top global companies for leaders.15 This analysis of approximately 10,000 companies worldwide was narrowed to 45 companies from 16 countries, with the top 20 companies found in eight different countries. Fortune magazine also developed a list of the most powerful women in the global economy, which profiled women from 21 different countries.16Bloomberg Businessweek has developed, among its many lists, the Global InfoTech 100, the world’s most important information technology firms, based on a composite ranking of shareholder return, return on equity, total revenues, and revenue growth.17 This list includes firms from 24 countries, large and small, developed and emerging. Bloomberg Businessweek has also developed a list of the 100 Best Global Brands, which includes firms from 13 countries, which is also based on a composite score— of marketing and financial data and expert evaluations.18 In addition, Bloomberg
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Businessweek has developed a list of the 50 most innovative companies,19 based on a global survey of executives plus stock returns and three-year revenue and margin growth. In the 2010 results, “fifteen of the top 50 are Asian—and for the first time since the rankings began in 2005, the majority in the top 25 are based outside the U.S.” A final example demonstrating the internationalization of business includes a ranking of the 100 best-performing CEOs in the world by the Harvard Business Review.20 In this ranking, 67 firms were from developed countries, six were from the Asian tigers, 22 were from the BRIC countries, and five were from new emerging market countries.
All of these surveys focus on large, publicly traded firms. The key reason, of course, is that data about these firms are readily available from their stock market and government filings. The surveys do not, however, include private and family- held businesses or government-owned enterprises (no matter how large), because they do not typically publish their financial results. Some privately held firms (such as superbrands in the UK and the Hangzhou Wahaha Group in China), family- owned firms (such as Ikea in Sweden and Gianni Versace in Italy), as well as government-owned enterprises (such as Japan Post and China National Pharmaceutical Group) are among the world’s largest and most global firms. In many countries, large privately held, family-owned and -run, and government- owned businesses contribute a major component to the size of their economies. And then, of course, there are also hundreds and thousands of SMEs in most countries that sell and purchase in the global marketplace.
The United Nations Conference on Trade and Development (UNCTAD) tracks the world’s transnational corporations (TNCs), analyzing how important these firms are to the global economy. As part of this effort, UNCTAD developed the TNI—Transnational Index, based on the composite of a firm’s average percentage of its foreign assets, foreign sales, and
Exhibit 1.2: The World’s Top 20 Non-financial TNCs (Ranked by Foreign Assets)
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foreign employment to its total assets, sales, and employment, which identifies the relative importance of foreign business activity to the world’s largest firms. Exhibit 1.2 shows the top 20 non-financial transnationals ranked by the value of their foreign assets. The table illustrates that the largest firms by foreign assets are not necessarily the largest by sales, number of employees, or as percentages-of-total figures. For example, this table shows that General Electric has the highest absolute value of foreign assets of all transnationals tracked by UNCTAD, yet their TNI places them quite a way down the overall rankings (TNI = 48.8).
These many surveys and rankings illustrate that the global economy increasingly involves all kinds of products and services from all kinds of organizations located in virtually every country in the world. This is radically different from the situation of even a few years ago, when only a few countries and a relatively few companies participated widely in the global economy. In addition, this internationalization is proceeding at an unanticipated and unprecedented rate. The opening of markets and the appearance of competitive foreign firms and their products in virtually
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every marketplace puts intense pressure on every enterprise to develop the capacity to operate at lower costs and with greater speed, quality, customer service, and innovation, both at home and abroad. As a consequence, HR is called upon to recruit, select, develop, and retain workforce talent that can achieve this global competitiveness in a world that is increasingly complex and challenging. IBM’s chairman, Samuel Palmisano, indicates that IBM’s survey of global CEOs shows that coping with this new world is seen as the most significant challenge they face (see IHRM in Action 1.2).21 And one of the most difficult components of that challenge is finding the employees and management that are needed, which is directly the responsibility of IHRM.
IHRM in Action 1.2: CEOs’ Perspectives on Globalization
Introductory letter from Samuel J. Palmisano, Chairman, President, and CEO of IBM
In a very short time, we’ve become aware of global climate change; of the geopolitical issues surrounding energy and water supplies; of the vulnerabilities of supply chains for food, medicine and even talent; and of sobering threats to global security.
The common denominator? The realities—and challenges—of global integration [these are all issues that connect across borders].
We occupy a world that is connected on multiple dimensions, and at a deep level—a global system of systems. That means, among other things, that it is subject to systems-level failures, which require systems-level thinking about the effectiveness of its physical and digital infrastructures.
It is this unprecedented level of interconnection and interdependency that underpins the most important findings contained in this report. Inside this revealing view into the agendas of global business and public sector leaders, three widely shared perspectives stand in relief:
■ The world’s private and public sector leaders believe that a rapid escalation of “complexity” is the biggest challenge confronting them. They expect it to continue—indeed, to accelerate—in the coming years.
■ They are equally clear that their enterprises today are not equipped to cope effectively with this complexity in the global environment.
■ Finally, they identify “creativity” as the single most important leadership competency for enterprises seeking a path through this complexity.
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What we heard through the course of these in-depth discussions is that events, threats, and opportunities aren’t just coming at us faster or with less predictability; they are converging and influencing each other to create entirely unique situations. These first-of-their-kind developments require unprecedented degrees of creativity—which has become a more important leadership quality than attributes like management discipline, rigor or operational acumen.
As always, our biennial examination of the priorities of CEOs around the world provides terrific insight into both the world as they see it, and ultimately, what sets the highest-performing enterprises apart. For me personally, I find one fact especially fascinating. Over the course of more than 1,500 face-to-face interviews with CEOs and other leaders, with not a single question containing the term “Smarter Planet”—and yet the conversations yielded primary findings that speak directly to exactly what IBM has been saying about the challenges and opportunities of this fundamental shift in the way the world works.
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Different Settings of International Human Resource Management
Internationalization of HRM occurs in many different settings. For practical purposes, HR managers in most types of organizations will confront at least some aspects of internationalization. That is to say, the internationalization and technology factors (refer to the list of drivers earlier in this chapter) that have led to there being “no place to hide” from the internationalization of business have also led to there being no place to hide for HRM professionals. HRM professionals find themselves having to deal with—and must therefore understand and become competent in—IHRM issues in almost every job setting (see Figure 1.1.). The following provides a short summary of the most significant of these settings.
Figure 1.1 Who Needs International Human Resource Management?
Headquarters of Multinationals
This setting involves working as an HRM professional in the central or regional headquarters of the traditional MNE. This setting receives most of the attention in research and literature about the internationalization of business and is, by far, the most common situation for HR managers who confront international responsibilities. The focus is from the center (headquarters) out to the subsidiaries and sub-contractors, developing and overseeing HRM practices in all foreign operations and administering the movement of employees between headquarters and foreign locations. Increasingly, the movement of employees is also between foreign subsidiaries and headquarters and between foreign locales—all often referred to generically as international assignees. It can also mean that HRM professionals are likely to find themselves working on international assignments. The case in at least some MNEs involves IHRM becoming a major strategic partner in the organization’s global planning and in talent management of the global workforce, relegating many of the international assignee responsibilities to centralized shared service centers, or outsourcing them to specialized service providers. Typically, headquarters either applies its parent company HRM policies
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and practices directly to its foreign subsidiaries, or it tries to merge its HRM policies and practices with those that are common in the host countries of their subsidiaries. However, it is common that a local HR manager will handle HR in the subsidiary, even if he or she is primarily responsible for implementing centralized (from headquarters) HRM policies and practices.
Home-country Subsidiaries of Foreign-owned Firms
The second common setting for IHR involves the HR manager working in his or her home country but being employed by a local subsidiary or acquisition of a foreign MNE. Now the HR manager is likely be on the receiving end of policy and practice coming from the foreign headquarters, reversing the role as experienced by the HR manager in the first situation. This HR manager will typically have to integrate a local national culture plus the foreign organizational culture into his or her local operations. This role has received little attention (except when a major legal or culture clash occurs), but is by no means uncommon in many countries. Examples of such situations would involve local HR managers working in the local subsidiaries or acquisitions of MNEs in places like Central Europe (auto companies, pharmaceutical companies, tobacco companies, telecommunications firms), India (software developers, call centers), China (manufacturing facilities, services), Africa (energy and extraction firms), and Latin America (commodity and natural resource firms, retail companies, banks), or even, maybe especially, HR managers working in the local subsidiaries of the large multinationals in Asia, Latin America, the US, and Europe, such as for Siemens, Walmart, Novartis, Johnson & Johnson, or IBM.
The different communication styles, worker motivation philosophies, and organizational structures and frequent lack of understanding of the host country cultures, markets, employment laws and practices, even language itself, by the parent company can cause major problems for the local HR manager, and thus force the host country HR manager to confront aspects of internationalization that are just as difficult as those confronted by the home country HR manager working at headquarters having to deal with the “export” of policy and practices.
Domestic Firms
Although they may be overlooked, another important setting for IHRM is the purely domestic (local) firm, such as a hospital, farm, dry cleaners or laundry, ski or beachside resort, road or building construction contractor, or restaurant (or the purely domestic operation of an MNE, such as a local fast food or real estate franchise or a local petrol station). In many countries (particularly true in most
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locales in Europe and North America), these types of firms also confront many of the complexities of international business, particularly as they relate to IHRM. These complexities include:
■ the hiring of employees who come from another country, culture, and language (recent immigrants) or their families (who may have been born in the new country, and may be, therefore, now citizens, but who may still be more familiar with the language and culture with which they grew up at home than with that of their new country); as well as
■ having to deal with competition from foreign firms for customers and suppliers;
■ or for capital which may well come from foreign-owned firms, or competition from these firms for resources, including employees.
The hiring—or recruiting—of immigrants (or even the first generation since immigration) in local, domestic firms can lead to many of the same internationalization concerns as those faced by traditional MNEs, such as how to merge the cultures, languages, and general work expectations of employees from multiple countries, and how to respond to employees who bring to their new work situations sometimes very different languages and very different attitudes toward supervision and have very different expectations related to the practice of management and IHRM (such as performance management and compensation). Thus, even in the domestic firm, HR managers must develop much of the knowledge and experience necessary to succeed in an international environment.
In addition, traditionally local, domestic firms can find themselves “going global,” which can involve the establishing of small offices in other countries (e.g., a small accounting or architectural firm opening an office in a foreign locale, either to tap into talent for its home office operations or to provide an entrée into the foreign location). Or they might find themselves needing to recruit talent “overseas” in order to meet their needs for specialized skills that are in short supply in their home locales. In either case, the HRM challenges are not much different than those confronted by IHR managers in large MNEs.
Even though these domestic companies tend to be relatively small, increasingly they are what are referred to as “domestic multinationals.” These are successful, initially small, domestic companies—frequently in emerging markets—that are going abroad and becoming MNEs themselves. Examples of such firms include Pliva (generic pharmaceuticals, Croatia), Mittal (steel, India), Tata Consulting Services, Infosys, and Wipro (IT services, India), Lukoil (oil, Russia), Gazprom (oil and gas, Russia), Haier (home appliances, China), Mahindra & Mahindra (tractors and cars, India), Sadia (food and beverages, Brazil), Harry Ramsden’s Fish and Chips (UK), Embraer (aerospace, Brazil), Koc (diversified industries, Turkey),
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Cemex (building materials, Mexico), and Comex (paint manufacturer and retailer, Mexico) to name just a few. These companies have become global players in their respective industries and are demonstrating the potential of reaching the top ranks of global competitors.22
Government Agencies and Non-governmental Organizations
Even though this text primarily discusses IHRM from the perspective of MNEs, many other types of organizations are also global in scope and are concerned with many of the same international HRM issues. For example, government agencies such as the foreign ministries of countries and their embassies and the hundreds of non-governmental organizations (NGOs) that send hundreds of people from their parent countries to their overseas operations and often also employ many local and third-country people to staff their activities around the globe, such as religious organizations including the Catholic Church, LDS Church, Moon Church, Life Church; and humanitarian organizations such as World Vision, Care, Mercy Corps, Red Cross, Habitat for Humanity, and Doctors Without Borders.
In addition, there are an increasing number of agencies that are global by purpose and function—such as the United Nations and all of its agencies,23 the World Bank, the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), the Association of Southeast Asian Nations (ASEAN), and the EU with its large concentration of employees in Brussels, Strasbourg, and Luxembourg. Many IHRM responsibilities for these organizations are similar to those faced by their commercial counterparts. Indeed, many of them have experience with international operations over a longer period of time than is true for most firms and have accumulated much significant expertise on how to best handle international HRM challenges. Challenges associated with recruiting, compensating, and managing employees in multiple countries are not much different for the International Red Cross or the World Health Organization than they are for IBM. HR managers in these types of organizations must also be internationally savvy in order to effectively carry out their responsibilities, and they often have much experience from which they can teach their private sector counterparts.
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The Development of International Human Resource Management
The previous paragraphs point out that HR managers, no matter the type of organization for which they work, can and do confront aspects of IHRM. The extent of this involvement will vary according to a number of factors, such as the degree of development of the global strategy of the organization, and will invariably increase with time. But as the general internationalization of business increases in extent and intensity, HR managers are being called upon to contribute increasing expertise to that internationalization.
One aspect of internationalizing HRM that makes the task difficult and complex comes from the following: whether local HR managers are from headquarters, from the host country, or from a third country, they end up being sandwiched between their own national cultures and legal traditions—and experiences—and the cultures and practices of the firm, whether at headquarters or at the local affiliate. HR managers at the local, regional, and headquarters levels must learn to integrate and coordinate policies and practices taking place in diverse environments and with people of diverse backgrounds. Plus they are frequently also looked to for expertise in helping other managers be successful in their cross-border endeavors.
For example, some of the IHRM-related questions that need to be answered within an MNE as it establishes its international strategy include the items in Exhibit 1.3.
Since most organizations today experience one or more aspects of international HRM, the success or failure of those enterprises is often a function of how they handle their IHRM issues. As a consequence, a new set of competencies has developed within the HR function. The section below discusses some of the issues surrounding these new competencies.
Some of the differences between HRM and IHRM include the following, with IHRM being responsible for:
■ More HR functions and activities, for example, the management of international assignees, including such things as foreign income and social taxes, foreign work visas, and assistance with international relocations.
■ A broader expertise and perspective, including knowledge about foreign countries, their employment laws and practices, and cultural differences.
■ More involvement in employees’ lives, as the firm relocates employees and their families from country to country.
■ Dealing with and managing a much wider mix of employees, adding considerable complexity to the IHRM management job—with each of the various types of international employees requiring different training,
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staffing, compensation, and benefits programs. ■ More external factors and influences, such as dealing with issues stemming
from multiple governments, country laws, cultures, currencies, and languages.
■ A greater level of risk, with greater exposure to problems and difficulties and, thus, exposure to much greater potential liabilities for making mistakes in HRM decisions (for example, political risk and uncertainties, legal compliance issues, and early return of employees from foreign assignments).
Exhibit 1.3: IHRM Questions for International Strategy
1 Do we have knowledgeable staffing for a global strategy? 2 Are the countries being considered for global expansion good from an
IHRM point of view, such as will it be easy to operate within a different set of employment laws?
3 Does the firm have adequate personnel to implement foreign operations?
4 How many employees will need to be relocated? How many local employees will we need to hire and does the local labor force have the necessary skills?
5 Will we be able to find and recruit the talent necessary for international operations?
6 Should we pursue centralized or localized HRM policies?
In addition to these factors, the geographic dispersion, multiculturalism, different legal and social systems, and the cross-border movement of capital, goods, services, and people that are faced by the international firm add a need for competency and sensitivity that is not found in the domestic firm. The personal and professional attitudes and perspectives of the IHR manager must be greatly expanded to handle the multiple countries and cultures confronted in the global arena—both to manage their IHRM responsibilities and to contribute to successful international business strategies by their firms—beyond those that their domestic HRM counterparts must develop. Typical domestic HR managers do not have the global contacts or networks that become necessary to learn about and to handle the new global responsibilities. They don’t typically have any experience with the business and social protocols needed to interact successfully with foreign colleagues or with the forms of organizational structure used to pursue international strategies (such as
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international joint ventures or cross-border acquisitions). And the still relatively limited body of literature and publicly available seminars and training programs make it much more difficult to develop the competencies needed to successfully manage the IHRM function.
The example of Harry Ramsden’s (see IHRM in Action 1.3) illustrates just how difficult it can be to make the move to being an international firm.24
IHRM in Action 1.3: Developing a Global Appetite for Fish and Chips
Deep-fried fish and chips have long been a popular snack in England. One of England’s premium fish-and-chip shops, Harry Ramsden’s, which was founded in Guiseley, West Yorkshire, in 1928, is one of the few that have opened shops at multiple locations. By 1994 the company had eight branches in Britain, with more scheduled for opening, one in Dublin, Ireland, and one in Hong Kong. Harry Ramsden’s managers, however, dissatisfied with this success, wanted to turn Harry Ramsden’s into a truly global enterprise.
As a start, the company had set up its first international operation in Hong Kong. According to finance director Richard Taylor, “We marketed the product as Britain’s fast food, and it proved extremely successful.” Within two years the Hong Kong venture was generating annual sales equivalent to its most-successful UK operations. Half of the initial clientele in Hong Kong were British expatriates, but within a couple of years, more than 80 percent of customers were ethnic Chinese, illustrating the relative ease with which at least some products and services, such as a country’s favorite food, can transfer to another country and culture.
Emboldened by this success, Harry Ramsden’s began to open additional overseas branches, in such places as Melbourne, Australia, as well as in other more exotic locales, such as Singapore, Dubai in the United Arab Emirates, Saudi Arabia, Walt Disney World in the US, and Japan. In the first experimental shop in Tokyo, Japan, for example, the Japanese took to this product, despite their traditional aversion to greasy food.
Richard Taylor stated their international strategy:
We want Harry Ramsden’s to become a global brand. In the short term the greatest returns will be in the UK. But it would be a mistake to saturate the UK and then turn to the rest of the world. We’d probably come a cropper when we internationalized. We need experience now.
As of 2006, Harry Ramsden’s had 170 owned and franchised outlets in the UK
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and internationally, and had become both Britain’s longest-established restaurant chain and the biggest fish-and-chips shop brand in the world. However, due to some poor location decisions and problems with staffing and management, some international locales have been closed, and over the last 10 years the chain has been sold a couple of times, including most recently—in 2010—to Boparan Ventures Limited, a British fish and food company, with ambitions to once again further expand Harry Ramsden’s in the UK and overseas. Clearly global knowledge and human resources capability set limits on how far and how fast a firm can “go international.”
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Evolution of the International Human Resource Management Professional
Some large MNEs, such as Royal Dutch Shell, Unilever, and Ford Motor Company, have long histories of conducting international business, going back 100 years or more. By necessity of having to manage operations in many countries, these firms developed—at least at the headquarters level—considerable international HRM expertise. Even so, the specific management function called “international human resource management” is relatively new as a professional and academic area of practice and interest.
The two largest national human resource management professional associations are the Chartered Institute for Personnel and Development (CIPD) in the UK and the Society for Human Resource Management (SHRM) in the US. Many other countries have their own professional HR associations and most, including the US and the UK, belong to the much larger umbrella organization called the World Federation of Personnel Management Associations (WFPMA), now with over 60 national HRM professional societies as members.
Yet, it has only been in the last 30 years or so that HRM service providers (such as training firms, relocation firms, accounting firms, employment law firms, and HRM consulting firms) have developed a special focus on IHRM. SHRM and CIPD and a number of universities are now providing conferences and training seminars and courses on topics related to IHRM, as do many IHRM service providers, consultant groups, and other IHRM-related organizations. For details about CIPD, for example, see Sparrow, Brewster, and De Cieri’s Globalizing Human Resource Management, 2nd edition, in the series on global HRM of which this book is a member, a series that is itself a sign of the growing attention to IHRM, being the first major series of books covering many of the policies and practices of IHRM.
A turning point in the professionalization of IHRM occurred with the establishment of the GPHR (Global Professional in Human Resources) certification by the Human Resource Certification Institute (HRCI) in the US in 2003. The professionalization of IHRM is further discussed in Chapter 15. The body of knowledge for this exam is codified into six domains (all of which are covered—at least the international aspects—in this book or the additional books in the Global HRM series published by Routledge). The domains—for international HRM— include:
■ Strategic HR Management; ■ Global Talent Acquisition and Mobility; ■ Global Compensation and Benefits; ■ Organizational Effectiveness and Talent Development;
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■ Workforce Relations and Risk Management; ■ Core Knowledge of IHRM.
HRM professionals can attain certification in these domains based on their experience and the passing of an examination, verifying their understanding of the body of knowledge in IHRM. Increasingly, the GPHR exam is attracting HRM professionals from around the world.
As a business discipline and an academic field of study, IHRM may well still be in its youth; yet it is very real and firmly established. There are many reasons for its youth, some of which have to do with the generally limited role of HRM within many firms, including some of the large MNEs, and some of which have to do with the lack of international knowledge and experience of HR managers themselves. With the increasing globalization discussed in the first sections of this chapter, HRM professionals have been called upon to manage a number of new (global) activities for which they often have little or no preparation, to work alongside HRM professionals from other countries with whom they have had little prior interaction, and to adapt their HRM policies and practices to multicultural and cross-cultural environments, with which they have little experience.
Since the field of HRM focuses primarily on local staffing and employment issues, its professionals have often been the last ones in their firms to focus on the impact of increasing internationalization, the last ones to take on international assignments, and thus often the last ones on the management team to contribute as fully fledged strategic partners in the internationalization of their firms. Today this is changing. IHRM professionals are now much more proactive in dealing with many new challenges and issues, including:25
■ Attracting, engaging, and retaining thousands of MNE employees in many different countries to achieve strategic global business objectives. This not only includes engaging employees and executives in many countries but also the role and importance of internationally mobile employees.
■ Aligning core HRM policies and practices with the new requirements of competing internationally, while simultaneously responding to local issues and requirements in each country of operation.
■ Enhancing global competencies and capabilities within the IHRM department, including developing global centers of excellence, shared service centers, global talent management, and mastering the necessary HR due diligence in cross-border mergers and acquisitions.26
These challenges, along with many others, are the focus of the next 14 chapters. The next three chapters in Section 1 discuss various aspects of the structure of MNEs and the role IHRM plays in their development. Section 2 discusses three
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important aspects of the cultural and legal context within which IHRM must operate. Section 3 includes six chapters on the many aspects of the policies and practices of IHRM—including staffing, compensation, health and safety, performance management, and a comparison of HR practices in differing countries and regions around the world—while Section 4 describes the nature of the IHRM department, further aspects of the developing professionalism of IHRM, and trends in the future development and challenges of IHRM.
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Conclusion
This chapter introduced international human resource management in the context of the increasing importance of international business. It illustrated how economic activity around the world has become increasingly integrated and pervasive and thus how it has impacted the development and evolution of HRM in the MNE. One of the most difficult challenges to international operations is the management of their human resources. An effective and informed HR department is vital to the success of all organizations with international operations. As a result, as organizations have internationalized, so has HRM.
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Discussion Questions
1 What forces have been driving the increased internationalization of business?
2 What are the various organizational situations in which an HR manager might be involved with aspects of internationalization?
3 What are the major differences between domestic and international HR?
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Case Study 1.1: Yarn Paradise: World’s Biggest Online Yarn Store (Turkey)
Yarn Paradise was created by Ferit Göksen, who was born and raised in Kaseri, Turkey. After attending college, he relocated to Istanbul to obtain his MBA from Marmara University, where he became interested in international trade and development. After he received his degree in 2001, he and his partner began selling different items on the eBay platform in Istanbul. In 2004, he combined his technology skills with his partner’s traditional business skills and together they founded GSC Tesktil. “After a few years, we wanted to focus on a specific product. We noticed there was a market for yarn, and we decided to try selling it on eBay.” Today, the business successfully utilizes the power and reach of the Internet marketplace to sell yarn products worldwide. Yarn Paradise has two websites —www.yarnparadise.com and www.iceyarns.com—and also sells on ebay.com.
The company employs between 15 and 20 people. “It’s great to be able to give 20 different families in my community a job,” explains Ferit, even though 98 percent of the company’s sales are outside of Turkey. While that was not his original intention, the Internet allowed Ferit to reach customers all over the world. About 35–36 percent of sales are to the US and the rest are divided between European countries and Asia. “Yarn Paradise has sold to almost every country in the world including Norway, France, Germany, the UK, Denmark, Sweden, Canada, Australia, Malaysia, New Zealand, Thailand, Trinidad, Ecuador, Egypt, Haiti, and many more. Sometimes I have never even heard of the country, until I get ready to ship the product,” says Ferit. Obviously, there is still much room for growth. Yarn Paradise uses companies like DHL and UPS to help with shipping and logistics. While most transactions are quick and seamless, there are some problems in countries where online commerce is still new, such as Eastern Europe. The biggest issue for Yarn Paradise is customs and customs duties. Buyers are often surprised by them and this creates a bad customer experience.
Source: eBay inc (2014). Micro-multinationals, global consumers, and the WTO, Report from a global conference at the 2013 WTO Public Forum on e-commerce and trade, downloaded at http://www.ebaymainstreet.com/sites/default/files/eBay- WTO-PF2013.pdf
Discussion Questions
1 Yarn Paradise is a micro-MNE. What is likely to be its next stage of growth? 2 What will be its next human resource challenges stemming from further
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growth?
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Notes
1 HSBC corporate website: http://www.hsbc.com/about-hsbc/advertising/in-the-future.
2 Source: http://www.nestle.com/asset- library/documents/investors/others/nestle_ar_2013_en_letter.pdf.
3 There have been many books written on internationalization and globalization. Here is a sampling of some of the recent better ones: Bhagwati, J. (2004, 2007), In Defense of Globalization, Oxford/New York: Oxford University Press; Friedman, T. L. (2005, 2006, 2007), The World Is Flat: A Brief History of the Twenty-First Century (versions 1.0, 2.0, 3.0), New York: Farrar, Straus and Giroux; Friedman, T. L. (2008), Hot, Flat, and Crowded, New York: Farrar, Straus and Giroux; Sirkin, H. L., Hemerling, J. W., and Bhattacharya, A. K. (2008), Globality: Competing with Everyone from Everywhere for Everything, New York: Business Plus; Steger, M. B. (2003), Globalization: A Very Short Introduction, Oxford: Oxford University Press; Stiglitz, J. E. (2003), Globalization and Its Discontents, New York: W. W. Norton & Co.; and Wolf, M. (2004), Why Globalization Works, New Haven, CT and London: Yale University Press.
4 For a complete overview of the field of international human resource management, please see the full set of books on various IHRM policies and practices and varying regional and country approaches in the Routledge Global HRM series.
5 Friedman, T. L. (1999). The Lexus and the Olive Tree, New York: Farrar, Straus and Giroux.
6 United Nations Conference on Trade and Development, World Investment Report 2010 (most recent report available), New York and Geneva: United Nations.
7 Ibid.
8 CIA World Factbook (2013). www.cia.gov.cia/publicationsfactbook; World Bank: www.world-bank.org/WEBSITE/EXTERNAL/DATASTATISTICS; Bureau of Economic Analysis, US Department of Commerce: www.bea.gov/national/xls/gdplev.xls.
9 Friedman (2005, 2006, 2007); Sirkin et al. (2008).
10 The Fortune Global 500 (2013). Fortune, July.
11 De Carlo, S. (Sr. Editor) (2013). The world’s biggest public companies, Forbes, April 17. http://www.forbes.com/sites/scottdecarlo/2013/04/17/the-worlds-biggest-companies.
12 Wall Street Journal, 2013.
13 WSJ, 2013.
14 Financial Times Global 500 (2013), 17th Annual, as of 28 March, http://www.ft.com/intl/indepth/ft500.
15 Burke, D., Hajim, C., Elliott, J., and Tkaczyk, C. (2007). The top companies for leaders, Fortune, October 1, pp. 109–116.
16 Fortune 50 most powerful women, downloaded 03/07/2010 from:
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www.CNNMoney.com/Fortune/rankings.
17 The InfoTech 100 (2013), Bloomberg Businessweek, June 1, pp. 41–42.
18 100 Best Global Brands (2013), Bloomberg Businessweek, September 28, pp. 50–56.
19 Arndt, M., and Einhorn, B. (2010), The 50 most innovative companies, Bloomberg Business Week, April 25, pp. 34–40.
20 Hansen, M. T., Ibarra, H., and Peyer, U. (2013), The best performing CEOs in the World, Harvard Business Review, 91: ½, Jan.–Feb., 81–95.
21 Excerpted from the introductory letter from John Palmisano, Chairman, President, and CEO of IBM, to the 2010 report Capitalizing on Complexity: Insights from the IBM Global Chief Executive Officer Study. Downloaded July 4, 2010, from: ftp://public.che.ibm.com/common/ssi/pm/xb/n/gbe03297usen/GBE03297USEN.PDF.
22 Business Week (2006), Emerging giants, July 31, pp. 41–49; O’Neill, J. (2001), Building better global economic BRICs. Research Report, New York: Goldman Sachs; Sirkin et al, (2008); Stengel, R. (2010), The Global Forum, Time, February 8, p. 4.
23 Fernandez, F. (2005). Globalization and Human Resource Management: Adapting Successful UN Practices for the Private and Public Sectors, New York: HNB Publishing.
24 Abrahams, P. (1994). Getting hooked on fish and chips in Japan, Financial Times, May 17; updated in 2014 from websites: www.harryramsdens.co.uk; http://en.wikipedia.org/wiki/Harry_Ramsden’s; www.market-reports.co.uk; www.telegraph.co.uk/HarryRamsdens-new-owner-mulls-Asian-expansion.html.
25 Based on Sparrow, P., Brewster, C., and De Cieri, H. (2012), Globalizing Human Resource Management, 2nd ed., London: Routledge; Brewster, C., and Sparrow, P. (2008), Les noveaux róles et les defies et la GRHi (The new roles and challenges of the IHRM function), in Waxin, M.-F., and Barmeyer, C. (eds.), Gestion des Ressources Humaines, France: Editions Liaisons Rueil-Malmaison, pp. 507–547; Faugoo, Deepika (2009), Globalization and its impact on human resource management, competitive advantage and organizational success in modern day organizations, in Odrakiewicz, P. (ed.), Innovation in Management: Cooperating Globally, Poznan: Poznan University College of Business and Foreign Languages, Poznari: PWS BiJo Publications, pp. 529– 535; Fernandez (2005); Schramm, J. (2008), Workplace trends: An overview of the findings of the latest SHRM Workplace Forecast, SHRM Workplace Visions, 3, 1–8; Scullion, H., Collings, D. G., and Gunnigle, P. (2007), International human resource management in the 21st century: Emerging themes and contemporary debates, Human Resource Management Journal, 17(4), 309–319.
26 Sparrow et al. (2012); Briscoe, D. R. (2008). Talent management and the global learning organization, in Vaiman, V., and Vance, C. M. (eds.), Smart Talent Management: Building Knowledge Assets for Competitove Advantage, Cheltenham, UK, and Northampton, MA: Edward Elgar, pp. 195–216; Farndale, E., Scullion, H., and Sparrow, P. (2010), The role of the corporate HR function in global talent management, Journal of World Business, 45(2), 161–168; Fernandez (2005); Schuler, R. S., Jackson, S. E., and
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Tarique, I. (2010). Framework for global talent management: HR actions for dealing with global talent challenges, in Scullion, H., and Collings, D. (eds.), Global Talent Management, London: Routledge, pp. 17–36; and Tarique, I., and Schuler, R. S. (2010), Global talent management: Literature review, integrative framework, and suggestions for further research, Journal of World Business, 45(2), 122–133.
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Chapter 2 Strategic International Human Resource Management
I think as a company, if you can get those two things right—having a clear direction on what you are trying to do and bringing in great people who can execute on the stuff— then you can do pretty well.
Mark Zuckerberg
CEO, Facebook1
Learning Objectives
This chapter will enable the reader to:
■ Describe the development of SIHRM and the process of international strategic management.
■ Describe the evolution of the MNE in terms of various stages of internationalization and the methods firms use to enter international markets.
■ Describe the process for developing MNE strategy and IHRM strategy and the relationship between the two.
■ Understand the extent and nature of research into the practice of strategic IHRM.
This chapter is about Strategic International Human Resource Management (SIHRM). While the first chapter described the new global business realities and introduced IHRM,2 this chapter describes international business strategy and how IHRM supports and enhances the international business strategies of the firm.
MNEs, in order to be successful in the global marketplace, must develop strategies to conduct business that take advantage of global resources and markets. In order for IHRM managers to make an effective contribution to that success, they must contribute to and be a part of the global strategic management of the business. Strategic management refers to the approaches that managers employ in running a company and that are derived from the firm’s vision and objectives.
Since firms differ in their levels of international development and in the extent of their international operations, IHRM managers must develop the capabilities to
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assist in that development and in those various levels of global operation. This chapter provides an introduction to how these variances in the strategic development of the international activities of firms influence IHRM and how SIHRM supports those varying strategies and activities.
As outlined in Chapter 1, the new realities for MNEs, including reduced transportation and information costs around the world and the removal of social and political barriers to trade, are making the globalization of business proceed at unexpected and unprecedented rates.3 The opening of markets and the appearance of competitive foreign firms places pressures on virtually every major (and most minor) industries in virtually every country. These developments impact HRM on a number of fronts.4 The increased intensity of competition places great pressure on firms to develop the capacity to operate at lower costs and with greater speed, quality, customer service, and innovation, both at home and abroad. IHRM is called upon to hire, develop, and retain the workforce that can achieve this global competitiveness, often in dozens of countries. Therefore, this chapter introduces the contribution of IHRM to the strategic management of the MNE and introduces the ways in which the global strategy impacts the management of IHRM.
The chapter starts with a general description of the process of international strategic management and then follows with an explanation of the evolution of international business strategy and describes how IHRM fits into the overall strategic management of the MNE. This includes describing the links of global business strategy to the performance of HR responsibilities in international business and discussing the outcomes that a strategically managed international business might expect from effectively tying together an international business strategy and SIHRM. The chapter then summarizes the findings of research studies on the nature and role of strategic IHRM.
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Strategic International Human Resource Management: An Introduction
SIHRM is the part of IHRM that focuses on creating and implementing IHRM policies and practices that help achieve an MNE’s international vision and objectives, that is, its international strategy. It also involves the strategic management of the IHR function and department itself.
In an ideal world, a firm conducting international business will be actively engaged in strategic planning and strategic management process on a global basis (see Figure 2.1). Based on an organization’s vision, goal, and mission, the organization will regularly perform an environmental analysis or scan (of its external threats and opportunities and its organizational strengths and weaknesses) and from that analysis develop its global strategies, which are then implemented for global success. Finally, evaluation of success of implementation of chosen strategy is needed to make any changes and re-evaluate the strategy, with whatever changes are called for by the results of the evaluation (this is the feedback loop of the model). Still in this ideal world, all components of the firm will be closely integrated into that planning and will be involved with similar strategic planning within their own areas of responsibility.
Figure 2.1 Basic Elements of the Strategic Management Process
As mentioned earlier, strategic management, in general, is the array of competitive moves and business approaches that managers employ in running a company and that are derived from the firm’s vision and objectives. In crafting a strategic course, management is saying that “among all the paths and actions we could choose, we have decided to go in this direction and rely on these particular ways of doing business.”5 A strategy signals an organization’s commitment to specific markets, competitive approaches, and ways of operating. A company’s strategy is thus the “game plan” its management has for positioning the firm in its chosen market arena, for investing money and people in the development of particular business capabilities, for developing sustainable competitive advantage, for pleasing its customers, and, thus, for achieving superior business performance. These strategies are developed in either or both of two ways: pro-actively, as a forward-looking plan to deal with anticipated market forces, or reactively, as a
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response to what the firm is experiencing in the marketplace. In most firms, strategies that are developed stem from a combination of these forces.
A strategy signals an organization’s commitment to specific markets, competitive approaches, and ways of operating. A company’s strategy is thus the “game plan” its management has for positioning the firm in its chosen market arena, for investing money and people in the development of particular business capabilities, for developing sustainable competitive advantage, for pleasing its customers, and, thus, for achieving superior business performance.
Senior executives devise specific strategies for their organizations because of two very compelling needs:
■ the need to actively shape how their firm’s business will be conducted; ■ the need to mold the independent decisions and actions initiated by
departments, managers, and employees across the company into a coordinated, company-wide game plan.
Both motives have become increasingly complex in today’s global business environment. Yet …
Among all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts the company’s long-term direction, develops competitively effective strategic moves and business approaches, and implements what needs to be done internally to produce good day- in/day-out strategy execution. Indeed, good strategy and good strategy execution are the most trustworthy signs of good management.6
In terms of HR, many of the same issues arise—albeit in a much more complex way—when a firm’s strategic planning “goes international” as when its strategic planning is concerned only with domestic issues. When management begins to develop and implement global strategic plans, they also begin to concern themselves with global human resource issues.7 Indeed, HR issues are among the most critical issues for successfully competing in the international marketplace. And because of that, HR should be providing input to the international strategic decision making at every step, helping with mission and goal setting, the environmental scan, design of specific strategies, and, of course, helping to implement the chosen strategies.
Once the decision is made to go international (whether this is a pro-active or
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reactive choice), the task of all managers—including HR managers—is to implement that decision, to convert the strategic plan into action and get on with whatever needs to be done to achieve the international vision and targeted objectives.
The following IHRM in Action is a story of a Japanese pharma company, Takeda, tracing the decision to become more global and how that impacted all parts of the organization.8 In order to effectively implement this decision, Takeda needed to change its internal culture, starting at the top, which included—among other things—many HR decisions and programs, from hiring key non-Japanese executives with outside experience, changing the core language to English, first at the top and increasingly throughout the organization, and recruiting Japanese employees who had studied abroad.
IHRM in Action 2.1: Implementing a Global Strategy at a Japanese Pharmaceutical
Takeda is one of Japan’s oldest and largest pharmaceutical groups, a family business founded by the Takeda family seven generations ago. The last member of the Takeda family to chair the firm, Kunio Takeda, began the process of turning the strategic focus of the firm to the outside. The basic challenge that Mr. Takeda had to address was: How does a company change its corporate culture to adapt to a focus on new and different markets outside the home country?
The first major decision was to appoint someone as president from outside the Takeda family. Yasuchika Hasegawa was appointed as Takeda’s president in 2003. He not only was not a member of the Takeda family, but he had also spent long periods working outside of the country, a major shift in traditional Japanese organizational practice.
As Mr. Hasegawa indicated: “The Japanese market has very slow growth. We were left behind. We had no choice but globalization,” he says in excellent English, the legacy of more than a decade working for the company in Germany and then the US as Takeda began to sell off its non-medicine divisions and to diversify into foreign markets. For his first six years overseas, Kunio Takeda (chairman of Takeda Enterprises) was his direct boss and mentor. He undertook a drastic reorganization by refocusing on a much more diversified group. When Mr. Hasegawa was asked to take the presidency (the first non-Takeda to be so asked), he felt that Mr. Takeda had finished his role with the restructuring and the next phase was to globalize. And thus began many steps to implement this new strategy to “go international.”
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Mr. Hasegawa accelerated an ambitious program of overseas acquisitions, such as Nycomed of Switzerland, as well as the recruitment of high-level outsiders to the very top of the business at home. He created an international advisory board, bringing in Karen Katen of Pfizer and Sidney Taurel from Eli Lilly, as well as Tachi Yamada, a Japanese-born executive who had spent his adult life based in the US. He left non-Japanese leaders to run the group’s international divisions, and recruited others to the headquarters in Tokyo and Osaka, including Paul Chapman, an American who now co-ordinates research and development.
Two years after Mr. Takeda stepped down, Mr. Hasegawa put Mr. Yamada on the main board. And a year later he added two other heads to Takeda divisions who have even fewer cultural connections to the country. In conjunction with these personnel decisions, he also switched the working language at senior levels to English, both for board meetings and his larger global leadership committee, aided by simultaneous translation. At more junior levels, he introduced a requirement for high levels of English proficiency among recruits, and aggressively recruited non-Japanese staff, who he encourages to work for extended periods in Japan. The reforms were not easy—resisted by members of the Takeda family as well as by other senior executives. But Mr. Hasegawa explained the needs to expand internationally: “There was strong resistance. There is a big cultural difference, but Japan is now only 35 percent of our business. Our challenge is to globalize more rapidly. To make changes, you need a core group of support.” He has also taken a pragmatic approach, for example by boosting his English-speaking recruitment drive by hiring 300 Japanese who had been studying abroad.
His reforms are far from finished, and critics suggest the linguistic challenges are nothing compared with the efforts he must make to boost innovation and co-ordinate with Nycomed, whose main business is focused on emerging markets and has a heavy generic drug component. Takeda’s international expansion began conservatively with a joint venture with Abbott of the US before expanding through acquisitions. And now with the efforts of Mr. Hasegawa—and his many global recruits, both Japanese and non-Japanese—this historic Japanese firm is now one of the truly global pharmaceutical giants.
It has all been made possible through the close involvement of the HR department in the strategic implementation of this new global strategy.
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Evolution of the Multinational Enterprise
In order to place IHRM in the strategic context of the MNE, it is necessary to have an appreciation for the development of the international firm. As a firm internationalizes, it moves through stages and in each stage it must make a choice of methods for market entry (see Figure 2.2).
Figure 2.2 Evolution of the Multinational Enterprise
These market entry choices will partially be dictated by the firm’s own internationalization approach, the options it has in particular countries (due to legal requirements and opportunities), the timing of its entry into the market (early versus late entrant), and the risks it wants to bear. All of these forms of international involvement create major coordination and integration challenges, and thus are aspects of international business that IHRM professionals must thoroughly understand in order to provide senior managers with the advice they need for designing effective global businesses. An important point here is that as firms pass through the various stages, they increase their degree of international activity, and as firms increase their levels of international activity, their IHRM responsibilities become increasingly complex.
Often, IHRM is expected to provide expertise in helping the executive team make the market entry choices and to evaluate which choices work best and under which circumstances, including assessing the particular strengths and weaknesses of the firm and its managers and evaluating labor force issues in various international options. The story of Takeda described above provides one example of how IHRM can help make the kinds of decisions required to make these
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transitions successful.
Stage 1 of the Internationalization Process
Portfolio Investment
At the simplest level of involvement, a firm may just decide to make financial investments in foreign firms, buying shares of stock, much as it could do within its own domestic equities markets. In general, HR is not likely to be very involved in this form of international business activity.
Exporting
Historically, this has been the initial step of internationalization for most firms and usually occurs while the firm is relatively small. Due to a foreign inquiry (often unsolicited) as to the possibility of buying or selling the firm’s product(s) or the desire by the firm to expand beyond its domestic markets, many firms begin to export their products or services to foreign markets through the use of direct sales to foreign customers (via direct mail or Internet sales, for example), or they sell through import/export firms or through foreign distributors.
At this stage, there is relatively little impact on the organization and IHRM, other than possible training opportunities to ensure that employees have the knowledge necessary to carry on cross-border commerce (or staffing to recruit the few employees whose responsibilities under this scenario are international).
Stage 2 of the Internationalization Process
Sales Subsidiary/Local Sales Office
If foreign sales or purchasing increase in importance, the firm will assign a sales manager or purchasing agent responsibility for international sales. This individual may travel to foreign countries in which the firm has sales but is likely to be chosen purely for reasons of sales or purchasing experience or product or service knowledge. If direct export sales or imports are successful enough, the firm is likely to next establish its own sales or purchasing offices in those countries where sales or imports are large enough to warrant such efforts.
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The next three stages in the evolution involve establishing operations abroad, that is, producing the products or services directly in foreign countries.
Stage 3 of the Internationalization Process
Operations through Licensing
Licensing the rights to manufacture or market one’s product(s) or service(s) is an option for “going international” that does not involve the setting up of directly owned subsidiaries. In this stage, the firm usually locates foreign firms that have the experience to manufacture (and sometimes market) their products—with minimal technology transfer—in order to bypass import duties and to provide the simplest avenue to local sales.
Operations through Franchising
Franchising is another form of licensing. Here the organization puts together a package of the “successful” ingredients that made them a success in their home market and then franchises this package to overseas investors. The franchisor may help out by providing training and marketing the services or product. McDonald’s is a popular example of a franchising option for expanding in international markets.
Because franchise businesses, such as McDonald’s, are usually owned locally, the impact on IHRM, other than a role in training local franchisees in staffing and other HR practices and skill training of new employees, is pretty minimal.
Operations through Contracting/Sub-Contracting
A similar strategy for entrance into foreign markets is to contract the manufacture or assembly of a firm’s products to an existing local firm. Increasingly, as firms manage their supply chains on a global basis, they sub-contract all or most of their manufacturing to firms abroad, in order to take advantage of lower labor and operating costs. Typically the firm will only have a few individuals who will travel to the foreign locales in order to transfer whatever technology is necessary and to monitor the quality of the manufacturing and final products.
The next two stages in the evolution process involve the assembly and then manufacture of products directly in the foreign country.
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Stage 4 of the Internationalization Process
Wholly Owned Subsidiaries
Until quite recently, the most common way to enter international markets (beyond sub-contracting and exporting) was to conduct business through wholly owned foreign subsidiaries. Still, this is a popular form of entry into other countries. Subsidiaries can be developed in a number of ways, including through greenfield or brownfield projects or through acquisition of existing foreign-owned businesses. The development of a subsidiary through a greenfield project involves acquiring an open (green) “field” in order to build the subsidiary facilities from scratch. A brownfield project involves the purchase of existing facilities (buildings) and developing the subsidiary inside those facilities (sometimes referred to as a turnkey operation). The third alternative is often seen as providing the easiest access to new (foreign) markets and involves the acquisition of an existing enterprise that is already established in the target country.
From an IHRM standpoint, a start-up project (greenfield or brownfield) requires staffing (usually with a combination of personnel from headquarters and local nationals) and creating all IHRM policies and practices for a totally new workforce (there is a choice of transferring all policies and practices from the parent’s headquarters or basically adopting the policies and practices that are common in the new country—or, possibly, a combination of these two options).9 An acquisition, however, poses different challenges—either accepting the IHRM practices of the acquired firm or partially or totally changing them to those of the new parent firm. In both choices, however, the major challenge for the firm and for IHRM is to integrate the acquired firm’s practices (and its workforce) with those of the parent. In all cases, the knowledge base and competencies required of the parent firm’s IHRM department are clearly more complex and complicated than is the case prior to investment in any foreign subsidiaries. The effectiveness with which IHRM and the firm manages these issues goes a long way toward determining the success or failure of the venture.
Stage 5 of the Internationalization Process
Operations through International Joint Ventures (IJVs)
In recent years, the structure of choice for many businesses, including firms such as Kellogg10 and Jaguar Land Rover,11 as they go international, is the international
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joint venture, in which two or more firms (at least one from each of at least two countries) create a new business entity (the joint venture) with shared ownership and managerial responsibilities. IJVs have become extremely common and are covered in more detail in Chapter 4.
Operations through International Mergers and Acquisitions (IM&As)
For many MNEs and industries, IM&A is the preferred market entry method in both developed and emerging markets in order to most easily consolidate the scope of activities and the parent firms’ positions in the global marketplace. Even so, foreign acquisitions often face national (local) economic protectionism sentiments and anti-trust laws. Similar to IJVs, IM&As are discussed in detail in Chapter 4.
Operations through International Alliances, Partnerships, and Consortia
These are defined as informal or formal partnerships or agreements that do not result in an independent legal entity. Firms using these methods do not necessarily replace their wholly owned subsidiaries. But rather they develop less formal structures, such as alliances, partnerships (e.g., in research and development projects), and other forms of linkages to operate internationally. Alliances are discussed more fully in Chapter 4.
Auxiliary Methods of Internationalization
In addition to the above methods, organizations can also use a variety of auxiliary methods to internationalize their operations. Auxiliary methods refer to approaches firms can use to further internationalize their operations at any stage. Figure 2.3 illustrates two of the most popular methods, outsourcing12 and off- shoring.13
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Figure 2.3 Auxiliary Methods of Internationalization
Regus Professional Services and SBC International in Hong Kong are two examples of firms that provide service centers for international firms located or headquartered in Hong Kong, offering suites of services ranging from financial administration duties, such as accounting and payroll, to office space, photocopying, human resources, and trusted in-house advice on issues such as local employment law, company registration services, trademark registration, taxation, etc.14 By helping foreign firms in Asia to outsource these types of services, firms like Regus and SBC help these firms make the transition to becoming culturally effective organizations.
The Born-global Firm
Although many existing firms internationalize through stages, some new enterprises, especially but not exclusively in the IT industry, are born global and almost immediately operate across the globe. The reasons they operate in key global markets from their inceptions essentially stem from the nature of their products (Internet products, IT applications, and other highly specialized products with global niches), the global networking and possible partnering on projects of the engineers and scientists involved, and the marketing by these firms through the Internet. In addition, the lowering of market entry barriers as a result of the democratization of the sources of competitive advantage (venture capital, IT resources, intellectual capital, etc.) in a flat world also provides global access. The IHRM activities of these firms are focused primarily on frequent international business travel of key individuals and legal protection of intellectual property rights (patents and trademarks) in the various countries in which they operate, the hiring of key local staff, and the management of international project teams for local client service. As mentioned in the first chapter, when any firm creates a website (announcing either a product or service)—it is global. Anyone, anywhere, can (and will) access that site and some will want to buy the site’s products or services. A “classic” example of this involves the experiences of Amazon.com when they initially went “live” with their website. On the first day of operation, Amazon
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received inquiries and orders from dozens of countries, a situation they had not anticipated. In addition, as suggested earlier, many “born global” enterprises are created by people from multiple countries who have met each other online or at global professional or trade conferences who decide to work together in a new enterprise to use their joint skills and ideas.
IHRM and the Evolution of Internationalization
The point of the above discussion is to demonstrate that businesses typically pass through a number of stages as they increase their degree of internationalization, although this pattern is changing with the increase of service businesses and the development of internet-based and dot.com businesses that can follow different patterns and because of the increased use of cross-border partnerships and alliances. Not all businesses pass through all of these stages as they progress from being purely domestic firms to global ones. In general, though, most companies experience most of these stages. These stages are important to the discussion of IHRM because each stage makes unique demands on the HR department. The HRM function in a firm just beginning to internationalize faces very different responsibilities and challenges than does the IHRM department in a multinational firm with several worldwide subsidiaries.
As firms increase their levels of international activity, their organizational structures (discussed in the next chapter) and IHRM responsibilities become increasingly complex. Many older, large multinational (particularly manufacturing) firms that now have numerous subsidiaries all over the world began their foreign activities by exporting. As this stage became successful for them, they typically proceeded to establish sales offices overseas to market their exports. Where and when the sales offices were able to develop sufficiently large markets, plants to assemble imported parts were established, and, finally, the complete product was manufactured locally, sometimes for local sales and sometimes for export. These overseas operations typically mimicked the firm’s domestic operations. Eventually, then, these firms have moved toward stages 4 and 5 of the evolution process.
In some ways this is a simplistic view of the development of international firms. In recent years, new patterns have developed. Some firms have used complete assembly or manufacturing plants as their means of initial entry to certain countries, normally to take advantage of cheap labor or sources of material, manufacturing products for export, such as is often the case for American and Asian firms in the maquiladora sector of the Mexican economy. Others have internationalized through sub-contracting or licensing their manufacturing. Still others have used franchising or joint ventures or partnerships to internationalize. And still others acquire their foreign operations directly. Of course, as soon as firms
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put up websites to offer (or even just to describe) their products or services, they become international immediately as they receive foreign inquiries and orders online. Many firms, of course, end up relying on some combination of these entry strategies.
The pattern of development experienced in different industries also varies widely. Businesses in extraction industries, such as oil and mining, set up foreign subsidiaries to manage their extraction (and sometimes processing) operations. Banks, such as Citibank, or insurance companies, such as Lloyd’s, may initially locate in a foreign country in order to provide services to home-country clients who are active in the foreign country. Firms such as McDonald’s typically sell franchises to local individuals, but often have to first prepare an infrastructure in foreign locations in order to provide their foreign businesses with the quality and types of inputs needed before they establish their local outlets. And department store or grocery store chains, such as Walmart, CarreFour, Toys “R” Us, Ikea, or Safeway, may acquire existing similar businesses or enter foreign markets by building new stores similar to those in their home countries.
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MNE Business Strategy
As shown in Figure 2.2, firms in stage 4 and beyond become a complex system of linked units that includes at least a headquarters and several geographically dispersed subsidiaries. An MNE’s business strategy provides a direction for managing the various subsidiaries. The nature of an MNE’s business strategy is primarily guided by the extent of integration and/or local responsiveness required by the firm to manage its worldwide operations.15 Integration versus local responsiveness refers to the varying degree of required interconnectedness of the MNE’s various subsidiaries with each other and with headquarters. Integration is defined as the extent to which the subsidiaries and the headquarters develop a unified whole and can thus provide the MNE with a variety of competitive advantages such as economies of scale (being able to utilize all of the firm’s global resources), improved quality, and standardization.16 In contrast, local responsiveness is defined as the extent to which subsidiaries respond to local differences, which involves the modification of products or services in order to fully meet local customer needs, respond to local competition and culture, remain compliant with various government regulations, more readily attract local employees, and penetrate local business networks.17
Integration and local responsiveness form a framework (see Figure 2.4) that can be used to describe an MNE’s business strategy.18 The horizontal axis shows the degree of local responsiveness (from low to high). The vertical axis shows the degree of integration (from low to high). This framework highlights the conflicting demands on MNEs in terms of these two countervailing forces (integration versus local responsiveness) and can be used to categorize the strategy of an MNE into four types:19 1) International; 2) Multi-domestic; 3) Global; and 4) Transnational. The following provides a brief overview of these types of MNE business strategies:
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Figure 2.4 MNE Business Strategy Adapted from: Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.
International Business Strategy
This is the simplest business strategy, requiring quite limited local responsiveness as well as quite limited integration. An organization with this strategy markets and sells the same product or service locally and internationally. This is the type of strategy that begins with export or import and may be limited to licensing or sub- contracting. It typically involves no overseas offices or operations, other than possibly small sales offices.
Multi-domestic Business Strategy
MNEs with this strategy use an approach that responds to the high needs, values, and demands of the local market. This strategy is mostly used by MNEs with a multi-domestic organizational structure (see Chapter 3). With subsidiaries in multiple countries, these subsidiaries typically operate independently within each country, independently of operations in other countries, and often fairly independently, even, of the parent company headquarters. In this strategy, MNEs generally view each national market as a specialized market for its particular subsidiaries’ products and services. Examples of organizations using this type of strategy include Nestlé and Bridgestone.20
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As independent as subsidiaries in this approach often become, the organization’s operations in a number of countries may reach such size and importance that the firm begins to see a need for an increased level of integration with headquarters— on at least a regional basis. At this point, the MNE may coordinate its major country subsidiaries with regional headquarters in order to more effectively manage its international operations. The regional operations are normally created through an assumption that countries within a region share some common characteristics such as cultures, geographic proximity, or stage of economic development. See Case Study 2.1 (end of the chapter) which tells the internationalization story of one well-known automotive firm—Ford Motor Company. It built auto manufacturing plants in many countries early in its history and early in the history of the automobile industry, illustrating how many firms have developed into global firms over the last 100 years and how these firms created—largely through trial and error and response to ever-changing economic circumstances—the many approaches to the conduct of international business.
Global Business Strategy
MNEs with this strategy take a unified approach that is implemented for all countries regardless of their cultural and national differences. Thus there is a high degree of centralization or integration. Products and services will be increasingly designed for and marketed to customers all over the world. This strategy is mostly implemented by MNEs through a global organizational structure (see Chapter 3). The subsidiaries are tightly connected to the headquarters, and are heavily dependent on resources, brand identities, ideas, policies, and know-how from the headquarters. Examples of organizations using type of stragey include Lenova and Infosys.21
The experiences of global MNEs suggest that running a global company is an order of magnitude more complicated than managing a multinational or international firm. The global corporation looks at the whole world as one market. It manufactures, conducts research, raises capital, and buys supplies wherever it can do the job best. It keeps in touch with technology and market trends all around the world. National boundaries and regulations tend to be irrelevant, or at least a mere hindrance. Corporate headquarters might be anywhere.
Transnational Business Strategy
MNEs with this strategy use an approach that attempts to maximize both responsiveness and integration. They are both global and multi-domestic at the
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same time. In the sense that the transnational firm has a global focus, it is similar to the global firm, described in the previous section. But it differs from the global firm in that, rather than developing global products and services, the transnational works hard to localize, to be seen not as a global firm but as a local firm, albeit one that draws upon global expertise, technology, and resources. The transnational firm operates as a global network, with each subsidiary given responsibility related to its capabilities and strategic mission. This strategy is mostly implemented by firms through a transnational organizational structure (see Chapter 3). Examples of companies using this type of strategy include Procter & Gamble, and Bertelsmann.22
Headquarters’ International Orientation and MNE Business Strategy
One aspect of MNE’s business strategy that has been relatively well discussed and studied involves the orientation of senior executives, usually referred to with terms such as ethnocentrism, regio-centrism, poly-centrism, and geocentrism.23 The key strategic issue in these orientations (or mindsets) is the degree of domination of the MNE headquarters over subsidiary management and HR practices as compared to the degree of localization of subsidiary practices. Normally these orientations are explained in the context of progressive development over time from one mindset to another, as a firm develops greater international experience and sophistication. There are three different types of orientations, as illustrated in Figure 2.5: Ethnocentrism,24 poly-centrism or regio-centrism, and geocentrism.
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Figure 2.5 Headquarters’ International Orientation (Senior Executives)
Overall, it would be expected that IHRM policies and practices would be as centralized (similar to integration) or decentralized (similar to local responsiveness) as the overall strategic mindset of the firm. In firms with an ethnocentric orientation, IHRM practices for international operations tend to copy parent company practices and are very centralized. In firms with a poly-centric mindset, IHRM practices tend to be decentralized and local subsidiaries tend to be much more likely to be left alone to follow local HRM practice. As shown in Case 2.1 at the end of the chapter, Henry Ford had a very poly-centric mindset, although initially he merely reproduced his original operations from the US in his foreign operations. And in firms with a geocentric orientation, IHRM practices tend to be more eclectic, borrowing best practices from around the world, rather than giving preference necessarily to either headquarters or local practices.
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IHRM Strategy
As IHRM becomes more involved with helping organizations be successful in their international endeavors, it hopefully will develop a strategic focus itself. That is, it will develop its own strategies to hire, manage, and retain the best employees (employees who will help achieve the organization’s global strategies) throughout the organization’s international business activities, and it will thus contribute to the firm’s overall international strategic planning.
IHRM strategy is defined as the creation and implementation of IHR practices that help achieve an MNE’s international vision and objectives, i.e., its business strategy. It also involves the strategic management of the HR function and department itself. Similar to the MNE’s business strategy, a firm’s IHRM strategy serves as a guiding principle that helps to shape and govern the firm’s international activities, particularly as they relate to the firm’s HR, worldwide. IHRM strategies are implemented through IHRM policies and practices—which are the subjects of the chapters of Section 3.
IHRM Strategy Formulation
Historically, basic trade-offs have come into play when managers have considered where in the organization certain decisions should be made. For IHRM, the central trade-off pits pressures for centralization against the need for decentralization. Centralization is very similar to the notion of integration and refers to the concentration of authority and decision making toward the top (HQs) of an organization. Decentralization is very similar to the notion of local responsiveness and is defined as the dispersion of authority and decision making to operating units throughout the organization. In the international context, this involves the degree of centralization or decentralization of corporate authority and decision making throughout a firm’s global operations.
This tension between integration (centralization) and differentiation (localization) is becoming a major dilemma for IHRM and large global firms. As mentioned previously firms must become simultaneously more highly differentiated and more integrated or coordinated. Local nationals may feel that they can run operations in their own countries, even though their firms now require a global perspective and global qualifications. Local laws and practices may dictate certain HR practices and yet an international perspective may require different approaches to routine HR responsibilities.
MNEs are frequently both praised and criticized for being tools of global integration. There are many forces for convergence, or the use of parent-company
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policies and procedures throughout a firm’s global operations. MNEs face strong incentives to maximize economies of scale in research and development, purchasing, production, and markets, and encounter relatively low barriers to the dissemination of technologies and best practices. These incentives and low barriers encourage the continued use in foreign locales of practices and procedures found to work well “at home.” Of course, all of this is supported by overall firm strategies to internationalize and country cultures that encourage the view that our (company and country) way is best.
On the other hand, many firms in the past evolved in such a way in their international operations that their local and regional offices became, in many ways, independent organizations (again, refer to the Ford Motor Company story in Case 2.1). Even in markets where adaptation to local circumstances is mandatory, MNEs work hard to bridge the gap between global and local and to identify ways of reconciling global integration, e.g., in production, with the required extent of local responsiveness, e.g., in marketing and product design and in management and HR practices. Thus MNEs function as motors of a process of international convergence that may ultimately make national differences rooted in institutional and cultural characteristics less relevant or even disappear.
In addition to convergence due to company-wide policies, though, there are also enduring sources of divergence, such as attempts by local subsidiaries to become centers of excellence. Furthermore, there is considerable evidence demonstrating that cultural and institutional differences play a role in the manner in which seemingly universal techniques and procedures (globally applied) are implemented (in varying ways) within differing countries. In the end, however, the critical strategic decision for the IHRM department (as well as for the business as a whole) is the resolution of the dilemma created by the conflict between centralization for control and international (internal) control of policies and practices and decentralization to meet local requirements (localization). As was expressed in the first chapter, there is no easy answer to this choice: should the MNE superimpose practices (e.g., HRM practices) on its international subsidiaries and other forms of operations (with the local HR office run by an HR manager from the parent firm), or should it allow subsidiaries to follow local customs, laws, and practices as much as possible (with the local HR office usually run by a local national HR manager)?
The experiences of long-term multinational firms suggest that the trend is to move toward more local control and management over time, which is consistent with the pattern described in the first part of this chapter. And yet, as is discussed in greater detail later in the book, successful multinational firms have found ways (such as cross-national management training, cross-national assignments for management development and promotions, and cross-national project teams) to develop a common set of values and culture to ensure worldwide pursuit of a common corporate vision and objectives. Indeed, some firms are seeking ways to
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develop globally consistent HR practices throughout all of their operations as a way to reinforce a common corporate culture.
IHRM Strategies and MNE Business Strategies
The overall effectiveness of an IHRM strategy is contingent on the context in which it is used. An IHRM strategy’s effect on organizational effectiveness is always dependent on how well the IHRM strategy fits with and supports an MNE’s business strategy.
Figure 2.6 MNE IHRM Strategy Adapted from Hannon, J., Huang, I., and Jaw, B. (1995). International human resource strategy and its determinants: The case of subsidiaries in Taiwan. Journal of International Business Studies, 26, 531–554.
Similar to an MNE’s business strategy, IHRM strategy has to deal with the issue of whether to standardize IHRM policies and practices from headquarters, or to localize them to meet local conditions, or do both (e.g., combination of core policies established by HQs with localized practices to accommodate local culture and practices).
There are three types of IHRM strategies25 that can be aligned with MNE business strategy and headquarters’ international orientation (see Figure 2.6).
Autonomous IHRM Strategy26
As shown in Figure 2.6, this type of IHRM strategy has a low degree of global
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integration and a high degree of local responsiveness. Each subsidiary has the freedom to develop and implement its own IHRM policies and practices that support local rules and conditions. An MNE with this type of IHRM strategy most likely has a decentralized HR function with a small HR department at headquarters and the majority of key HR decisions made at the subsidiary level.27 This IHRM strategy is most suitable when an MNE has a multi-domestic business strategy and a poly-centric or regio-centric IHR orientation.
Receptive IHRM Strategy28
As illustrated in Figure 2.6, this form of IHRM strategy has a high degree of global integration and a low degree of local responsiveness. Each subsidiary is tightly connected with headquarters with very little freedom to adapt to the local conditions. An MNE with this type of IHRM strategy is more likely to have a centralized HR function with a large HR department that exercises considerable control over key HR decisions.29 This IHRM strategy is most suitable when an MNE has a global business strategy and an ethnocentric IHR orientation.
Active IHRM Strategy30
As Figure 2.6 shows, this type of IHRM strategy has a high degree of global integration and a high degree of local responsiveness. This strategy balances both, global integration and local responsiveness. An MNE with this type of IHRM strategy is more likely have a transition HR function with considerably more control over HR decision making than autonomous IHRM strategy but less than in a receptive IHRM strategy.31 HR at corporate headquarters and HR at the subsidiary try to balance the control over HR decision making. This strategy is most suitable when an MNE has a transnational business strategy and a geocentric HR orientation.
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Research on Strategic IHRM
Research on SIHRM has been growing in recent years.32 This research has extended our understanding of SIHRM, yet there is still much that is not known about the factors that influence it. The existing research on SIHRM has found, as would be expected, that local culture and national managerial orientation influence the nature of HR practice; that the degree of global mindset influences the nature of an MNE’s global strategy; and that global strategy influences the degree of global focus in the HR strategy.33 In addition, it has been found that following appropriate global HR practices—rather than only using the parent firm’s HR practices—was associated with the later stages of an organization’s life cycle (as the MNE matures) and with better organizational performance.34 Large global Japanese and European MNEs were found to be more likely to pursue global HR practices than was the case for similar American firms. Or, stated the other way around, American firms are more likely to pursue localization of IHR than are their Japanese or European counterparts.35
In general, this research has dealt with some form of linkage between headquarters’ (corporate) international focus (for example, their degree of ethnocentrism or geocentrism) and HR policy and practice in foreign subsidiaries. If HR strategy must implement corporate strategy, then the extent to which HR practice in foreign subsidiaries reflects corporate international business strategy is an important consideration.36 But as is typically observed by researchers, the examination of IHR strategy is in its infancy. Even though a number of models have been put forward to speculate on the possible linkages (with limited supporting data), there is still much more to examine to understand the complexities of SIHRM. Both the responses and the choices are more numerous and complex in practice than these models have yet demonstrated.
Models/Frameworks for Understanding SIHRM
In an effort to understand the role of IHRM in MNEs, scholars and researchers have suggested several SIHRM models or frameworks. Each of these has some very useful and interesting contributions to IHRM. Here we present one of the earliest models37 for describing how IHRM is connected to the different strategic requirements of the MNE.
Figure 2.7 illustrates a model with five parts:
1 strategic MNE components; 2 exogenous factors;
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3 endogenous factors; 4 IHRM issues, functions, and policies and practices; and 5 MNE concerns and goals.
Taken as a whole, the model enables researchers and consultants to discuss various components of SIHRM and their relationships.
Strategic MNE Components
Figure 2.7 Integrative Framework of Strategic International Human Resources Management in MNEs Source: Adapted from Schuler, R., Dowling, P., and DeCieri, H. (1993). An integrative framework of strategic international human resource management. International Journal of Human Resource Management, 4, 722–776
This part of the model includes two components: the inter-unit linkages and internal operations. Inter-unit linkages focus on how MNEs manage the different geographically dispersed operating units and describe how they balance the competing pressures for differentiation and integration. Internal operations, in contrast, describe how each unit operates within its local environment, laws, politics, culture, economy, and society. Section 1 of this book discusses issues related to this part of the model.
Exogenous Factors
These factors describe forces that are external to the firm that are largely beyond an MNE’s control but can create challenges that affect an organization’s IHRM
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issues, functions, policies and practices. These exogenous factors can include national culture, economic conditions, political system, legal environment, and workforce characteristics.
Section 2 of this book discusses issues related to this part of the model.
Endogenous Factors
These factors describe the issues and concerns that are internal to the firm and include structure of the organization, stage of internationalization, business strategy, and headquarters’ international orientation.
The above three parts of the model affect IHRM function and associated issues, policies and practices. Indeed, the key strategic MNE objective is to balance the needs of variety (diversity), coordination, and control for purposes of global competitiveness, flexibility, and organizational learning while controlling and coordinating that variety. However, the nature of this balance is expected to vary depending on the exogenous and endogenous factors.
IHRM Issues
IHRM issues are HR issues that result from the inter-unit and intra-unit needs and challenges. As mentioned earlier the MNE has components spread across several nations, but it still remains a single enterprise and therefore must consider how to balance competing pressures for integration and local responsiveness. These issues of integration and local responsiveness are often facilitated by human resource management policies and practices, and therefore are important components in IHRM.
IHRM Functions
IHRM functions include the resources (time, energy, money) allocated to the human resource department or unit, and the location of those resources and HR decision making. The resources devoted to and the location of IHRM operations can be expected to vary considerably across MNEs and the IHRM function can take a variety of structural forms, including centralized, decentralized, and transition.
IHRM Policies and Practices
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IHRM policies and practices involve the development of general guidelines on how individuals will be managed and specific HR initiatives or activities. This includes both formal policies of the organization and the actual daily practices that employees experience and include those related to planning, staffing, appraising, compensating, training and developing, and labor relations. Section 3 of this book focuses on this part of the model, discussing the core policies and practices of IHRM.
MNE Concerns and Goals
This part of the model can be defined in terms of utilizing and integrating appropriate IHRM practices and policies that enhance overall performance of the MNE on several criteria, both short term and long term. The five criteria include:
■ Global competitiveness (How can IHRM policies and practices help provide competitive advantage?)
■ Efficiency (How much can IHRM help make the MNE more efficient by delivering the most effective human resources that will deliver world-class products and services worldwide?)
■ Local responsiveness (How much can IHRM help the MNE be locally responsive and globally competitive at the same time?)
■ Flexibility (How much can IHRM help the MNE be more flexible in adapting to changing conditions—internal and external?)
■ Organizational and transfer of learning (How much can IHRM facilitate learning and transfer of this learning across geographically dispersed units?)
The chapters of Section 3 focus on the answers to these questions, on how IHRM policies and practices help the firm achieve these critical outcomes.
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Conclusion
This chapter presented the concept of strategic international human resource management. The chapter described the evolution of the MNE in terms of various stages of internationalization and the methods firms use to enter international markets. The integration-local responsiveness framework was used to describe how MNEs form business strategies and how the business strategies impact and are impacted by IHRM. The chapter then explained how IHRM strategy is formed and described the three types of IHRM strategies that are normally found in organizations. Finally, the chapter closed with a discussion of advanced topics in SIHRM.
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Discussion Questions
1 How has the multinational enterprise evolved? How have the changes in MNEs affected IHRM?
2 What are the various choices that MNEs have for entry into international business? How do the functions of HR vary with these various choices?
3 What is the link between SIHRM and IHRM? Why is it important for IHRM to be strategic?
4 How does IHRM strategy vary with an MNE’s business strategy? 5 What are some of the IHRM challenges faced by an MNE with a
transnational business strategy? 6 What are the pros and cons of centralization and decentralization of the
IHRM function?
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Case Study 2.1: The Early Evolution of Manufacturing Firms: Ford Motor Company Goes International (USA)
Ford Motor Company has been in business for over 100 years and when it comes to a global mindset, Ford is ahead of most of its competitors, although this was not always the case.
Early in its history, Ford was like many large firms, which often sent people off to other major countries to set up companies just like the one back home. The first Henry Ford, the founder of the Ford Motor Company, was in many ways an internationalist, because within a few years of establishing his company in the US he was opening manufacturing and assembly plants all over the world—the first of which was a Model T assembly plant in Trafford Park, England, in 1911—that were essentially smaller versions of the original plant in Detroit. Over the years Ford evolved into a collection of local country and regional fiefdoms.
But by the mid-1920s (even earlier in some countries), a sense of local pride had developed in the Ford plants in many countries around the world. These countries all began to develop their own automotive companies. Suddenly there were local automotive companies in the UK, in France, Germany, Australia, all making their own vehicles. Nations wanted to assert their independence and saw the automotive industry as a means of investing in their own economies. Indeed, some early automotive pioneers in other countries even began to export their own cars to other countries as well as develop their own plants elsewhere. The Europeans exported, the Americans exported, the Japanese exported—that was the way the competitive game was being played. This was the beginnings of the “multi- domestic” structure for large multinational corporations, as described in this chapter.
In the 1960s, though, regionalism began to develop with the emergence of the European Common Market, NAFTA, ASEAN, and other regional trading groups. Countries kept their own political systems and social values but formed economic trading blocs. So … big companies established regional headquarters within the various major trading blocs. Ford Europe, Ford Asia-Pacific, and Ford South America were established in this period. This was when most of the regional and functional fiefdoms (with each region becoming very independent) became firmly entrenched at Ford. (This is what is referred to in the text as the “regional” corporate structure, an extension of the “multi-domestic” structure.) The fiefdoms were excellent at what they did: they squeezed every last ounce of efficiency out of the regional model. For example, back in the period of nationalism, Ford had multiple accounting activities around the world—there were 15 in Europe alone. The regional model got it down to four: one in Europe, one in the US, one in Asia- Pacific, and one in South America. But even with that efficiency, Ford felt that the
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model didn’t work anymore. Today Ford is moving to a fourth stage of economic evolution with the
globalization of all aspects of its international operations: accounting, capital, communications, economic policy, trade policy, human resources, marketing, advertising, brands, etc. The auto industry around the world has become globalized. Germany and Japan produce cars in the US, Korea produces cars in Eastern Europe, the US produces cars in Mexico and China, and India, Malaysia, China, and Mexico export cars and parts throughout the world. And there is ongoing consolidation of auto companies throughout the world as firms such as Renault (France) acquired Nissan ( Japan), Ford (US) acquired Volvo (Sweden), Tata (India) acquired Jaguar (UK/US), and Ford has just announced that Geely (China) is acquiring Volvo (Sweden). Ford now manufactures and distributes automobiles in at least 120 markets (some articles suggest 200 markets!) on six continents, with 176,000 employees (a major downsizing from over 350,000 in the last decade) in more than 80 plants worldwide (a downsizing from about 110 plants less than a decade ago). In addition, the automotive industry has become an electronics-driven industry. It is increasingly a business that requires huge investments in technology and intellectual capital, not only for constant innovations in development and manufacturing, but in automobiles themselves. And now it is technology and human capital that have globalized.
Sources: www.Ford.com (2014); www.NYTimes.com/FordMotorCompany (2014); Lapid, K. (2006). Outsourcing and offshoring under the general agreement on trade in services. Journal of World Trade, 40(2), 341–364; Neff, J. (2006). Ford announces corporate realignment. Autoblog, December 14; Wetlaufer, S. (1999). Driving change: An interview with Ford Motor Company’s Jacques Nasser. Harvard Business Review, March–April, 77–80; and Whitney, K. (2006). Ford: Driving learning and developing the “Way Forward.” Chief Learning Officer, 5(5), 44–47.
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Notes
1 Source: “10 Quotes on leadership from Mark Zuckerberg,” see http://www.ceo.com/technology_and_innovation/10-quotes-on-leadership-from-mark- zuckerberg/. Accessed Nov. 2, 2014.
2 Sheehan, M., and Sparrow, P. (2012). Introduction: Global human resource management and economic change: A multiple level of analysis research agenda. The International Journal of Human Resource Management, 23(12), 2393–2403; Björkman, I., Stahl, G., and Morris, S. (2012). Handbook of Research in IHRM. Edward Elgar Publishing, Cheltenham, UK; Edwards, P. K., Sánchez, R., Tregaskis, O., Levesque, C., McDonnell, A., and Quintanilla, J. (2013). Human resource management practices in the multinational company: A test of system, societal, and dominance effects. Industry and Labour Relations Review, 66, 588–696; Zheng, C. (2013). Critiques and extension of strategic international human resource management framework for dragon multinationals. Asia Pacific Business Review, 19(1), 1–15.
3 Evans, P., Pucik, V., and Bjorkman, I. (2010). The Global Challenge: Frameworks for International Human Resource Management, New York: McGraw-Hill/Irwin; Brockbank, W. (1997). HR’s future on the way to a presence, Human Resource Management, Spring, 36(1), 65–69.
4 Ibid.; Vance, C. M., and Paik, Y. (2011). Managing a Global Workforce: Challenges and Opportunities in International Human Resource Management, 2nd ed., London and New York: M.E. Sharpe; Albrecht, M. H. (ed.) (2001). International HRM: Managing Diversity in the Workplace, Oxford, UK: Blackwell Publishers; Marquardt, M. J. (1999). The Global Advantage: How World-Class Organizations Improve Performance Through Globalization, Houston: Gulf Publishing; Harttig, M. A., Strozik, M., and Mukherjee, A. (2010). Global workforce planning. Benefits & Compensation International, 40(1), 19; Lertxundi, A., and Landeta, J. (2012). The dilemma facing multinational enterprises: Transfer or adaptation of their human resource management systems. The International Journal of Human Resource Management, 23(9), 1788.
5 Thompson, A. A., Jr., and Strickland, A. J., III (1998). Strategic Management: Concepts and Cases, 10th ed., New York: McGraw-Hill.
6 Ibid.
7 Björkman, I., Stahl, G., and Morris, S. (2012). Handbook of Research in IHRM. Cheltenham, UK: Edward Elgar Publishing; Bremmer, I. (2014). The new rules of globalization. Harvard Business Review, 92(1/2), 103–107; Walker, J. W. (2001). Are we global yet? in Albrecht, M. H. (ed.), International HRM: Managing Diversity in Workplace, Oxford, UK: Blackwell Publishers, pp. 71–75; Bartlett, C. (1983). How multinational organizations evolve, Journal of Business Strategy, Summer, 1, 10–32; Dowling, P. J., Welch, D. E., and Schuler, R. S. (1999). International Human Resource Management, 3rd ed., Cincinnati, OH: South-Western College Publishing; Fadel, J. J., and Petti, M. (2001). International HR policy basics, in Albrecht, M. H. (ed.),
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International HRM, Oxford, UK: Blackwell Publishers, pp. 76–78; Harzing, A.-H. (1995). Strategic planning in multinational corporations, in Harzing, A.-H., and Ruysseveldt, J. V. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33–64.
8 Adapted from, A new corporate focus, Financial Times, Feb. 5, 2013, p. 14 (Business Life Section).
9 Lertxundi, A., and Landeta, J. (2012). The dilemma facing multinational enterprises: Transfer or adaptation of their human resource management systems. The International Journal of Human Resource Management, 23(9), 1788; Ando, N. (2011). Isomorphism and foreign subsidiary staffing policies. Cross Cultural Management, 18(2), 131–143; Colakoglu, S., Tarique, I., and Caligiuri, P. (2009). Towards a conceptual framework for the relationship between subsidiary staffing strategy and subsidiary performance. The International Journal of Human Resource Management, 20(6), 129; Collings, D. G., Scullion, H., and Morley, M. J. (2007). Changing patterns of global staffing in the multinational enterprise: Challenges to the conventional expatriate assignment and emerging alternatives. Journal of World Business, 42(2), 198; Peng, G. Z., and Beamish, P. W. (2014). MNC subsidiary size and expatriate control: Resource-dependence and learning perspectives. Journal of World Business, 49(1), 51–62.
10 Source: http://newsroom.kelloggcompany.com/2012–09–24-Kellogg-Company-And- Wilmar-InternationalLimited-Announce-China-Joint-Venture .
11 Monaghan, A. (28 November 2014). Jaguar Land Rover seals Chinese joint venture, The Telegraph, UK. Retrieved from www.telegraph.co.uk.
12 See for example Ghauri, P. N., and Santangelo, G. D. (2012). Multinationals and the changing rules of competition: New challenges for IB research. Management International Review, (2), 145; Lapid, K. (2006). Outsourcing and offshoring under the General Agreement on Trade in Services, Journal of World Trade, 40(2), 431–364; Contractor, F. J. (2011). Global Outsourcing and Offshoring: An Integrated Approach to Theory and Corporate Strategy. Cambridge: Cambridge University Press; Robinson, M. and Kalakota, R. (2005). Offshore Outsourcing: Business Models, ROI and Best Practices, 2nd ed., Alpharetta, GA: Mivar Press; and Robinson, M., Kalakota, R. and Sharma, S. (2006). Global Outsourcing: Executing an Onshore, Nearshore or Offshore Strategy, Alpharetta, GA: Mivar Press.
13 See, for example, Linares-Navarro, E., Pedersen, T., and Pla-Barber, J. (2014). Fine slicing of the value chain and offshoring of essential activities: Empirical evidence from European multinationals. Journal of Business Economics & Management, 15(1), 111–134; Schwörer, T. (2013). Offshoring, domestic outsourcing and productivity: Evidence for a number of European countries. Review of World Economics, 149(1), 131– 149; definition retrieved from http://en.wikipedia.org and www.investordictionary.com. See also, Blinder, A. E. (2006). Offshoring: The next industrial revolution?, Foreign Affairs, 85(2), 113–128; Erber, G., and Sayed-Ahmed, A. (2005). Offshore outsourcing— A global shift in the present IT industry, Intereconomics, 40(2), 100–112; and Friedman, T. L. (2007). The World Is Flat: A Brief History of the Twenty-First Century, New York:
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Farrar, Straus and Giroux.
14 Setting a trend for world to follow (2011), South China Morning Post, Feb. 7, downloaded from ProQuest at http://search.proquest.com/docview/849412056? accountid=13044.
15 See Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.
16 Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.
17 Ibid.
18 Harzing, A-W. (2000). An empirical analysis and extension of the Bartlett and Ghoshal typology of multinational companies, Journal of International Business Studies, 31(1), 101–120; Harzing, A-H (2004). Strategy and structure of multinational companies, in Harzing, A-H, and Ruysseveldt, J. V. (eds.), International Human Resource Management, London, UK: Sage Publications, pp. 33–64; Bartlet, C., and Ghoshal, S. (2010). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press. Also see Drahokoupil, J. (2014). Decision-making in multinational corporations: Key issues in international business strategy. Transfer: European Review of Labour & Research, 20(2), 199–215.
19 Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press; Harzing, A-W. (2000). An empirical analysis and extension of the Bartlett and Ghoshal typology of multinational companies, Journal of International Business Studies, 31(1), 101–120; Harzing, A-H (2004). Strategy and structure of multinational companies, in Harzing, A-H and Ruysseveldt, J. V. (eds.), International Human Resource Management, London: Sage.
20 Rothaermel, F. (2013). Strategic Management: Concepts and Cases, New York: Irwin McGraw Hill.
21 Ibid.
22 Rothaermel, F. (2013).
23 Chakravarthy, B., and Perlmutter, H. V. (1985). Strategic planning for a global economy. Columbia Journal of World Business, Summer, 3–10; Kobrin, S. J. (1994). Is there a relationship between a geocentric mind-set and multinational strategy? Journal of International Business Studies, 25(3), 493–511; Perlmutter, H. V. (1969). The torturous evolution of the multinational corporation, Columbia Journal of World Business, January–February, 9–18.
24 See Story, J. P., Barbuto, J. E., Luthans, F., and Bovaird, J. A. (2014). Meeting the challenges of effective international HRM: Analysis of the antecedents of global mindset. Human Resource Management, 1, 31; Gupta, A.K., and Govindarajan, V. (2002). Cultivating a global mindset, Academy of Management Executive, 16, 116–125; Kedia,
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B. L., and Mukherji, A. (1999). Global managers: Developing a mindset for global competitiveness. Journal of World Business, 34, 230–251.
25 Hannon, J., Huang, I., and Jaw, B. (1995). International human resource strategy and its determinants: The case of subsidiaries in Tawian, Journal of International Business Studies, 26, 531–554.
26 Ibid.
27 See Scullion, H., and Paauwe, J. (2004). International human resource management: Recent developments in theory and empirical research, in Harzing, A. W. and Ruysseveldt, J. V., International Human Resource Management, London: Sage Publications, pp. 65–88.
28 Ibid.
29 Scullion, H., and Paauwe, J. (2004).
30 Ibid.
31 Ibid.
32 See, for example, Jackson, S. E., Schuler, R. S., and Jiang, K. (2014). An aspirational framework for strategic human resource management. The Academy of Management Annals, 8(1), 1–56; Caligiuri, P. (2014). Many moving parts: Factors influencing the effectiveness of HRM practices designed to improve knowledge transfer within MNCs. Journal of International Business Studies, 45(1), 63–72; Zheng, C. (2013). Critiques and extension of strategic international human resource management framework for dragon multinationals. Asia Pacific Business Review, 19(1), 1–15; Fan, D., Zhang, M., and Zhu, C. (2013). International human resource management strategies of Chinese multinationals operating abroad. Asia Pacific Business Review, 19(4), 526–541; Ananthram, S., and Chan, C. (2013). Challenges and strategies for global human resource executives: Perspectives from Canada and the United States. European Management Journal, 31(3), 22; Andersen, T. J., and Minbaeva, D. (2013). The role of human resource management in strategy making. Human Resource Management, 52(5), 809; An, D., Zhang, M. M., and Zhu, C. J. (2013). International human resource management strategies of Chinese multinationals operating abroad. Asia Pacific Business Review, 19(4), 526; Festing, M. (2012). Strategic human resource management in Germany: Evidence of convergence to the U.S. model, the European model, or a distinctive national model? The Academy of Management Perspectives, 26(2), 37; Kramar, R., and Parry, E. (2014). Strategic human resource management in the Asia Pacific region: Similarities and differences? Asia Pacific Journal of Human Resources, 52(4), 400; Liang, X., Marler, J. H., and Cui, Z. (2012). Strategic human resource management in China: East meets West. The Academy of Management Perspectives, 26(2), 55; Sparrow, P. (2012). Globalising the international mobility function: The role of emerging markets, flexibility and strategic delivery models. The International Journal of Human Resource Management, 23(12), 2404; Clark, K., and Lengnick-Hall, M. L. (2012). MNC practice transfer: Institutional theory, strategic opportunities and subsidiary HR configuration. International Journal of Human Resource Management,
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23(18), 3813–3837; De Cieri, H., and Dowling, P. J. (2012). Strategic human resource management in multinational enterprises: Developments and directions, in Stahl, G. K., Björkman, I., and Morris, S. S. (eds.), Handbook of Research in International Human Resource Management, 2nd ed., Northampton, MA: Edward Elgar Publishing, pp. 13– 35; Chung, C., Bozkurt, Ö., and Sparrow, P. (2012). Managing the duality of IHRM: Unravelling the strategy and perceptions of key actors in South Korean MNCs. International Journal of Human Resource Management, 23(11), 2333–2353; Harvey, M., Fisher, R., McPhail, R., and Moeller, M. (2013). Aligning global organizations’ human capital needs and global supply-chain strategies. Asia Pacific Journal of Human Resources, 51(1), 4; Perkins, S. J., and Shortland, S. M. (2006). Strategic International Human Resource Management: Choices and Consequences in Multinational People Management, 2nd ed., London: Kogan Page; Schuler, R. S., Budhwar, P. S., and Florkowski, G. W. (2002). International human resource management: Review and critique, International Journal of Management Reviews, 4 (1), 41–70; Schuler, R. S., Dowling, P. J., and De Cieri, H. (1993). An integrative framework of strategic international human resource management, Journal of Management 19(2), 419–459; Schuler, R. S., and Tarique, I. (2007). International HRM: A North American perspective, a thematic update and suggestions for future research, International Journal of Human Resource Management, 18(5), 717–744.
33 Beechler, S., Bird, A., and Raghuram, S. (1993). Linking business strategy and human resource management practices in multinational corporations: A theoretical framework, Advances in International Comparative Management, 8, 199–215; Hannon, J. M., Huang, I.-C., and Jaw, B.-S. (1995). International human resource strategy and its determinants: The case of subsidiaries in Taiwan, Journal of International Business Studies, third quarter, 531–554; Harris, H., and Holden, L. (2001). Between autonomy and control: Expatriate managers and strategic international human resource management in SMEs, Thunderbird, International Business Review, 43(1), 77–100; Kobrin, S. J. (1994). Is there a relationship between geocentric mindset and multinational strategy? Journal of International Business Studies, 25(3), 493–511; Lei, D., Slocum, J. W., Jr., and Slater, R. W. (1990). Global strategy and reward systems: The key roles of management development and corporate culture, Organizational Dynamics, 18, 63–77; Rosenzweig, P.M., and Nohria, N. (1994). Influences on human resource management practices in multinational corporations, Journal of International Business Studies, second quarter, 229–251; Sheridan, W. R. and Hansen, P. T. (1996). Linking international business and expatriate compensation strategies, ACA Journal, 5(2), 66–79.
34 Caliguiri, P.M., and Stroh, L. K. (1995). Multinational corporation management strategies and international human resource practices: Bringing international HR to the bottom line, International Journal of Human Resource Management, 6(3), 494–507; Milliman, J., Von Glinow, M. A., and Nathan, M. (1991). Organizational life cycles and strategic international human resource management in multinational companies. Academy of Management Review, 16, 318–339; Pucik, V., and Evans, P. (2004). People Strategies for MNEs, London: Routledge; Caligiuri, P.M., and Stroh, L. K. (1995). Multinational corporation management strategies and international human resources practices:
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Bringing HR to the bottom line. International Journal of Human Resource Management, 6, 494–507.
35 Yip, G. S., Johansson, J. K., and Ross, J. (1997). Effects of nationality on global strategy, Management International Review, 37 (4), 365–385.
36 See, e.g., Perkins and Shortland (2006).
37 Schuler, R. S., Dowling, P. J., and De Cieri, H. (1993). An integrative framework of strategic international human resource management. Journal of Management, 19(2), 419.
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Chapter 3 Design and Structure of the Multinational Enterprise
The world has been going global for centuries, but that will mean very different things in the 21st century than it meant in the 19th or 20th. To be a leader in the future will mean thinking globally, and not only about geography.
Samuel J. Palmisano
Former CEO, IBM1
Learning Objectives
This chapter will enable the reader to:
■ Explain the fundamentals of organizational design and structure and explain the process of designing an MNE.
■ Describe the basic characteristics associated with different organizational structures.
■ Explain the implications for IHRM from the different structures. ■ Describe the importance of teams, networking, and the need for
learning in MNEs.
One of the challenges for HR in international firms is to become an organizational architect. International organizations need appropriate structure in order to effectively conduct business in the chaotic and interconnected global economy. An important source of sustainable global competitive advantage is designing your organization for knowledge creation and sharing across borders and, thus, supporting learning and innovation on a global basis. The traditional needs for control and integration when applied across national borders in the highly complex global economy make the problems of organizational design especially difficult.
Accordingly, this chapter is about organizational design and structure for the successful conduct of international business. The development and complexity of international business is forcing firms to create new forms of organization and new applications of old forms, and these efforts are creating new challenges for management in general and IHRM in particular. Firms are having to cope with a greater number of countries (and their politics, governments, and cultures), protect
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a greater level of foreign investment, deal with greater overall political uncertainties, develop new mental mindsets, and manage an increasing number of sites and partnerships in order to learn faster and better than their competitors and, thus, to grapple effectively with today’s global economy.2
This chapter starts with an introduction to organizational design and structure by focusing on the complexities involved in designing and structuring international organizations. Then the chapter describes how the pressures of integration and local responsiveness (introduced in Chapter 2) influence the design and structure of the organizations that international firms use to carry out their international activities. Then the chapter provides an overview of the various structures that international firms use as they evolve in their conduct of international business. Next the chapter describes the implications for IHRM from the different structures. And finally the chapter discusses the role of networks, global teams, and global learning organizations in maintaining complex organizational structures.
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International Organizational Design and Structure: An Introduction
Organizational design refers to the process or style used by management to arrange these various components. In contrast, organizational structure refers to the formalized arrangement of organizational components such as the headquarters, subsidiaries, business units/divisions within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and reporting relationships in an organization. Organizational design is the process whereas organizational structure is the outcome.
Organizational design is the process used by management to determine the formal arrangement of components such as the headquarters, subsidiaries, business units/divisions within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and reporting relationships in the organization.
The design process and the organizational structure that results from the process —from an internationalization perspective—is essentially based on four factors:3
1 the firm’s forms and stages of international development (see Chapter 2, Figure 2.1);
2 the amount of cross-border coordination required by the firm’s strategy (that is, the degree of desired integration versus the degree of acceptable and/or necessary localization) (Chapter 2);
3 the nature and extent of host governments’ activities in the economic process; and
4 the diversity and complexity of the MNE’s business operations.
To a large degree, this concerns the form of development and inter-connectedness of an MNE’s various subsidiaries and alliances. Such subsidiaries and international alliances can range in structure from simple sales offices to complete, stand-alone operations (wholly or partially owned), formal joint ventures, and less formal partnerships of various kinds, as introduced in Chapters 2 and 4. More specifically they can take on one or more of the following three forms:4
1 The subsidiary or partnership can be a start-up (initially, probably a sales office), that can be used to establish the firm’s international business; in such a case it usually will take the structural form of reporting directly to
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an executive in the domestic structure or to the head of an international and/or geographic division.
2 Once the firm has a well-established international business, it will extensively use its subsidiaries and alliances to support its business strategy. In such a case the firm is likely to develop a structure using a multidimensional network of business centers.
3 When the firm reaches the level of having a high proportion of assets/sales/employees outside of its home country, the subsidiaries become leaders in creating new market share and competitive advantages which are then transferred to the global network, and even back into the home country. In this case, the structure will be an even more complex network of multiple business centers with a strong focus on the integration of these many centers.
In all circumstances, the structure necessary to conduct international business is more complex than is the case for a purely domestic firm.
Convergence vs. Divergence
In the past, MNEs have dealt with the complexity of international business by trying to simplify their operations and organizations. This has often led to development of common policy and practice throughout their global operations and to simple forms of organization, typically copying their domestic organizational structures. This has minimized the problem of management and control in the global context, since the assumption was that if managers could handle domestic organizations, then they could also manage effectively the structures and systems duplicated to handle international commerce, transferring parent-company products, technology, and management style to foreign operations.
Major MNEs (ones with longer-term experience and with greater foreign investment and number of employees) have discovered that this doesn’t work very well. The global economy is too complex and unpredictable. Other countries and cultures don’t always accommodate the parent company products, styles, and culture. MNEs have often needed to develop more complex structures to deal with this complexity and to develop new managerial skills to deal with multiple cultures, languages, and ways of conducting business.
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Designing the Multinational Enterprise
The basic problem that underlies the ability of firms to organize globally is the challenge of figuring out how to coordinate and balance the opposing forces of integrating their foreign operations with each other and with the parent firm while at the same time allowing the necessary autonomy and local control needed to meet unique national and cultural interests.5 This is what has been referred to in earlier chapters as the integration-local responsiveness problem.
MNEs need integration and sharing of learning and experience, and they typically seek common policies in a number of areas related to overall performance, such as financial objectives, yet they need to allow localized adaptation to cultural differences. The emphasis on increased layers and size of formal structure and more sophisticated systems has in fact slowed down communication, learning, and decision making, and limited international firms’ abilities to adapt effectively to local differences. Thus MNEs are turning increasingly to reduced size of business units, increased numbers of smaller business centers, and informal networks for improved communication, control, and coordination, as described later in the chapter.6 As Jay Galbraith, one of the foremost researchers on issues related to the design of the global corporation, says, “Organizing a company to do business on a global scale remains one of the most complex organizational responsibilities.”7 And coping with the challenge of combining centralized control and integration with localized product and managerial adaptation creates one of the most significant of those complexities.
It should be obvious that no one type of international organization structure embodies the right system for all firms. Rather, the MNE needs to be a multidimensional network of businesses, countries, and functions. Global customers are demanding single points of business contact and global strategies seek simplified reporting structures. In response, firms are being forced into four- and five-dimensional networks, as discussed through the rest of this chapter. Thus global managers need to be trained and developed to operate effectively with multidimensional structures as well as multiple types of structures.
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International Organizational Structure Choices
Organizational structure refers to the formalized arrangement of organizational components such as the headquarters, subsidiaries, business units/divisions, and functional units within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and reporting relationships in an organization. Two frameworks can be used to describe an MNE’s organizational structure.
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Framework 1: Organizational Structure in Terms of Integration and Local Responsiveness
The first framework is based on the above discussion. Accordingly, the basic organizational challenge to MNEs has always been the integration of activities that take place in different countries and coordination of foreign subsidiaries with headquarters. The basic global structure, then, of every MNE can be described in terms of an integration and local responsiveness framework (see Figure 3.1). This framework highlights the conflicting demands on MNEs in terms of these two countervailing forces (integration versus local responsiveness) and can be used to describe an MNE’s structure and strategy (basic strategy was described in Chapter 2).8 The horizontal axis shows the extent of local responsiveness (high versus low). The vertical axis shows the degree of integration (high versus low).9
This approach (the integration-responsiveness grid) categorizes the internationalized structure of the firm—in terms of the HQ-subsidiaries relationship —into four types: 1) international; 2) multinational; 3) global; and 4) transnational.10
Figure 3.1 MNE Organizational Structure Adapted from: Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management:
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Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (1998). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press; Harzing, A. (2004) Strategy and Structure of Multinational Companies, in Harzing, A. W. K., and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33– 64.
These various structures are inter-related. Just as firms differ in their stages of internationalization, so too do they differ in terms of the structures they adopt in their international operations. The specific international structure chosen or developed influences the type of IHRM policies and practices necessary for effective international operation. Coping with the complexities of the structure turns out to be one of the most difficult areas in which IHRM can make a strategic contribution to a firm’s international business strategy.
International Organizational Structure11
Organizations with an international structure face weak pressures for local responsiveness or differentiation and weak pressures for worldwide integration. As shown in Figure 3.1, this type of structure resembles a coordinated federation. Foreign subsidiaries may be dependent on headquarters for resources and limited direction but will still have major freedom to adapt to local conditions. Coordination and control by headquarters is likely to be even less important than in the multi-domestic structure and certainly less important than the global structure (we discuss this next). Since foreign operations in this condition are fairly limited, HRM decisions, policies, and practices will be of limited significance in the subsidiaries.
Multi-domestic Organizational Structure
Organizations with a multi-domestic structure face strong pressures for local responsiveness or differentiation and weak pressures for worldwide integration. As illustrated in Figure 3.1, a multi-domestic firm has subsidiaries in multiple countries, with these subsidiaries typically operating independently within each country, independently of operations in other countries, and often fairly independent, even, of the parent company headquarters. The MNE will have significant operations (assembly, manufacturing, service centers, R&D, branch offices) in many countries and may well reach the condition where half or more of its sales and employment is in foreign countries. Often these multi-domestic
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subsidiaries become almost independent fiefdoms, as described in the Ford Motor Company case at the end of Chapter 2.
Key personnel in the multi-domestic subsidiary offices—at least initially—are often from the company’s home office with key decisions initially made at corporate headquarters. Thus, although the subsidiaries are largely staffed by people from the countries in which they are located, managers from the home office may retain authority in key areas (such as profitability and compensation bonuses), yet the subsidiary management increasingly focuses inward. The MNE at this level of development generally views each national market as a specialized market for its particular subsidiary’s products. Each subsidiary concentrates its efforts on the nation in which it is located.
The HR department’s role at this stage becomes more complex and difficult. Now HQ’s HRM may initially provide a number of services—such as relocation, compensation, and benefits for employees (international assignees) working in these foreign (to them) locations—but they must also coordinate the HRM activities and practices of the many subsidiaries, seeking both consistency with the culture and policies of the parent company and accommodation of local values and practices. But, over time, these subsidiaries are likely to become increasingly independent of HQ. In addition, training for international assignees (from the parent company or from foreign locales), local nationals, and parent-company employees to handle foreign assignments and interaction with foreign counterparts will also increase from that experience under the international structure.
As independent as subsidiaries often become, in this structure the organization’s operations in a number of countries may reach such size and importance that there is increased need for integration with corporate headquarters. The MNE may organize country subsidiaries from a close geographic region into a regional division with regional headquarters in order to coordinate operations on a regional basis, again as described in the Ford Motor Company case in Chapter 2. This will probably involve first organizing to conduct business in only one or two regions, such as Europe or Latin America (for an American firm) or maybe North America (for a European or Asian firm) or Asia (for an Asian or European firm). The HRM impacts in this regional structure are similar to those in the multi-domestic structure, although they will be managed from a regional headquarters. An assumption made is that countries within a region share some common characteristics such as country culture, geographical proximity, or stage of economic development.
Global Organizational Structure
Organizations with a global organizational structure face strong pressures for
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worldwide integration but face weak pressures for differentiation or local responsiveness. As illustrated in Figure 3.1, this type of structure resembles a centralized hub. These organizations structure their foreign subsidiaries into worldwide lines of business that are heavily managed and controlled by headquarters. Assets and resources are centralized. Foreign subsidiaries are heavily dependent on these assets and resources from the headquarters. Relative to subsidiaries in multi-domestic and international structures, “global” subsidiaries have much less freedom.
In recent years, many MNEs with this type of organizational structure have worked to develop a corporate culture or mindset with the intention to become blind to the importance of national borders. That is, the desire is to operate in such a way as to not have to be concerned with national cultural and legal differences. Even though most businesses still organize on a regional basis and adaptation to local customer preferences may still be necessary, products and services are increasingly designed for and marketed to customers all over the world. This is particularly true for industrial products, that is, for products sold from business to business, such as computer chips or machine tools or construction equipment. The best technology and innovative ideas are sought everywhere and applied to markets throughout the world. Products and services are created where costs are the lowest, quality is the highest, and time to delivery is the shortest, and delivered wherever demand is sufficient. And resources (money, material and parts, insurance, even people) are sought from wherever the best quality for cost can be found. Reaching this organizational structure is not merely a matter of company size or experience in internationalization. Sometimes it is a reflection of the nature of the pressures of the particular industry; often, it reflects a purposeful, strategic decision to “go global.”
At this structural level, the role of the HR department must again shift. Key HR decisions are made at the headquarters and implemented worldwide. Employees are hired everywhere in the world, wherever the necessary skills, training, and experience can be found. Worldwide policies are developed and implemented for many aspects of HR responsibility, possibly based on practices followed in numerous places around the world. Management promotions will require international experience and managers and executives will be developed from all major countries or regions of operation. At the same time, increased sophistication in locating certain HRM practices will become even more important, as the firm tries to become a global enterprise.
This usually means fewer expatriates in local subsidiaries, an increased use of third-country nationals, and broader-based multinational composition of corporate boards and top-management and technical teams. And in most firms this means trying to develop or maintain an international corporate culture that transcends national boundaries and national cultures. Key employees need to be multilingual,
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experienced in a number of countries, and culturally sensitive, and their countries of origin make little difference.
Transnational Organizational Structure
Organizations with a transnational organizational structure face strong pressures for worldwide integration and for differentiation or local responsiveness. As shown in Figure 3.1, these organizations resemble an integrated and interdependent global network of subsidiaries that have the ability to manage across national boundaries, retaining local flexibility while achieving global integration. This form of organization has a truly global focus, making resource decisions without reference to national origins, sharing its ideas and technology with all of its units on a global scale, while cultivating a local character in all of its individual businesses. It is characterized by an interdependence of resources and responsibilities across all business units regardless of national boundaries. Subsidiaries are integral parts of a complete transnational system with both global and local objectives. IHRM policies and practices are based on a collaborative process between headquarters and subsidiaries.
Bartlett and Ghoshal suggested that many firms were evolving into this new form of international business that they termed “transnational.”12 In the sense that the transnational firm has a global focus, it is similar to the global firm, described in the previous section. But it differs from the global firm in that, rather than developing global products, services, brands, and standardized processes and policies and procedures, the transnational organization works hard to localize, to be seen not only as a global firm, but as a local firm as well, albeit one that draws upon global expertise, technology, and resources.13 In a transnational firm, the focus is simultaneously on global integration, local responsiveness, and knowledge sharing among the different parts of the organization.
The transnational firm is often put forth as the direction in which all international firms are headed. The salient management and HR question may be how to manage the complex, national (cultural) diversity that this level of global business activity experiences. When integration is needed (as in joint ventures and in the development of global workforces), cultural diversity needs to be valued and utilized while minimizing its negative impacts; but when cultural diversity is needed to differentiate products and services to meet the needs of local markets, new corporate practices and organizational designs are required.
The Globally Integrated Structure
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In addition to the four structural types just discussed (multi-domestic, international, global, and transnational), a popular model is a globally integrated enterprise that is very different in structure and operations.14 Samuel Palmisano, the former chairman and CEO of IBM, described the difference between a 20th-century multinational and a 21st-century globally integrated enterprise as follows. In a multinational model, companies build local production capacity within key markets, while performing other tasks on a global basis. In contrast, in the globally integrated enterprise, strategy, management, and operations—which take place in many different locations—are integrated into production of goods and services to deliver value to clients worldwide. This integrated model is made possible because of shared technologies, global IT systems, and global communications infrastructure. In a globally integrated structure, different operations, expertise, and capabilities (especially as is the case for service organizations, as IBM now describes itself)—again, located around the world—allow the enterprise to connect with its customers, using all the resources of the firm, and engage in collaborative innovation to solve the customers’ problems and challenges. HR activities in the globally integrated firm internally reflect the same laws of global integration as those provided to the external clients. Talent and expertise within the MNE flow to where they create the most value.
However, the differences between multi-domestic, global/transnational, and globally integrated firms are significant. In the traditional multi-domestic enterprise, freestanding subsidiaries or stand-alone foreign operations may be so loosely affiliated that valuable opportunities for economies of scale, joint marketing efforts, or shared technology and innovations may be lost. Country or regional operations and functional experts can develop attitudes of strong independence that can result in the loss of benefits that arise from sharing product ideas and technologies across national boundaries (refer to the Ford Motor Company case in the previous chapter). The transnational firm creates a structure and management system that takes advantage of global capabilities while allowing local subsidiaries to operate as independent businesses. The globally integrated enterprise tends to be more network-based. Whichever structure is developed, the global HR roles and activities must shift to meet the needs of the organization.
IHRM in Action 3.1: Moving HR from International to Global
The Ferro Corporation, a $1 billion manufacturer of coatings, plastics, specialty chemicals, and ceramics, has been a successful international enterprise for almost three quarters of a century and is now becoming a
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model for being a global company. Several of its foreign operations, particularly those in Europe and Latin America, have existed for as much as 70 years. About two thirds of its employees are non-US nationals, and over 60 percent of its revenues and profits are derived from foreign operations.
Despite its impressive international record, only recently has Ferro begun to see itself as a global company. According to David B. Woodburg Ferro’s vice-president of human resources at that time, “There was quite a bit of sharing of information and technology among our operations in various countries, but each foreign division or subsidiary operated highly independently, formulating much of its own strategy for manufacturing, marketing, finance, and human resources.”
Since then Ferro has reorganized its corporate structure to focus on products and business lines across international borders. “Each business thinks of the world as its marketplace now,” says Woodbury. “We’re developing broad-based global strategies, with increased communications and a greater sharing of assets throughout the world.”
High on that list of “shared assets” is human resources. “We realize there is a strong need for global managers,” says Woodburg. “We have to identify, train and develop people with an international outlook, skills, and experience. Like all other facets of the corporation, human resources has to evolve into a global operation.”
Reaching this stage of development is not merely a matter of company size or experience in internationalization. Sometimes it is a reflection of the nature of the pressures of the particular industry, but often it reflects a purposeful, strategic decision to “go global.” IHRM in Action 3.1 describes a moderately sized firm, the Ferro Corporation, which made a powerful shift to being a global MNE.15
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Framework 2: Organizational Structure in Terms of Business Units/Divisions
The second framework16 for describing organizational structure is relatively more detailed and describes the organizational structure in terms of the business units/divisions within the headquarters and subsidiaries (refer to Figure 3.2). The traditional choices include 1) functional division structure; 2) product division structure; 3) geographic division structure; and 4) global matrix division structure.
Functional Division Structure17
Departments in a functional structure are organized according to functions, e.g., operations, marketing, finance, accounting (see Figure 3.2). Subsidiaries either report directly to the CEO or the VP of operations or to marketing or manufacturing. Organizations that are in the early stages of internationalization usually have this divisional structure. In addition, this divisional structure is most likely found in firms with an international organizational structure.
Product Division Structure18
Figure 3.2 Functional Structure
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Figure 3.3 Product Structure
Departments in this structure are organized according to their product divisions (see Figure 3.3). Each of the product lines contains all of the business functions such as finance, marketing, and accounting. That is, all functional activities are controlled by a product group. This divisional structure is most likely to be found in firms with a global organizational structure. Managers at the headquarters make most of the product decisions and input from subsidiaries is very limited.
Geographic Division Structure19
In this structure, the product division typically gives way to a geographic divisional structure with each region becoming an independent division reporting directly to the CEO. Each region has its own set of specialized functions (see Figure 3.4). Country or regional managers in each area are provided with substantial autonomy to adapt the strategies of the parent country product divisions to fit the specificity of the local conditions. Firms with a multi-domestic organizational structure are more likely to use this type of divisional structure.
As the need for more business centers increases, for example to accommodate additional countries and for additional research and development centers to adapt products to local customers, the simple hierarchical functional, product, and geographic divisional structures turn out to be inadequate to handle the complexities of the needs of today’s MNEs, which often have multiple organizational forms and networks. The organizational needs of the modern MNE must be a mix of functional, product, and geographic divisional structures.
Global Matrix Structure20
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Figure 3.4 Geographic Structure
As concerns for cost control compete with concerns for integration and cross- fertilization across national borders, firms tend to look for ways to coordinate all the many critical components of the firm: country subsidiaries, product lines, local and global customers, business functions, research and development, regional and central headquarters, etc. Thus, other combinations of the critical variables are developed to include structures to integrate the traditional business functions with country and product (see Figure 3.5). Often these organizational designs have evolved as the firm has increased its global presence and tried to cope more effectively with the complexities it encounters.
These matrix structures involve two or more lines of reporting. Typically there will be a country “leg” to the matrix with managers reporting to a local national boss plus reporting to a product group or regional or headquarters functional office, as well. Sometimes there are three or more legs and they may be given equal importance (solid-line reporting) or may have different levels of priority, with a solid line for direct reporting and dotted line for more indirect reporting relationships.
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Figure 3.5 Matrix Structure
These structures cause a new set of dilemmas and require a new set of skills. The many diverse demands of global business require the global firm to give management focus to both the local and the corporate levels. The matrix doesn’t resolve this dilemma, it just makes it a permanent part of the management environment. At best, the matrix structure allows local and global realities to be reconciled; at its worst, it allows individual managers to pursue narrow objectives without regard to their impact on the other legs of the matrix, that is, on the other parts of the organization. Problems with divided loyalties and multiple bosses have to be resolved. Ultimately, managers working in a global matrix organization must learn to think more broadly and, as stated earlier, to develop network skills to negotiate resources, resolve trade-offs, and to manage through influence and persuasion, not necessarily through direct authority.
At the level of the individual, the central dilemma that many managers face in this organizational need for integration is that of divided loyalties. Loyalty is local, that is, people are more loyal to the colleagues they socialize with, see daily, and spend time with. If the formal organizational structure requires interaction with strangers (particularly strangers in another country—even if that other country is headquarters), it is only to be expected that priority attention will flow to the local colleagues, unless significant effort is put into developing the relationships across borders. Interestingly, attitudes about loyalty vary according to country culture and to functional specialty. For example, managers in Spain and France prefer loyalty to the remote (normally central) part of the organization while managers in the
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UK, Ireland, and China prefer loyalty to local colleagues. HRM was one of the functions that most preferred loyalty to local colleagues. But, clearly, HR must get involved with training managers in the need to foster both local and central relationships and must foster such relationships themselves.
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IHRM and International Organizational Design and Structure
As mentioned earlier organizational design refers to the process or style used by leaders and managers to arrange the various components of organizational structure. This process is increasingly complex and to a large degree presents mostly new and complex organizational and people issues, such as cross-border negotiations, cultural sensitivities, coordination and control across national boundaries and time zones, cross-border and cross-cultural teamwork, and global learning and integration. As the number of countries and cultures and variety of international business activities, as well as the use of cross-border teams and task forces, continue to increase, the more important IHRM has become in helping firms make sure that their globalization works. When designing organizations, IHRM is guided by the extent of desired integration versus the degree of acceptable and/or necessary differentiation.
IHRM needs to not only be able to support the organizational structure of the MNE and deliver the glue technology that these different groupings need to integrate, but it must also organize itself to effectively deliver HR transactional services for all locations of the MNE. The traditional IHRM view of how to best organize itself, in the early stages of internationalization, was focused on either servicing the subsidiary’s HR needs (with outsourced help) at arms-length from the HQ, or hiring local HR country managers to deliver these services on location. However, both options had major drawbacks. HQ HR managers are often simply incapable (and dangerously unknowledgeable) in managing HR practices outside of their own countries (due to both their lack of international exposure and to the legal and cultural complexity of host countries) and locals, although knowledgeable to deliver transactional HR services in their local countries, may not be cost-effective and often lack the strategic HR components in their jobs that are used by HQs to implement corporate programs in the local environment.
To remedy some of these shortcomings and as a result of the capabilities provided through modern IT and communication technologies, a new organizational form has been emerging to deliver HR transactional services in the MNE. This new structure for the delivery of HR services throughout an MNE’s global operations is referred to as “shared services” and “centers of excellence.” In a shared service model, individual country operations can specialize in varying aspects of international HR services and then, given the power of intranets, countries can access these centers of excellence without having to develop them all themselves. In this way, all of the MNE’s foreign operations can have available world-class IHRM capabilities.
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Formal Structure and Beyond
The challenge for the management of MNEs and their IHR departments is to learn how to manage all of these networks and linkages. Here is a short introduction to networks, one of the most important forms of linkage.
Networks
One of the most important competencies that holds together these complex global businesses are the informal networks that individual managers develop throughout the many centers of the firm. These networks work only if the managers who interact with each other to get their planning and implementation done know and trust each other well enough to work out their different purposes. It requires constant attention to the skills of integration and to management development programs that have as one of their major foci the building of such networks and the competencies of integration.
Firms have tried a number of strategies to hold these complex global businesses together with increasingly complex formal structures—including multiple dimension matrixes, with formal reporting structures that include product lines, functional responsibilities, country business units, regional and parent-country headquarters, multiple specialty centers such as R&D and product development and global training and development, and cross-border acquisitions, IJVs, partnerships, and virtual teams, described in the next chapter.
Because of these multiple and complex layers, informal networks of relationships develop in order to handle the practical components of day-to-day business activity, such as business planning. Such informal networks only work if the people that need to interact and coordinate have a shared super-ordinate vision of the direction of the overall firm and their parts in it, high capacity for self- control and willingness to collaborate, and capacity to negotiate their differences. This requires constant attention to the application of what Evans calls “glue technology,” or the management development technology of integration, that is, management development practices that have as a primary purpose the integration of the management and executive workforce of the firm and the building of the necessary competencies to use the resulting networks in an effective way.21 Such global management development programs are discussed more fully in Chapter 10 on International Training and Management Development.
Use and Management of Cross-border Teams
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Given the increasing complexity of organizations, much of the work that needs to get done in a global enterprise requires a high degree of interaction and interdependence between globally dispersed organizations and between people in various, globally dispersed sections of those organizations. This interaction is often relegated to a work group, or team.22 And, increasingly, these teams are made up of people from multiple and varying organizations (or parts of the same organization), geographic locations, countries, cultures, languages, ways of thinking and working, and time zones. Often they have the characteristics of “virtual” teams, that is, they don’t meet face-to-face and are not co-located; they are widely geographically dispersed.
Types of Cross-border Teams
These cross-border teams come with many different names: global teams, multinational, multicultural, transnational, transcultural, geographically distributed or geographically dispersed, non-co-located or out-of-sight teams. All of these terms refer to the phenomenon of people working together in teams, with common goals, but who are not physically located in the same place and often do not meet but rather conduct their “business” via electronic means. In this book, such teams will generally be referred to by the term cross-border teams, since this is the primary structure of interest in this chapter and the phrasing that seems to be most commonly used.
Challenges of Cross-border Teams
These cross-border teams represent a dramatic change in the ways managers function and they present two major new challenges.23 Both of these challenges stem from issues related to the physical separation of workers and managers made necessary by globalization24 and made possible by modern technology.25
The first challenge has to do with managing people you can’t see. Managers must make the transition from managing activities to managing projects and their results. The second managerial challenge is to redefine the role of management itself, since the “virtual” nature of cross-border teams creates much uncertainty as to whether managers still have a role to play in managing employees who are no longer present in the same locale. As a consequence, these teams tend to be largely self-managing, with the members working very interdependently and coordinating via the internet.
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Popularity of Virtual Teams
The goal in this discussion of cross-border teams is to provide enough understanding of the problems and their solutions so that IHRM managers can provide the necessary advice, training, and facilitation to ensure their global firms can gain the intended and possible benefits. (More detail is available in the Schuler, Jackson, and Luo book, Managing Human Resources in Cross-Border Alliances, in this series.26) Learning to manage these teams will become increasingly more important as such virtual teams become more prevalent for several reasons:
■ The complexity of global business requires the interaction and networking of people with multiple competencies from many different locations.
■ Virtual teams save firms the money involved in travel for teams to meet or to relocate team members so they can be together.
■ Technology such as the internet, video teleconferencing, and Skype makes it much easier for cross-border teams to meet in a virtual fashion. These teams can function in one or both of two different modes:27
1 They can do everything (or most things) face-to-face, which requires extensive travel to get team members together (and which eliminates one of the reasons for using such teams in the first place, that is, their ability to meet electronically); or
2 They can do most of their work in virtual mode, relying on electronic technology to facilitate their interaction.
Best Practices in the Management of Virtual Teams
Many problems arise with over-reliance on virtual teams and on teams meeting in virtual mode, although one unanswered question is whether younger people who “grow up” using the computer and are much more used to interaction with others via a computer monitor or cell phone might be better able to interact effectively without the need for face-to-face time and be able to trust out-of-sight team members well enough to overcome these problems. The use of e-mail may increase the quantity of interaction, but some studies suggest the quality decreases.28
Most studies, in fact, suggest that the critical variable in the successful functioning of virtual teams is the level of trust between team members. This seems to be a function of the amount of time the team has spent in “face-to-face” time, particularly at the beginnings of the life of the team.29 Some experience with virtual teams also suggests that the “half-life” of trust in virtual teams, i.e., the time
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it takes before the level of trust falls below some dangerous threshold, is less than three months.30 What this indicates is that virtual teams, in order to maintain healthy working relationships, probably need to meet face-to-face every three months or so.
Exhibit 3.1: Best Practices for the Effective Management of Cross-border and Virtual Teams31
■ Develop an e-mail protocol, to include appropriate topics, frequency and time of use, definition of urgency, who should participate and when, the importance of respect in use of titles, definition and use of deadlines, etc.
■ Select the appropriate people for virtual team membership, including people who are self-starters, have strong communication skills, and have good virtual-team skills (can use e-mail well, etc.).
■ Identify from the beginning the team member who will have the team leadership role.
■ Keep virtual team projects focused on the task, with clear goals, targets, and deadlines.
■ Provide adequate face-to-face social time to build the trust necessary to work well in a virtual format.
■ Celebrate the reaching of targets and completion of projects. ■ Identify the barriers to collaboration that you want to overcome and
work together to resolve them. ■ Provide cultural mentors to the team to deal with cross-cultural
problems and misunderstandings and IT technicians to help with technology problems.
■ Identify what people should do when a crisis occurs, including whom to contact and the decision-making hierarchy within the group.
■ Identify the ground rules for virtual teamwork, including establishing regular times for group interaction, setting up firm rules for communication, using visual forms of communication whenever possible, establishing rules for sharing project information outside the team, etc.
Managers supervising the physically remote legs of the global firm now have the additional challenge of managing these “virtual” teams. As already indicated, these teams operate across barriers of distance, and differing cultures, time zones,
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and technologies. Most management training still assumes that management skills are applied face-to-face and in the manager’s own culture, which is no longer the reality for many of these managers. Using the old skills to manage these new remote operations results in too much travel, inappropriate attempts to micro- manage (since trust and relationships have not been developed), and concerns about personal visibility with remote staffs. Managers in these new organizations need to gain the skills of relationship building and teamwork from long distance. Exhibit 3.1 illustrates some of the lessons learned about the effective management of cross-border and virtual teams.
The Global Learning Organization
Ultimately, the “tie” that binds the global firm together is the intellectual and social capital it has in the experience, knowledge, and skills held by its employees around the world and its abilities to share, and use that knowledge on a global basis. In today’s world, where the only sustainable competitive advantage any firm has is its ability to learn and innovate faster than its competitors and react more quickly to continual volatility and change, creating a culture of learning and nurturing, and facilitating that learning across borders may be the only avenue to success.32 In today’s global economy, “change is complex and messy, [so] many stick with the known for fear of the unknown…. It is much more reassuring to stay as you are … than to try to make a fundamental change when you cannot be certain that the effort will succeed.”33 Yet a firm has to do it, in order to survive and thrive in today’s environment. It has to take the risk to find ways to facilitate learning so that change is possible. As John Browne, former CEO of BP Amoco, put it, “learning is at the heart of a company’s ability to adapt to a rapidly changing environment.”34 From a global perspective, this means a firm must facilitate learning on a global basis—across borders, across parts of the organization in different country locales, within global and virtual teams, with people on foreign assignments and after they return from those assignments, and in international joint ventures and cross-border partnerships and alliances.
As Peter Senge says, “perhaps for the first time in history, humankind has the capacity to create far more information than anyone can absorb, to foster far greater interdependency than anyone can manage, and to accelerate change far faster than anyone’s ability to keep pace.”35 Thus the challenge to firms is that learning on a global basis must become a central managerial focus. Technology alone (such as creating IT databases and repositories of knowledge and experience) will not solve the challenge. Nor will merely stating principles and values of collaboration. People must want to use such knowledge sources and must be willing to contribute their own “learnings” to them. In the end, people must be
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committed to:
1 the importance of learning; 2 the need to share and use information.
In turn, the MNE (and IHRM) needs to create the organizational culture and structure and the HR policies and practices that encourage and facilitate such attitudes and behaviors. This is the essence of learning in organizations and knowledge management.36
In terms of the conduct of international business, the global firm must use its people who have international experience and knowledge and who have been posted to international assignments, spreading them throughout the organization. It must ensure that individuals coming back from overseas assignments are provided new jobs that use the knowledge and skills learned overseas and are given opportunities to share that learning. In order for a firm to reap the benefits of global learning, it is imperative that its valuable expatriate employees remain with the organization long enough to share their experiences—and presumably even longer, to contribute to the firm’s ongoing globalization. Since learning is so important, and learning across borders (taking advantage of the global experiences and multinational learning of a global firm’s global workforce) is so necessary, then carefully managing employees on foreign assignments to ensure successful expatriation and repatriation would seem essential. (These issues are discussed in detail in Section 3, Global Talent Management.)
Special efforts also need to be made to expose employees and managers “at home” to the products and processes of foreign subsidiaries and foreign acquisitions and partners, and vice versa, including visits to each other’s operations to observe and learn through direct interaction. The firm must spread employees and managers from the countries of its operations throughout its organization, including at the very highest levels of the executive team and the board of directors itself. Only in these ways can the global firm make effective use of any processes or technologies that have been adopted to facilitate learning on a global scale, such as talent directories, intranets for sharing information, etc.
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Conclusion
This chapter has focused on the difficult task of designing organizational structure for the complexities of the modern international enterprise. First, it described how the conflicting demands on MNEs in terms of two countervailing forces (integration versus local responsiveness) influences the design and structure of the organizations that international firms use to carry out their international activities. Then the chapter provided an overview of the various structures that international firms have utilized as they have evolved in their conduct of international business. Next the chapter described the implications for IHRM of the different structures. And finally the chapter discussed the role of networks, global teams, and global learning organizations in maintaining complex organizational structures.
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Discussion Questions
1 Using materials from Chapter 3, explain how market entry methods are related to organizational structure.
2 What are the various choices that MNEs have for designing organizational structure? How do they differ from an HR point of view?
3 How can IHRM help to ensure the success of firms with a global organizational structure and a transnational organizational structure?
4 How do networks and learning organizations help to ensure an MNE’s competitive advantage?
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Case Study 3.1: Capgemini: A Transnational Organization (France)
Capgemini, founded in 1967 and headquartered in Paris, France, is Europe’s largest IT software and services group. The firm has taken all available means (organic growth, acquisitions, and alliances) to become Europe’s number 1 in computer services and consulting and, as of 2014, among the top five of the world’s IT management and services consultancies. Its almost 140,000 people work in over 40 countries. For example, in 2000 Capgemini acquired Ernst & Young Consulting and in 2002 they spun off their Sogeti Group as a wholly owned subsidiary specializing in IT consulting and outsourcing, which now has over 20,000 employees working in 7 countries.
The original merger of Cap, a computer services group, and Sogeti, a business management and information processing company, brought together operations in the UK, the Netherlands, Switzerland, and Germany, with a head office in France. Further acquisitions brought in a large number of small groups throughout Europe and the US. This expanded its coverage to IT consulting, customized software, outsourcing services, and education and training. In recent years, this strategy has expanded Capgemini’s work to countries such as India, the Czech Republic, and Sweden, with major partnerships with major software firms such as SAP and Microsoft. Moreover, they now have operations in Asia-Pacific (including Australia and China) and Latin America. In 2013, sales increased by 12 percent in Asia- Pacific and Latin America. Similarly, revenue increased by 16 percent in Australia. Global expansion is important to Capgemini.
Capgemini has always been highly decentralized, but its internal strategy has been that when any of its branches reached 150 personnel, the branch is split in two. This gives the firm greater flexibility in responding to variations in local demand. Decision making and direct customer service are facilitated with smaller teams.
Capgemini has developed information pooling systems to ensure that innovative solutions developed in one country or business will be rapidly disseminated to other countries and businesses. These include electronic bulletin boards and extensive electronic and voicemail facilities, plus the organizational culture of informal networks of professionals who work frequently together in project teams.
The challenges for this fast-growing transnational have major HR components, e.g., integrating its wide variety of organizations into a group with a common culture capable of working within a complex web of ownership relationships, while benefiting from the strengths of the relationships that exist among its “family” of committed, semi-autonomous professionals. Internally, Capgemini and its IHR team work to clarify and coordinate roles, objectives, systems, and
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resources, particularly its skilled professional staff, across countries and markets. For example, its Genesis project took two years to achieve this integration, but now Capgemini sees itself as coming much closer to achieving its aim to be a modern transnational enterprise.
Sources: Capgemini website (2014), http://www.capgemini.com; also http://en.wikipedia.org/wiki/Capgemini; Segal-Horn, S., and Faulkner, D. (1999). The Dynamics of International Strategy, London: International Thomson; and Segal-Horn, S., and Faulkner, D. (2010). Understanding Global Strategy, Andover, Hampshire, UK: South-Western Cengage Learning EMEA.
Discussion Questions
1 What makes a firm a “transnational enterprise”? 2 Does Capgemini meet the criteria for being a transnational? Why or why
not? 3 What are the HR implications of being a transnational? What makes HRM
in a transnational different from HRM in, for instance, a multi-domestic firm?
4 What kinds of problems do you see in Capgemini’s strategy for structuring its business?
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Notes
1 Source: Change is the only constant, The Business Times, Feb. 14, 2014. Also mentioned in IBM Centennial Lecture, March 31, 2011 (www. http://www.ibm.com/ibm/files/Y856416N01277W70/centennial_lecture_erich_clementi_austria_preparedremarks.pdf
2 Galbraith, J. A. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit and Enterprise Levels, 3rd ed., San Francisco: Jossey-Bass Evans; Pucik, V., and Bjorkman, I. (2010). The Global Challenge: Frameworks for International Human Resource Management, New York: McGraw-Hill; Bartlett, C. A., and Ghoshal, S. (1989). Managing Across Borders: The Transnational Solution, Boston: Harvard Business School Press; Galbraith, J. R. (1998). Structuring Global Organizations, in Mohaman, S. A., Galbraith, J. A., and Lawler, E. E., III (eds.), Tomorrow’s Organization: Crafting Winning Capabilities in a Dynamic World, San Francisco: Jossey-Bass, pp. 103–129.
3 Galbraith, J. R. (1998), Structuring global organizations, in Mohrman, S. A., Galbraith, J. R., and Lawler, E. E., III, (eds.), Tomorrow’s Organizations: Crafting Winning Capabilities in a Dynamic World, San Francisco: Jossey-Bass, pp.103–129. Also see Galbraith, J. R. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit and Enterprise Levels, San Francisco: Jossey-Bass & Pfeiffer Imprints, Wiley; Galbraith, J. R. (2010). The multi-dimensional and reconfigurable organization. Organizational Dynamics, 39(2), 115–125.
4 Based on ibid.
5 Evans, P. A. L. (1992). Human resource management and globalization. Keynote address delivered to the 2nd International Conference of the Western Academy of Management, June 24–26, Leuven, Belgium; Evans, P., Pucik, V., and Barsoux, J.-L. (2002). The Global Challenge: Frameworks for International Human Resource Management, Boston: McGraw-Hill Irwin; and Galbraith, J. R. (2000). Designing the Global Corporation, San Francisco: Jossey-Bass.
6 Evans, P. A. L. (1992).
7 Galbraith, J. R. (2000), p. 1.
8 Based on Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (1998). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press; Harzing, A. (2004) Strategy and Structure of Multinational Companies, in Harzing, A. W. K., and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33–64.
9 Based on Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill.
10 Ibid.
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11 Ibid.
12 Pucik, V., and Evans, P. (2004). The human factor in mergers and acquisitions, chapter 8, in Morosini, P. and Steger, U. (eds.), Managing Complex Mergers, Real World Lessons in Implementing Successful Cross-cultural Mergers and Acquisitions, London: Prentice Hall, pp.161–187; Bartlett and Ghoshal (2010).
13 Segal-Horn, S., and Faulkner, D. (1999). The Dynamics of International Strategy, London: International Thomson Business Press.
14 Palmisano, S. J. (2006). Multinationals have to be superseded, Financial Times, June 12: 19.
15 Source: http://www.ferro.com/About/History/ (2014). Adapted from E. Brandt, Global HR. Personnel Journal, March 1991. Also see Bartlett, C. A., and Ghoshal, S. (2010). Managing Across Borders: The Transnational Solution, Boston: Harvard Business School Press; Segal-Horn and Faulkner (1999).
16 This has been the traditional perspective to describe organizational structure. For early work on this topic see Rumelt, R. (1986). Strategy, Structure, and Economic Performance (Rev. ed.), Boston, MA: Harvard Business School Press; Chandler, A.D., Jr. (1962). Strategy and Structure: Chapters in the History of the American Industrial Enterprise. Cambridge, MA: MIT Press; Miles, R., and Charles S. (2003). Organizational, Strategy, Structure and Process, Stanford: Stanford University Press. For more current work see Galbraith, J. A. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit and Enterprise Levels, 3rd ed., San Francisco: Jossey-Bass Evans.
17 Palmisano (2006).
18 Ibid.
19 Ibid.
20 For more information on the Global Matrix Structure see Galbraith, J. R. (2013). Matrix management: structure is the easy part. People & Strategy, (1), 6; Galbraith (2014).
21 Evans, P. A. L. (1992), op. cit., p. 4.
22 See Rabotin, M. (2014). Connecting virtual teams: global, virtual teams must learn how to align behaviors and collaborate across cultures and around the world. T+D, (4), 32; Magnusson, P., Schuster, A., and Taras, V. (2014). A process-based explanation of the psychic distance paradox: Evidence from global virtual teams. Management International Review, (3), 283; Zander, L., Zettinig, P., and Makela, K. (2013). Leading global virtual teams to success. Organizational Dynamics, (3)., 228; Hoch, J. E., and Kozlowski, S. J. (2014). Leading virtual teams: Hierarchical leadership, structural supports, and shared team leadership. Journal of Applied Psychology, (3), 390; Erez, M., Lisak, A., Harush, R., Glikson, E., Nouri, R., and Shokef, E. (2013). Going global: Developing management students’ cultural intelligence and global identity in culturally diverse virtual teams. Academy of Management Learning & Education, 12(3), 330–355; Klitmøller, A., and Lauring, J. (2013). When global virtual teams share knowledge:
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Media richness, cultural difference and language commonality. Journal of World Business, 48(3), 398–406; Armstrong, D. J., and Cole, P. (1995). Managing distances and differences in geographically distributed work groups, in Jackson, S. E., and Ruderman, M. N. (eds.), Diversity in Work Teams, Washington, DC: American Psychological Association, pp. 187–215; Cascio, W. F. (2000). Managing a virtual workplace, Academy of Management Executive, 14(3), 81–90.
23 This section borrows heavily from Cascio, W. F. (2000). Managing a virtual workplace, Academy of Management Executive, 14(3), 81–90.
24 Marquardt, M. J., and Horvath, L. (2001). Global Teams: How Top Multinationals Span Boundaries and Cultures with High-Speed Teamwork, Palo Alto, CA: Davies-Black; Moran, R. T., Harris, P. R., and Stripp, W. G. (1993). Developing the Global Organization, Houston, TX: Gulf Publishing; Odenwald, S. B. (1996). op cit.; and O’Hara-Devereaux, M., and Johansen, R. (1994). Globalwork: Bridging Distance, Culture, and Time, San Francisco: Jossey-Bass. Also see Cramton, C. D., and Hinds, P. J. (2014). An embedded model of cultural adaptation in global teams. Organization Science, 25(4), 1056–1108; Zander, L., Mockaitis, A. I., and Butler, C. L. (2012). Leading global teams. Journal of World Business, 47(4), 592; Sullivan, B. (2013, Jul 04), International teams must also be local. Financial Times.
25 Duarte, D. L., and Snyder, N. T. (2006). Mastering Virtual Teams, San Francisco: Jossey- Bass; and O’Hara-Devereaux and Johansen (1994).
26 Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross- border Alliances, London: Routledge.
27 Duarte and Snyder (2006).
28 Evans, Pucik, and Barsoux (2002).
29 Ibid., 314–315.
30 Armstrong, D. J., and Cole, P. (1995). Managing distances and differences in geographically distributed work groups, in Jackson, S. E., and Ruderman, M. N. (eds.), Diversity in Work Teams, Washington, DC: American Psychological Association, pp. 187–215; Cramton, C. D. (2002). Finding common ground in dispersed collaboration. Organizational Dynamics, 30(4), 356–367; De Meyer, A. (1991). Tech talk: How managers are stimulating global R&D communication, Sloan Management Review, 32(3), 49–66.
31 This list is adapted from Solomon, C. M. (1998). Building teams across borders. Workforce, 3(6), 12–17; Solomon, C. M. (2001). Managing virtual teams. Workforce, 80, 60–64; and Johnson, C. (2002). Managing virtual teams. HR Magazine, 47(6), 68–73. Also see Goodman, N., and Bray, S. M. (2014). Preparing global virtual teams for success. Training, 51(5), 64–65; Klitmøller, A., and Lauring, J. (2013). When global virtual teams share knowledge: Media richness, cultural difference and language commonality. Journal of World Business, 48(3), 398; Purvanova, R. K. (2014). Face-to- face versus virtual teams: What have we really learned? The Psychologist Manager
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Journal, 17(1), 2.
32 See, for example, Berry, H. (2014). Global integration and innovation: Multicountry knowledge generation within MNCs. Strategic Management Journal, 35(6), 869–890; Shieh, C., Wang, I., and Wang, F. (2009). The relationships among cross-cultural management, learning organization, and organizational performance in multinationals. Social Behavior and Personality, 37(1), 15–30.; Blomkvist, K. (2012). Knowledge management in MNCs: The importance of subsidiary transfer performance. Journal of Knowledge Management, 16(6), 904–918; Najafi-Tavani, Z., Giroud, A., and Andersson, U. (2014). The interplay of networking activities and internal knowledge actions for subsidiary influence within MNCs. Journal of World Business, 49(1), 122–131; Hocking, J., Brown, M., and Harzing, A. (2007), Balancing global and local strategic contexts: Expatriate knowledge transfer, applications, and learning within a transnational organization, Human Resource Management, 46(4), 513; Klitmøller, A., and Lauring, J. (2013). When global virtual teams share knowledge: Media richness, cultural difference, and language commonality. Journal of World Business, 48(3), 398–406; McGuinness, M., Demirbag, M., and Bandara, S. (2013). Towards a multi-perspective model of reverse knowledge transfer in multinational enterprises: A case study of Coats plc. European Management Journal, 31(2), 179–195.; Fang, Y., Wade, M., Delios, A., and Beamish, P. W. (2013), An exploration of multinational enterprise knowledge resources and foreign subsidiary performance. Journal of World Business, 48(1), 30–38.; Kotter, J. (2012), Accelerate! Harvard Business Review, November, 2–13.
33 Daft, R. (2002). The Leadership Experience, 2nd ed., Orlando, FL: Harcourt College, 582.
34 Prokesch, S. E. (1997). Unleashing the power of learning: An interview with British Petroleum’s John Browne. Harvard Business Review. Sept.–Oct., 148.
35 Senge, P. (2006). The Fifth Discipline (updated and revised). New York: Doubleday/Currency, 69.
36 Jackson, S.E., and Schuler, R.S. (2001). Turning Knowledge into Business Advantage, Financial Times, January 15: Special Section, Part 14.
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Chapter 4 International Mergers and Acquisitions, International Joint Ventures, and Alliances
We form partnerships to help us make our products and services more sustainable and help us improve the communities in which we operate…. Together we can help solve the world’s greatest challenges.
DuPont Corporation1
Learning Objectives
This chapter will enable the reader to:
■ Describe the basic nature of international mergers and acquisitions, international joint ventures, and international alliances.
■ Explain the major IHRM implications from international mergers and acquisitions, international joint ventures, and international alliances.
■ Define the IHRM professional’s role in implementing effective international mergers and acquisitions, international joint ventures, and international alliances.
This chapter examines the most common approaches to “going international,” in addition to the options of starting a foreign operation “from scratch” as described in the previous chapters. These approaches involve forming one or more types of international combination. In this chapter we discuss the three most common types of combination.
International mergers and acquisitions (e.g., one firm from one country acquires a firm in another country), international joint ventures (e.g., two or more firms from two or more countries create a new and separate—legal—business entity), and international alliances (e.g., two or more firms enter into formal or informal partnerships that do not involve the creation of a new and separate legal entity). The chapter starts with a general discussion of some basic concepts in international combinations. Then the chapter discusses IHRM issues in international mergers and acquisitions and international joint ventures. And finally the chapter closes with a
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general discussion of IHRM issues in international alliances.
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International Combinations: An Introduction
All of these forms of international combination can be viewed as forms of partnership and thus create major coordination and integration challenges, as is true of all forms of partnership.2 All of these involve areas of international business that IHRM professionals must thoroughly understand in order to provide senior managers with the advice they need for designing effective global businesses.
International mergers and acquisitions, joint ventures, and alliances of various types are increasingly used by firms to gain access to new global markets and global resources, such as technology and skilled people.3 The number and value of such cross-border deals continues to increase dramatically. Recent examples of significant cross-border mergers and acquisitions include:4
■ Microsoft (USA) and Nokia (Finland); ■ Pfizer (USA) and Polocard (Poland); ■ Google (USA) and Schaft (Japan); ■ Samsung (South Korea) and Nanoradio (Sweden); ■ Takeda Pharmaceutical (Japan) and Nycomed (Norway).
Older cross-border deals include:
■ British Petroleum (BP) (United Kingdom) and Amoco (USA); ■ Daimler Benz (Germany) and Chrysler (USA); ■ BMW (Germany) and The Rover Group (United Kingdom).
Firms of every size and type from many different countries are using mergers or acquisitions to access or expand their global businesses.5
There are a number of pressures causing this wave of international acquisitions, including both a felt need to constantly grow the business—by acquiring a foreign competitor—to compete more successfully with other global firms and to achieve world-class market entry and industry leadership or to acquire assets and resources (usually technological and knowledge-based) needed to compete and that would otherwise be too expensive, take too long, or would just be impossible to develop internally.6 When acquisition is the choice for entry into a new market, it is usually seen as a quicker and more effective way to develop a presence in a local market than to build such capability from scratch.
Other Types of International Combinations
There are a number of other forms of international combinations.7 In some cultures
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or countries, partnerships are, if not the only way to enter the marketplace, at least the “smartest” way, either because foreigners can, for practical purposes, only do business in the country through local partnerships—joint ventures or other forms of combinations—either because relationships (established through the partnerships) are of primary importance to doing business in that culture or because the government requires such local partnering. International combinations, in general, refer to partnerships between firms that have their headquarters in different countries.
Two broad categories of international combinations include equity combinations and those that involve no shared equity investment.8Equity-based international combinations involve long-term relationships—with one partner buying all or most of the equity in the other partner—and that requires active day-to-day management by the controlling partner of a wide variety of business issues in the combined firm. International mergers and acquisition (IM&A) and international joint ventures (IJV) are two major types of equity-based international combinations. IJVs are defined as legally and economically new and separate organizational entities created by two or more parent firms that collectively invest financial as well as other resources in the new entity in order to pursue certain objectives. In an international joint venture, the new entity will have a new headquarters that will include participation from both partners and will likely be located in the country of the joint venture. In an international M&A, one firm buys controlling or full interest in another firm with the understanding that the buyer will determine how the combined operations will be managed.
Non-equity international combinations share profits, responsibilities, and resources according to specific contractual relationships—but do not involve one party buying equity in the other party. Each company cooperates as a separate legal entity, bears its own liabilities, and has the freedom to organize its own resources, production processes, and operations. Non-equity international combinations include joint exploration projects (e.g., in the energy sector), research and development consortia (e.g., in the pharmaceutical sector), co-production agreements (e.g., in the manufacturing sector), co-marketing arrangements (e.g., in consumer durable sectors), and long-term supply agreements (e.g., the retail sector).
Record of Success and Failure
Some surveys suggest that a large percentage (often reported to be over 50 percent) of international acquisitions, joint ventures, and partnerships fall short of their objectives and at least one-third are dissolved within a few months or years.9
“Most organizations do not have the knowledge, experience, or capability to
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manage alliances to maximize returns on all sides.”10 As with mergers and acquisitions, international alliances can also be set up for the long-term and need to be governed throughout as relationships. Indeed, many top executives of multinational firms have not changed their “mental models” from the command- and-control approach often used in the past for mergers or acquisitions to the necessarily participatory, relation-building nature of a successful international acquisition, joint venture, or alliance.
Typically the reasons for pursuing an acquisition or international alliance are financial or strategic in nature due to perceived compatibility of or synergism in operations, products, services, markets, or technologies. Firms usually decide that an international merger or acquisition or joint venture (or, for that matter, a divestiture—creating an acquisition opportunity for someone else) will yield increased value and profits or improved market position for any one of five different reasons:11
1 It enhances industry consolidation (thus helping to eliminate expensive overcapacity), which is typically the situation when the overall market is mature and where market opportunities are flat or shrinking.
2 It enables geographic expansion into neighboring regions for a newly internationalizing, heretofore local, firm.
3 It enhances expansion into new markets for revenue growth, in which the opportunities will not wait for internal development.
4 It involves acquisition of new technology or products or knowledge when the firm doesn’t have the resources to develop the product or technology internally.
5 It involves combining with one or more other firms in order to realize a synergy that will form a preeminent firm with superior market advantages or economies of scale, often when new industry configurations are being created by new technologies.
Due Diligence
In order to achieve these objectives (which, as pointed out above, happens all too rarely) firms need to conduct thorough preliminary due diligence to assess carefully the “real” values to be gained by acquisition of or partnering with potential target firms. However, in the typical situation,
People often just jump into the deal and then [later] come the realization that you have to work at it…. There are no easy mergers or acquisitions. Mergers [and acquisitions] need to be more thoughtful, more precise with regard to their objectives, more deliberate with regard to their people and processes and yet be done in a rapid time.12
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Effective due diligence prior to the eventual “marriage of the firms” tends to be highly underrated. Many global ventures fall prey to failure or reduced levels of success because this crucial research effort doesn’t reveal the weaknesses or incompatibilities of a prospective foreign business partner.
Often the only due diligence that is performed involves a detailed audit of financial and legal issues and possibly product and market compatibilities or synergies. This normally includes a review of things like annual reports, financial statements, product brochures, corporate legal documents, and other documents relating to the prospective partner’s business practices. General information consisting of credentials and certifications (such as ISO certifications) concerning principals, activities, and other requirements significant to the potential venture is also usually audited.
As a result, the typical due diligence review of the target firm during the pre- combination phase of partnering rarely considers the critical people, organizational, and HR issues that may well provide the eventual reasons for the success or failure of the combination. The HR complications often include issues such as overestimation of the abilities of the partner firm; an exaggerated assumption of the synergies available from the combination; inadequate attention to the incompatibilities of the firms’ programs, ways of conducting business, and cultures; and unwillingness to prepare for the frequently experienced loss of productivity and staff after the merger or acquisition is completed. Add to these problems the typical differences experienced between legal and cultural systems in different countries, and it becomes easier to understand the necessity of HR due diligence (in addition to the normal financial and operations due diligence) prior to any international acquisition or international alliance and of paying attention to the necessary post-merger people integration issues. And yet, “globalization mandates alliances [and cross-border acquisitions], makes them absolutely essential to strategy…. Like it or not, the simultaneous developments that go under the name of globalization make alliances—entente—necessary.”13
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International Mergers and Acquisitions and the Role of IHRM
This section outlines the typical process followed by firms as they proceed through acquisition planning and implementation. In the best of circumstances, HR plays a significant role in the successful planning for and implementation of IM&As.
Process of Combination
The actual process of combination usually proceeds through three stages, as illustrated in Figure 4.1.14 Every stage has its special problems and considerations. These stages are pretty much the same for the establishment of IM&As as for IJVs and international alliances, although there are enough unique characteristics for both IJVs and international alliances that those differences will be addressed in separate sections of the chapter.
The stages of combination include the following:
Figure 4.1 International Mergers and Acquisitions Process of Combination
Phase 1: Pre-combination
This first phase involves the initial target screening and pre-bid courtship of the potential target firm, the “due diligence” review of the target company, the price- setting and negotiation of the approach the partners will take to the combination, and the agreement on the contract wording of the deal. HR should be closely involved with each of these steps, particularly the due diligence process, since
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many aspects of the integration will involve issues of primary concern to HR and the workforce. This process of due diligence is discussed in more detail in the next section.
Phase 2: Combination Planning and Signing of the Agreement
Once the deal has been negotiated, this second phase involves deciding how to implement the deal, discovering and working through differences and different ideas about the deal, and actually signing the agreement. Here, too, HR should play a major role in providing advice on how to implement the deal and anticipating problems that will occur during the implementation.
Phase 3: Post-combination and Implementation of the Deal
Once the deal has been consummated, the hard work of implementation must be executed. In this third phase, HR has a key role in helping to facilitate the integration with the merged firm. One critical aspect of HR’s role will be in creating and providing employee communication about the nature of the merger and about the vision for the business that will result after the merger has been consummated. In addition, HR will perform a critical role in training employees to accept and to fit into the new situation, in developing new assignments and staffing, in designing the new compensation and benefits systems, etc.
Problems that will be encountered in Phase 3 implementation should be addressed during the thorough due diligence in Phase 1 and implementation planning in Phase 2. Since this is often not done, it is little wonder that many combinations across national boundaries come unwound in a relatively short period of time.
Figure 4.2 summarizes the HR issues in the three stages of IM&As.
Due Diligence and the Role of HRM
One of the primary reasons for the high failure rate in cross-border acquisitions and joint ventures involves the lack of attention prior to “signing the agreement” as well as during the implementation phase to issues related to HRM. Increasingly, the lack of people and organization fit is coming to be seen as the main factor explaining why businesses fail to reap the benefits.15
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Figure 4.2 HR Issues in the Three Stages of IM&As
Regrettably, many aspects of the potential partner that often determine success or failure are ignored or minimized during the due diligence process. Many of these relate to HRM, such as the compatibilities or differences in the corporate cultures and likely employee losses and the effect on later executive succession. The reasons for failure usually have more to do with the incompatibility of people, cultures, and/or HR systems than with problems with the originally perceived financial or strategic benefits. These issues are discussed in the next section, showing their importance to the likelihood of success. The actual due diligence process as it involves HRM can be quite complex. Thus the following describes both the process itself and suggested content for any IHRM-related due diligence.
Preparation
■ The primary point of due diligence from an HRM perspective is that HRM professionals should be involved. The development of a checklist of critical issues and the identification of task force membership should be prepared ahead of time. HRM professionals should take the initiative to ensure that critical HRM issues are considered before the combination becomes a “done deal.”16
■ Pre-determine an action plan and checklist of HR items to evaluate.
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■ Create a SWAT team of the key people that would be called into action as soon as executives begin to consider a foreign combination. Characteristics of such a team should include personal traits such as being inquisitive, having non-directive interviewing skills, the ability to “read” people, and the ability to recognize when they are not getting the full story, as well as, of course, the necessary cross-cultural, language, and HR business expertise. Planning should include when and how the SWAT team would operate.
■ These individuals should have the technical and professional ability to know what to look for and how to find it, familiarity with HR issues such as compensation and benefits financial data, differing accounting systems, differing employment law requirements, sensitivity to cultural and language differences, awareness of possible union and labor differences, and objectivity.
■ Forming and communicating the new organizational culture to all employees.
Content (Specific Issues to Assess During HR’s Due Diligence)
■ General “people” issues. These are issues that impact the whole organization and all employees.
■ The national and corporate cultures of both the acquiring and the acquired firms.17
■ ■ Comparison of key executive approaches to strategy, management, and decision making.
■ Hidden “skeletons in the closet,” such as pending lawsuits, executive scandals, secret executive compensation promises, labor problems, etc.
■ ■ Managerial succession plans and identification of key people in both firms.
■ Management capabilities. ■ ■ Quality and depth of employee skills.
■ Language skills/concerns. ■ Specific IHR issues, particularly incompatibilities between acquiring and
acquired firms.
■ Adequate funding of obligations, such as pension and health care plans.
■ ■ Foreign employment regulations, both legal requirements and
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enforcement practices. ■ HR department status, practices, policies, and organization. ■ ■ Merger of corporate cultures.
Once these issues are assessed, the HR team must focus on the many specific areas of HR policy and practice that typically vary significantly from country to country, as described below.
Staffing
Staffing practices—such as recruiting, hiring decisions, legal requirements, work contracts, job placement, job descriptions, etc.—can vary in significant ways between firms, particularly when the firms come from different countries and cultures.
Compensation
Compensation practices—such as pay levels, pay comparisons, valuation of differing jobs, form and delivery of pay, extra month’s pay, bonuses—can vary dramatically and can cause major problems when integrated across firms.
Benefits
Government mandated and/or provided benefits, voluntary benefits, benefits considered as part of income or not, cost of benefits—such as health care, holidays, vacations, medical and family leave, pensions—can all cause major problems when merged across borders.
Training and Management/Career Development Programs
The importance and frequency and methods of delivery of training, and the presence of management development and career development programs are likely to vary from total absence to extensive inclusion. Making such diversity compatible can be quite complex and can lead to major differences of satisfaction between firms.
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HR Information Systems
Merging HR information systems (workforce and employee data) will be difficult because of technical incompatibilities, legal differences between countries, and varying values related to maintenance of such information.
Unionization/Nature of Labor Relations/Labor Contracts
Parties to cross-border acquisitions and joint ventures cannot ignore consideration of country union and labor relations regulations and practices. Every country has its own legalities and traditions and most firms also have their own histories and practices.
Employee Involvement/Works Councils
Many countries require formal employee involvement in the management of their firms. Such works councils and co-determination practices need to be assessed and integrated into any cross-border planning.
Process of Integration
Once the due diligence has been completed, and the formal merger/acquisition process of combination has been completed, the firms must plan and implement the integration of the firms. Yet, organizational integration in the aftermath of mergers or acquisitions is often reported as being problematic.18
One frequently mentioned cause of integration problems is a general resistance to change. It is assumed that people seek stability and that any major change to one’s employer such as an acquisition is anxiety provoking. Employees in both the acquired and the acquiring firms feel frustration, shock and apathy, and insecurity. This can hamper the day-to-day operations of both firms, among other things because teamwork can break down and people may start behaving destructively. Stress can become a common feature. Often employees lose faith in their organization’s willingness to live up to expectations, promises, and legitimate demands. A lack of commitment, loyalty, and loss of enthusiasm can often result. Employees may lose their sense of identity and membership while the acquiring firm is viewed as being obsessed with controlling the acquired firm. Indeed, the most mobile of employees (in both firms, but for sure in the acquired firm) are likely to leave, making later recovery and integration even more difficult.
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One of the sources of this resistance to change involves employees’ sense of (or worry about) loss of their corporate (and, in this international context, national) culture and values. The process of acculturation (individuals and organizations adapting and reacting to each other’s cultures) can take place in a number of different ways, not all of them healthy.19 As much as both parties typically state the merger or acquisition is a combination of equals, in practice one group always dominates in the acculturation process. Thus, the process of acculturation can result in any of the following (see Figure 4.3):
■ Portfolio: Maintain separate cultures; ■ Blending: Choose the best element from each culture; ■ New Creation: Develop a new culture that fits the new organization; ■ Assimilation: Assign legitimacy to one culture and expect assimilation by
members of the other culture.
The point is that assimilation is not always the result of the merger or acquisition of one firm by another. When there is a lack of agreement on the preferred adaptation process by the acquired and acquiring firms (due to things like the attractiveness of the acquirer to the acquired or the degree of similarity of the firms or the degree of existing multiculturalism of the acquiring firm, or whether or not the acquisition was hostile), problems will occur and integration may not happen.
Figure 4.3 Four Approaches to Integration in International Mergers and Acquisitions Source: Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-Border Alliances, London/New York: Routledge, p. 90.
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How organizational combinations are handled affects the bottom line. Specifically, profits and revenues are impacted by the sharing of synergies and best practices from both companies. If the combination is not handled properly, the costs can be high such as lower productivity, loss of key talent, and an emergence of organizational cynicism and negative cultural effects. In some notable cases, such as the merger between Renault and Volvo and the merger between Chrysler and Mercedes-Benz, the resulting combinations suffered from cultural difficulties. Perhaps the most difficult aspect to manage is cultural integration.20
Since cultural integration is often so problematic, how can it be managed effectively? In general, in order to assess the possibilities, HRM professionals might want to ask the following questions:
■ Have cultural gaps and differences been identified and addressed? ■ Is there an executive leadership group, including participants from the
acquired partner’s senior leadership team, visibly leading the change process?
■ Has the shared vision of the new organization been created and communicated to all employees with clearly defined goals, roles, and responsibilities? (See the BCE case at the end of this chapter.)
■ Has a link been made between the business strategy and the quality, skills, and number of people to achieve the business plan?
■ Has a decision to consolidate the processes and procedures around compensation, incentives, and recognition programs been made?
■ Is there a plan to consolidate or maintain existing retirement benefits and health and welfare benefits?
■ Are measures and rewards established, communicated, and aligned with the organization’s desired state?
An example (see the IHRM in Action) of the “lessons learned” from many acquisitions in the integration process in a major MNE can be seen in the experiences of GE Capital (one of the world’s largest providers of credit).21
IHRM in Action 4.1: Lessons Learned by GE in Cross-Border Acquisitions
Over the years and as the result of experience with many, many acquisitions, GE Capital Services’ acquisition-integration process has been discussed, debated, tested, changed, and refined. It is now well established and codified. The following are some of the lessons they have learned about how to ensure the success of an acquisition.
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Lesson 1: Acquisition integration is not a discrete phase of a deal and does not begin when the documents are signed. Rather, it is a process that begins with the early due diligence and runs through the ongoing management of the new enterprise.
Lesson 2: Integration management is a full-time job and needs to be recognized as a distinct business function, just like operations, marketing, or finance.
Lesson 3: Decisions about management structure, key roles, reporting relationships, layoffs, restructuring, and other career-affecting aspects of the integration should be made, announced, and implemented as soon as possible after the deal is signed—within days, if possible. Creeping changes, uncertainty, and anxiety that last for months are debilitating and immediately start to drain value from an acquisition.
Lesson 4: A successful integration melds not only various technical aspects of the businesses involved but also the different cultures. The best way to integrate cultures is to get people working together quickly to solve business problems and accomplish results that could not have been achieved before.
Even with the 10 and more years spent on refining the acquisition integration process and making “best practices” available via the intranet, including things like communication plans, 100-day plans, functional integration checklists, workshop agendas, consulting resources, and human resource department support, the process remains an ongoing challenge. Every acquisition is unique, with its own business strategy, personality, and culture. Thus, GE Capital continues to strive to make every new acquisition integration better than the last. Maybe the most important lesson that GE Capital has learned is that the competence to make the integration process work must always be worked on—it is never fully attained.
The Separation Process
Interestingly, the separation process (divestiture) is very similar to the acquisition process. Most of the issues of concern to IHR during a divestiture can be viewed as being similar to those examined during the acquisition process, except they are from the other side of the transaction, whenever the firm being purchased is a part of another, larger firm. The parent of the firm being sold needs to also be careful to do thorough due diligence to assess issues such as the impact on union contracts and pension liabilities (as well as other promises and liabilities) and the impact on the parent firm, which is trying to improve its own financial and operational situation. Dissolution, or divestiture, or de-merging, or spinning off, or selling off
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parts of an existing enterprise is often the result of a merger or acquisition that didn’t work out well because the original planning was inadequate.22
Summary
In the process of international M&A, IHR professionals, in order to ensure they provide the critical business advice expected of them, need to make sure they are prepared to provide procedural and content advice to their executives in all three phases of planning, signing, and implementing, especially for issues related to due diligence, impact of culture, and specific IHR post-merger, program-integration issues. The degree to which all of these items need to be assessed and addressed and the nature of the solutions that will be required will depend on:23
■ the firm’s strategic purpose and desired results; ■ the degree of planned operational integration of the resulting firm; ■ management’s orientation and intention for the resulting firm; and ■ cultural environment factors.
Ultimately, the success of the acquisition may well depend on the abilities that the IHR team bring to the discussion, preparation, and implementation.
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IHRM and International Joint Ventures
The above discussion of IHR in IM&A was based on relatively extensive experience and literature. Similar literature is not as extensive, however, for the last subjects in this chapter: IJVs and international alliances. Nevertheless, as indicated early in the chapter, these forms of international combination are increasingly important and need to be understood by IHRM students and practitioners. The Schuler, Jackson, Luo book, Managing Human Resources in Cross-Border Alliances, in this series, was written in part to help address this very reality.24
When a firm acquires an existing entity in another country, the central problem is to integrate an existing firm and its culture and practices into the parent firm. In an international joint venture (IJV), a new legal entity is created. Although there are a number of definitions of an IJV, a typical definition is:
A separate legal organizational entity representing the partial holdings of two or more parent firms, in which the headquarters of at least one is located outside the country of operation of the joint venture. This entity is subject to the joint control of its parent firms, each of which is economically and legally independent of the other.25
Examples of international joint ventures include:
■ Verizon Wireless: Parent firms include Vodafone Group (United Kingdom) and Verizon Communications (USA);
■ Transatlantic Joint Venture: Parent firms include Air France (France), KLM (Netherlands), Alitalia (Italy), and Delta (USA);
■ Starbuck Coffee Japan, Ltd: Parent firms include Sazaby League (Japan) and Starbucks Coffee International (USA).
Thus the central challenge in an IJV is to create a new firm, with all its dimensions, culture, and practices. This new entity can emulate one or more of the partners; that is, it can be some form of integrated entity, drawing on the culture and practices of the partners. Or it can be designed to be an entirely new organization, separate from the cultures or practices of the partners.26 One of the keys to success of an IJV is for the partners to be clear about and to agree on which one of these choices is being pursued. Lack of clarity on this issue can lead to conflicting expectations for the performance of the resulting organization and will typically lead to unmet expectations and eventual dissolution of the venture.
This section describes HR responsibilities related to international joint ventures. The aim is to describe the HR practices and policies that influence the success of IJVs, drawing on the studies that have focused on HR and IJVs.27 As far back as the
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mid-1970s, IJVs replaced wholly owned subsidiaries as the most widespread form of US multinational investment28 and has also become a favored form of foreign entry for firms from many other countries, as well. In general, IJVs have become a major (if not, the major) form of entry into most new global markets.29
Figure 4.4 Four-stage Model of HR Issues in International Joint Ventures
Schuler et al. (2004) developed a model to help understand the complexities in the process of creation and implementation of IJVs (refer to Figure 4.4). The four stages of the IJV process include:
1 Formation: the partnership stage; 2 Development: the IJV itself; 3 Implementation: the IJV itself; and 4 Advancement: the IJV and beyond.
The rest of this section on IJVs will expand on and explain these stages.
Stages 1 and 2: Formation and Development of the IJV
Reasons for IJVs
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Reasons for entering into IJV agreements (not so different from the reasons for international acquisitions, except for the reduced risk, since it is shared in a new, separate entity) include the following:30
■ to gain knowledge about local markets, culture, and local ways of doing business in order to transfer that knowledge back to the parent firm, i.e., to learn from the joint venture partner;
■ to gain access to the partner’s product technology, product knowledge, or methods of manufacturing;
■ to satisfy host government requirements and insistence; ■ to gain increased economies of scale without more direct investment; ■ to gain local market image and channel access; ■ to obtain vital raw materials or technology; ■ to spread the risks with the foreign partners; ■ to improve competitive advantage in the face of increasing global
competition; and ■ to become more cost-effective and efficient in the face of increased
globalization of markets.
The overriding motive in most joint ventures seems to be the desire by one or all parties to gain knowledge and learn from their partner(s). Obviously for a firm to learn from a partner, the partner must have some level of willingness to share what they know. If all partners wish to learn from the others, then to be successful, all the partners must be willing to share. This is often a source of conflict, in itself, particularly where there is not a sufficient level of trust among the partners. In this case, sharing will tend to be minimized and the original objective will be stymied. Often, the central strategy for learning from the IJV has to do with the choices for staffing. “Transfer of staff between the JV and the parent firms can provide a mechanism for sharing information, for learning from each other’s abilities and expertise, and for the creation of synergies related to product development.”31 But if the wrong people are chosen to staff the IJV, that is people with poor interpersonal or cross-cultural skills or limited technical ability, this objective of the partners may be difficult to achieve.
Track Record
The prior section of this chapter spent considerable space on the importance of HRM due diligence to the eventual success of IM&As. Everything said there also applies to the development of international joint ventures. The compatibilities of the partners’ cultures (both corporate and country), styles of management and
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decision making, HR practices, etc., are critical to the development of a successful IJV, as well.32
As with M&As, the high failure rate and managerial complexity of IJVs also suggests that particular examination of the human resource issues is required here, as well.33 As far back as 1987, Shenkar and Zeira pointed out that even though IJVs had become the “most widespread form of … multi-national involvement, the substantial failure rate and managerial complexity suggest that a closer examination of human resource issues is required.”34 The reasons for failure are many and complex, but for any particular situation will include one or more of the following, many of which are directly or indirectly within the responsibility of HR:35
■ There is a poor selection of partner(s). ■ Partners don’t clarify each others’ goals and objectives or have differing
goals. ■ The negotiating teams lack JV experience. ■ The parties do not conduct adequate or realistic feasibility studies. ■ The parties lack clarity about the real capabilities of their partners. ■ The partners fail to do adequate due diligence and thus don’t learn enough
about each other, which can be particularly true for cultural issues. ■ The parties fail to judge realistically the impact of the venture on the parent
organizations, particularly the loss of control and possibly profits, at least in the short run.
■ There is too little thought during the design phase of the new venture to organizational and managerial issues.
■ The partners fail to adequately integrate their activities. ■ There is unequal commitment to the partnership or unequal contribution
(real or perceived) to the joint venture. ■ The partners do not trust each other. ■ The parties to the venture make a poor selection of personnel to staff the JV. ■ The managers from the parent firms do not get along. ■ The established local partner does not assign its best people to the JV. ■ One of the partners is a government, so that there is a built-in variance in
objectives (profit versus possible political goals, for example). ■ There are divergent national interests. ■ There is “bad faith” on the part of one or more of the partners, that is, one
or more of the partners has always planned on only extracting something of value from the partnership without giving anything in return, even though they claim otherwise during negotiations.
■ The loyalty and commitment of the assigned managers is unclear (or is only to their assigning firm).
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■ The local employees resent the privileged position of assigned expatriate managers, particularly if they are only assigned to the JV on a temporary basis.
■ The new entity cannot decide which parents’ rules to follow (or which ones to establish, if there are to be new rules).
■ There is a failure to adapt the business practices of the new venture to the local culture.
If the partners to an IJV can’t cope with the demands of managing a joint venture (that is, dealing effectively with a partner), then it may be better for the partners to use non-equity forms of cooperation, such as partnerships or international alliances (as addressed in the next section), which can take the form of agreements for cross- marketing, cross-production, licensing, or research-and-development consortia and can be terminated with relative ease if insurmountable problems arise.36
Those who have studied IJVs find that some of the keys to creating a successful joint venture require the partners to seek complementary strategies and technical skills and resources among prospective partners, accept their mutual dependency, resolve issues related to differences in size of the partners, ensure the compatibility of the partners’ operating policies and practices, work to eliminate communication barriers between the partners and between the new IJV management team and the IJV employees, and take strong steps to develop trust and commitment among the partners.37
Stage 3: Implementation of the IJV
Role of HRM in IJVs
From a human resource management point-of-view, the lessons learned from successful joint ventures include:38
■ When national and corporate cultures are blended, the partners need to spend time building trust; understanding and accommodating each others’ interests.39
■ Job design can be enhanced when the partners are willing to learn from one another.
■ Recruitment and staffing policies should be well-defined in the early stages of the venture.40
■ Orientation and training of employees should focus on preparing employees to deal with the social context of their jobs, as well as the development of
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technical skills, for the new organization.41
■ Performance appraisals need clear objectives and clearly assigned accountabilities, liberal time frames in which to achieve results, and built-in flexibility related to changing market and environmental demands of the new venture.42
■ Compensation and benefit policies should be uniform to avoid employee feelings of inequity.
■ Career opportunities must be ensured for local managers relative to managers assigned to the JV from the parents.
■ In the early stages of the venture, the partners must agree on suitable terms for relations with any unions.
■ The partners must establish the specific role of HR within the new venture (since the partners’ HR policies and practices are likely to differ).
■ HR managers in the JV must become process experts, managing issues like communication with employees about the new organization, expected nature of the integration of the partners in the JV.
■ HR must implement the necessary training (e.g., cultural—both corporate and national, and technical), integrated and consistent compensation and benefit systems, and performance management systems that will give the IJV its own identity.
Stage 4: Advancement of the IJV
Since one of the main reasons for creating IJVs involves the desire of the partners to learn from each other, this becomes one of the central foci for determining the success or failure of an IJV. And if learning is taking place, the partners must ensure the transfer of the new knowledge to the partners, both within the IJV itself as well to the parent firms outside the IJV.
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IHRM and International Alliances
As mentioned previously, international alliances are defined as informal or formal partnerships or agreements that do not result in an independent legal entity. These have become much more common and popular in recent years.43 They provide ways to increase capabilities and to enter new markets in relatively low-risk and low-cost ways. As important as international acquisitions have become, the use of international alliances and partnerships may have become even more important.44
They take many forms, for example, outsourcing, information sharing, web consortia, joint marketing, and research projects. The most radical take the form of corporate partnerships like Coca Cola’s and Proctor and Gamble’s alliance to market their non-fizzy beverages and snacks. Technology companies like IBM, pharmaceutical firms like Pfizer, and diversified manufacturers like Siemens and General Electric have partnering built into their operating plans, both for joint research partnerships and for joint marketing efforts.45
In most modern partnerships, the three most important reasons their members form international alliances are growth, access to competencies like technology and research capability, and expansion into new markets. E-mail, file-sharing, and web-based conferencing and collaboration tools make international alliances across corporate and national boundaries workable. In the past, the route to growth was paved with mergers and acquisitions. What firms lacked they could acquire. This is still a popular approach. But as indicated in the previous section, trying to create a competency your firm lacks is costly, time consuming, and often fails.46 Too often, the best of the acquired assets (the acquired firm’s people) leave for other firms (often the competition). M&As are often ruinously expensive (with the inflated stock market) in terms of debt accrued, cash depleted, equity diluted, and key employees lost through subsequent downsizings and voluntary turnover. International alliances have become the solution to the problem. International alliances, relative to IJVs and IM&As are the cheapest and least-risky way to grow and build—or acquire—technology and resources: no dilution of stock, no dangerous leveraging of the balance sheet, and if managed well, no loss of talent. If the deal doesn’t work, it can be dissolved.47
Options for Managing International Alliances
As with IM&As and IJVs, there are a number of choices for the design of an international alliance. These include the following:48
■ the operator model, where there is one dominant partner;
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■ the shared model, where the organization draws on culture and practices from both partners; and
■ the autonomous model, where a new organizational culture and management structure is purposely developed.
The partners need to discuss and agree on which model for the international alliance they wish to pursue in order to forestall subsequent misunderstandings and conflict.
General HR Issues
There are a number of concerns that might be referred to as simply “people and general management issues” in international alliances for which HR might be expected to be the source of expertise and advice. If they are not addressed by HR, they are likely to not be addressed at all.49 Most of these issues are similar to those faced by IM&As and IJVs, as well:
■ Organizational structure and reporting relationships: a clear managerial structure is often non-existent in a partnership, and staff members—including HR professionals—tend to report to many people.50
Partnerships tend to not have the traditional pyramidal management structure of the partner firms. They are usually established as projects, with typical project structure and with project members assigned temporarily from other areas of the partner firms, with employees having multiple responsibilities, some in the partnership and some in the parent firms.
■ Culture: as with all other forms of international organization, both national and corporate cultures need to be assessed for incompatibilities. This is important for all interactions within the partnership and between the partnership and the parent firms.
■ Pre-alliance due diligence: This requires that the parties be aware of any “skeletons in the closet” of their potential partners, e.g., scandals involving senior executives, recent negative media stories, nepotism (employment of family members), etc.
■ Global workforce: Since the international alliance will involve employees and managers from more than one culture, the cross-cultural skills of involved executives also need to be assessed, both of those executives that will be assigned to the international alliance and those who must work with the international alliance.
■ Management capabilities: Will the international alliance get high priority for assignment of top talent by all partners? If the latter is the case,
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assessing the quality of the talent to be assigned becomes particularly important, if the partners are truly committed to the success of the partnership.
Role of IHRM in International Alliances
Depending on the size of the international alliance itself, there may well be IHR professionals assigned to it.51 Typically, the IHR professional assigned to an international partnership or international alliance has not only to deal with many more decision makers (from all of the partners), thus having to exercise much greater negotiation skills, but also tends to have to take on more extensive responsibilities, combining those of a local nature and those of an international nature.
Different Rules Often Apply
For example, people who work in partnerships are still employees of the separate partners, thus may not only be difficult to “supervise” but in terms of legal status may also not fall under employment protection statutes of the locale of the alliance. This may give the partnership greater flexibility with respect to compensation and job assignments, but may also create significant liability when “employees” are covered by the laws of their parent employer, such as under sexual harassment claims. Under tax laws, employees—from various partner parents—assigned to a partnership may not be entitled to the same benefit plans, thus causing problems of perceived unfairness and inequity.
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Conclusion
International combinations or some forms of partnerships have become very popular in recent years. Yet a high percentage of these combinations fail to achieve financial or strategic objectives. This is often due to inadequate attention to issues of concern to the human resource function. This chapter examined the process of combination and provided a framework and content for performing a thorough due-diligence review of the IHRM policies and practices of firms being considered for cross-border alliances. Such a review is explained as critical to the success of such international combinations. These combinations include IM&As, IJVs, and international alliances. Much of the chapter describes the role of IHRM and the IHR professional in designing, facilitating, and implementing these three specific types of international combinations. All three types of these combinations are increasingly used and IHRM can and should play a major role in helping ensure the success of their design and implementation.
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Discussion Questions
1 Some managers argue that IJVs are fraught with problems and all but doomed to failure. Do you agree with this statement? Why or why not?
2 Name three well-known MNEs that have formed international mergers or acquisitions during the last few years. Are they successful? What role does HRM play in facilitating success in international mergers or acquisitions?
3 What are the advantages and disadvantages of working for an IJV? An international alliance?
4 What are some of the reasons that an MNE would choose international expansion through an acquisition? An IJV? An alliance? What are the variables that would influence the decision? Which choice do you think is best for the likely benefit of the firm?
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Case Study 4.1: BCE’s Acquisition of Teleglobe International (Canada)
Lance Richards, former international director of HR at Teleglobe, has been through a number of major cross-border acquisitions and alliances. These included British Telecom with MCI and GTE with Bell Atlantic and then with Teleglobe and BCE. These experiences have taught Lance that in any cross-border acquisition or alliance, making sure that employees know what is going on, who is in charge, and where the combined organization is heading needs to be in the very front of any HR initiatives. Some of the specific lessons for guaranteeing success in an acquisition that Lance has learned include:
■ The CEOs (of both the acquiring and the acquired firms) must be visible to the employees and must continuously interact with them.
■ Both companies must communicate—clearly, constantly, and quickly. ■ The dialogue with employees must be two-way. Employees must have a
way to feed questions and concerns back to the business and people in charge, and then to get answers.
As Lance puts it, in many acquisitions and alliances the corporate heads roll out a well-crafted vision of the new entity, how it will lead the market, and how it will now be able to leap ahead of its competitors. But for the average employee, all they want to hear is what is going to happen to their particular jobs. In M&A activity, where the intellectual capital that resides in the employees is often (or should be) the overriding concern, it is important, at the end of the day, to remember that employees are concerned about things like making their next car payments or paying the next term’s tuition for their child.
The BCE acquisition of Teleglobe (completed in November 1, 2000) provided a great example of how to handle employee expectations and concerns with professionalism and candor. BCE Inc., is the largest communications company in Canada and provides a variety of services such as broadband communications and content services to private and public customers. Simultaneously with the after- market-hours announcement to the public, all employees received an e-mail with a link to a pre-recorded streaming video, with messages from the chairmen of both firms. They clearly outlined the reasons for the acquisition, as well as the benefits, and then committed to maintain clear communications throughout the process of merging the two firms.
A Q&A board was established on the companies’ intranets, accessible in all 43 countries where the firms had employees, with a promise to answer most questions within five business days. Within a month, BCE had appointed a new
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CEO. Within a week of his arrival he held the first of several meetings with employees. Initially, he made presentations in person in all of the firms’ primary employment cities, then changed to a live, multi-country broadcast format, followed by conference calls for outlying countries. Simultaneously, he launched a series of breakfast and lunch meetings with 15 to 20 employees, which continued for months, wherever his travels took him. In consequence, the new CEO won much favor with employees for his candor and style. The key was that Teleglobe International (and BCE) immediately opened a variety of one- and two-way communications venues for all employees, and ensured that there was a steady flow of information to everyone. Even though major financial problems with the acquisition led to divestiture of Teleglobe after about two years, the strong employee communications did result in quite limited voluntary employee turnover and led to strong engagement from employees, leading to a continuing healthy BCE.
Sources: www.bce.ca (2014); Richards, L. J. (2001). Joining forces. Global HR, April, 31–33.
Discussion Questions
1 Why were these various forms of communication so successful? Which do you think were most important? Why? Which barriers stand in the way of using these forms of communication?
2 What content is necessary for this form of communication? What do employees need (want) to hear? What difference does it make?
3 Does this sort of communication need to come from the top? Can someone else, such as the head of HR, provide the information with equal success?
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Notes
1 Source: Dupont Corporate Website (2014), Dupont Collaborations http://www.dupont.com/corporate-functions/our- approach/sustainability/collaboration.html. Accessed Dec. 10, 2014.
2 See, for example, World Investment Report 2014, United Nations Conference on Trade and Development, UNCTAD; Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-Border Alliances, London: Routledge; Reuer, J., and Ragozzino, R. (2014). Signals and international alliance formation: The roles of affiliations and international activities. Journal of International Business Studies, 45(3), 321–337; World Investment Report 2000: Cross-Border Mergers and Acquisitions and Development, New York and Geneva: United Nations Conference on Trade and Development.
3 Ibid.
4 We used a variety of sources to identify recent and old mergers and acquisitions. Sources include: World Investment Report 2014, United Nations Conference on Trade and Development, UNCTAD; Mergent online database; Bloomberg Businessweek; Fortune magazine.
5 See Summers, N. (2104). The 2014 M&A boom: Almost $ trillion and growing, Bloomberg Businessweek, April 24, 2014; Baigorri, M., Campbell, M., and Kirchfeld, A. (2014). Mergers are back in fashion—for now. Bloomberg Businessweek, (4373), 50–51; Mergers and Acquisitions review, Financial Advisors, 2013. Thomson Reuters; Brakman, S., Garretsen, H., Charles Van, M., and Arjen Van, W. (2013). Cross-border merger and acquisition activity and revealed comparative advantage in manufacturing industries. Journal of Economics and Management Strategy, (1), 28; Wyss, S. (2012). Growth strategy: Mergers and acquisitions. Chain Store Age, 88(2), 30–32; Lester T. (2001). Merger most torrid, Global HR, June, 10–12, 15–16.
6 Based on an interview with Heinrich von Pierer, CEO of Siemens, by Javidan, M. (2002), reported in, Siemens CEO Heinrich von Pierer on cross-border acquisitions, Academy of Management Executive, 126 (1), 13–15; and Karnitschnig, M. (2003). For Siemens, move into U.S. causes waves back home, The Wall Street Journal, Sept. 8, pp. A1, A8.
7 Schuler, Jackson, and Luo (2004).
8 Ibid.
9 See McLetchie, J., and West, A. (2010). Beyond Risk Avoidance: A McKinsey Perspective on Creating Transformational Value from Mergers. McKinsey & Company; McKinsey & Company, Coopers & Lybrand, and American Management Association, reported in Marks, M. L. (1997), From Turmoil to Triumph: New Life After Mergers, Acquisitions, and Alliances, New York: Lexington Books.
10 Reported in Bates, S. (2002). Few business alliances succeed, report reveals, in Executive Briefing, HR Magazine, May, 12.
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11 Bower, J. L. (2001). Not all M&As are alike—and that matters, Harvard Business Review, March, 93–101. Also see Kullman, E. (2012). DuPont’s CEO on executing a complex cross-border acquisition. Harvard Business Review, 90(7/8), 43–46.
12 Beard, M. (1996). quoted in Bourrie, S. R., Merger misery, Colorado Business, October, 82.
13 Ohmae, K. (1989). The global logic of strategic alliances, Harvard Business Review, March–April, 143.
14 In the last few years a number of references have been published dealing with the management of mergers and acquisitions. These include: Krug, J., Wright, O., and Kroll, M. (2014). Top management turnover following mergers and acquisitions: Solid research to date but still much to be learned. Academy of Management Perspectives, 28(2), 143–163; Adomako, S., Gasor, G., and Danso, A. (2013). Examining human resource managers’ involvement in mergers and acquisitions (M&As) process in Ghana. Journal of Management Policy & Practice, 14(6), 25–36.; Buiter, J. M., and Harris, C. M. (2013). Post-merger influences of human resource practices and organizational leadership on employee perceptions and extra-role behaviors. SAM Advanced Management Journal, (4), 14; Castro-Casal, C., Neira-Fontela, E., and Alvarez-Perez, M. (2013). Human resources retention and knowledge transfer in mergers and acquisitions. Journal of Management and Organization, (2), 188; Lee, D., Kim, K., Kim, T., Kwon, S., and Cho, B. (2013). How and when organizational integration efforts matter in South Korea: A psychological process perspective on the post-merger integration. International Journal of Human Resource Management, 24(5), 944–965; Lupina- Wegener, A. A. (2013). Human resource integration in subsidiary mergers and acquisitions: Evidence from Poland. Journal of Organizational Change Management, 26(2), 286–304; Gill, C. (2012). The role of leadership in successful international mergers and acquisitions: Why Renault-Nissan succeeded and DaimlerChrysler-Mitsubishi failed. Human Resource Management, 51(3), 433–456; Marks, M., and Mirvis, P. H. (2011). A framework for the human resources role in managing culture in mergers and acquisitions. Human Resource Management, 50(6), 859–877.
15 Coffey, J., Garrow, V., and Holbeche, L. (2002). Reaping the Benefits of Mergers and Acquisitions: In Search of the Golden Fleece, Oxford, UK: Butterworth-Heinemann, 9. All of the major references in this chapter that involve mergers and acquisitions, joint ventures, and alliances expand on this point. In addition, some of this section is adapted from McClintock, F. W. (1996). Due diligence and global expansion, World Trade Center San Diego Newsletter, p. 6; and Greengard, S. (1999). Due diligence: The devil in the details. Workforce, October: 68–72.
16 Adapted from Richard, L. J. (2001). Joining forces, Global HR, June, 20.
17 Reported in Hopkins, M. (2002). HR going global …, Global HR, April, 31–33.
18 Adapted from Kleppestø, S. (1998). A quest for social identity—The pragmatics of communication in mergers and acquisitions, in Gertsen, M. C., et al. (eds.), op cit., pp. 147–166.
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19 Berry, J. W. (1980). Acculturation as varieties of adaptation, in Padilla, A.M. (ed.), Acculturation Theory, Models and Some New Findings, Boulder, CO: Westview Press, pp. 9–25; Gertsen, M. C., Sıderberg, A-M, and Torp, J. E. (1998), Different Approaches to the Understanding of Culture in Mergers and Acquisitions, in Gertsen, M. C., et al. (eds.), op cit., pp. 17–38.
20 Ibid.
21 See website http://www.ge.com/news/company-information/ge-capital (2014). Adapted from Ashkenas, R. N., DeMonaco, L. J., and Francis, S. C. (1998). Making the deal real: How GE Capital integrates acquisitions, Harvard Business Review, January–February, 165–178.
22 See, for example, Owen, G., and Harrison, T. (1995). Why ICI chose to demerge, Harvard Business Review, March–April, 133–142.
23 M&A cultural considerations (2001). Reported in International Mobility Management Newsletter, 2nd quarter, 7.
24 Schuler, Jackson, and Luo (2004); Schuler, R., Tarique, I., and Jackson, S. (2004). Managing Human Resources in Cross-Border Alliances, in Cooper, C., and Finkelstein, S. (eds.), Advances in Mergers and Acquisitions, Volume 4. New York: JAI Press, pp. 103–129.
25 Schenkar, O., and Zeira, Y. (1987). Human resources management in international joint ventures: Directions for research, Academy of Management Review, 12(3), 547.
26 Schuler, Jackson, and Luo (2004); Cyr, D. J. (1995). The Human Resource Challenge of International Joint Ventures, Westport, CN: Quorum Books.
27 See, for example, Schuler, R., and Tarique, I. (2012). International joint venture system complexity and human resource management, in Björkman, I., and Stahl, G. (eds.), Handbook of Research in IHRM, Cheltenham: Edward Elgar Publishing, pp. 393–414; Baughn, C., Neupert, K. E., Phan Thi Thuc, A., and Ngo Thi Minh, H. (2011). Social capital and human resource management in international joint ventures in Vietnam: A perspective from a transitional economy. International Journal of Human Resource Management, (5), 1017; Goodman, N. (2012). T&D for global JVs and M&As: Training and development can play a significant role in making international joint ventures and mergers and acquisitions more rewarding and less risky. Training, (1), 126; Wong, Y. (2012). Job security and justice: Predicting employees’ trust in Chinese international joint ventures. International Journal of Human Resource Management, 23(19), 4129– 4144; Choi, C., and Beamish, P. W. (2013). Resource complementarity and international joint venture performance in Korea. Asia Pacific Journal of Management, 30(2), 561– 576; Huang, M., and Chiu, Y. (2014). The antecedents and outcome of control in IJVs: A control gap framework. Asia Pacific Journal of Management, 31(1), 245–269; Welei, S., Sunny Li, S., Pinkham, B.C., and Peng, M. W. (2014). Domestic alliance network to attract foreign partners: Evidence from international joint ventures in China. Journal of International Business Studies, (3), 338; Cyr, D. J. (1995); Frayne, C A. and Geringer, J. M. (2000). Challenges facing general managers of international joint ventures, in
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Mendenhall, M., and Oddou, G. (eds.), Readings and Cases in International Human Resource Management, 3rd ed., Cincinnati: South-Western College Publishing; Schuler, R. S. (2001). Human resource issues and activities in international joint ventures, The International Journal of Human Resource Management, 12, 1–5; Schuler, R., Dowling, P., and De Cieri, H. (1992), The formation of an international joint venture: Marley Automotive Components, European Management Journal, 10(3), 304–309; Schuler, R. S., Jackson, S. E., Dowling, P. J. and Welch, D. E. and DeCieri, H. (1991). Formation of an international joint venture: Davidson Instrument Panel. Human Resource Planning, 14, 51–60; Schuler, Jackson, and Luo (2004); and Shenkar and Zeira (1987), 546–557.
28 Hladik, K. J. (1985). International Joint Ventures: An Economic Analysis of U.S.-Foreign Business Partnerships, Lexington, MA: Heath; and Liebman, H. M. (1975). U.S. and Foreign Taxation of Joint Ventures, Washington, DC: Office of Tax Analysis, US Treasury Department.
29 Barkema, H. G., Shenkar, O., Vermeulen, F., and Bell, J. H. J. (1997). Working abroad, working with others: How firms learn to operate international joint ventures, Academy of Management Journal, 40(2), 426–442.
30 This list draws heavily on Schuler (2001). See also: Vaidya, S. (2012). Trust and commitment: Indicators of successful learning in international joint ventures (IJVs). Journal of Comparative International Management, 15(1), 29–49; Ghauri, P. N., Cave, A. H., and Park, B. (2013). The impact of foreign parent control mechanisms upon measurements of performance in IJVs in South Korea. Critical Perspectives on International Business, 9(3), 251; Tjemkes, B. V., Furrer, O., Adolfs, K., and Aydinlik, A. (2012). Response strategies in an international strategic alliance experimental context: Cross-country differences. Journal of International Management, (1), 66; Zoogah, D. B., Vora, D., Richard, O., and Peng, M. W. (2011). Strategic alliance team diversity, coordination, and effectiveness. International Journal of Human Resource Management, (3), 510; Estrada, I., Martín-Cruz, N., and Pérez-Santana, P. (2013). Multi- partner alliance teams for product innovation: The role of human resource management fit. Innovation: Management, Policy & Practice, 15(2), 161–169; Pangarkar, N., and Wu, J. (2013). Alliance formation, partner diversity, and performance of Singapore startups. Asia Pacific Journal of Management, 30(3), 791–807; Gudergan, S. P., Devinney, T., Richter, N., and Ellis, R. (2012). Strategic implications for (non-equity) alliance performance. Long range planning. International Journal of Strategic Management, 45(5–6), 451–476; Child, J., and Faulkner, D. (1998). Strategies of Cooperation, Oxford: Oxford University Press; Pucik, V. (1988). Strategic alliances, organizational learning and competitive advantage: The HRM agenda, Human Resource Management, 27(1): 77–93; Shenkar, O. and Zeira, Y. (1987). Human resource management in international joint ventures: Direction for research, Academy of Management Review, 12(3): 546–557.
31 Cyr, D. J., op. cit., p. 116.
32 Petrovic, J., and Kakabadse, N. K. (2003). Strategic staffing of international joint ventures (IJVS): An intergrative perspective for future research. Management Decision, 41, 4; Cyr, D. J., op. cit.; Geringer, J. M., op. cit.; Geringer, J. M. (1988). Partner selection
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criteria for developed country joint ventures, Business Quarterly, 53, 1; Schuler, Jackson, and Luo (2004).
33 Beamish, P. W. (1985). The characteristics of joint ventures in developed and developing countries, Columbia Journal of World Business, 20(3), 13–19; Harbison, J. R. (1996). Strategic Alliances: Gaining a Competitive Advantage, New York: The Conference Board; Harrigan, K. R. (1986). Managing for Joint Venture Success, Boston: Lexington; Schenkar, O., and Zeira, Y., op. cit.; Sparks, D. (1999). Partners, Business Week, October 5, 106.
34 Shenkar, O., and Zeira, Y., op. cit., 546.[1987]
35 Adapted from Barkema, H., and Vermeulan, F. (1997). What differences in the cultural backgrounds of partners are detrimental for international joint ventures? Journal of International Business Studies, 28(4), 845–864; Harrigan, K. R. (1988). Strategic alliances and partner asymmetries, in Contractor, F. and Lorange, P. (eds.), Cooperative Strategies in International Business, Lexington, MA: Lexington Books; Park, S. H., and Russo, M. V. (1996). When competition eclipses cooperation: An event history analysis of joint venture failure, Management Science, 42(6), 875–890; Schuler, R. S. (2001), op. cit.; and Goodman, N. R. (2001). International joint ventures and overseas subsidiaries, presented at the Society for Human Resource Management Global Forum Audio Conference, December; and Cyr, D. (1995), op. cit.; and Yan, A., and Zeng, M. (1999), International joint venture instability: A critique of previous research, a reconceptualization, and directions for future research, Journal of International Business Studies, 30(2), 397–414. Also see Ertug, G., Cuypers, I., Noorderhaven, N., and Bensaou, B. (2013). Trust between international joint venture partners: Effects of home countries. Journal of International Business Studies, 44(3), 263–282.
36 Harrigan (1986).
37 Cyr (1995); Geringer, J. M. (1988), Joint Venture Partner Selection: Strategies for Developed Countries, Westport, CT: Quorum Books; Schuler, Jackson, and Luo (2004).
38 Cascio, W. F., and Serapio, M. G. (1991). Human resource systems in an international alliance: The undoing of a done deal? Organizational Dynamics, Winter, 63–74; Cyr (1995); Schuler, Jackson, and Luo (2004).
39 Bruton, G. D., and Samiee, S. (1998). Anatomy of a failed high technology strategic alliance, Organizational Dynamics, Summer, 51–63; Cascio, W. F., and Serapio, M. G., Jr. (1991), Organizational Dynamics, Winter, 63–74; Culpan, R. (2002). Global Business Alliances: Theory and Practice, Westport, CT: Quorum Books; Evans, P., Pucik, V., and Barsoux, J-L. (2002). The Global Challenges: Frameworks for international Human Resource Management. New York: McGraw-Hill Irwin; Fedor, K. J., and Werther, W. B., Jr. (1996). The fourth dimension: Creating culturally responsive international alliances, Organizational Dynamics, Autumn, 39–53; Inkpen, A. C. (1998). Learning and knowledge acquisition through international strategic alliances, Academy of Management Executive, 12(4), 69–80; Isabella, L. A. (2002). Managing an alliance is nothing like business as usual, Organizational Dynamics, 31(1), 47–59.
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40 Schifrin, M. (2001). Best of the web: Partner or perish, Forbes, May 21, 26–28.
41 Ibid.
42 Schifrin, M. (2001).
43 Reported in You are not alone, Fortune, special advertising section, May, 2001, S2–S3.
44 Schifrin, M. (2001).
45 Fang, E., and Zou, S. (2009), Antecedents and consequences of marketing dynamic capabilities in international joint ventures, Journal of International Business Studies, 40, 742–761.
46 Michaels, J. W. (2001), Best of the web: Don’t buy, bond instead, Forbes, May 21, 20.
47 Adapted from Applegate, J. (1996), Alliances quick way to grow: Links to Bombay firm open doors for architect, The Denver Business Journal, October 4–10, 3B.
48 Galbraith, J. R. (1995), Designing Organizations: An Executive Briefing on Strategy, Structure and Process, San Francisco: Jossey-Bass.
49 See, e.g., Schuler, R., and Tarique, I. (2012). International joint venture system complexity and human resource management, in I. Björkman and G. Stahl (eds.), Handbook of Research in IHRM, Cheltenham: Edward Elgar Publishing, pp. 393–414; Cascio and Serapio (1991); Fedor, K. J., and Werther, W. B., Jr. (1996). The fourth dimension: Creating culturally responsive international alliances, Organizational Dynamics, Autumn, 39–53; Isabella, L. A. (2002). Managing an alliance is nothing like business as usual, Organizational Dynamics, August, 47–59; Schuler et al. (2000); and Sunoo (1995): 28–30, 32–34.
50 Demby, E. R. (2002). Keeping partnerships on course, HR Magazine, December, 49–53.
51 Quoted in Demby (2002).
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Section 2 National and Cultural Context
The second section of the book, “National and Cultural Context,” has three chapters:
■ Chapter 5: Country and Company Culture and International Human Resource Management
■ Chapter 6: International Employment Law, Labor Standards, and Ethics
■ Chapter 7: International Employee Relations
The chapters in this section expand the theme that is revisited frequently throughout the text: the importance of external factors that influence the MNE and IHRM in a variety of ways. Together these factors represent the national and cultural context. Chapter 5 introduces the concepts of country and corporate culture and how these impact everything that is done in IHRM. The chapter also discusses the importance of culture in both the conduct and the interpretation of IHRM research, explaining how culture affects both our understanding of IHRM and its impact. Chapter 6 describes international aspects of the legal, regulatory environments, ethical behavior, and labor standards in the international arena. Finally, Chapter 7 examines the nature of employee relations and how each country’s own, unique, union and employee representation institutions make the environment for employee relations quite complex for MNEs. All of these factors of the national and cultural context constitute the environment within which IHRM policies and practices are designed and implemented.
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Chapter 5 Country and Company Culture and International Human Resource Management
At United Airlines: The word “foreign” is losing its meaning.
United Airlines Corporation1
Learning Objectives
This chapter will enable the reader to:
■ Define and explain the concept of culture. ■ Explain the importance of culture in international business (IB). ■ Describe the basic research findings of G. Hofstede and F.
Trompenaars. ■ Explain the importance of culture to IHRM. ■ Describe the importance of culture and the difficulties encountered in
IHRM research.
This chapter provides a look at one of the most important aspects of the external context for IHRM.2 Many of the most important and difficult challenges to the conduct of international human resource management stem from the differences encountered in various countries’ and MNEs’ cultures. Often these differences clash when firms conduct business in more than one country and with enterprises located in many countries. This can become a particularly salient challenge when businesspeople lack knowledge of or sensitivity to these differences, resulting in their making mistakes in both their business policies and practices and their personal interactions. Even when they know the differences, they can mistakenly assume that their own country’s or company’s ways of doing things provide the best way to conduct business. Thus they can make decisions and behave in ways that alienate their foreign counterparts, the people with whom they interact from other countries or companies, such as foreign customers, suppliers, and employees, or they make mistakes that lead to business and/or personal problems. Giving preference to one’s own country and company culture can also result in the
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overlooking or dismissing of better ways of doing things that can be found in other countries and their enterprises.
As two long-time participants in the IB environment put it:
More than any other aspect of the business experience, our knowledge and understanding of culture affects the outcome of business ventures. Without insight into the ways of others, we can’t expect to develop credibility, nurture goodwill, inspire a workforce, or develop marketable products. And that directly translates to bottom-line results. Culture affects the way we develop and maintain relationships. It plays a significant role in determining success with colleagues and partners, and helps us grasp how to evolve into respected leaders around the world. Understanding culture fundamentally affects how we run our business, what characteristics to look for in selecting people, how to develop global talent, how to conduct meetings, and how to manage employees and work with teams.3
Knowledge about and competency in working with varying countries and organizational cultures is one of the most important issues impacting the success of IB activity and of IHRM. Therefore, this chapter provides a definition and an overview of the nature and importance of national and company cultures and their impacts on IHRM as well as providing guidance as to how IHRM can perform its role within MNEs as the advisor and trainer on how to learn from cultural differences and how to use those differences in ways to help build global competitive advantage. This chapter examines the results of major research on culture as well as the findings of major research in IHRM (since it is so closely impacted by culture) and its role in understanding the impact of culture on the global organization and on IHRM.
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The Nature and Importance Of Culture
Every country has at least some variances from all others, e.g., its history, government, and laws. Because of all of these differences, the more countries with which an MNE interacts, the more complex and difficult conducting business becomes. Today, it is common for MNEs to interact with customers and firms in dozens of other countries. So, one of the central causes of these difficulties has to do with the critical nature of the differences between the national cultures of these various countries.
Variances in people’s values, beliefs, and behavior patterns (for example, what they consider to be right and wrong, normal and not normal) are critically important to such IB activities as cross-national negotiations, sales interactions between people from different countries, management of the performance of employees from different countries, the understanding and treatment of contracts between firms from different countries, and all HR responsibilities, such as recruiting and hiring, compensation, training, labor relations, and performance management.
People working for organizations that operate in the international arena (whether in business, government, or the non-profit sector), including HR practitioners, need a context into which they can place the culture(s) they know and the new ones they encounter, so they can modify their own and their firms’ behaviors in order to be more effective in both business and social situations. They need a way to cope with the significant constraints imposed by cultural differences between countries. Indeed, dealing with these cultural differences may provide the most important factor in determining whether or not their international ventures succeed or fail.
The following paragraphs illustrate one example of a well-known firm (McDonald’s hamburger restaurants) going international and some of the issues it confronted in coping with the cultures of the countries into which it expanded.4
IHRM in Action 5.1: Turning McDonalds into a Global Brand
An example of how even mass-market suppliers are heeding cultural diversity is illustrated by McDonald’s. The Big Mac is so quintessentially American that “McWorld” has become an epithet for the homogenization of world tastes by the US. McDonald’s discovered that the global popularity of the McDonald’s product was increasingly qualified by exceptions.
The international division sustained McDonald’s throughout much of the 1990s and 2000s. Domestic sales were in trouble and it was the company’s
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local adaptations, introduced by franchisees and national coordinators, which showed the most sales success, registering 15 years of sustained revenue growth. More importantly, the autonomy first ceded to foreign operators now has become the policy of the whole corporation.
When the Indonesian currency collapsed in 1998, potato imports became too expensive. Rice was substituted and later maintained. In Korea, roast pork was substituted for beef, while soy sauce and garlic were added to the bun in much of south-east Asia. Austria introduced “McCafes” offering a variety of local coffee blends, which is now a mainstay at McDonald’s restaurants throughout much of the world. And there are many other adaptations as well, such as beer in Germany and soy- and lamb-based burgers in India.
Yet in key values of quality, cleanliness, speed, and branding, McDonald’s remains uniform. “Decentralisation does not mean anarchy,” says McDonald’s. “Those things aren’t negotiable.”
More recently, McDonald’s opened its first restaurant in Ho Chi Minh City, Vietnam.5 The establishment of McDonald’s was good for the company and the country, according to the businessman who brought McDonald’s to Vietnam.6 He further said, “McDonald’s is a very careful organization,” and “If you show up in a market you’ve got to do things right.”
The next few pages present a model for developing this awareness and understanding so as to enable IHR managers to more effectively cope with their international responsibilities, to interact more effectively with their international colleagues, and to enhance their learning from their exposure to and experience with HR practices in other countries.
A Definition and Description of Culture
There have been many definitions of “culture” offered over the years. For the purposes of this text the following definition is used: culture is the characteristic way of behaving and believing that a group of people have developed over time and share in common. In the context of this book, the “groups” whose cultures will be discussed are the people from a particular country or region and the members of a particular company. Of course, the concept is also used to describe the values and behaviors of other groups, such as members of particular professions, certain industries, age groups, and racial groups.
Definition of Culture
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Culture is the characteristic way of behaving and believing that a group of people have developed over time and share in common.
■ Gives them a sense of who they are, of belonging, of how they should behave
■ Provides them with the capacity to adapt to circumstances (because the culture defines what is the appropriate behavior in that circumstance) and to transmit this knowledge to succeeding generations (in the case of countries) or to new employees (in the case of organizations).
■ Affects every aspect of the management process—how people think, solve problems, and make decisions (for a country or firm)
As Schell and Solomon phrase it:
Learned and absorbed during the earliest stages of childhood, reinforced by literature, history, and religion, embodied by … heroes, and expressed in … instinctive values and views, culture is a powerful force that shapes our thoughts and perceptions. It affects the way we perceive and judge events [and other people], how we respond to and interpret them, and how we communicate to one another in both spoken and unspoken language. Culture, with all of its implications [and forms], differs in every society. These differences might be profound or subtle; they might be obvious or invisible. Ever present yet constantly changing, culture permeates the world we know and molds the way we construct or define reality.7
When a firm enters a new country and performs activities such as creating job definitions and classifications and hiring, using only its home-country practices, it can cause significant alienation and lack of trust, which can have further ramifications, for example, in making it difficult to obtain a quality workforce.
Understanding Culture as Layers of Meaning
One of the complexities that makes “culture” so difficult to deal with is its multiple layers of meaning. There are many readily observable things about the culture of a country, a region, or a firm that differ quite obviously from those of other countries, regions, and firms. These characteristics, including such things as food, art, clothing, greetings, and historical landmarks, are clearly visible. Sometimes these are referred to as artifacts, or manifestations, of underlying values and assumptions.8 But those underlying values and assumptions are much less obvious.
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Figure 5.1 The Three Layers of Culture
One way to understand this concept is illustrated in Figure 5.1, which represents culture as a series of concentric circles, or multiple layers, as in an onion.9 The layers of culture model presents a way to understand culture, with each layer moving from the outside to the inside, representing less and less visible, or less explicit, values and assumptions, but correspondingly more and more important values and beliefs for determining attitudes and behaviors. These layers include:
■ Surface or explicit culture (the outside layer): Things that are readily observable, such as dress, food, and ways of eating, architecture, customs (such as how to greet other people and the importance of relationships), body language, gestures, etiquette, and gift giving.
■ Hidden culture (the middle layer): Values, religions, and philosophies about things like child rearing, views of what is right and wrong.
■ Invisible or implicit culture (the core): The culture’s universal truths, the bases for all of a culture’s values and beliefs.
This approach to an understanding of culture is used throughout this book as various business and IHR practices, such as preparing employees for international assignments or developing compensation and motivation practices for application in foreign operations, are described and evaluated.
As people develop an ability to work successfully with differing cultures, they typically go through a process such as that illustrated in Figure 5.2, “Development of cross-cultural competence.” This approach to building knowledge about another
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person or group’s behavior and values and eventually adapting to or being able to integrate with that other person’s or group’s behaviors and attitudes assumes that people must first understand their own cultural values and beliefs before they can develop an appreciation and respect for other people’s cultural differences, which then precedes the eventual ability to move toward reconciliation and integration with different national and organizational cultures.
All three stages are challenging. All three stages require progressing from basic education and training about one’s own and others’ cultures through gaining experience with other cultures to reflecting on and then developing an openness about and finally a willingness to seek feedback about one’s own values and behaviors in relation to the foreign culture(s). Ultimately, as was found in an extensive study of the development of global executives, people learned best to deal with the complexities of “foreign” cultures by living in those cultures.10 But the other steps illustrated in Figure 5.2 are also important in developing what is referred to here as “cultural competency.”
The recent experiences of ConAgra Foods in China illustrate this process.11
When ConAgra came to China five years ago, the firm had high hopes and big worries. Prior to this, the company entered the Japanese market and repeatedly ran into obstacles like communication breakdowns, cultural missteps, and missed deadlines. While those problems were eventually straightened out, ConAgra knew it could not afford to make the same mistakes in China. Intent on finding someone who could help their managers shorten the cultural distance, the company’s manager of human resources who was responsible for international organization, hired Carla Kearns, founder of TLI-The Mandarin School, based in Toronto, to provide its executives with intercultural business training and coaching. Ms. Kearns teaches companies to understand the fundamental values that Western and Chinese cultures see differently and that, if ignored, can wreak havoc on their bottom line. They include concepts of time, hierarchy, individualism, personal relationships, and saving face. Most novice foreign business professionals in China probably know to exchange business cards with both hands and the correct seating arrangements at banquets, but to gain agreement and to seal the deal, executives need to learn a more nuanced approach. TLI and Ms. Kearns were successful in these efforts for ConAgra, allowing them to become quite successful in their move into China.
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Figure 5.2 Development of Cross-cultural Competence
For more information about preparation and training for learning to accept and adapt to one or more “foreign” cultures, refer to Chapter 10, on global training and management development.
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Country and Regional Cultures
An increasing number of researchers are assessing whether or not the wide variety of cultures around the world can be reduced to a more limited set of cultures with similar characteristics. If so, it would greatly reduce the number of problems associated with determining management and HR practices in various countries.
The Research of Geert Hofstede
The best known of the studies of national culture (and the first major study of cultural values in a large sample of countries) was performed by Dr. Geert Hofstede in the subsidiaries (initially in 53 countries) of one of the major multinational corporations, now known to have been IBM.12 In particular, this study focused on identifying country differences and regional similarities on the basis of a series of work-related factors. Exhibit 5.1 provides a short summary of the factors identified in this research.13
Exhibit 5.1: Geert Hofstede’s Cultural Dimensions
Cultural dimension Description
Power distance
Degree of acceptance of power distance between bosses and subordinates. Degree to which the less powerful members of a society accept and expect that power is distributed unequally, i.e., that hierarchy is legitimate. In cultures with low power distance, people expect that power is distributed rather equally, and are furthermore also likely to accept that power is distributed to less powerful individuals. The emphasis is on challenging authority, expecting autonomy and independence. As opposed to this, people in high power distance cultures will likely both expect and accept inequality and steep hierarchies. There is high respect for authority, resulting in centralized power, acceptance of autocratic authority and direct supervision. Countries ranked high on power distance include Malaysia, Guatemala, Panama, Philippines, and Mexico. Countries ranked low on power distance include Austria, Israel, Denmark, New Zealand, and Ireland. Degree of individualism or collectivism. This dimension
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Individualism or collectivism
focuses on relationships between the individual and the group. Highly individualistic cultures believe that the individual is the most important. Decisions are based on individual needs and interests. In individualist cultures, people speak out, question, can be confrontational and direct. Highly collectivist cultures on the other hand believe the group is the most important and exhibit primary loyalty to the group (family, caste, tribe, region, organization). Decisions are based on what is best for the group. In collectivist cultures, people blend in, avoid conflict, use intermediaries. Greater emphasis is placed on the welfare of the group to which the individual belongs, where individual wants, needs, and dreams are set aside for the common good. Countries ranked high on individualism and thus low on collectivism include USA, Australia, Great Britain, Canada, and the Netherlands. Countries ranked high on collectivism and low on individualism include Guatemala, Ecuador, Panama, Venezuela, and Colombia.
Uncertainty avoidance
Degree of uncertainty avoidance or tolerance for ambiguity. This dimension refers to the need for formal rules and policies and the extent to which people feel threatened by uncertain or ambiguous situations. It focuses on how people adapt to changes and cope with uncertainty. The majority of people who live in cultures with a high degree of uncertainty avoidance are likely to feel uncomfortable in uncertain and ambiguous situations and will welcome rules for guiding their behaviors and attitudes. They tend to believe in absolute truth and to trust people with high perceived expertise. People who live in cultures with a low degree of uncertainty avoidance are likely to thrive in more uncertain and ambiguous situations and environments and will tend to resist having too many rules and policies. They are more likely to accept relativity in beliefs and values. Countries ranked high in uncertainty avoidance and low in tolerance for ambiguity include Greece, Portugal, Guatemala, Uruguay, and Belgium. Countries ranked low in uncertainty avoidance and high in tolerance for ambiguity include Singapore, Jamaica, Denmark, Sweden, and Hong Kong. Degree of masculinity or femininity in social values. This dimension focuses on the extent to which a society stresses achievement versus nurture. The masculinity side of this dimension represents a preference in society for achievement, heroism, assertiveness, and material rewards for success.
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Masculinity versus femininity
Masculinity is seen to be the trait that emphasizes ambition, acquisition of wealth, and differentiated gender roles. Society at large is more competitive. Its opposite, femininity, stands for a preference for cooperation, modesty, caring for the weak, and for quality of life. Femininity is seen to be the trait that stresses caring and nurturing behaviors, sexual equality, environmental awareness, and more fluid gender roles. Society at large is more consensus oriented. Countries ranked high on masculinity include Japan, Austria, Venezuela, Italy, and Switzerland. Countries ranked high on femininity include Sweden, Norway, Netherlands, Denmark, and Costa Rica.
Longterm versus short- term orientation
Degree of long-versus short-term orientation. This dimension was added after the original four dimensions. The consequences for work-related values behavior springing from this dimension are rather hard to describe, but some characteristics include:
■ Long-term orientation—acceptance that business results may take time to achieve; employees valuing a long- term relationship with their employers
■ Short-term orientation—results and achievements are set, and can be reached within a specific time-frame; employees will potentially change employers quite often
Countries ranked high on long-term orientation include China, Hong Kong, Taiwan, Japan, and South Korea. Countries ranked high on short-term orientation include Pakistan, Nigeria, Philippines, Canada, Zimbabwe, Great Britain, and United States.
Pragmatic versus normative
Degree of pragmatic versus normative orientation. This dimension describes how people in the past, as well as today, relate to the fact that so much that happens around us cannot be explained. In societies with a normative orientation most people have a strong desire to explain as much as possible. People in such societies have a strong concern with establishing the absolute truth and a need for personal stability. They exhibit great respect for social conventions and traditions, a relatively small propensity to save for the future, and a focus on achieving quick results. In societies with a pragmatic orientation, most people don’t have a need to explain everything, as they believe that it is impossible to
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orientation understand fully the complexity of life. The challenge is not to know the truth but to live a virtuous life. In societies with a pragmatic orientation, people believe that truth depends very much on the situation, context, and time. They show an ability to accept contradictions, to adapt according to circumstances; they show a strong propensity to save and invest; and they show thriftiness and perseverance in achieving results. Countries ranked high on pragmatic orientation include South Korea, Taiwan, Japan, China, and Germany. Countries ranked high on normative orientation include Egypt, Mozambique, Malta, Nigeria, Dominican Republic, and Colombia.
Indulgence versus restraint
Degree of allowed individual indulgence of basic human drives versus social restraint of such behavior. Indulgence stands for a society that allows relatively free gratification of basic and natural human drives related to enjoying life and having fun. Restraint stands for a society that suppresses gratification of needs and regulates it by means of strict social norms. Countries ranked high on indulgence include Venezuela, Mexico, El Salvador, Nigeria, Angola, and Colombia. Countries ranked high on restraint include Pakistan, Egypt, Latvia, Albania, Bulgaria, and Estonia.
Sources: www.geert-hofstede.com (the Hofstede Center); Hofstede, G. (2001). Culture’s Consequences, 2nd ed., Thousand Oaks, CA/London: Sage Publications; Hofstede, G., Hofstede, G. J., and Minkov, M. (2010). Cultures and Organizations: Software of the Mind, 3rd ed., New York: McGraw-Hill.
Hofstede found not only that certain countries consistently show similarities based on the presence of these characteristics but also that there are clearly differences between the various groupings of countries on these value dimensions. The significant conclusion for MNEs was that the idea was wrong that managerial and organizational systems as developed and practiced in the parent country and parent company of an MNE should be—or could be—imposed upon all of the MNE’s foreign subsidiaries.14 As is discussed in more detail toward the end of this chapter, such large-scale research is difficult and expensive. And, not surprisingly, such research has been very difficult to replicate, although ongoing research in the original firm of Hofstede’s research (IBM) as well as by new researchers in different organizations is generally confirming both the cultural characteristics and the country profiles.15
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The Research of Fons Trompenaars and Charles Hampden-Turner
Dr. Fons Trompenaars and Dr. Charles Hampden-Turner published results of a similar large-scale study (over 15,000 employees from over 50 countries, again from one firm with long-term global experience, Royal Dutch Shell).16 Even though they focused on different aspects of culture—such as how different cultures accord status to members of their cultures, the varying attitudes toward time and nature, and differing attitudes toward individuals and groups and resulting relationships between members of society—their overall conclusions are quite similar to those of Hofstede. Trompenaars and Hampden-Turner concluded that what distinguishes people from one culture compared with another is where these preferences fall in one of the following seven dimensions. Exhibit 5.2 illustrates these dimensions.
Exhibit 5.2: Trompenaar’s and Hampden-Turner’s Cultural Dimensions
Cultural dimension Description
Universalism versus particularism (emphasis on rules versus relationships)
Universalism places a high importance on laws, rules, values, and obligations. Universalists try to deal fairly with people based on these rules, but rules come before relationships. In contrast, particularism suggests that each circumstance, and each relationship, dictates the rules to live by. Particularists’ responses to a situation may change, based on what’s happening in the moment, and who’s involved. Typical universalist cultures include the US, Canada, the UK, the Netherlands, Germany, Scandinavia, New Zealand, Australia, and Switzerland. Typical particularistic cultures include Russia, Latin America, and China.
Individualism versus communitarianism (the individual versus the group)
Individualism emphasizes personal freedom and achievement. Individualists believe that you make your own decisions, and that you must take care of yourself. In contrast, communitarianism suggests that the group is more important than the individual. The group provides help and safety, in exchange for loyalty. The group always comes before the individual. Typical individualist cultures include the US, Canada, the UK, Scandinavia,
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New Zealand, Australia, and Switzerland. Typical communitarian cultures include countries in Latin America, Africa, and Japan.
Neutral versus emotional (range of emotions expressed)
In neutral cultures people make a great effort to control their emotions. Reason influences their actions far more than their feelings. People don’t reveal what they’re thinking or how they’re feeling. In contrast, in emotional cultures people want to find ways to express their emotions, even spontaneously, at work and in social situations. In emotional cultures, it’s welcome and accepted to show emotion. Typical neutral cultures include the UK, Sweden, the Netherlands, Finland, and Germany. Typical emotional cultures include Poland, Italy, France, Spain, and countries in Latin America.
Specific versus diffuse (range of involvement with other people)
In specific cultures people keep work and personal lives separate. As a result, they believe that relationships don’t have much of an impact on work objectives, and, although good relationships are important, they believe that people can work together without having good relationships. In diffuse cultures people see an overlap between their work and personal lives. They believe that good relationships are vital to meeting business objectives, and that their relationships with others will be important, whether they are at work or meeting socially. People spend time outside work hours with colleagues and clients. Typical specific cultures include the US, the UK, Switzerland, Germany, Scandinavia, and the Netherlands. Typical diffuse cultures include Argentina, Spain, Russia, India, and China.
Achievement versus ascription (basis for according status to other people)
In achievement cultures people believe that you are what you do, and they base your worth accordingly. These cultures value performance, no matter who you are. In ascription cultures, people believe that you should be valued for who you are. Power, title, and position matter in these cultures, and these roles define behavior. Typical achievement cultures include the US, Canada, Australia, and Scandinavia. Typical ascription cultures include France, Italy, Japan, and Saudi Arabia. In sequential time cultures people like events to happen in order. They place a high value on punctuality, planning (and sticking to your plans), and staying on schedule. In these cultures, “time is money,” and people don’t
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Sequential time versus synchronous time (how people manage time)
appreciate it when their schedules are thrown off. In synchronous time cultures people see the past, present, and future as interwoven periods. They often work on several projects at once, and view plans and commitments as flexible. Typical sequential-time cultures include Germany, the UK, and the US. Typical synchronous-time cultures include Japan, Argentina, and Mexico.
Internal direction versus outer direction (how people relate to their environment)
In internal direction cultures people believe that they can control nature or their environment to achieve goals. This includes how they work with teams and within organizations. In outer direction cultures people believe that nature, or their environment, controls them; they must work with their environment to achieve goals. At work or in relationships, they focus their actions on others, and they avoid conflict where possible. People often need reassurance that they’re doing a good job. Typical internal-direction cultures include Israel, the US, Australia, New Zealand, and the UK. Typical outer- direction cultures include China, Russia, and Saudi Arabia.
Sources: Trompenaars, F. (1992/1993). Riding the Waves of Culture: Understanding Diversity in Global Business, Burr Ridge, IL: Irwin; Trompenaars, F., and Hampden- Turner, C. (2004). Managing People across Cultures, West Sussex: Capstone; http://www.mindtools.com/pages/article/seven-dimensions.htm.
Since the reporting of these studies by Hofstede and Trompenaars and Charles Hampden-Turner, other researchers and consultants have reported similar findings or developed alternative ways to categorize cultural values. For example, the Global Leadership and Organizational Behavior Effectiveness (GLOBE) research project (one of the most comprehensive studies yet, performed by a large multinational team of professors) categorized countries on nine cultural dimensions including assertiveness, future orientation, gender differentiation, uncertainty avoidance, power distance, institutional collectivism, in-group collectivism, performance orientation, and humane orientation,17 which exhibit much overlap, even synthesizing of, the factors reported by Hofstede and Trompenaars. Exhibit 5.3 summarizes the GLOBE findings.
Exhibit 5.3: Global Leadership and Organizational Behavior
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Exhibit 5.3: Global Leadership and Organizational Behavior Effectiveness (GLOBE): Cultural Dimensions
Cultural dimension Description
Assertiveness The degree to which individuals are assertive, confrontational, and aggressive in their relationships with others
Future orientation
The extent to which individuals engage in future-oriented behaviors such as delaying gratification, planning, and investing in the future
Gender differentiation
The degree to which a collective minimizes gender inequality
Uncertainty avoidance
The extent to which a society, organization, or group relies on social norms, rules, and procedures to alleviate unpredictability of future events
Power distance
The degree to which members of a collective expect power to be distributed equally
Institutional collectivism
The degree to which organizational and societal institutional practices encourage and reward collective distribution of resources and collective action
In-group collectivism
The degree to which individuals express pride, loyalty, and cohesiveness in their organizations or families
Performance orientation
The degree to which a collective encourages and rewards group members for performance improvement and excellence
Humane orientation
The degree to which a collective encourages and rewards individuals for being fair, altruistic, generous, caring, and kind to others
Sources: http://www.inspireimagineinnovate.com/PDF/GLOBEsummary-by-Michael- H-Hoppe.pdf; House R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., and Gupta V. (2004). Culture, Leadership, and Organizations. The GLOBE Study of 62 Societies. Thousand Oaks, CA: Sage; Chhokar, J. S., et al. (eds.) (2007). Culture and Leadership across the World: The GLOBE Book of In-Depth Studies of 25 Societies, Mahwah, NJ: Lawrence Erlbaum.
Country Cultural Clusters
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profiles and to identify a limited set of variables with which one can understand cultural differences have been welcomed by firms working in the international arena. The hope for these efforts is that they can simplify the problems encountered in adjusting to varying national cultures by limiting the number of significantly different countries or regions. The results of several studies suggest groupings of the following countries, based on their cultural similarities:18
■ Anglo. Australia, Canada, Ireland, New Zealand, South Africa, United Kingdom, United States.
■ Arab. Abu-Dhabi, Bahrain, Kuwait, Oman, Saudi Arabia, United Arab Emirates.
■ Far Eastern. Hong Kong, China, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Taiwan, Thailand.
■ Germanic. Austria, Germany, Switzerland. ■ Latin American. Argentina, Chile, Colombia, Mexico, Peru, Venezuela. ■ Latin European. Belgium, France, Italy, Portugal, Spain. ■ Near Eastern. Greece, Iran, Turkey. ■ Nordic. Denmark, Finland, Norway, Sweden. ■ Independent. Brazil, India, Israel, Japan, South Korea.
People with extensive international experience will probably suggest that some of these groupings hide significant within-group (between countries that are in the same group) differences (such as would be experienced among the different countries in the Far Eastern cluster).19 Nevertheless, the various research efforts to identify countries with similar cultural characteristics do suggest that the countries in each group indeed exhibit significant similarities in their cultural profiles.
These kinds of studies—even if they only confirm managers’ assumptions about certain country characteristics—can provide some guidance to general managers and HR managers as they structure policies and practices in foreign operations and activities. At a minimum, these studies provide support for decentralizing many aspects of organizational structure and management and offer suggestions for creating regional divisions for managing at least some aspects of the highly complex global firm.
The Observations of an Experienced Practitioner
One interesting and practical approach to understanding cultural differences is based on the observations and experiences of Richard Gesteland over a 30-year career as expatriate manager and international negotiator in many countries.20
Gesteland has observed that variances in four general patterns of cross-cultural
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career as expatriate manager and international negotiator in many countries.20
Gesteland has observed that variances in four general patterns of cross-cultural business behavior provide critical help in understanding international marketing, negotiating, and managing. These four patterns include:
■ Deal focus versus relationship focus. Gesteland states that this focus on “making or doing the deal” rather than “building relationships” provides the “Great Divide” between business cultures, with differences in this focus often proving to be exceedingly difficult to bridge.
■ Informal versus formal cultures. Problems occur here when informal business travelers from relatively egalitarian cultures cross paths with more formal counterparts from hierarchical societies.
■ Rigid-time (monochronic) versus fluid-time (polychronic) cultures. One group of the world’s cultures worships the clock while another group is more relaxed about time and scheduling, focusing instead on relationships with the people around them.
■ Expressive versus reserved cultures. Expressive people communicate— verbally, nonverbally, and in writing—in radically different ways from their more reserved counterparts, which often causes great confusion that can spoil the best efforts to market, sell, source, negotiate, or manage people across cultures.
These four patterns suggest some similarities to and additional verification of those published by researchers, such as Hofstede and Trompenaars. And they suggest some slight differences, with an emphasis on what has been crucial to the practice of international management and negotiation.
The Dangers of Oversimplification
The attempts to isolate country variances and then to group countries and regions with similar profiles and to minimize the variables with which we try to understand cultural differences can simplify the management (and IHR management) task of figuring out how to interact effectively in various countries. But this may oversimplify the understanding of cultural differences.21 For example, Brannen expresses the concern that the focus on country differences falls short on two levels:
1 That it provides little explanation of within-group differences, that is, it treats countries or cultures as homogeneous wholes, with everyone within the country or culture being alike; and
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experience shows that cultures are not nearly as homogeneous nor as static as these studies suggest. There are considerable differences within cultures and cultures do, in fact, change over time.
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Country Culture versus MNE Culture
Just as countries develop unique patterns of values, norms, beliefs, and acceptable behavior, so also do companies. Most MNEs take great pride in their “organizational cultures,” which reflect, at least initially, the values of their founders and evolve to create corporate personalities that give employees a template for how to behave, including how to make decisions, the importance and acceptance of operational concerns such as continual improvement, safety, and ethics, and how to treat fellow employees and customers.
For many firms, these organizational values take precedence over country cultures, particularly when there is a conflict between the two. For example, many large MNEs that originate in Scandinavian countries may feel very strongly about the assignment of women to senior management positions and will do this even in cultures where it is rare (and not supported by cultural norms) for women to have these types of appointments. Or MNEs from Western countries may feel strongly in favor of egalitarian and participative management styles and compensation practices and may decide that these values are so important that they will pursue strategies to implement these practices in their foreign operations, even though local culture supports a very different set of values. In addition, Asian MNEs might emphasize strong group loyalty and discussion, with deference to senior employees, in the ways they operate and make decisions, even in their foreign subsidiaries, and even when this is not an accepted or understood way to operate by local employees and managers.
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Cultural Convergence and/or Divergence
One major issue that affects the relationship between national culture and corporate culture has to do with the conflict between centralization/standardization and localization/customization, as has been discussed a number of times already. This dilemma may never be fully resolved, and it will come up again, as it affects various aspects of IHRM policy and practice. But this is one of the consequences of the major cultural differences as described in this chapter. Even a huge MNE, such as McDonald’s, the fast-food restaurant chain, struggles with insistence throughout the world on corporate standards for customer service and quality of product, while also trying to adopt local ideas for menu that meet local tastes and practices.
One of the continuing controversies that surrounds any discussion of the role of culture in IB is whether or not, due to increasing globalization, there is a growing convergence of cultural values and characteristics across countries.23 There is some evidence to support both the point of view that modern technology and the modernizing of industries around the world is influencing firms to adopt similar “best practices” (convergence)24 as well as support for the view that countries’ cultural values and practices continue to exert quite strong influences on their business and HR practices (divergence).25 It is likely that reality is somewhere in between:
Convergence and divergence perspectives may represent polar extremes. As most firms struggle to find the optimal trade-off between globalization and localization, that is, “glocalization,” perhaps the reality is closer to a more balanced or middle-ground view called “cross-vergence,” or the intermixing of cultural systems between different countries.26
This issue of convergence versus divergence in cultural variance around the world is discussed throughout this text as it applies to various HR practices, such as in Chapter 12 in the discussion of global performance management, and particularly in Chapter 14 on comparative HRM. In any case, as the global economy continues to grow, it is likely that cultural differences will influence IB and IHRM practices in multiple and complex ways. Management and HR practices are likely to be both influenced by the practices of large MNEs from the developed economies as well as by the values and practices from the largest emerging economies, referred to as the BRIC (Brazil, Russia, India, China) countries, and from smaller, yet successful economies, such as Austria, Switzerland, the Scandinavian countries, South Korea, Singapore, and Hong Kong, creating potentially many different, yet successful, hybrid management systems.
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Research in IHRM
One of the reasons for the apparent slow pace of development of IHRM stems from the problems inherent in researching international organizational issues. This is largely due to the significant and complex impact of culture on such research.
IB research began to develop in the 1970s (along with the expansion of IB).27
Cross-cultural management research, however, remained largely limited throughout the 1970s and 1980s and, even now, represents only a small percentage of published research on management and organizational topics.28 In addition, at least until recently, much of the published research was from an Anglo perspective, much of it performed by American (or American-trained) or European researchers,29 and mostly done in the top industrialized or developed countries.30
Research published by non-Western scholars (or published in non-English language sources), such as in Western and Eastern Europe and Japan and in emerging economies, such as the BRIC countries, has gone largely unnoticed in the US, in particular, and in other major English-speaking countries.31 And among the business disciplines, management, organization, and HRM have been among those topics receiving the least attention.32 All of this has contributed to the lack of research related to IHRM.
The limited research published on international and comparative management and organization in general, and IHRM in particular, has also been criticized as lacking in analytical rigor, relying too heavily on description of organizational practices (as opposed to critically evaluating such practices), being expedient in research design and planning, and lacking the sustained effort needed to develop case material and other types of longitudinal studies.33
There are numerous reasons for this. Multinational—or cross-border or cross- cultural—research is expensive, takes more time, and typically involves more travel than domestic research, and often requires skills in multiple languages, sensitivity to multiple cultures, and cooperation among numerous individuals from different countries, companies, and, often, governments. All of this combines (and conspires) to make such research quite difficult, if not impossible for many researchers. Throw in problems with cultural differences among researchers and at research sites, translation problems (see the next few paragraphs), interpretation variances among multinational research teams, and difficulties with research designs such as the use of control groups and the creation of equivalent groups for comparison purposes, and one can see some of the reasons for the lack of rigorous research in international HRM in particular, and to a lesser extent, international management in general.34
The amount of research into topics of relevance to IHRM continues to grow, with the quantity and quality expanding.35 However, as described above, and as
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with all research into topics related to international business (if not all areas of international research), there are a number of issues that make such research difficult to perform, difficult to describe, and difficult to get published.36 The following is a short introduction to issues related to the conduct of research into IHRM, which should help those interested in both the conduct and the reporting of such research as well as help readers to evaluate the research that is reported, both of an empirical and of a more general, anecdotal nature.
General Frustrations
International management researchers have reported frustration with four particular problems:
■ Inconsistent and vague definitions of terms like culture and performance. ■ Inaccurate translation of key terminology (see the next few paragraphs). ■ Difficulty in obtaining representative or equivalent samples of research
subjects. It is very hard to isolate the variables of interest in different cultures.
■ Difficulty in isolating cultural differences—versus identifying cultural characteristics that might be common across varying cultures—amid varying national economic and political realities (such as stages of development of the countries or cultures being studied and the nature of their political systems).
Forms of IHRM Research
IHRM research has basically taken one of three forms. These are:
■ Cross-cultural, i.e., the study of issues or practices, comparing one country to another.
■ Multicultural, i.e., the study of a practice or issue in a number of countries or cultures.
■ HR practices in other countries, i.e., describing HR practices in one or more countries that are “foreign” to the researcher.
However, the majority of the published research has been of the first variety, primarily due to the many problems with conducting cross-border studies, as described earlier.
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The Specific Case of Employee Surveys37
Although most IHRM research is conducted by academic researchers (with some done by consultants and practitioners), some is conducted by in-house scientists. One of the functions of IHRM research is to help firms evaluate their IHRM practices. One of the common methods used for such in-house research is employee surveys. Even though surveys may be relatively simple in terms of research design, they are still impacted by all of the issues described in this section. Every issue, from translation and item equivalence, to union or works council reviews, to length of time to administer, to varying privacy guidelines or attitudes, to methods for administration, to difficulties in working with multinational teams, to varying acceptance of such data gathering in different countries, can cause problems.
Basic Assumptions
The basic models and/or assumptions that underlie cross-cultural research have been described as falling into the following three “camps.” The perspective of a particular researcher will obviously influence the approach taken, the types of questions examined, the type of data or information sought, and the interpretation and generalizability of the results.38
■ Universal. A researcher with a universalist assumption has the attitude that there exist some universal cultural characteristics; his or her research task is to identify them and thus demonstrate that certain management and HR practices will work anywhere.
■ Situational. A researcher with this perspective maintains that there are different managerial practices for different situations; thus his or her task is to identify the cultural situations in which HR or management practices differ or which practices differ based on which cultural variables.
■ Convergent. A researcher with this perspective begins with a view (and tries to verify) that countries with similar industrial and cultural backgrounds will converge to a common set of management practices as they approach similar levels of economic maturity.
Specific Difficulties
Some of the specific reasons for the difficulties in doing international/comparative management and IHR research and getting it published include the following.
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The Particular Focus of the Researcher(s)
There are often the following two foci described:
■ Emic. Trying to identify culture-specific aspects of concepts/behavior, i.e., differences across cultures.
■ Etic. Trying to identify culture-common aspects, i.e., the same across all cultures.
These terms have been borrowed from linguistics: a phonemic system documents meaningful sounds specific to a given language, and a phonetic system organizes all sounds that have meaning in any language. Both approaches provide legitimate research orientations, but if a researcher uses an etic approach (i.e., assumes universality across cultures) when there is little or no support for doing so, or vice versa, it makes the results difficult to interpret—or leads to errors in research design and interpretation—and will cause problems with review and publishing.
These approaches obviously interact with the universalist versus situational perspectives. A universalist approach will look for evidence to suggest that there is really only “one best way” and that countries that have practices that diverge will eventually converge to the best way. Thus a longitudinal perspective becomes quite important. Most cultural research is pretty static—that is, it doesn’t take into account a long-enough perspective to show that pressures even within a culture (or, broader, within the global environment) can lead to significant changes and adaptation. So, if the distinction between emic and etic approaches is ignored in research design, or if unwarranted universality assumptions are made, major methodological difficulties can arise.
Language Problems
Language problems are at the root of many of the problems encountered in conducting cross-national research (this is discussed in more detail later).
Measurement and/or Methodological Problems
Measurement and methodological problems can occur when conducting research in multiple cultures and/or languages (for example, attempting to get equivalence in the meaning of terms in various languages, particularly in questionnaire and interview research).39 “Measurement error occurs when the measure or scale employed fails to reflect the correct extent to which the subject possesses the
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attribute being measured.”40 These errors can arise because of flaws in scale design or mathematical properties, problems with instrument validity, or because of incorrect application of the scale. These are general methodological problems and can occur in any type of research. However, the complexities of cross-national research add additional problems involving issues such as the reliability of the measures in terms of equivalence of language in different versions of the instrument and equivalence in various versions of the instruments, themselves.41 In addition, the cross-cultural researcher needs to be aware of the need for equivalence of administration of research and of response to the research in different national or cultural locales.
Equivalence Problems in Cross-cultural Research
The three critical equivalence issues that arise in conducting cross-cultural and cross-national research include:42
■ Metric (stimulus) equivalence. This deals with trying to ensure that the psychometric properties of various forms of the research instruments, such as questionnaire surveys or interviews, which have to be translated into languages different from the original form, are the same; this is usually accomplished through back translation, i.e., having translators convert the translated forms back into the original language, to see if the back- translated questionnaire is the same as the original. Most cross-cultural research focuses here, and this step is pretty much required of all such research, in order to get published. But, as is demonstrated in the next few paragraphs, more is needed.
■ Conceptual equivalence. The concern here is to ensure that not only do the words translate the same, but that they have the same meaning in different cultures and produce the same level of consistency in results, i.e., the measurement results are similar. For example, in a cross-cultural survey administered in China, South Korea, Japan, and the US, researchers found significant effects attributable not only to country differences but also to the type of scale used, e.g., Likert or semantic differentials.43 The authors’ conclusion was that reactions to various attitude scales are culturally bound and, thus, the scales need to be matched to country situations.
■ Functional equivalence. This form of equivalence is concerned with ensuring that the terms used and the translations developed are viewed in each culture in similar ways, which requires having “insider” knowledge about the culture, adequate to determine what various cultures value and what the concepts really mean in each culture so as to produce “functional”
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similarity. In addition, functional equivalence is concerned with ensuring that the concepts work the same way and are implemented the same way in each culture.
The point here is that the results achieved through cross-cultural research may be due to the nature of the research itself (the scales, the language, the wording, the translations, administration, etc.) rather than with any “real” differences in the variables being studied. In addition, there are two more issues that need to be considered:
■ Subjectivity of the topics themselves. There can be differences between cultures in how they approach the very concept of doing research. The emphasis in Western research is on objectivity and specificity (at least, as viewed within Western cultural norms). But there are potentially a number of points at which people from non-Western (and even some from within Western) cultures would view research differently. For example, the choice of topics to research, that is, the topics that are seen as most important to research, are likely to vary from country to country. And topics, themselves, are likely to be viewed very differently and approached very differently in different cultures. For example, US business (males) have traditionally shown a bias for action but French business (males) prefer thought before action. Whether action or thought comes first could well be researched using objective measurement; but which is the “correct” managerial bias is subjective. And, indeed, women in either culture may view this issue differently yet.
■ Factors other than culture. Lastly, there may also be factors other than culture that make interpreting the results of cross-cultural and cross- national research very problematic. For example, a review of research published in Arabic showed conflicting results over preferences for various leadership or management styles in Arab countries.44 The author concluded that management styles used in these countries varied with situational factors other than culture.
Research Content in IHRM
Traditionally, the majority of published IHRM research and writing has been related to the selection and preparation of expatriates (now more commonly referred to as international assignees). Gradually more research interest has been focused on local foreign workforces and on other HRM practices in MNEs and in foreign operations. Clearly there are many practices of importance in IHRM that
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are gaining increased attention from researchers and writers. This is reflected in the chapters throughout the rest of this book.
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Impact of Culture on IHRM
The discussion in this chapter has illustrated just how important culture is in the conduct of international business and international HRM. Indeed, every aspect of IB and IHRM is impacted by national and organizational culture. Every topic throughout the rest of this book is influenced by the realities of varying country and company cultures. This is true for the HR management of international assignees as well as for the HR management of local workforces in subsidiaries and joint ventures.
A study by the Society for Human Resource Management (SHRM) in the US suggests that the situations in which particular cultural influences on IHRM are important include:45
■ recruiting and hiring practices; ■ building business relationships; ■ the role and use of multiple languages and communication; ■ perceptions of organizational justice (such as fairness in treatment, quality
of treatment, and fairness of outcomes); ■ decision making; ■ performance evaluations and feedback; ■ management and leadership development; ■ development of a global mindset; and ■ varying perspectives on careers across cultures.
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Conclusion
This chapter has described the concepts of national and MNE cultures and discussed their importance to the successful conduct of international business and international human resource management. It described the basic research findings of two of the best known researchers, Geert Hofstede and Fons Trompenaars, and the conclusions of one of the most-experienced international executives, Gesteland. The chapter also described the importance of culture to IHRM and the importance of culture to and its impact on the difficulties encountered in conducting IHRM research. Cultural differences impact international business and IHRM in ways that make both much more challenging and complex. MNEs and their managers need understanding and appreciation for these differences as well as cultural competencies in working within these varying cultural contexts.
This chapter has only provided an introduction and a frame of reference. The concepts and ideas are utilized throughout the rest of the text to help describe the complexities and challenges of IHR. The chapter has provided a framework within which the rest of IHRM and this book can be understood.
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Discussion Questions
1 How would you define or describe the concept of culture? 2 How is the research of Trompenaars and Charles Hampden-Turner similar
to or different from that of Hofstede? 3 What do you consider to be the most important factors of culture in terms
of their impact on business? 4 Are national cultures converging or diverging? 5 What are the most important difficulties in conducting research on IHRM
that stem from differences in national cultures and languages?
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Case Study 5.1: Internationalization and Cross-cultural Expansion of a Local Manufacturer: Barden (US) and FAG (Germany)
The experiences of Barden, a precision ball-bearing manufacturer based in Danbury, Connecticut, illustrate how workforce planning has become a global activity even for a local firm. In the late 1980s, Barden had an opportunity to significantly increase its business. In order to achieve this, it needed to increase its hourly labor force by about 125 employees over the next year. However, the local Danbury labor market was experiencing unprecedented low unemployment. The human resource department thought they could find enough new employees, but indicated they would have to be very creative (for example, by using bonuses to current employees for successful referrals, open houses to recruit applicants, etc.) and, importantly, by recruiting recent immigrants whose English was likely to be very poor.
In the past, Barden had found that, for example, Portuguese immigrants became very reliable, long-term employees. Barden had used a “buddy” system to help new employees learn their jobs and to acquire an adequate “Barden” work vocabulary. But it was clear that this would be inadequate to prepare—in a short period of time—the large new group of potential employees that had been identified. It turned out that there were a significant number of bright recent immigrants from a large and diverse number of countries (e.g., Laos, Cambodia, Brazil, Colombia, the Dominican Republic, Guatemala, Chile, Lebanon, Pakistan, Thailand, and Yemen), but who spoke little or no English.
To become functioning, qualified Barden employees, newcomers would have to master the basic “Barden” vocabulary and be able to look up standard operating procedures as well as material safety data sheets, and master basic shop mathematics, measurement processes, and blueprint reading. This was a major challenge for the immigrants, even though many of them, it was discovered, had received surprisingly good educations back in their home countries. In order to teach these new employees enough English to pay their way, a language training firm, Berlitz, was retained to develop a special, intensive course in cooperation with Barden’s training unit. In a fairly short period of time six groups of eight new employees were taught through this special program. All the students were put on the payroll while they met with a Berlitz instructor for four hours a day for 15 consecutive workdays during work hours.
The program had a number of effects, beyond enabling Barden to fill its employment needs to meet its new corporate growth strategy and to integrate this veritable United Nations group into its workforce. The confidence level of the
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students soared as they used their new language abilities. Barden’s supervisors were impressed—and gained some new cross-cultural awareness and competence as well (which came in handy over the next decade as Barden became an international company). And the word spread to the community with the positive result of attracting new high-quality recruits.
In 1991, Barden became affiliated with FAG, a German company in Schweinfelt, Germany, and Stratford, Canada, and later developed subsidiaries in the UK, as well. Today, Barden/FAG is recognized as the industry leader in the manufacture of ball-bearings to super-precise/super-critical tolerances, for machine tools and special machinery and equipment in the aerospace, automotive, and medical industries. And their success has been recognized as deriving, at least in a major way, from their diverse and multicultural workforce.
Sources: Schuler, R. S. and Walker, J. W. (1990). Human resource strategy: Focusing on issues and actions. Organizational Dynamics, summer, 4–20; updated 2014 at: www.bardenbearings.com.
Discussion Questions
1 Are immigrants a good source of workers to fill vacant positions? What are some of the barriers to employing immigrants? Are immigrants always welcomed by every country to fill job vacancies?
2 Do current global demographics accommodate or require the hiring of foreign immigrants? Should a consideration for foreign immigrants be part of every firm’s workforce strategy? How do host-country and third- country hires relate to the hiring of immigrants?
3 What cultural barriers had to be crossed with the hiring of immigrants at Barden? What cultural challenges do you think were experienced with the affiliation of Barden with FAG of Schweinfelt, Germany, and Stratford, Canada?
4 How would you (as Barden HR manager) have dealt with the need for new employees and then global expansion?
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Notes
1 Source: a UAL billboard in the terminal at Germany’s Frankfurt Airport.
2 Much of this chapter is based on Schneider, S., Barsoux, J-L., and Stahl, G. (2014). Managing across Cultures, 3rd rev. ed., Upper Saddle River, NJ: Pearson Education Limited; Steers, R., Nardon, L., and Sánchez-Runde, C. (2013). Management Across Cultures: Developing Global Competencies, New York: Cambridge University Press; Chanlat, J-F., Davel, E., and Dupuis, J-P. (2013). Cross-Cultural Management: Culture and Management Across the World, London/New York: Routledge; Primecz, H., Romani, L., and Sackman, S. (2012). Cross-Cultural Management in Practice: Culture and Negotiated Meanings, Cheltenham, UK/Northampton, MA: Edward Elgar.
3 Schell, M. S., and Solomon, C. M. (1997). Capitalizing on the Global Workforce, Chicago: Irwin, p. 9.
4 Adapted from F. Trompenaars and C. Hampden-Turner (2001). Cultural answers to global dilemmas. Financial Times, Jan. 15, p. 14.
5 See Vietnam gets a taste for the Big Mac: Country’s first McDonald’s serves 400,000 customers in first month, Daily Mail.com (24, March 2014) website: http://www.dailymail.co.uk/travel/article-2586011/Vietnams-McDonalds-serves-400– 000-customers-month.html#ixzz3GtYlXJPy; Ives, M. (Feb 7, 2014). McDonald’s opens in Vietnam, bringing Big Mac to fans of Banh Mi, New York Times website: http://www.nytimes.com/2014/02/08/business/international/mcdonalds-chooses-its- moment-in-vietnam.html?_r=2.
6 Maresca, T. (Feb 10, 2104). The first McDonald’s in Vietnam opened Saturday in Ho Chi Minh City.”, USA Today website: http://www.usatoday.com/story/money/business/2014/02/09/vietnam-mcdonalds-ho-chi- minh-city/5337103/.
7 Schell and Solomon (1997), p. 8.
8 See, for example, Hofstede, G., Hofstede, G. J., and Minkov, M. (2010). Cultures and Organizations: Software of the Mind, 3rd ed., New York: McGraw-Hill; Hofstede, G. (2001). Culture’s Consequences, 2nd ed., London: Sage; Schneider, S., Barsoux, J-L., and Stahl, G. (2014). Managing Across Cultures, 3rd rev. ed., Upper Saddle River, NJ: Pearson Education Limited; Hooker, J. (2003). Working Across Cultures, Stanford, CA: Stanford Business Books; Moore, K. (2003). Great global managers, Across the Board, May–June, 40–44; Peterson, B. (2004). Cultural Intelligence, Yarmouth, ME: Intercultural Press; Stroh, L. K., Black, J. S., Mendenhall, M. E., and Gregersen, H. B. (2005). International Assignments, Mahwah, NJ/London: Lawrence Erlbaum Associates; Thomas, D.C., and Inkson, K. (2009). Cultural Intelligence, 2nd ed., San Francisco: Berrett-Koehler Publishers; Trompenaars, F. (1992/1993). Riding the Waves of Culture: Understanding Diversity in Global Business, Burr Ridge, IL: Irwin, chapter 1; and Trompenaars, F., and Hampden-Turner, C. (2004). Managing People Across Cultures, West Sussex, England: Capstone Publishing Ltd.
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9 Schell and Solomon (1997); Hofstede (1991). Cultures and organizations: Software of the mind. London: McGraw-Hill; Trompenaars (1992/1993); Trompenaars and Hampden- Turner (2004).
10 McCall, M. W., Jr., and Hollenbeck, G. P. (2002). Developing Global Executives: The Lessons of International Experience, Boston, MA: Harvard Business School Press.
11 Levin, D. (2010). Helping to bridge a cultural divide in China, International Herald Tribune, Dec. 22, 4.
12 Hofstede, G. (2001); Hofstede (1991); Hofstede, G. (2001); Hofstede, G. (2002). Cultural constraints in management theories, CRN News, 7(4), 1–3, 12–13, 16, 19, 22–23.
13 Source: www.geert-hofstede.com (the Hofstede Center) 4/18/14; www.BusinessMate.org 4/18/14; www.andrews.edu/~tidwell/bsad560/hofstede.html 4/18/14; Hofstede, G. (2001).
14 See, for example, Hofstede, G. (1984). Clustering countries on attitudinal dimensions: A review and synthesis, Academy of Management Review, 9(3), 389–398; Hofstede, G. (1983). The cultural relativity of organizational theories, Journal of International Business Studies, 14(2), 75–90.
15 Saari, L., and Schneider, B. (2001). Global employee surveys: Practical considerations and insights, paper presented at Going global: Surveys and beyond, workshop at the annual conference, Society of Industrial/Organizational Psychology, San Diego, April.
16 Hampden-Turner, C., and Trompenaars, F. (2012). Riding the Waves of Culture: Understanding Diversity in Global Business, 3rd ed., New York: McGraw-Hill; Hampden-Turner, C., and Trompenaars, F. (1993). The Seven Cultures of Capitalism, New York: Currency/Doubleday; Trompenaars, F. (1992/1993); and Trompenaars, F., and Hampden-Turner, C. (2004).
17 To learn more about GLOBE see Dorfman, P., Javidan, M., Hanges, P., Dastmalchian, A., and House, R. (2012). GLOBE: A twenty-year journey into the intriguing world of culture and leadership. Journal of World Business, (4), 504; Javidan, M., Dorfman, P. W., Mary Sully de, L., and House, R. J. (2006). In the eye of the beholder: Cross-cultural lessons in leadership from Project GLOBE. Academy of Management Perspectives, (1), 67; Javidan, M., and House, R. J. (2000). Cultural acumen for the global manager, Organizational Dynamics, 29(4), 289–305; Globe Research Team (2002). Culture, Leadership, and Organizational Practices: The GLOBE Findings, Thousand Oaks, CA: Sage; and Graen, G. B. (2006). In the eye of the beholder: Cross-cultural lessons in leadership from Project GLOBE, Academy of Management Perspectives, 20(4), 95–101; and the response to this analysis: House, R. J., Javidan, M., Dorfman, P. W., and de Luque, M. S. (2006). A failure of scholarship: Response to George Graen’s critique of GLOBE, Academy of Management Perspective, 20(4), 102–114.
18 See Ronen, S., and Shenkar, O. (2013). Mapping world cultures: Cluster formation, sources and implications. Journal of International Business Studies, 44(9), 867–897; Ronen, S., and Shenkar, O. (1985). Clustering countries on attitudinal dimensions: A review and synthesis, Academy of Management Review, 10(3), 435–454; Ronen, S., and Shenkar, O. (1988). Using employee attitudes to establish MNC regional divisions,
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Personnel, August, 32–39.
19 See, for example, Earley, P. C., and Erez, M. (eds.) (1997). New Perspectives on International Industrial/Organizational Psychology, San Francisco: The New Lexington Press; Gesteland, R. R. (1999). Cross-cultural Business Behavior: Marketing, Negotiating and Managing Across Cultures, Copenhagen, Denmark: Copenhagen Business School Press; Gundling, E. (2003). Working Globesmart, Palo Alto, CA: Davies-Black Publishing; Hodge, S. (2000). Global Smarts: The Art of Communicating and Deal-making Anywhere in the World, New York: Wiley; Moran, R. T., Harris, P. H., and Moran, S. V. (2007). Managing Cultural Differences, 7th ed., Burlington, MA: Butterworth-Heinemann; and Scherer, C. W. (2000). The Internationalists, Wilsonville, OR: Book Partners.
20 Gesteland (1999).
21 Brannen, M. Y. (1999). The many faces of cultural data, AIB Newsletter, first quarter, 6– 7.
22 Ibid.
23 See, for example, Festing, M. (2012). Strategic human resource management in Germany: Evidence of convergence to the U.S. model, the European model, or a distinctive national model? The Academy of Management Perspectives, (2), 37; Lertxundi, A., and Landeta, J. (2012). The dilemma facing multinational enterprises: Transfer or adaptation of their human resource management systems. International Journal of Human Resource Management, 23(9), 1788–1807; Škerlavaj, M., Su, C., and Huang, M. (2013). The moderating effects of national culture on the development of organisational learning culture: A multilevel study across seven countries. Journal for East European Management Studies, 18(1), 97–134; Brewster, C. (2012). Comparing HRM policies and practices across geographical borders, in Stahl, G. K., Björkman, I., and Morris, S. S. (eds.), Handbook of Research in International Human Resource Management, 2nd ed., Cheltenham: Edward Elgar, pp. 76–96; Mayrhofer, W., and Brewster, C. (2012). Handbook of Research on Comparative Human Resource Management, Cheltenham: Edward Elgar; Peretz, H., and Fried, Y. (2012). National cultures, performance appraisal practices, and organizational absenteeism and turnover: A study across 21 countries. Journal of Applied Psychology, 97(2), 448–459; Mayrhofer, W., Brewster, C., Morley, M. J., and Ledolter, J. (2011). Hearing a different drummer? Convergence of human resource management in Europe—a longitudinal analysis. Human Resource Management Review, 21(1), 50–67; Sparrow, P., Schuler, R. S. and Jackson, S. (1994). Convergence or divergence: Human resource practice and policies for competitive advantage worldwide. International Journal of Human Resource Management, 5(2), 267–299.
24 Mayrhofer, W., Brewster, C., Morley, M. J., and Ledolter, J. (2011); Brewster, C. (2012); Huo, Y. P., Huang, H. J., and Napier, N. K. (2002). Divergence or convergence: A cross- national comparison of personnel selection practices, Human Resource Management, 41(1), 31–44; Von Glinow, M. A., Drost, E., and Teagarden, M. (2002). Converging on IHRM best practices: Lessons learned from a globally distributed consortium on the
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theory and practice, Human Resource Management, 41(1), 123–140.
25 Yongsun, P., Chow, I., and Vance, C. M. (2011). Interaction effects of globalization and institutional forces on international HRM practice: Illuminating the convergence- divergence debate. Thunderbird International Business Review, 53(5), 647–659; Drost, E., Frayne, C., Lowe, K., and Geringer, M. (2002). Benchmarking training and development practices: A multi-country comparative analysis, Human Resource Management, 41(1), 67–85; Gerhart, B., and Fang, M. (2005). National culture and human resource management: Assumptions and evidence, International Journal of Human Resource Management, 16(6), 971–986; Pucik, V. (1997). Human resources in the future: An obstacle or a champion of globalization? Human Resource Management, 36(1), 163–167.
26 Vance and Paik (2011). The concept of “crossvergence,” originated in Ralston, D., Holt, D., Terpstra, R. H., and Yu, K.-C. (1997). The impact of national culture and economic ideology on managerial work values: A study of the United States, Russia, Japan, and China, Journal of International Business Studies, 28(1), 177–207. See also Shimoni, B., and Bergmann, H. (2006). Managing in a changing world: From multiculturalism to hybridization—The production of hybrid management cultures in Israel, Thailand, and Mexico, Academy of Management Perspective, August, 76–89.
27 Pierce, B., and Garvin, G. (1995). Publishing international business research: A survey of leading journals, Journal of International Business Studies, 26(1), 69–89.
28 Adler, N. J. (1983). Cross-cultural management research: The ostrich and the trend, Academy of Management Review, 8(2), 226–232; Pierce and Garvin (1995).
29 Boyacigillar, N., and Adler, N. J., (1991). The parochial dinosaur: Organizational science in a global context, Academy of Management Review, 16(2), 262–290.
30 Thomas, A. S., Shenkar, O., and Clarke, L. (1994). The globalization of our mental maps: Evaluating the geographic scope of JIBS coverage, Journal of International Business Studies, 25(4), 675–686.
31 Thomas, A. S., et al. (1994); Hickson, D. J. (1996). The ASQ years then and now through the eyes of a Euro-Brit, Administrative Science Quarterly, 41(2), 217–228.
32 Inkpen, A., and Beamish, P. (1994). An analysis of twenty-five years of research in the Journal of International Business Studies, Journal of International Business Studies, 25(4), 703–713; Melin, L. (1992). Internationalization as a strategy process, Strategic Management Journal, 13, 99–118; Parker, B. (1998). Globalization and Business Practice: Managing Across Borders, Thousand Oaks, CA: Sage; Thomas et al. (1994).
33 Dowling, P. J. (1988). International HRM, in Dyer, L. (ed.), Human Resource Management: Evolving Roles and Responsibilities, Washington, DC: Bureau of National Affairs; Earley, P. C., and Singh, S. H. (2000). Introduction: New approaches to international and cross-cultural management research, in Earley, P. C., and Singh, S. H. (eds.), Innovations in International Cross-cultural Management, Thousand Oaks, CA: Sage; McEvoy, G. M., and Buller, P. F. (1993). New directions in international human resource management research, paper presented at the Academy of International
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Business annual meeting, Maui, HI, October 21–24; Tayeb, M. (2001). Conducting research across cultures: Overcoming drawbacks and obstacles, International Journal of Cross-cultural Management, I(1), 91–108; Triandis, H. C. (1998). Vertical and horizontal individualism and collectivism: Theory and research implications for international comparative management, Advances in International Comparative Management, XII, Greenwich, CT: JAI Press, 7–35.
34 See, for example, Zhan, G. (2013). Statistical power in international business research: Study levels and data types. International Business Review, (4), 678; Peterson, M. F., Arregle, J., and Martin, X. (2012). Multilevel models in international business research. Journal of International Business Studies, (5), 451; Michailova, S. (2011). Contextualizing in international business research: Why do we need more of it and how can we be better at it?. Scandinavian Journal of Management, (1), 129; Geringer, J., and Pendergast, W. (2012). Firmly rooting international business research in the soil of relevance: Integration and recommendations. Thunderbird International Business Review, 54(2), 263–269; Aguinis, H. and Henley, C. (2003). The search for universals in cross-cultural organizational behavior, Organizational Behavior: The State of the Science, 2nd ed., Mahwah, NJ/London: Lawrence Erlbaum Associates; Baruch, Y. (2001). Global or North American? A geographical-based comparative analysis of publications in top management journals. International Journal of Cross-cultural Management, 1 (1), 109–125; Bond, M. H. (1997). Adding value to the cross-cultural study of organizational behavior: Reculer pour mieux sauter, in Earley, P. C., and Erez, M. (eds.) New Perspectives on International Industrial/Organizational Psychology, San Francisco: The New Lexington Press, pp. 256–275; Earley, P. C., and Mosakowski, E. (1995). Experimental international management research, in Punnett, B. J., and Shenkar, O. (eds.) Handbook for International Management Research, Cambridge, MA: Blackwell Publishers, pp. 83–114; Gelfand, M. J., Holcombe, K. M., and Raver, J. L. (2002). Methodological issues in cross-cultural organizational research, in Rogelberg, S. G. (ed.), Handbook of Research Methods in Industrial and Organizational Psychology, Malden, MA: Blackwell Publishers, pp. 216–241; GLOBE Research Team (2002). Culture, Leadership, and Organizational Practices: The GLOBE Findings, Thousand Oaks, CA: Sage; Graen, G. B., Hui, C., Wakabayashi, M., and Wang, Z.-M. (1997). Cross-cultural research alliances in organizational research, in Earley, P. C., and Erez, M. (eds.), New Perspectives on International Industrial/Organizational Psychology, San Francisco: The New Lexington Press, pp. 160–189; House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., and Gupta, V. (2004). Culture, Leadership, and Organizations. The GLOBE Study of 62 Societies, Thousand Oaks, CA: Sage; Mattl, C. (1999). Qualitative research strategies in international HRM, in Brewster, C., and Harris, H. (eds.) International HRM: Contemporary Issues in Europe, London: Routledge; and Wright, L. L. (1995). Qualitative international management research, in Punnett, B. J., and Shenkar, O. (eds.), Handbook for International Management Research, Cambridge, MA: Blackwell Publishers, pp. 63–81.
35 See specific academic journals and trade publications dedicated to IHRM such as The International Journal of Human Resource Management, Journal of Global Mobility,
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The Asia Pacific Journal of Human Resources, South Asian Journal of Global Business Research, South Asian Journal of Human Resources Management, International Journal of Manpower, The Journal of Chinese Human Resource Management, and Human Resource Management International Digest among others; for example, Aycan, Z., Kanungo, R. N., Mendonca, M., Yu, K., Deller, J., Stahl, G., and Kurshid, A. (2000). Impact of culture on human resource management practices: A ten-country comparison, Applied Psychology: An International Review, 49, 192–221; and (the most recent publication from this group) Sackett, P. R., Shen, W., Myors, B., Lievens, F., Schollaert, E., Van Hoye, G., Cronshaw, S. F., Onyura, B., Mladinic, A., Rodriguez, V., Steiner, D. D., Rolland, F., Schuler, H., Frintrup, A., Nikolaou, I., Tomprou, M., Subramony, S., Raj, S. B., Tzafrir, S., Bamberger, P., Bertolino, M., Mariana, M., Fraccaroli, F., Sekiguchi, T., Yang, H., Anderson, N. R., Evers, A., Chernyshenko, O., Englert, P., Kriek, H. J., Joubert, T., Salgado, J. F., König, C. J., Thommen, L. A., Chuang, A., Sinangil, H. K., Bayazit, M., Cook, M., and Aguinis, H., Perspectives from twenty-two countries on the legal environment for selection, in Farr, J. L., and Tippins, N. T. (eds.) (2010). Handbook of Employee Selection, Clifton, NJ: Psychology Press, pp. 651–656.
36 Caligiuri, P.M. (1999). The ranking of scholarly journals in the field of international human resource management, International Journal of Human Resource Management, 10 (3), 515–518; House, R. H., Hanges, P. J., Antonio Ruiz-Quintanilla, S., Dorfman, P. W., Javidan, M., Dickson, M., Gupta, V., and GLOBE Country Co-investigators (1999). Cultural influences on leadership and organizations: Project GLOBE, in Mobley, W. H., Gessner, M. J., and Arnold, V. (eds.), Advances in Global Leadership, Vol. I, Stamford, CT: JAI Press; House, R. J., Wright, N. S., and Aditya, R. N. (1997). Cross-cultural research on organizational leadership: A critical analysis and a proposed theory, in Earley, P. C., and Erez, M. (eds.), New Perspectives on International Industrial/Organizational Psychology San Francisco: The New Lexington Press.
37 Harzing, A., Brown, M., Koster, K., and Zhao, S. (2012). Response style differences in cross-national research: Dispositional and situational determinants. Management International Review, (3), 341; Harzing, A.W., Reiche, B.S., and Pudelko, M. (2013). Challenges in international survey research: A review with illustrations and suggested solutions for best practice. European Journal of International Management, vol. 7, no. 1, 112–134; Saari, L., and Schneider, B. (2001). Global employee surveys: Practical considerations and insights, paper presented at “Going Global: Surveys and Beyond,” workshop at the annual conference of the Society for Industrial/Organizational Psychology, San Diego, CA, April.
38 Lubatkin, M. H., Ndiaye, M., and Vengroff, R. (1997). The nature of managerial work in developing countries: A limited test of the universalist hypothesis, Journal of International Business Studies, fourth quarter, 711–733; Punnett, B. J., and Shenkar, O. (eds.) (1996). Handbook for International Management Research, Cambridge, MA: Blackwell Publishers; Sparrow, P., Brewster, C., and Harris, H. (2004). Globalizing Human Resource Management, Routledge, London; and Vance and Paik (2011).
39 Mullen, M. R. (1995). Diagnosing measurement equivalence in cross-national research, Journal of International Business Studies, 15 (3), 573–596.
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40 Cavusgil, S. T., and Das, A. (1997). Methodological issues in empirical cross-cultural research: A survey of the management literature and a framework, Management International Review, 37 (1), 81.
41 Cavusgil and Das (1997); Douglas, S. P., and Craig, S. (1983). International Marketing Research, Englewood Cliffs, NJ: Prentice Hall; Samiee, S., and Jeong, I. (1994). Cross- cultural research in advertising: An assessment of methodologies, Journal of the Academy of Marketing Science, 22 (3), 205–217.
42 Mullen (1995).
43 Yu, J. H., Keown, C. F., and Jacobs, L. W. (1993). Attitude scale methodology: Cross- cultural implications, Journal of International Consumer Marketing, 6 (2), 45–64.
44 Mattl (1999).
45 Lockwood, N. R., and Williams, S. (2008). Selected Cross-Cultural Factors in Human Resource Management, SHRM Research Quarterly, Third-Quarter, Alexandria, VA: the Society for Human Resource Management.
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Chapter 6 International Employment Law, Labor Standards, and Ethics
Baker & McKenzie has been global since inception. Being global is part of our DNA.
Baker & McKenzie Corporation, the world’s largest global employment law firm1
Learning Objectives
This chapter will enable the reader to:
■ Describe the three major legal systems and their key differences. ■ Describe international labor law and standards and explain their
impacts. ■ List and describe the goals of the various international trade
agreements. ■ Describe how EU directives impact IHRM. ■ Identify the major issues impacting HR with regard to
immigration/visas, personal data protection, anti-discrimination and harassment, termination and reduction in force, and intellectual property.
■ Integrate existing employment laws and regulations, ethical standards, CSR, and corporate governance into IHRM policies and practices.
One of the most important components of the global context for IHRM is employment law and regulation and their application. Thus, this chapter is about international employment law and labor standards and ethics in the global economy. All global firms must contend with varying employment laws in the countries in which they conduct business, as well as abide by whatever international standards also exist.2 Typically, foreign laws and practices differ considerably from what MNEs are familiar with at home. So there can be considerable risk of making mistakes, pursuing risky strategies, and putting the enterprise at considerable legal liability from not understanding adequately what these laws, standards, and codes require.
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When an employee is in Japan one day and Mexico the next, or an employee in the UK meets with a colleague from Sweden to finalize a project in Spain, or executives from anywhere are making strategic decisions about operations anywhere else, their organizations must make sure that any number of standards (based in legislation or country culture) are not violated. In addition to varying from country to country, statutes and regulations are also continually being revised and updated, making it difficult and exceedingly complex to stay current and legal.
International standards, national trade agreements, commercial diplomacy efforts with governments, and varying country laws and cultures all impact how MNEs must operate. National, supranational, and extra-territorial laws have varying legal and regulatory impacts on nation-states and their actors (firms, labor organizations, regulatory bodies, and individuals). In addition to legal compliance, a number of other IHR regulatory issues also have an impact on the activities of MNEs (such as immigration controls, cross-border data privacy protections, discrimination regulations, termination and reduction-in-force regulations, and intellectual property protections). Finally, moving beyond a pure concern with compliance with the law, there is growing legal and public concern with MNEs showing ethical conduct in their relationships with all of their stakeholders, being responsible corporate citizens, and establishing transparent corporate governance mechanisms. Failure to comply with local employment laws and any regional or international employment standards that apply can carry liabilities at many levels, including of course legal and financial liabilities, but also can include the potential consequences of negative employee and public opinion, stockholder unrest, consumer dissatisfaction, and hostile local governments.
Seven general areas are discussed in this chapter:
1 the general legal context in differing countries; 2 international employment law and enforcement; 3 comparative employment law; 4 extra-territorial application of national law; 5 enforcement of national law to local foreign-owned enterprises; 6 immigration law; and 7 international labor standards and ethics.
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The Institutional Legal Context of International Business (IB)
The legal environment in which MNEs and their IHR managers operate is quite complex. At least three different major legal systems operate in the nations of the world.3 In general, law establishes rules for behavior, usually enforced through a set of institutions. It shapes government, economics, and society in numerous ways and serves as a primary social mediator of relations between people, between people and organizations, and between organizations. As a consequence, each of these three legal systems has its own unique methodologies for creating laws, for developing the content of laws, and for enforcing laws. These three systems include the common law system as developed in England and its colonies, including the US, the civil code approach (often referred to as the Napoleonic code), as developed in France, and religious law, the most common form of which, today, is Islamic law, or Sharia, as practiced in a number of Islamic states, such as Saudi Arabia and Iran.
Common Law
Under common law, a constitution enunciates a few, long-standing, general principles to which everyone is subject. The law, then, is based on tradition as stated in the constitution, past practices, and legal precedents set by courts through interpretation of the constitution, legislative statutes, and past rulings. Under common law, legislation and statutes tend to be quite general, the specifics developing over time. Interpretation when there is a question or disagreement is done in court, typically before a jury, and typically for the purpose of deciding whether the general law applies to the situation. Under common law, legislation tends to establish basic principles, with precedence and practice determining what people can and cannot do.
Civil Code or Law
A civil law or code is based on an all-inclusive system of written rules, of which there are three types: commercial, civil, and criminal. Statutes tend to be very specific, defining people’s basic rights and duties, in some cases even tracing these rights and duties back as far as to early Roman law. Enforcement and interpretation in civil law is a problem of determining whether or not a person did something that was not allowed under the code.
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Religious Law
The third form of law is religious law, the most common of which is Islamic law, or Sharia, which refers to the “way” Muslims should live or the “path” they must follow. It is derived from the sacred text of Islam (the Qur’an) and Traditions (Hadith) gathered from the life of the Islamic prophet, Muhammad. Traditionally, Islamic jurisprudence interprets and refines Sharia (often by senior religious figures) by extending its principles to address new questions. Islamic judges apply the law; however, modern application varies from country to country. Sharia deals with many aspects of life, including crime, politics, economics, banking, business, contracts, family, sexuality, hygiene, and social issues, where personal standards for behavior, as interpreted from the Qur’an, take precedence in all aspects of life. Islamic law is now the most widely used religious law, and thus one of the three most common legal systems of the world.
Having to cope with three very different legal systems makes it necessary for firms to understand the differences in order to know what to expect and how to behave with regard to the law and regulatory systems, particularly as it relates to their management and human resource management policies and practices, such as standards proscribing discrimination for various groups (which will vary between countries) and determining holiday and termination standards (which, again, will vary between countries). These systems not only apply to firms in their operational and management decisions, but also to employees and their families in their everyday lives. If employees (and their managers), particularly those on international assignment, and their families are not briefed carefully on how the particular local set of laws, police authorities, and courts operate, they can (and often do) find themselves in major difficulties, often for reasons they don’t understand.
In order for IHR managers from MNEs to develop policies and practices that stay within the laws and regulations of each country in which they operate, they need to be familiar with those laws, regulations, and enforcement mechanisms (or, as is often the alternative, to rely heavily on the expertise of local legal consultants).
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Establishment of Labor Standards by International Institutions
In addition to these general legal systems, a number of international institutions are also involved with establishing labor standards that apply to most (or many) countries and to their enterprises that conduct business across borders.4 Gradually these institutions are developing a certain level of consensus on basic employment rights. These generalized standards are shown in Exhibit 6.1. The International Labour Organization’s (ILO) Declaration on Fundamental Principles and Rights at Work are not only accepted by various international groups, but also by regional political affiliations and by national legislatures, which are gradually incorporating them into local law and jurisprudence.
Exhibit 6.1: ILO Declaration on Fundamental Principles and Rights at Work
■ freedom of association and the effective recognition of the right to collective bargaining;
■ elimination of all forms of forced or compulsory labor; ■ effective abolition of child labor; ■ elimination of discrimination in respect of employment and
occupation.
Source: http://www.ilo.org/declaration/lang—en/index.htm.
International Organizations
A number of international organizations such as the United Nations (UN), the International Labour Organisation (ILO), the Organization for Economic Cooperation and Development (OECD), the World Bank, and the International Monetary Fund (IMF) have all promoted labor standards that impact employees and labor relations within MNEs. Some of these standards are voluntary while others are technically binding for member states of the international body. The following provides a short description of these bodies and the standards they have promulgated.
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United Nations
The UN plays a relatively insignificant role in establishing employment laws or standards. Until recently, the UN only operated in this domain through agencies such as the International Labour Organisation (see below). Internally, the UN has primarily focused on the social dimensions of international trade through its Conference on Trade and Development (UNCTAD), with its focus on the transnational corporation,5 and through regional economic commissions (such as the Economic and Social Commission for Asia and the Pacific). This has developed primarily through the convening of conferences and the commissioning of studies to focus on the social impacts of liberalized trade and the increased importance of transnational corporations.
In recent years, however, the UN has also tried to take on a more active role, particularly within the context of applying and giving visibility to its Statement of Universal Human Rights. In July 2000, the United Nations General Assembly adopted the Global Compact that calls on businesses around the world to embrace 10 universal principles in the areas of human rights, labor standards, and the environment.6 Exhibit 6.27 lists the Compact principles that directly involve IHR. As is the case with most international standards, the Global Compact is not a regulatory instrument, but rather a voluntary initiative that relies on public accountability, transparency, and disclosure to complement regulation and to promote sustainable growth and good citizenship through committed and creative corporate leadership.
International Labour Organisation (ILO)8
Established in 1919, the ILO has as its primary goal the improvement of working conditions, living standards, and the fair and equitable treatment of workers in all countries. It is composed of member states with representatives from governments, employers, and workers. This tri-partite structure has remained as the mechanism through which the ILO carries on its work. The ILO currently has 1859 member countries and is the only really global organization that deals with labor issues, such as stating generally accepted employment standards that apply to all members.
Exhibit 6.2: United Nations Global Compact Principles of Interest to IHRM
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■ Human rights
■ “Businesses should support and respect the protection of internationally proclaimed human rights”; and
■ “Make sure that they are not complicit in human rights abuses.”
■ Labor
■ “Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining”;
■ “The elimination of all forms of forced and compulsory labour”;
■ “The effective abolition of child labour”; and ■ “The elimination of discrimination in respect of employment
and occupation.”
Source: United Nations Global Compact: http://www.unglobalcompact.org/abouttheGc/TheTenprinciples/index.html
The ILO sets two types of labor standards—conventions and recommendations— in industrial categories. Conventions are international treaties that are legally binding for the member states once they are ratified by them. Recommendations are non-binding guidelines that assist countries in the implementation of conventions. In 2000, the member nations of the ILO finally voted overwhelmingly to adopt the ILO Declaration of Fundamental Principles and Rights at Work (see Exhibit 6.1). An annual report examines trends toward compliance with each of the principles.
The Organization of Economic Cooperation and Development (OECD)
Established in 1960, the OECD evolved from the Organization for European Economic Cooperation (OEEC) that was formed by a number of European nations to administer the US Marshall plan to rebuild the war-ravaged economies of Europe at the end of World War II. Its focus is broader than that of the ILO as it coordinates economic policy among the industrialized countries and addresses globalization issues through the promotion of economic, environmental, and social policy among its members. OECD membership has gradually expanded to its current 34 members10—all industrialized countries that have developed to an
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agreed-upon threshold of per capita GDP and a demonstrated willingness to adhere to OECD standards and agreements. In addition OECD has cooperation with more than 7011 non-member states that act as observers.
The OECD has many directorates dealing with many aspects of economic and social development, including a Directorate for Employment, Labour, and Social Affairs. Its main objective is to research issues related to these topics, such as changing employment patterns, the relationship of wages and working conditions to levels of employment, and the status of women in the workforce. The Directorate is not focused on the development of labor standards, per se.
However, one area of concern of the OECD has been the development of a set of Guidelines for MNEs. These guidelines aim to help businesses, labor unions, and NGOs by providing them with a global framework for responsible business conduct. In addition, the guidelines include strict standards for corporate behavior in areas including employment relations.
Since the OECD is a voluntary organization, it cannot set binding labor standards but only sets forth voluntary guidelines. These guidelines are issued under the umbrella of a “chapeau” agreement (i.e., a guiding framework for local laws and regulations) and provide recommendations on responsible business conduct for MNEs operating in or from adhering countries. Many OECD member states have used these guidelines as the basis for domestic laws concerning corporate behavior.
World Bank and International Monetary Fund (IMF)
Both the World Bank (founded in 1944)12 and the IMF (founded in 1945)13 have undertaken extensive research on the relation between trade policy reform and labor markets (wages, unemployment, etc.). Their primary interest has been in protecting “social safety nets” in the phasing and sequencing of their programs. For example, where structural reforms that they have introduced (such as privatization of government-owned sectors of the economy or reductions in protective tariffs) have led to significant retrenchment of jobs (such as in the public sector), they have introduced programs including severance payments and worker retraining schemes.
International Trade Organizations and Treaties
There are a number of international trade organizations and regional trade treaties that are pursuing, to greater or lesser extents, common labor standards throughout their areas of concern. The best known (and most fully developed) of the regional
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trade agreements is the European Union (EU), but they also include the North American Free Trade Agreement (NAFTA), Mercosur/Mercosul, and ASEAN, among other less-developed regional agreements. The following provides a short overview of key efforts in the arena of labor and employment standards.
World Trade Organization (WTO)
The WTO (established in 1995)14 is the international body in which multilateral tariff reductions are negotiated, reductions in non-tariff trade barriers are negotiated, and international trade disputes are reviewed and adjudicated.15 It replaced the earlier General Agreement on Trade and Tariffs (GATT). To this point in time, the WTO has not taken any direct action to define labor standards. But it is under constant pressure, primarily from the developed countries, and among them, primarily the US and the EU, to examine ways to link labor codes and human rights issues with tariff reductions.
Some industrial nations and labor advocates think the WTO should use trade sanctions as a means of pressuring countries that, in their opinion, are violating “core labor rights,” a term that covers such matters as the use of child labor and forced labor and denial of the right to organize free trade unions. Advocates of such WTO sanctions argue that a country with lower standards for labor rights (which result in lower costs for labor) has an unfair cost advantage for its exports. Thus, they argue, it is an appropriate topic for consideration by the WTO. There has been considerable discussion within the WTO about ways to be involved with labor issues, such as linking with the ILO. But thus far, there is no consensus to do so nor on how to do it. Indeed, the general consensus appears, for now at least, to be for the WTO to defer to the ILO in the pursuit of global labor standards.
European Union (EU)
The European Union is the most highly developed economic trade treaty. It began as the European Economic Community (EEC—or just EC) under the Treaty of Rome in 1957 as an economic union (a “common market”), designed around reduced tariffs and freer trade. The EC originally included the six Western European countries of France, Germany, Italy, and the Benelux countries. Today the EEC has grown to an enlarged European Union (EU) of 2816 member states (with another 617 countries on a “waiting” list) and has become a social and political union as well. As the number of countries has increased, so also has the size of the member population, with a population now estimated (2014) to be about 507.418 million people, and it has become the world’s largest integrated
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trading bloc. The political structure of the EU consists of five distinct institutions (the European Parliament, the Council of the EU, the European Commission, the Court of Justice, and the Court of Auditors), each with specific responsibilities.19
Of particular interest to IHR is what is referred to within the EU as the social dimension.20 The Social Charter of the EU, first adopted in 1989 and implemented in 1992, sets out 12 principles of fundamental rights of workers. Since the original adoption of these principles, the EU has been translating them into practice through directives, with the intent of defining a minimum set of basic rules to be observed in every member country. The intent is to raise the standards in the poorer countries, while encouraging countries that want to do so, to move to even higher levels of worker protections or to, at least, maintain their already higher standards. Of course, these principles and standards apply to all firms, locally owned or foreign owned, that operate within the EU.
Under the Maastricht Treaty of 1991, the following protocols with regard to the various areas of social policy were agreed for EU-wide adoption:
■ Require unanimous agreement by all member states: social security, social protections, individual terminations, representation/collective defense including co-determination, third country national employment conditions, and financial aid for employment promotion.
■ Require a qualified majority vote: issues related to the environment, safety and health, working conditions, information and consultation, equal opportunity—labor market opportunities/treatment at work, and integration of persons excluded from the labor market.
■ Exempt (i.e., left to the discretion of individual states): levels of pay, right of association, and rights to strike or lockout.
Under the Treaty of Amsterdam in 1998, the EU included an Employment “chapter” in the basic treaty, with the purpose of promoting throughout all member states a high level of employment and social protection. Employment policy remains the responsibility of individual member states, but the new chapter on employment policy has the intention of providing a common and central focus on employment policy, including improving the employability of the labor force (particularly young workers and long-term unemployed), encouraging and facilitating entrepreneurship, encouraging greater adaptability of businesses and their employees (by modernizing work arrangements, such as flexible work arrangements and tax incentives for in-house training), and strengthening the policies for equal opportunity (tackling gender gaps in some economic sectors, reconciling conflicts between work and family life, facilitating reintegration into the labor market, and promoting integration of people with disabilities).
The EU has passed many directives (discussed later) that address specific areas of
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concern with the overall objectives of the Social Charter. It is necessary for IHR managers in any enterprise doing business within the EU to understand these regulations and to ensure that their firm’s policies and practices abide by them. It is no longer possible to locate an MNE’s operations in any specific country within the EU with the strategy of hoping to find “softer” employment standards and regulations. Now EU directives apply to all member states and as the number of member countries has increased to 28, the task of ensuring compliance within the EU has become even more extensive and complicated. The European Social Fund was established under the Social Charter with the purpose of promoting the geographical and occupational mobility of workers by focusing development funds on training and retraining schemes, particularly for younger workers and women, migrants, workers threatened with unemployment in restructuring industries, workers with disabilities, and workers in small- and medium-sized enterprises.
On December 1, 2009, the Lisbon Treaty went into force.21 This most recent organizing document of the EU was negotiated to strengthen the role of the European Parliament and, in general, improve democracy throughout the institutions of the now 28-member EU. Included in the Lisbon Treaty were a number of steps of importance to the overall Social Charter. For example, it reinforced the Charter of Fundamental Rights, signed in 2000, including a number of social rights, such as personal data protection, the rights of asylum, equality before the law and non-discrimination, equality between men and women, the rights of children and elderly people, and important social rights such as protection against unfair dismissal and access to social security and social assistance.
North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement, between Canada, the United States, and Mexico, came into force in 1994,22 aimed at promoting greater trade and closer economic ties between the three member countries. However, it provoked considerable protests from groups, such as labor unions, that were concerned about possible negative effects that such freer trade might have on employment, wages, and working conditions. As a response, the three member countries negotiated a supplemental (side) agreement on labor issues. This agreement (the North American Agreement on Labor Cooperation—NAALC) was included in NAFTA in 1993. Under this agreement, all three countries are committed to respect and enforce their own labor laws but, in addition, the NAALC provides mechanisms for problem-solving consultations when there are differences in policy and practice and provides ways to evaluate these varying patterns of practice by independent committees of experts.
For a number of recent years, largely out of the scrutiny of the public or the
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media, all countries in the Western Hemisphere (with the exception of Cuba) met to negotiate a free trade agreement for the Hemisphere (referred to as FTAA, or the Free Trade Area of the Americas).23 One of the objectives of the FTAA was to include labor standards that would be even more inclusive than those enumerated in the Social Charter of the EU (refer to the previous section) or any other existing trade agreement. Originally, the plan was for the negotiations to be completed by 2005 and for the member countries to implement the agreement by 2006. But various countries expressed difficulties with parts of the agreement during the negotiations in late 2005 and now the final signing of this agreement has been postponed until the problems can be resolved. Some critics have suggested that it may be impossible (which may even be a good thing, they suggest) to resolve these difficulties.24 In essence, the lesser-developed countries of the Americas have resisted the approach of the more developed countries. For example, the lesser- developed countries have wanted to retain protections for their agricultural industries while the more developed countries have wanted a reduction of these protections to provide open markets for their agricultural products. The result has been that the US has moved forward to negotiate bilateral trade agreements with single countries.
Latin American and Asian Trade Agreements
A number of trade treaties have been organized and signed among countries in both Latin America and Asia. Although some of them have mentioned concern over labor rights, none has incorporated specific language guaranteeing such rights within the treaty. Here is a short summary of the most significant of these treaties.
Mercosur/Mercosul is a “common market” agreement signed in 1991 for the free circulation of goods and services and the adoption of common trade and tariff policies between four Latin American countries (Argentina, Brazil, Paraguay, and Uruguay). Shortly after conclusion of the treaty, the Ministers of Labor of the four countries issued a declaration noting the need to take into account labor issues to ensure that the process of integration of the members’ economies would be accompanied by real improvement and relative equality in the conditions of work in the four member countries. In 1994, the Presidents of the states issued a joint statement stressing the relevance, for the establishment of a common market, of issues related to employment, migration, workers’ protection, and the harmonization of the labor legislation of the four countries. A tripartite (labor, management, and government) working sub-group was established in order to deal with labor relations, employment, and social security issues. In the final structure established in 1994, an Economic and Social Consultative Forum was established to make recommendations to the central commission about labor and
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social issues. Thus, labor and social issues form a part of the institutional structure of Mercosur, but it remains an advisory role.
The Andean Community was originally established as the Andean Pact in 1969, but has been known as the Andean Community since 1997. Member countries include Bolivia, Colombia, Ecuador, Peru, and Venezuela. The goal of the Andean Community is to achieve a balanced and harmonious development of the member countries under equitable conditions through integration and economic and social cooperation. As of now, there is no specific attention to labor issues.
The Association of Southeast Asian Nations (ASEAN) was founded in 1992 with the goal to accelerate economic growth, social progress, and cultural development and promote peace and stability in the south-east Asian region. The original ASEAN member states included Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand, with additional countries joining since then (Vietnam, 1995; Laos and Myanmar, 1997; and Cambodia, 1999). ASEAN has undertaken a number of studies concerning the social dimensions and impacts of the liberalization of trade within the member states. So far, however, the members have not developed standards for member states, although it is expected that this will happen in the future.
Asia-Pacific Economic Cooperation (APEC) was founded in 1989 with the purpose to facilitate and enhance economic growth, trade, investment and cooperation among its 21 member economies in the Asia-Pacific region. Its membership represents about 40 percent of the world’s population, about 54 percent of its GDP, and about 44 percent of world trade, thus it involves a significant portion of the world’s economy. It operates in a cooperative manner with open dialogue based on non-binding commitments. However, it has not yet focused specifically on labor issues.
Commercial Diplomacy
As MNEs expand across the globe, learning to manage their relationships with the various governments and with the complex set of regulatory issues that affect their activities and business sectors has, of course, needed to be a major focus. Often this is referred to as commercial diplomacy, which is an emerging interdisciplinary field that refers to the processes of influencing foreign government policy and regulatory decisions that affect global trade. It is not just restricted to the efforts of commercial attaches and trade officials who negotiate tariffs and quotas on imports, but it also involves many other areas of IB, such as:
■ Trade negotiations (tariff and non-tariff trade barriers; political interests; trade agreements; etc.).
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■ Impact of policy on decision making (business interests, macro-economic impact, public opinion).
■ Government regulations (affecting banking, accounting, telecommunications, etc.).
■ Legislation (anti-trust/competition law, EU directives, Sarbanes-Oxley in the US, etc.).
■ Standards (health, safety, environment, data privacy, product safety, labeling, etc.).
■ Industrial subsidies (agricultural, R&D, etc.). ■ Corporate conduct (human rights, corruption and bribery, corporate
governance, and corporate social responsibility—CSR).
While commercial diplomacy efforts are usually conducted by trade officials, they also include officials in various other governments and ministries, industry and professional associations, unions, non-governmental organizations (NGOs), and the international departments of MNEs. Because of IHR’s concern with the international strategies of their firms, and their activities involved with establishing operations in foreign countries, they often are called upon to add value (provide information, analyze, consult, negotiate, etc.) to these commercial diplomacy activities.
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The Global Legal and Regulatory Context of MNES
IHR managers need to understand international employee relations from all perspectives. For many IHR managers, their responsibilities allow them relative autonomy to develop IHR policy and make decisions that can be applied in all countries. Since there is such a “patchwork” of varying legislative powers (at national, international, and extra-territorial levels), IHR must:
■ Comply with the laws of the countries in which they operate, requiring knowledge of local laws and regulations.
■ Comply with international standards and supra-national regulations, requiring knowledge of international labor standards and supra-national binding regulations.
■ Comply with extra-territorial laws of their headquarters’ country, requiring knowledge of extra-territorial laws.
National Laws and Regulations
As stated in the early part of this chapter, every country’s employment laws vary significantly from every other country’s employment laws, making this area of the IHRM environment very complex. In addition, as more and more firms operate in countries outside their original “home” borders, judicial systems within many countries are beginning to take into consideration laws from the parent countries of the MNEs that now operate within their jurisdictions, in addition to their own laws, making it increasingly difficult for MNEs to ignore either their own home- country laws in their foreign operations or the laws of their host countries.
One of the greatest mistakes IHR can make is to think that corporate HR at HQ can navigate alone the myriad of local laws and regulations. Because of this, most MNEs employ domestic HR practitioners (local HR generalists, HR country and regional managers) in the countries in which they operate. In addition, they use international employment lawyers as well as local attorneys to advise them with compliance. Even just understanding local laws is often not sufficient since the basis of the legal system can be radically different in different countries.
Supra-national Laws
International organizations, like the ILO and the OECD, and trade agreements and treaties, like the EU and NAFTA, have developed “binding” agreements, standards, and legal instruments for their affected member states. These institutions involve
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memberships of multiple countries. Thus their standards and laws apply to many countries and are referred to as “supra-national” laws. Note, however, that the notion of “binding” in many of these supra-national organizations implies that the laws and/or standards can be either “directly” or “indirectly” binding. Directly binding, at the member country level, requires “transposition” of the “standard” or “treaty” into the laws of the country. Typically, the member states must guarantee implementation via their national laws within a specific time frame. On the other hand, indirectly binding means that the stated rights and standards, though not directly passed into law, still infer obligations to individual employees and to their employers.
The EU has been the most prolific in passing laws that apply to its member states. The EU employs a variety of legal instruments, such as regulations, directives, decisions, opinions, and recommendations, with the first three being binding for member states.
Exhibit 6.3: The Scope of Selected European Union Directives Affecting the Labor and Social Policy of Businesses Operating in Member States
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Acquired Rights
Protects and preserves the rights of workers when the undertaking, business, or part of a business in which they are engaged is transferred between employers as a result of a legal transfer or merger.
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Transfer of Undertakings (TUPE) Regulations
Governs the transfer of undertakings and protects the rights of employees in a transfer situation. Employees enjoy the same terms and conditions, with continuity of employment, as they did with the previous employer (transposition of the acquired rights directive into the laws of the member states). Includes business transfers of a stable economic entity retaining its identity and service provision changes (outsourcing, insourcing, and subcontracting) for labor-intensive activities. TUPE regulates whether dismissals, as part of the transfer of operations, will be fair or unfair and affects information and consultation requirements and pension liabilities.
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European Works Council
Regulates transnational information and consultation (I&C) on work matters as soon as there are two member states involved. It establishes the rights and procedures to I&C by requiring the establishment of Europe-wide works councils (EWCs) in undertakings of 1,000 employees in all member states combined, or at least 150 in each of at least two member states. If there is a pre-existing agreement on transnational I&C that covers the EU workforce, the directive does not apply but the agreement can be renewed when it expires; if not it falls under the directive. If there is no pre-existing agreement, the directive applies and central management is responsible for setting up EWC and I&C procedures.
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Redundancies
Provides procedures (I&C phase) for making a defined number of employees redundant within a defined period of time.
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Fixed-Term Work
Deals with the use of contract workers and protects fixed-term contract employees from comparable less favorable employment practices and benefits. Stipulates that a continuous fixed-term contract for four or more years is considered employment as a permanent employee.
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Information and Consultation
Establishes a general framework and obligation of employers for I&C with employees. Applies to “undertakings” with a least 100 employees/establishments of at least 50 employees. The directive sets only a general framework for I&C and leaves the practical arrangements (such as works councils, trade unions, etc.) to be worked out by the member states.
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Working Time
Provides a definition of working time and determines minimum rest periods, the maximum working week (48-hour average over 16 weeks), minimum annual leave, paid holidays, night and shift work.
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Protection of Individuals with Regard to the Processing of Personal Data and the Free Movement of Such Data
Protects the right of privacy via strict limitations on the processing and transmission of personal data, wholly or partly, by automatic means. Affects HRIS, payroll systems, but also transmission of personal information via corporate Internet, email, fax, and voicemail to countries outside the EU that do not provide adequate data protection. The US is considered by the EU as a country that does not provide “adequate data protection” and has negotiated a special agreement with the EU (safe harbor).
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Pregnancy and Maternity Leave; Parental Leave
Establishes measures to protect the health and safety of pregnant women, new mothers, female workers who are breastfeeding, including minimum leave time for pregnancy and childbirth and later to working parents.
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Social Security
Avoids the loss of social security benefits when employees move within the EU for employment. Applies to employed and self-employed workers who reside in a member state and to whom legislation of a member state applies. The general principle is that the employee is subject to the social security legislation of the work state. Exceptions (subject to social security legislation of home country) include secondment and simultaneous employment in two or more member states.
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Terms of Employment
Regulates the terms of the employment contract and requires a written statement of the main terms of employment. If no written contract has been drafted, one is implied.
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EU Pension Funds
Aims to harmonize pension legislation across EU member states, protect pension funds and their beneficiaries, and reduce the cost of operating multiple pension funds. Allows the establishment of pan-European pension funds subject to detailed rules.
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Fair Treatment and Non-Discrimination
Provides for equal treatment for men and women in working life; prohibits discrimination based on sex or marital or family status, race and ethnic origin, religion or belief, sexual orientation, disability, age; requires equal pay to women for equal work.
Sources: Birk, D. h.c. R. (2007). European Social Charter; Blanpain, R. (2010). European Labour Law, in Blanpain, R. (edit.), International Encyclopedia for Labour Law and Industrial Relations, The Hague, The Netherlands: Kluwer Law International; Keller, W. L., and Darby, T. J. (eds.) (2003, 2010, and annual updates). International Labor and Employment Laws, Washington, DC: Bureau of National Affairs; EU websites: http://ec.europa.eu/atoz_en.htm; http://ec.europa.eu/social/main.jsp?langId=en&catId=750.
Of the different EU legal instruments, the directives have the greatest impact on the practice of IHR as there are several EU directives that deal with employment issues. A summary of selected EU directives affecting labor and social policy is given in Exhibit 6.3. This list of EU directives clearly illustrates how encompassing is the Social Agenda within the EU.
The intention of EU directives is to harmonize legislation between the various member states by setting a common framework. Although member states must ensure a transposition into their national legislation that conforms to the general principles of a directive, the actual transposition details may vary substantially in the different member states. Overall, EU directives have been very effective (i.e., all member states have transposed the desired protective measures into their legislation). But, in spite of the EU’s attempts to harmonize employment legislation, there is still an significant degree of diversity between the member states, and the differences in employment laws between even the three major European countries (United Kingdom, France, and Germany), and between the Old Europe and the New Europe (enlargement countries), remain considerable. The content of the Social Agenda components of the recently implemented Lisbon Treaty, as described earlier, illustrates just how serious the EU is with regard to employment rights). In addition, a lot more is expected from EU case law in the future (as existing directives and legislation are interpreted through the judicial systems of the EU). IHR practitioners must remain alert to these developments.
Extra-territorial Laws
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In general, laws have the presumption of non-extraterritoriality, meaning that they only apply to the sovereign territory of the nation that enacted them. Unless a law explicitly states that it applies to a territory outside of that country, it is presumed to apply only within the country of jurisdiction. Some laws, however, have been designed with extra-territorial intent written into them. As a result, every MNE must consider the application of its parent-country laws to its overseas operations (referred to as the extra-territorial application of national law). In general, international jurisprudence holds that MNEs are accountable to the laws of the countries where they operate. However, there are some exceptions to this general rule. More than any other nation, the US has enacted a number of laws that it expects to be applied extra-territorially by its US-based MNEs. US laws with extra-territorial intent include most of its anti-discrimination legislation, its Foreign Corrupt Practices Act (FCPA), and the Sarbanes-Oxley Act (SOX). In particular, in terms of application to employment rights, US multinationals must comply with the extra-territorial application of three particular US anti-discrimination statutes, meaning these laws provide protection for US citizens working for US companies in their overseas operations. In 1991, the US Congress amended the Americans with Disabilities Act (ADA) and Title VII of the Civil Rights Act of 1964 to give extra-territorial effect to those laws. Earlier, in 1984, the Age Discrimination in Employment Act of 1967 (ADEA) was also given extra-territorial effect. Title VII prohibits discrimination and harassment on the basis of sex, race, national origin, color, and religion. The ADA prohibits discrimination against disabled individuals, and requires employers to make reasonable accommodation for those disabilities. And the ADEA prohibits discrimination on the basis of age against individuals age 40 and older and sets standards for retirement age.
The effect of these amendments was to grant American citizens working anywhere in the world, for a US-owned or controlled company, the right to sue in the US court for alleged violations of these acts, wherever they occur. For example, an employee of an American firm (who is a US citizen) who believes she has been subjected to any form of discrimination in a foreign assignment may bring a lawsuit in the United States to pursue these claims. Under any circumstance, the law of the foreign country in which a firm operates takes precedence, although in US courts, the viability of the defense of an act that is legal in the foreign jurisdiction but is illegal under US law is still unsettled. There is no doubt that, from a US perspective, US extra-territorial laws apply to US citizens when working for US companies worldwide. An as-yet unsettled legal question is whether the US extra-territorial laws also apply to non-US citizens working in foreign subsidiaries of a US company.
Potentially, this issue of extra-territoriality could extend from any country’s legislation— and thus needs to be considered within any MNE, not just US-based MNEs. The problem for IHR becomes trying to determine which nation’s laws
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govern a company’s labor practices. Is it the extra-territorial law of the HQ/home country of the MNE or the local host country law? The fact that a law is extra- territorial (in this case usually from the US) does not necessarily mean that it applies universally (e.g., to all its employees everywhere). Which law applies (home or host) depends on the dynamics of control, location, and citizenship of the MNE. The standard that is used to resolve this question is what is referred to as the “integrated enterprise test”: the more integrated the global operations of the MNE, the more likely the extra-territorial law will apply in the host country and extend to non-US citizens. Four factors determine the extent to which two operations are determined to be integrated:
1 the interrelation of their operations; 2 common management; 3 centralized control of labor relations, e.g., a common collective-bargaining
agreement; 4 common ownership or financial control.
Application of National Law to Local Foreign-owned Enterprises
The general “rule” for MNEs is that they must abide by the laws of the countries in which they do business. Thus the issue of whose laws apply can also be viewed from the perspective of any country in terms of how it applies its laws to foreign- owned and operated firms within its national borders. Or it can be viewed from the perspective of the firm, as it tries to understand how it must operate its foreign subsidiaries and joint ventures. At a minimum, the MNE must understand that the local laws apply, not its home laws, although, as described above, MNEs from some countries, such as the US, may also find themselves subject to their home laws, at least in terms of treatment of their home-citizen employees (international assignees) in their foreign operations. So, for example, giving preference in job assignments or promotions to a firm’s expatriates over qualified local employees may run afoul of local non-discrimination laws.
Treaty rights can also impact the operations of foreign companies within host jurisdictions. For example, since the end of World War II, the US has negotiated treaties with some 20 countries that are referred to as Friendship, Commerce, and Navigation (FCN) treaties. Among other things, these treaties provide that companies from each country can make employment decisions within the territories of the other party that give preferences to key personnel from their home countries.25 Specifically, an FCN treaty gives foreign companies who establish themselves in the US the right to engage managerial, professional, and other specialized personnel “of their choice” in the US, even if giving such
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preferences might violate US anti-discrimination laws. (Of course, the opposite is also true: US firms can give precedence to their American employees in their operations in the foreign country with which the US has such a treaty.) For example, a Japanese company in the US can reserve its most senior executive positions for Japanese only. And US firms in Japan can give priority to American executives. A number of foreign companies that have been sued in US courts for national origin discrimination (i.e., giving preference in employment decisions in their local subsidiaries to their parent-country nationals) have used a defense that their FCN treaties give them the right to do that. US courts and legal experts have not developed a consensus as to whether or not such treaties provide that type of protection.
There are other complexities in US law that often require that each specific situation— particularly those involving treatment of US employees and parent- country nationals in foreign-owned subsidiaries in the US—needs to be interpreted separately. The bottom line is that IHR managers in MNEs need to make sure they understand the local legal landscape before establishing employment policy and practice in those foreign operations.
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Comparative Law
Employment laws vary from country to country. Important areas of concern to the MNE IHR director include immigration regulations, data privacy, anti- discrimination laws, termination laws, and intellectual property protection. Many of these areas overlap, making it important for IHR managers (and their firms’ legal advisors) to know these connections and to consider them as firms make decisions that affect their workforces in the countries in which they operate.
Immigration/Visas
Every country exercises control over its definition of citizenship and the immigration that it allows into its territory. Some countries, such as Japan, allow very limited immigration. Others like the US, Canada, and Israel, even though they may exercise control over who is granted immigration rights, admit large numbers of immigrants every year. And still others, such as the UK and France, have generally allowed immigration from citizens of their former colonies. A country’s attitudes about immigration vary according to its particular employment needs at any point in time (as well as according to other political and humanitarian concerns). And these change over time, as attitudes and needs change.
Virtually every country requires a work permit or visa whenever a “foreign” person is transferred to or takes on a job in its country for a period of six months or more. Of course, there are typically many other situations that can also trigger the requirement for a visa, even if the work will only last a couple of days. And, in recent years, due to the increased threats from various forms of terrorism, all visa requirements have become more difficult to meet in virtually every country. The activities that will trigger the need for such special visas and the amount of time required to process such visas vary from country to country and from situation to situation. Because of this, IHR managers must be sure, for example, when decisions are being made about sending employees on foreign assignments for anything from short-term business trips to longer-term relocations for a number of months or years, that the necessary visas are applied for and that an adequate amount of time is allowed to be able to gain the necessary approvals for such travel and transfers. Immigration law firms that specialize in helping firms acquire the necessary visas and work permits often provide the information needed to make such judgments.
Gaining approval of these various visas can be complicated and very time- consuming, expensive, and difficult, as countries tighten their procedures for even business-related and tourist visas. Firms that hire immigrants, move people around
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the globe, and seek talent all over the world must manage this complexity in order to effectively staff their global operations. HR’s tactical role consists of anticipating roadblocks in the visa application process, being aware of application procedures to follow in different countries (or using the services of a specialized firm), and complying with the necessary record keeping and tracking of visas.
The EU creates a special case in terms of visas because of the treaty provisions for free movement of labor within its member countries. For transfers within the European region, there is no need to obtain visas. Having a valid identity card or passport is sufficient as EU nationals have the right of residence in any EU host country and the host country will issue a residence permit for any national of a member state. However, there are still some exceptions for some of the new EU members, where transition measures for free movement of labor are in place.
Personal Data Privacy/Protection
With the advent of the Internet and the ease of global communication, facilitating the sharing and distribution of information, concern over the protection of information about individuals (for example, employees and customers) has become of increasing concern in many countries.26 Often, that concern is based in those countries’ constitutional guarantees of protection of individual privacy. In other countries, such data protection is a function of cultural attitudes and values.
In Europe, these protections are particularly strong.27 Because of this, in 1998 the EU issued a directive on the protection of employee privacy. Of particular interest to MNEs operating in Europe, under the terms of the directive (refer to Exhibit 6.3), personal data on European employees, including international assignees working in Europe, cannot be transferred out of the EU unless the country in which the data recipient resides has acceptable privacy protection standards in place. In any case, any firm transferring employee data from Europe to the US (or anywhere else outside Europe) must pay close attention to how such information is managed and shared with third parties. This has been of particular concern to American MNEs in Europe, since there has not been consensus in the US on how to provide adequate privacy protections, as of now wanting to rely more on self- regulation and laws applying to only particular sectors, such as health care and financial institutions. In late 2000, the EU agreed to a “safe harbor” principle from the US in which American firms that agree to abide by the basic European privacy standards will certify to the US Department of Commerce that they are in compliance, which will be reviewed by the EU. Such certified firms will be able to transfer data on European and international assignees from Europe to the US. The potential liability for American firms that do not certify compliance with basic European privacy laws through this “safe harbor” procedure is to lose their rights
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to do business anywhere in the EU. Adding to these concerns are the widespread and increasing use of social media
(such as Facebook, LinkedIn, Twitter, Google Plus+, Instagram, and YouTube) and search engines (such as Google, Yahoo!, Bing) on computers, cell phones, and e- tablets, that enable the global sharing of personal data with minimal controls. The technology (and acceptance) for such social networking is advancing faster than companies and governments can develop rules and regulations to control it. Plus there is increasing evidence that younger people that have grown up with the use of this technology have very different views (greater rejection) of the need to control content and sharing on social media. These realities make it ever clearer that IHRM must try to stay ahead of changes in technology and its use, as well as keeping abreast of various national jurisdictions in their attempts to regulate issues such as the protection of personal data.
Anti-discrimination
Around the world, countries are passing legislation to protect the rights of employees and job candidates to be free from discrimination and harassment based on their gender, race, color, religion, age, or disability. The laws in place in many countries, such as the US and now in the EU, are pretty well developed, although within the EU there has been a distinct lack of uniformity in many of these areas, with the possible exception of sex discrimination.28 Until the turn of the millennium, many EU countries had not yet even moved beyond approval of protections as put forth by the ILO. However, in 2003, directives went into effect in the EU requiring all member states to pass legislation prohibiting discrimination on the basis of race, gender, disability, age, sexual orientation, family status, and religion or belief. And, as indicated earlier in this chapter, under the Lisbon Treaty, these rights have been finally institutionalized within the 34 member states of the EU.
Anti-discrimination laws are clearly an area of international labor standards to which every MNE must pay very close attention.29 And because of national and regional cultures that in the past may have allowed practices that are now being prohibited, making sure that all managers and employees of the global firm abide by these new standards presents a major challenge to IHR. Although there is considerable convergence developing, there are still some significant variances. Since courts in some countries are beginning to refer to the laws of parent countries in cases involving MNEs within their jurisdictions, it certainly suggests that IHR and their MNEs must pay close attention to these differences.
Of particular interest is the issue and treatment of sexual harassment. The cultural interpretation around the world as to what constitutes such harassment
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and the legal framework protecting employees from harassment and bullying varies extensively between countries. The EU, UN, and ILO all address sexual harassment in the workplace. Several industrialized countries have specific sexual harassment prohibitions (e.g., Australia, Canada, France, New Zealand, Spain, Sweden, and the United States).30 In these countries, sexual harassment in the workplace is protected by one of four different types of constraints (equal employment opportunity law, union contracts, tort/contract law, or criminal law). In the US, the sexual harassment prohibition is also applied extra-territorially. As this issue has received increased attention, an increasing number of countries have begun to consider prohibitions against sexual harassment in the workplace.31
Indeed, a recent report of a global survey found that 10 percent of employees around the world report they have been harassed sexually or physically bullied at work.32 The poll of approximately 12,000 people in 24 countries revealed considerable differences in reported levels of harassment between countries, with some large emerging market countries reporting the highest levels, but also showing that this is an issue that is gaining attention worldwide, irrespective of a country’s basic cultural values.
Exhibit 6.4 provides a list of the anti-discrimination coverage of laws in 12 sample countries. This exhibit illustrates the high degree of variability among countries in this significant area of law. All multinational countries need to pay close attention to these laws as they conduct business around the globe. This also illustrates that most countries now include some sort of mention of legal coverage against sexual or moral harassment, as well.
Termination and Reduction in Force
In most countries, individual employment is protected by an employee contract that defines the terms and conditions of employment, including that it cannot be ended unilaterally or arbitrarily by the employer. The concept of “employment-at- will,” as practiced in the United States (where the employer, with a few exceptions, has the right to terminate an
Exhibit 6.4: Protected Classes for Discrimination Prohibition in Select Countries
European Union
Sex, marital or family status, race and ethnic origin, religion or belief, sexual orientation, disability, age; equal pay for equal work Sex, age, color, family situation, pregnancy, union membership;
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equal pay for equal work; sexual harassment
Bulgaria Age, caste, disability, language, nationality, race or ethnicity, region, religion, sex-gender-gender identity, sexual orientation, marital status, + EU
China Nationality, race, sex, religion, disability, age, migrant workers, health status; equal pay for equal work; sexual harassment; protection of children and minors
Germany Race or ethnic origin, sex or sexual orientation, religion or secular belief, disability, age; sexual harassment + EU
India
India lacks a comprehensive anti-discrimination law for the private sector. Nevertheless, the Constitution prohibits the state from discrimination on the basis of religion, race, caste, sex, and place of birth and allows positive discrimination (affirmative action) based on discrepancies in gender, social or financial background, or traditional caste-based disadvantage. Legislative acts address employee discrimination with respect to recruitment, wages, work-transfers, and promotion for men and women, people with disabilities, and socially and educationally backward classes of citizens.
Indonesia
Sex, ethnic group, race, religion, skin color, political alliance; special protection for women and child workers (<16); no sexual harassment law (but criminal code provides basis for filing sexual harassment complaint)
Mexico
Undeveloped, but constitutional protections against discrimination on basis of sex, race, religion, age, political views, nationality; discrimination law defines equal opportunity for persons based on ethnic or national origin, gender, age, disability, social or financial conditions, health condition, pregnancy, language, religion, opinion, sexual preference, marital status; limited protection for sexual and moral harassment, equal pay for equal work, child labor
Russia
Gender, race, nationality, language, social origin, property status, place of residence, religious beliefs, affiliations with social associations, pregnancy, and children; no special legislation on sexual or moral harassment
United Kingdom
Age, disability, gender, marriage and civil partnerships, pregnancy and maternity, race, religion or belief, sex and sexual orientation; sexual harassment
United States
Age (over 40), sex, national origin, race, color, religion, disability, veteran status, pregnancy and genetic information; sexual harassment
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harassment Source: Based on Baker & McKenzie (2012). The Global Employer: Focus on Termination, Employment Discrimination, and Workplace Harassment Laws, Baker & McKenzie International, a Swiss Verein with law firms around the world, US Headquarters, Chicago; plus individual country websites.
employee at will—and the employee has the right to quit at any time for any reason), does not exist in most countries. In most countries, employers’ rights to terminate, layoff, reduce, restructure, move, outsource, or sub-contract work (and, therefore, workers) is highly constrained. In most countries, including the US, employees (or work) cannot be terminated on grounds of health and safety, pregnancy or maternity, asserting a statutory right, union activity, or the basis of one’s gender, race, religion, or disability. In general, firms need to search for alternative employment (within the firm or externally, if nothing is available internally) and consult with their unions, works councils, and the individuals affected (typically at least 30 days prior to taking action if 20 to 100 people will be involved, and 90 days prior if 100 or more people are to be made redundant).33 This includes any outsourcing, work transfers to other countries, and sub-contracting.
In terms of pure reductions in force, generally only three situations are seen as acceptable excuses:
1 business closure; 2 workplace closure; and 3 diminishing economic need for the work.
All of these situations involve requirements for notice and consultation with employees and/or their representatives.
In addition to notice of workforce redundancies, most countries also require payments to terminated employees. Indeed, in most countries it is very difficult to terminate any employee for any reason, even with notice and consultation. Particularly when the termination involves a number of employees (that is, it involves a downsizing, relocation, or significant layoff), notice and consultation are both necessary. However, even when terminations are possible and done, they usually still require significant severance payments to all individuals involved. Such payments are often required even when the termination is for disciplinary or poor performance. Separation practices differ between countries but still illustrate both the legal requirements for dismissals and the severance payment formula.34 In most countries, the amount of severance pay is pro-rated by the employee’s age, years of service, and last rate of pay or salary.
In some countries, employers will find it difficult to terminate employees at all.
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In Portugal, for example, all terminations are legal actions that must be defended in court, while in countries such as Germany, where there is a strong tradition of reliance on works councils, terminations are topics for mandatory consultation. Also, in many countries, all employer-paid benefits become what are referred to as acquired rights, that is, once offered, they cannot be taken away, even in the case of redundancies of any type, e.g., in acquisitions, employee transfers, work transfers, or closing of offices. Employers cannot move work or workers to new countries or locales and, in the process, create new compensation, benefits, or work designs that are less than in the previous location. In many countries, particularly in Europe, and in EU law, more specifically, the employee has “acquired rights” to his or her existing levels of compensation and benefits and to the nature of his or her work that cannot be reduced by either moving the employee or the work to another location. After notification and consultation, often MNEs “buy” their ways out of these liabilities by negotiating settlements with affected workers to compensate them for their acquired rights. But they cannot just unilaterally reduce the benefits. And the ultimate point is that redundancies of any type can be, at least in many countries, quite expensive and require close attention from IHR.
Intellectual Property
The concept of “intellectual property” includes forms of employee creation (sometimes, in the past, referred to as industrial property) such as patented inventions and/or discoveries, trademarks, geographic indications, and industrial and product designs as well as items that can be copyrighted such as literary and artistic works such as novels, poems, and plays, films, musical works, artistic works such as drawings, paintings, photographs, and sculptures, and architectural designs. Although it may not at first be obvious, there are several links between intellectual property and IHR. For example, inventions and intellectual contributions, which are a result of an individual’s employment, are usually considered by the employer to be its property. As a consequence, employers take a number of steps to ensure that such “property”—referred to as trade secrets (such as client and customer lists), product and process technologies, and patents—are either filed for legal protection (patented) or are protected through non-disclosure agreements with their employees (meaning the employees do not have the right to share or give this information to anyone else, particularly, of course, competitors, or to use the information for their own personal gain). Also, publications such as the many training materials and product/service manuals that an employer develops for use by their employees and customers are copyrighted in order to protect them from use by outside people.
The situation of protection of intellectual and property rights is especially
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complicated when operating internationally because different countries have different conceptions of what constitutes property and vary in their practices related to its protection. In addition, there is no international institution that has the capability to extend intellectual and copyright protection to the MNE worldwide.35
With regard to industrial property, each country usually has an intellectual property office (IPO) or an administrative unit within the government that is in charge of administering the system of IP rights acquisition and maintenance. Depending on the country, these offices have varying ranges of resources. Poorer countries tend to have fewer resources for screening and approving pending applications for new patents and for maintaining databases of protected patents. The World Industrial Property Organization (WIPO) is a specialized agency of the UN responsible for the promotion of the protection of IP worldwide. WIPO administers the multiple international treaties and develops conventions for its member states. The Patent Cooperation Treaty (PCT) dramatically reduces the duplication of efforts with regard to patents (filing, researching, and execution) in different countries and allows for filing in a single national office. As an international procedural mechanism, if offers a trademark owner the possibility to have his trademark protected in several countries by simply filing one application directly with his own national or regional trademark office.
With regard to copyright, there is no single statute that extends copyright protection worldwide; rather, each country has its own copyright laws. There are, however, a number of bilateral agreements and international treaties among countries regarding copyright protection. Most countries abide by one of two international agreements: the Berne Convention (which provides national and automatic protection) and the Universal Copyright Convention (which provides only national protection). National treatment (minimal protection) means that local laws apply to all copyright infringements that take place within the country even if the original work was created elsewhere. Automatic protection means that local laws apply even to works that have not satisfied the country’s required formalities (copyright notice and/or registration). To ensure full copyright protection, MNEs must investigate whether the country in question is a member of the Berne Convention or Universal Copyright Convention, and whether they have entered into any trade agreements with the country in which the original work was created. They must research the local laws of the countries that are NOT Berne Convention members as well as those for which any applicable trade agreements do not have an automatic protection provision and comply with any required formalities, such as registration with the national copyright office for these countries.
One additional consideration, particularly in firms with highly specialized technology or other forms of intellectual property that is critical to their ability to compete, involves different countries’ attitudes about non-compete agreements.
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These agreements, signed by employees as part of their individual employment contracts, restrict their going to work within some particular time period for a competitor, setting up on their own a new competing business, or taking competitive-critical information with them to their new (former competitor) employer.36 MNEs must take care to write these non-compete agreements in understandable language (not legal jargon) and translate these agreements into the local languages of the countries in which they operate (often required by local law).
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The International Framework of Ethics and Labor Standards
The conduct of international business increasingly involves concerns about the values and practices of MNEs when they conduct business outside their countries of origin.37 International governing bodies, non-governmental organizations (NGOs), labor organizations, and special interest groups increasingly raise questions about the “ethical” nature of the business practices of many MNEs, often particularly as they relate to employment practices. Concerns over the impact of globalization, worker exploitation, and increasing inequities, particularly in less developed countries, are increasing, even though levels of poverty have declined and general population well-being has seemed to improve. Because of this, confusion about business rules, ethics, and HR policies and practices has intensified.38
This last section in this chapter provides an overview of concerns about international business ethics, particularly as they relate to IHRM. International ethics looks at what’s right and wrong in business conduct across borders and the impact of cultural (country and company) variances on ethical conduct of MNEs. International ethics also deals with issues of corruption and bribery, and the various ethical dilemmas that MNEs face in the conduct of their international activities. Because MNE ethics, particularly issues that relate directly to employee relations, are often relegated to IHR, the primary focus here is the impact of ethics on global HR practices.
International Ethics and Culture
In the area of global ethics, even the best-informed, best-intentioned executives often have to rethink their assumptions. What works in an enterprise’s home country may be viewed very differently in another country, which may have very different standards or perceptions of what is ethical conduct.39 Evidence even suggests that not only is there variance among countries and cultures, but even among different industries.40 Often one’s national perspective clouds one’s view of another country or culture’s way of doing things. Even if there is relative agreement on basic human values (for example, refer to the United Nations Universal Declaration of Human Rights) and ethical principles around the world (a point with which some would disagree), clearly there is considerable variance in what might be referred to as the ethical climate in different countries.41 That is, differing country cultures view various employment and business conduct issues, such as bribery, gifts or favors, tax evasion, or child labor, differently. Thomas
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Donaldson, one of the world’s top experts on international ethics, tells the story of an expatriate manager of a large US company operating in China who fired an employee caught stealing and turned him over to local authorities, according to company policy.42 Later, the manager was horrified to learn that the employee had been executed by local authorities for breaking an important law against stealing from one’s employer. Obviously, the cultural context in which the company policy was formulated was vastly different from the cultural context in which the manager carried out the policy.
Ethical relativism suggests that what is right is whatever a society defines as right. There are no absolute rights or wrongs.
In order to understand ethical variances such as this, ethicists describe possible approaches as being on a continuum, from ethical relativism to ethical absolutism. On one end of the continuum lies ethical relativism, which suggests that what is right is whatever a society defines as right. This definition may be at the individual (individual relativism) or at the societal (cultural relativism) level. In the relativistic view, there are no absolute rights or wrongs; rather the values of the individual or the society are sovereign in deciding what is right or wrong for that culture as long as no laws prohibit the behavior. In this perspective, if a society says that women shall not be paid the same as men for the same work or that child labor is all right, those rules would be seen as right for that society at that point in time. Under ethical relativism, there can be no external frame of reference for judging that one society’s set of rules is better—or worse—than another’s. So, under ethical relativism, IHR managers who try to impose their values on HR practices in a host country are guilty of what is often referred to as ethical imperialism, or ethical chauvinism. Under the philosophy of ethical relativism, it is entirely appropriate to follow local practices regarding the treatment of employees. Though appearing on the surface to be a liberal, open-minded approach, this view may result in actions that home-country constituencies (at least from the Western industrialized countries) would find entirely unacceptable, such as child labor or gross inequality. This view of “when in Rome, do as the Romans do,” is challenged when one considers whether someone from an outside culture can really have a local understanding of what’s right or wrong in that particular culture. Ethical relativism takes a particularistic view of the culture, namely that there are no universal standards, rather differing evaluation rules are based on the context or the situation.
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Ethical absolutism is the view that there is a single set of universal ethical standards or principles, which apply at all times, in all circumstances, in all cultures.
The opposite position is called ethical absolutism. This is the view that there is a single set of universal ethical standards or principles, which apply at all times, in all circumstances, in all cultures. This universalistic approach views moral values and principles as eternal and that they apply universally and equally in all places and times. This more standardized approach is often reflected in an MNE’s global code of ethics (i.e., a set of universal principles that, under no circumstances, should ever be violated). This might be very useful to an IHR manager, as it would suggest which local practices—even though they may be quite different from those of the parent country—are morally acceptable because they do not violate universal principles and those which are not morally acceptable and must not be followed, because they do violate such universal principles. The problem with this view is specifying what the universal principles are and developing a logical case for why these, and only these, principles are truly universal. In adopting the values of a single culture or religion as universal one runs the risk of ethical imperialism. Thus both of these philosophies create potential problems for the IHR manager, for MNE employees around the world, and especially for international assignees who are posted to foreign subsidiaries. In order to deal with these extremes, some have suggested that situations often compel the MNE, through collaboration and/or imagination, to develop unique responses to cross-cultural ethical dilemmas, ones that try to find common ground among disparate moral views. This has been referred to as cosmopolitanism.43 Such an approach calls for reconciling seemingly opposing differences in ethical choices and requires debate, effort, and compromise. But such solutions are far from easy for the diverse employees of the MNE and its international managers.
Cosmopolitanism calls for reconciling seemingly opposing differences in ethical choices and requires debate, effort, and compromise. But such solutions are far from easy for the diverse employees of the MNE and its international managers.
Ethical Dilemmas in IHRM
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One of the basic ethical dilemmas for IHR and MNEs involves what management should do when an employment practice that is illegal or viewed as wrong in the home country is legal or acceptable in the host country.44 Examples might include sex or race discrimination in hiring, job placement, or compensation; use of child labor; or providing unsafe working conditions. Thomas Donaldson has tried to provide a framework for decision making in a multinational environment that tries to resolve these possible ethical dilemmas.45 Donaldson states that the task is to “tolerate cultural diversity while drawing the line at moral recklessness.”46 In some ways, his approach is absolutist because it relies on a statement of 30 fundamental international rights (which have been recognized by international bodies, such as the United Nations, the ILO, and the OECD). Among these, maybe 10 or so apply directly to issues of concern to IHRM. These include the rights to freedom of physical movement; ownership of property; freedom from torture; a fair trial; non- discriminatory treatment; physical security; freedom of speech and association; a minimal education; political participation; freedom to work in fair and safe conditions, and to earn a decent standard of living. Organizations need to avoid depriving individuals of these rights wherever they do business (even though, in some countries, some of these “rights” are not very well recognized or agreed to).
The following IHRM in Action illustrates this point:47
IHRM in Action 6.1: Developing Global Labor Standards at Levi Strauss
Levi Strauss has global sourcing and operating guidelines that address workplace issues. The company uses these guidelines to select business partners who will manufacture its products. Established in 1992, its guidelines were [among] the first created by a multinational company for its business partners. The terms of engagement detail everything from environmental requirements to health and safety issues. Among them: wages, discrimination, child labor, and forced- or prison-labor issues. To create these guidelines, the company used the Principled Reasoning Approach (a decision-making tool that Levi Strauss uses to teach its employees how to translate ethical principles into behavior). And to launch them, it conducted audits of contractors it was using worldwide.
Levi Strauss discovered that in Bangladesh, it had two contractors using workers in the factories who appeared to be underage. International standards have set a reasonable working age for factories at 14. When the company brought it to the attention of the factory owners, the owners asked the company what it wanted the factory to do. There were no birth
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certificates so there was no way to know exactly how old these children were. Also, even if the children were younger than 14, they would very likely be a significant contributor to the family income and probably would be forced into other ways for making a living that would be more inhumane than working in a factory—such as prostitution or begging.
“So, we were faced on the one hand with a set of principles that were very clear, but hard to implement, and on the other with the reality of underage workers and severely impacting their family incomes,” says Richard Woo, senior manager for global communications for Levi Strauss. The solution? “The contractor agreed not to hire any more underage workers,” he says. They also hired a physician to examine children who seemed to be less than 14 years old using growth charts identified by the World Health Organization. Although not hiring young workers may force them to find work elsewhere, Levi Strauss’ position is to be ethically responsible for business issues it can control—such as responsible child labor conditions—as opposed to social conditions in a country that it has no control over.
Levi Strauss also negotiated for the contractors to remove the under-14 workers they already had from the production line and continue to pay them wages as if they were still working. In exchange, Levi Strauss covered the cost of the children’s uniforms, tuition, and books so they could go to school. When the underage workers reach the age of 14, they are offered back their original factory jobs. The contractors complied with all this, “to maintain the contracts with us,” says Woo.
However, the rights discussed above alone do not always provide sufficient practical guidelines for operating in an international environment. When IHR managers and the management of MNEs are trying to decide if their organizations can follow a practice that is legal and morally acceptable in the host country but not in the parent country, Donaldson suggests they ask themselves a series of questions in the ethical decision-making process.
First, ask why the practice is acceptable in the host country but not at home. Answers to this question fall into two categories:
1 because of the host country’s relative level of economic development; or 2 for reasons unrelated to economic development.
If the answer is 1, the next question is whether the parent country would have accepted the practice when (or if) it was at that same level of economic development. If it would have (or did), the practice is permissible. An example might be the building of a fertilizer plant that provides a product necessary for the
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feeding of the population of the country, despite the fact that there is a risk of occupational disease for employees working in the plant. If the parent firm (or the parent country) were willing to accept this risk for itself under similar circumstances, then the building of such a plant would be all right within Donaldson’s framework. The second answer, that the difference is not based on economic considerations, requires a more complicated decision process. The manager must ask two additional questions:
1 Is it possible to conduct business successfully in the host country without undertaking the practice?
2 Is the practice a clear violation of a fundamental right?48
The practice is permissible only if the answer to both questions is no. That is, the practice is acceptable if it is critical to doing business in the country and it does not violate a fundamental right. Otherwise, the organization should refuse to follow the local practice. For example, in the past, in Singapore, it has been common to see help-wanted ads seeking “Chinese women, age 21–28.” This type of advertisement violates US (and other countries’) laws and mores regarding age, gender, and ethnic discrimination. Would it be permissible from an ethical point of view for a US or EU subsidiary in Singapore to run an ad like that? (Note that legally, extra-territoriality of the US anti-discrimination legislation may apply to a US company operating in Singapore if the company meets the integrated enterprise test.) According to Donaldson, the answer is no because the discrimination is not tied to the level of economic development, is not necessary for doing business in Singapore, and violates fundamental international rights to nondiscriminatory treatment (a right that is codified in the resolutions of a number of international bodies, such as the United Nations and the International Labour Organisation, as well as in national laws in the EU and in the US).
There can be many difficulties when discussing issues of ethical attitudes and practices in various countries. Obviously, the gap between policy and practice can often be quite wide. Solutions to the problem of child labor, for example, are not necessarily easy to develop in a way that benefits the parties involved.49
Ethical issues have become a top concern to executives of MNEs as well as of governments and non-governmental organizations. There is a growing desire to find approaches to these issues that would both provide protection for the rights of employees worldwide as well as provide guidelines for organizations that enable them to conduct business in ways that benefit all of their constituencies: customers, employees, owners/shareholders, suppliers, and communities in which they conduct business. Many organizations and individuals have proposed guiding principles to balance the extremes.50 IHR must proactively consider these global ethical issues, usually incorporated in a global code of business conduct, and
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entertain some of the solutions being suggested to these problems. In the end, the assurance of ethical behavior and conduct of firms that conduct
business outside their home borders depends on the attitudes and behaviors of their managers, at home and abroad. Accordingly, it is suggested that businesses can take three steps to help ensure that their employees (managers at home, expatriates abroad, and their parent and foreign employees) behave not only appropriately, but also ethically:51
1 Develop a clearly articulated set of core values as the basis for global policies and decision making.
2 Train international employees to ask questions that will help them make business decisions that are both culturally sensitive and flexible within the context of those core values.
3 Balance the need for policy with the need for flexibility or imagination.
Given these three points as general guidelines for an overall approach, Exhibit 6.5 illustrates a list of steps that provide some guidance on how an MNE might design a code of conduct and ensure an effective implementation of ethical standards for worldwide operations.52
The treatment of ethics in international context is very complex indeed. Yet, MNEs must confront the issue in their daily operations and resolve these difficult dilemmas. IHR, through education, training, and problem solving needs to play an integral role in raising the awareness of its firm’s employees regarding ethical behavior.
Corporate Social Responsibility (CSR), Corporate Governance, and Sustainability
Many MNEs are beginning to pay attention to their roles as corporate citizens. CSR, corporate governance, and sustainability are taking on greater importance in the operation of MNEs, and IHR is increasingly playing an important role in implementing these activities in their global organizations.
CSR
CSR is the continuing commitment by businesses to not only behave ethically, but also contribute to the economic development of the communities in which they operate and to improve the quality of life of their workforces, their families, as well as society at large.
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Exhibit 6.5: Guidance on How an MNE Might Design a Code of Conduct and Ensure an Effective Implementation of Ethical Standards for Worldwide Operations
Guideline Description
Reasons for developing a global ethics program
Be clear about the reasons for developing a global ethics program—even if it is for compliance reasons (at home or abroad). Is it an opportunity to build bridges across varying cultures and constituencies or a way to instill a common set of corporate principles and values in order to unite the firm and its customers and suppliers around the world? Design and implement conditions of engagement for suppliers and customers that fit them into the ethics code.
Formalize standards
Treat corporate values and formal standards of conduct as absolutes, that is, once the program is developed, do not allow for local variations (except within the standards established in the program—see the rest of these guidelines).
Consult all stakeholders
Consult broadly with people who are affected, including international personnel who will need to implement the program and junior-level managers who may be the people implementing the program in the future. Allow foreign business units to help formulate ethical standards and interpret ethical issues.
Choose the words carefully
Many terms do not translate effectively into other languages. Even the term (or concept of) “ethics” does not translate well into many other languages and cultures. Alternatives, such as managerial responsibility, corporate integrity, or business practices are less culturally loaded and easier to translate.
Translation of codes
Translate the code carefully—when communicating the code to operations in foreign locales, the firm must be careful to translate the meanings and to screen for parent-country biases, language, and examples.
Translate the “ethics code” training materials
Translate the “ethics code” training materials (that is, don’t leave it only in the parent-company home language). The training materials and activities need to be carefully translated and carefully presented.
Designate an ethics
Designate an ethics officer for overseas operations—for all regions where there are a large number of employees, a local
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an ethics officer
ethics officer should be appointed, preferably a native who knows the language and customs of the region.
Highlight international law
Speak of international law, not just parent-country law. Acceptance is greater when the reference is to “the law in many countries,” or the codes of the UN, or the ILO, or even the OECD.
Recognize the business case
In host countries, support efforts to decrease institutional corruption. And exercise moral imagination in dealing with cultural differences that conflict with your ethical standards. Be identified as the international firm with strong integrity but one that cares about local conditions. Companies with such reputations often gain a competitive edge both with consumers as well as with government agencies.
Recognize the common threads
While it is important to understand and be aware of the significant cultural differences that exist, fundamentally, people around the globe are more alike than they are different. They share many of the same priorities, interests, and basic ethical principles. Most of the time, the real challenge is how to communicate these principles effectively.
Source: Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review, Sept.–Oct., 48–62.
CSR encourages MNEs to be aware that they produce both benefits and harm simply by the fact that they operate globally. Therefore, they should be as concerned about their global ecological footprints, or the impact of their actions (and inactions) on the natural environment, as they are about generating growth and profits.
The social responsibility of MNEs can be viewed on a continuum of providing value from stockholder to external stakeholder. While past thinking emphasized that organizations were expected only to meet the needs of their shareholders, customers, and employees, current thinking implies that organizations must also be explicit about the economic and social benefits that they bring to society.53 Putting environmental concerns and people equity issues on an equal footing with shareholder return (also called the triple bottom line) is now considered a CSR responsibility of large MNEs. To take it even one step further, the social responsibility of businesses and business people is commensurate with their social power (such as size, financial resources, visibility). This is referred to as the iron law of social responsibility. Responsible MNEs are expected by their external stakeholders to focus on sustainability management and make sure that when they
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meet their present needs, they do so without compromising the ability of future generations to meet their needs.
CSR consists not only of a mindset but also of a set of deliberate actions that MNEs take to fulfill their social responsibilities. Many different types of activities fall under the umbrella as depicted in Figure 6.1.
There are several reasons why MNEs are increasingly paying attention to CSR. It enhances their reputations in the marketplace, may reduce business and legal risks, attracts customers and increases customer loyalty, averts pressure from investors and fund managers, and attracts and retains employees who desire to work for responsible companies. Many MNEs consult with other organizations (NGOs, consulting firms, etc.) to implement and improve their CSR programs. They also pay attention to social investment firms (who manage investment portfolios that only include companies considered to be socially and/or environmentally responsible), social entrepreneurs (who build business models around socially responsible or environmentally sustainable products that compete with them in the marketplace), and social-venture capitalists (who seek out promising social entrepreneurs in whom to invest).
Figure 6.1 Umbrella of CSR Programs Based on: Phillips. R., and Claus, L. (2002). Corporate social responsibility and global HR: Balancing the needs of the corporation and its stakeholders. International Focus, SHRM.
IHR managers are increasingly becoming the implementers of CSR programs in MNEs. Recommendations for ensuring the success of CSR programs include the following:
■ Develop a global CSR policy—such a policy must be an integral part of the overall organizational strategy.
■ Obtain a high level of support—CSR activities, such as any change activity, must clearly come with senior management support to enhance its
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implementation. ■ Communicate—increase awareness of CSR activities and clearly
communicate the CSR policy. ■ Create a CSR culture—foster a culture that confronts difficult questions
about ethics, the environment, and social responsibility. ■ Provide adequate training—educate and train managers and employees on
the MNE’s code of conduct, the CSR activities, and the prescribed behaviors and activities.
■ Install reporting and advice mechanisms—encourage employees to report questionable conduct and ask for help with their own ethical dilemmas (without retaliation).
■ Include CSR in management’s performance management—evaluate and reward employees for integrating company values in their daily work life.
■ Communicate—use ongoing communication to keep the message alive and share stories and lessons learned.
■ Lead by example—as with any managerial activity when actors are not leading by example, but are allowed to deviate from the principles without consequences, the CSR initiatives will not be taken seriously.
Corporate Governance
Corporate governance refers to the basis upon which decisions are made in organizations. It also involves the structure and relationships that determine how corporate objectives are first set and then met and regulated by the different performance-monitoring mechanisms (such as the management team, board of directors, investors, and shareholders). In light of many corporate scandals that have particularly plagued Western MNEs (for example, Anderson Consulting, Enron, WorldCom, Tyco International, Peregrine Systems, and Siemens), it is not surprising that this subject has received increased attention and is being regulated through legislation. The 2002 Sarbanes-Oxley Act in the US is an extra-territorial federal US law that requires compliance with enhanced standards for all US public company boards, management, and public accounting firms, and must be applied at home and abroad. It is a direct result of these corporate scandals.
Sustainability is the meeting of the needs of the present without compromising the ability of future generations to meet their own. Do management decisions meet these criteria?
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■ Is the decision fair to employees? ■ Is the decision sustainable in the long run? ■ Is the decision green in terms of pollution and the carbon footprint? ■ Is the decision-making process transparent and open for scrutiny?
Sustainability
Sustainability is increasingly entering the attention of MNEs. The Bruntland Commission defined sustainability “as meeting the needs of the present without compromising the ability of future generations to meet their own.”54 Savitz and Weber in The Triple Bottom Line argue for the discovery of the sustainability sweet spot which they define as “the common ground shared by your business interests (those of your financial stakeholders) and the interests of the public (your non- financial stakeholders).”55 For HR, the sustainability sweet spot is the place where the pursuit of organizational interests seamlessly blends with the pursuit of employee interests.
In the future, international HR practitioners will increasingly be called to defend management decisions made in MNEs in terms of the following factors:
1 Is the decision fair to employees? 2 Is the decision sustainable in the long run? 3 Is the decision green in terms of pollution and the carbon footprint? 4 Is the decision-making process transparent and open for scrutiny?
Development of a Strategic Global Code of Conduct Policy
The implication of this complexity in global employment law, regulation, standards, and ethics is that MNEs need to develop strategic policies that establish a code of conduct that defines acceptable behavior in terms of employment relations for their far-reaching managerial and employee workforces.56 These codes of conduct should be defended as the “company culture,” a culture that insists on and supports abiding by all national and international employee relations regulations and, further, defines what is seen as legal and ethical behavior when dealing with these regulations. Without this, the firms and their managers and employees can face any or all of the following: criminal liability, damaged individual careers, employee disengagement, damaged firm global reputations, lowered share prices, organizational and managerial confusion, misdirected
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workforce behavior, and even possible risk of total organizational disruption. The point is, senior management must insist that this support for organizational
ethics is the “way they want to run their business,” that, for example, sexual or racial discrimination (or harassment) is not wanted because it limits the firm’s ability to work as a team; such behavior is divisive, and it is just not wanted. Having such policy removes the possibility of managers disagreeing with certain practices because they perceive them to go against local or national cultural practices that vary from those in an MNE’s parent country. In this way, the decision to abide by certain labor standards is based on the defined company culture and policies, not on any given individual’s biases or preferences nor on reference to any particular country’s perceived cultural practices.
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Conclusions
This chapter has examined the broad nature of international labor standards, global employment law and regulations, and international ethics and social responsibility. First, this chapter looked at the institutional context of international business. International organizations have promulgated labor standards for MNEs. Next this chapter looked at the global legal environment in which the MNE operates. It focused on compliance with national and supranational laws. Further, a number of comparative regulatory issues were discussed that affect the MNE such as immigration controls, data protection, anti-discrimination and harassment, termination and reduction in force, and intellectual property. Finally, this chapter looked at international ethics, its relation to culture, and how ethical dilemmas must be solved.
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Discussion Questions
1 Why are local employment laws important to IHRM? Are some laws more important than others? If so, which ones?
2 Why are international employment standards important to IHRM? Are some standards more important than others? If so, which ones?
3 Which employment laws and standards are most important for MNEs to pay attention to? Why?
4 Choose an employment-related HR ethical dilemma and analyze its ethical dimensions, including recommendations on how HR should deal with it.
5 What are sustainable HR practices and how do they affect employees? 6 How can HR discover the sustainability sweet spot(s) of an organization
when it comes to employment relations?
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Case Study 6.1: Non-Compete Agreements and Intellectual Property: Value Partners SA (Italy) and Bain & Company (USA) Conflict in Brazil
Value Partners, headquartered in Milan, Italy, and recognized as one of the major European management consulting firms with clients in 40 countries and offices in 15 cities, was founded in 1993 by former partners of the Italian offices of McKinsey & Company. They opened their first overseas offices in São Paulo, Brazil, and Buenos Aires, Argentina, in 1994. By the end of 1997, its São Paulo office had 20 employees producing annual revenues of about US$5 million, assisting both Italian clients and local companies.
Rival Bain & Company, a major management consultancy, was founded in 1973 by seven former partners from the Boston Consulting Group, and is headquartered in Boston. Bain established its São Paulo office in October 1997 and by early November had hired away almost all of Value Partners’ staff.
Value Partners filed criminal charges in Brazil and New York against Bain, alleging breach of trust and loyalty of its former employees (pirated away by Bain) and theft of confidential and proprietary information. The New York court ruled that the case would be more conveniently and efficiently dealt with in Brazil under the doctrine that New York was not the most convenient place to hear the case. Unfortunately for Value Partners, Brazilian law offered none of the US’s significant compensatory and punitive damages for employee disloyalty and theft of intellectual property. However, the New York federal court also made it clear that Value Partners was permitted to re-file the lawsuit against Bain in a more convenient forum.
So Value Partners re-filed the case in Boston, the site of Bain headquarters. After a five-week trial, the jury found Bain & Company liable for unfair competition and tortuous interference and awarded Value Partners US$10 million in compensatory damages (the full award sought). The trial court, after awarding another US$2.5 million of interest, denied all Bain’s post-trial motions.
As labor markets become global and firms develop new forms of relations with workers in foreign locales (such as IT workers or call centers in overseas locations), it becomes increasingly difficult to control the movement of workers from one employer to another and their taking of intellectual property (such as product or process technology or customer lists and preferences) from their current employer to their new one. Because the rules (and cultures) are so different from one country to another, it becomes very difficult to enforce any non-compete agreements in employment contracts.
This situation shows how difficult it can be to enforce covenants, like non-
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compete agreements, particularly in situations involving firms from outside countries. The more reasonable a restrictive covenant is, the more likely it is that courts worldwide will enforce it. But in some jurisdictions, such as in Latin America and the US state of California, non-compete clauses in employment contracts are considered illegal. Nevertheless, generally speaking, the shorter the time period of the restraint and the more narrowly defined the people covered, the more likely it is to be enforced across borders.
Sources: Hall, L. (2001). Protecting your vital assets. Global HR, July–August, 46–52; update (2014): http://en.wikipedia.org/wiki/Bain_&_Company; http://en.wikipedia.org/wiki/Value_Partners.
Discussion Questions
1 Identify and compare the law(s) related to protection of intellectual property and non-compete agreements in three to five different countries.
2 Should employees be free to move at will from employer to employer? Should there be any constraints on this freedom of movement? Should employers be free to “pirate” employees from competitors?
3 What can HR do to minimize the impact of this sort of employee mobility? 4 Have the web and the Internet (and social media) changed the importance
of intellectual property? Have they changed the way employers view IP? Have they changed the way employees view IP? How about the view of legal systems and cultures in various countries? How are they changing?
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Notes
1 Printed on literature of Baker and McKenzie, the world’s largest global employment law firm.
2 See, for example, Florkowski, G. W. (2006). Managing Global Legal Systems, London/New York: Routledge, in the Global HRM series; and Baker and McKenzie (2012). The Global Employer: Focus on Termination, Employment Discrimination, and Workplace Harassment Laws, Baker & McKenzie International, a Swiss Verein.
3 See, for example, http://en.wikipedia.org/wiki/Law; Florkowski, 2006.
4 Much of the information in this section comes from documents of the International Labour Organisation, Geneva, Switzerland, such as the report on International Organizations by their Working Party of the Social Dimensions of the Liberalization of International Trade; and from Blanpain, R. (ed.) (original publication 1997, with frequent looseleaf updates), International Encyclopedia for Labour Law and Industrial Relations, The Hague, The Netherlands: Kluwer Law International; Bronstein, A. (2009). International Comparative Labour Law: Current Challenges, Geneva: ILO and Hampshire, England: Palgrave Macmillan; Keller, W. L. and Darby, T. J. (eds.) (2003 and 2010). International Labor and Employment Laws, Vols. I and II, Washington, DC: The Bureau of National Affairs, International Labor Law Committee, Section of Labor and Employment Law, American Bar Association.
5 See, for example, the World Investment Report (most recent edition, 2009), published by UNCTAD. Refer to the UNCTAD website at http://www.unctad.org for information on UNCTAD’s work and access to extensive data about global foreign direct investment from and to various countries and the role of transnational corporations.
6 Berkowitz, P.M. (2003). Avoidance of risks and liabilities through effective corporate compliance, paper presented at the 4th Annual Program on International Labor and Employment Law, Center for American and International Law, Dallas, TX, 10 September; www.unglobalcompact.org; www.wikipedia.org/wiki/United_Nations_Global_Compact.
7 See United Nations Global Compact: http://www.unglobalcompact.org/abouttheGc/TheTenprinciples/index.html
8 Keller, W. L. and Darby, T. J. (eds.) (2003 and 2010); www.ilo.org.
9 Source: International Labour Organisation.
10 Source: Organisation for Economic Co-operation and Development (OECD): http://www.oecd.org/about/membersandpartners/list-oecd-member-countries.htm.
11 Source: Official website of the Organisation for Economic Co-operation and Development (OECD): http://www.oecd.org/about/membersandpartners/.
12 Source: Official website of the World Bank: http://www.worldbank.org/en/about/history.
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13 Source: Official website of the International Monetary Fund: http://www.imf.org/external/about/histcoop.htm.
14 Source: Official website of the World Trade Organization: http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm.
15 Florkowski, 2006; Murphy, E. E., Jr. (2001). The World Trade Organization, in Keller, W. L. (ed.). International Labor and Employment Laws, 2001 Cumulative Supplement to Volume 1, Washington, DC: Bureau of National Affairs and International Labor Law Committee Section of Labor and Employment Law of the American Bar Association, pp. 44–1 to 44–13.
16 Source: Official website of the European Union: http://europa.eu/about- eu/countries/index_en.htm.
17 Ibid.
18 Source: Demographics of the European Union, http://en.Wikipedia.org, 2014. Accessed July 7, 2014.
19 Source: Official website of the European Union: http://europa.eu/about-eu/institutions- bodies/index_en.htm.
20 Carby-Hall, J. R. (2006). The Charter of Fundamental Rights of the European Union—the social dimension, Managerial Law, 48 (4), 430–446; Federation of European Employers, The European social dimension (2014). available on their website: http://www.fedee.com/histsoc.html, accessed July 7, 2014; Nielsen, R. and Szyszczak, E. (1997) The Social Dimension of the European Union, 3rd ed., Copenhagen: Handelshøjskolens Forlag/Copenhagen Business School Press; Orbie, J. and Babarinde, O. (2008). The social dimension of globalization and EU development policy: Promoting core labour standards and corporate social responsibility. Journal of European Integration/Revue d’Intégration Européenne, 30 (3), 459–477; Orbie, J. and Tortell, L. (eds.) (2009). The European Union and the Social Dimension of Globalization, London: Routledge.
21 Official website of the European Union: http://europa.eu/lisbon_treaty/index_en.htm. Accessed July 8, 2014.
22 Source: Official website of the Office of the United States Trade Representative: http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free- trade-agreement-nafta. Accessed Jan. 15, 2014.
23 Manley, T. and Lauredo, L. (2003). International labor standards in free trade agreements of the Americas, paper delivered at the 4th Annual Program on International Labor and Employment Law, Dallas, Texas, 30 September–1 October.
24 Official website of the FTAA: www.ftaa-alca.org.
25 Darby, T. J. (2001). Extraterritorial application of U.S. laws, in W. L. Keller (ed.) International Labor and Employment Laws, 2001 Cumulative Supplement to Volume 1, Washington, DC: The Bureau of National Affairs and the International Labor Law Committee Section of Labor and Employment Law of the American Bar Association, 50 (52), 50–74.
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26 Hall, L. (2001b). Data dangers, Global HR, October, 24–28; Kremer-Jones, B. (2002). Think before you send. Global HR, July/August, 52–59; Liptak, A. (2010). When American and European ideas of privacy collide, The New York Times, Feb. 26, http://www.nytimes.com/2010/02/28/weekinreview/28liptak.html. Accessed Feb. 28, 2010; Society for Human Resource Management (SHRM) (2000). Protecting the privacy of employees based in Europe. SHRM Global Perspectives 1(1),1, 6–7 (originally published in HRWIRE, by the West Group); Wugmeister, M. H. and Lyon, C. E. (eds.) (2009). Global Privacy and Data Security Law, Arlington, VA: Bureau of National Affairs.
27 Society for Human Resource Management (2000). Are you EU privacy-compliant? International Update (newsletter of the SHRM Institute for International HRM, which later became the SHRM Global Forum), No. 3, 10; Martinez, M. N. (1999). European law aims to protect employee data. International Update (newsletter of the SHRM Institute for International HRM, now the SHRM Global Forum), No. 1, February, 1, 3; Minehan, M. (2001). Complying with the European privacy data directive. SHRM Global Perspective, No. 5, 1, 6–8; Minehan, M. and Overman, S. (2000). Companies to begin EU safe harbor registration. HR News, December, 19 (12), 1–2; Wellbery, B. S. and Warrington, J. P. (2001). EU data protection requirements and employee data: December 2001, International Focus White Paper of the SHRM Global Forum, Alexandria, VA: Society for Human Resource Management; and Wellbery, B. S., Warrington, J. P., and Howell, R. (2002). EU data protection requirements: An overview for employers. Employment Law, (Morrison and Foerster Newsletter), 14 (1), 1–12.
28 See, for example, It’s a man’s world, business study finds, report on World Bank study, AOL News, downloaded from http://www.aolnews.com/world-bank-study-shows- business-laws-in-most-countries-hold-…. Accessed Aug. 16, 2014.
29 See, for example, Baker & McKenzie (2000). Worldwide Guide to Termination, Employment Discrimination, and Workplace Harassment Laws, Chicago, IL: Commerce Clearing House; Conway, M. E. (1998). Sexual harassment abroad. Global Workforce, September, 8–9; Eurobarometer (2007). Discrimination in the European Union, Brussels: European Commission; Javaid, M. (2002). Race for knowledge. Global HR, November, 59–60; Keller, W. L. and Darby, T. J. (eds.) (2003 and 2010); and Mackay, R. and Cormican, D. (2002). The trouble with religion. Global HR, December/January, 26–30.
30 Webb, S. (1994) Shockwaves: The Global Impact of Sexual Harassment, London: MasterMedia, Ltd.; World Bank (2010). It’s a man’s world, business study finds, reported in AOL News, downloaded from http://www.aolnews.com/world/article/world- bank-study-shows-business-laws-in-most-countries-hold-.… Accessed Aug. 16, 2014.
31 www.de2.psu.edu/harassment/generalinfo/international.html. Accessed Feb. 11, 2007; ILO (2007). ABC of Women Workers’ Rights and Gender Equality, 2nd ed., Geneva: ILO; Kaufmann, C. (2007). Globalization and Labour Rights: The Conflict between Core Labour Rights and International Economic Law, Oxford/Portland, OR: Hart Publishing.
32 Leonard, B. (2010). Report: 10 percent of employees report harassment at work,
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http://www.shrm.org/hrdisciplines/global/Articles/Pages/GlobalHarassment.aspx. Accessed Sept. 23, 2010.
33 Baker & McKenzie (2012). The Global Employer: Focus on Termination, Employment Discrimination, and Workplace Harassment Laws, a Swiss Verein, Baker & McKenzie; Berkowitz, P.M., Reitz, A. E. and Müller-Bonanni, T. (eds.) (2008). International Labor and Employment Law, 2nd ed., Vols. I and II, Chicago, IL: Section of International Law, American Bar Association; Blanpain, R. (2010); Keller, W. L. and Darby, T. J. (2003 and 2010).
34 Adapted from International Labour Organization (2000). Termination of Employment Digest: A Legislative Review, Geneva: International Labour Organization; and Shillingford, J. (1999). Goodbye, adios, sayonara. HR World, July/August, 27–31 (data on separation practices from Drake Beam Morin).
35 See, for example, Friedman, P. (2010). China’s plagiarism problem, downloaded on 6/2/2010 from Forbes.com: http://www.forbes.com/2010/05/26/china-cheating- innovation-markets-economy-plagiarism ….
36 Hall, L. (2001a). Protecting your vital assets, Global HR, July/August, 46–52.
37 Briscoe, D. R. (2011). Globalization and international labor standards, codes of conduct, and ethics: An international HRM perspective, in Wankel, C. and Malleck, S. (eds.), Globalization and Ethics, Information Age Publishing, pp. 1–22.
38 Briscoe, D. R. (2000). International Focus: Global Ethics, Labor Standards, and International HRM, Alexandria, VA: Society for Human Resource Management White Paper, Winter; Digh, P. (1997). Shades of gray in the global marketplace. HR Magazine, April, 91–98; Florkowski, G., Schuler, R. S. and Briscoe, D. R. (2004). Global ethics and international HRM, in Berndt, R. (ed.). Challenges in Management, vol. 11: Competitiveness and Ethics, Berlin: Springer; Kumar, B. N. and Steinman, H. (eds.) (1998). Ethics in International Management, Berlin: de Gruyter; Gesteland, R. R. (1999) Cross-Cultural Business Behavior, Copenhagen, Denmark: Copenhagen Business School Press; and Morgan, E. (1998) Navigating Cross-Cultural Ethics: What Global Managers Do Right to Keep from Going Wrong, Burlington, MA: Butterworth- Heineman; Perkins, S. J. and Shortland, S. M. (2006). Strategic International Human Resource Management, 2nd ed., London/Philadelphia: Kogan Page; Tsogas, G. (2009). International Labour Regulation: What have we really learnt so far? Relations Industrielles/Industrial Relations (Université Laval). 64 (1), 75–94; Vickers, M. R. (2005). Business ethics and the HR Role: Past, present, and future. Human Resource Planning, 28, 26–32.
39 Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review, September– October, 48–62; Singer, A. W. (1991). Ethics: Are standards lower overseas? Across the Board, September, 31–34.
40 Schlegelmilch, B. B. and Robertson, D.C. (1995). The influence of country and industry on ethical perceptions of senior executives in the U.S. and Europe. Journal of International Business Studies, Fourth Quarter, 859–881.
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41 Adler, N. J. with Gundersen, A. (2008). International Dimensions of Organizational Behavior, 5th ed., Mason, OH: Thomson South-Western; Armstrong, R. W. (1996). The relationship between culture and perception of ethical problems in international marketing. Journal of Business Ethics, 15 (11), 1199–1208; Fleming, J. E. (1997). Problems in teaching international ethics. The Academy of Management News, March, 17; McNett, J. and Søndergaard, M. (2004). Making ethical decisions, in Lane, H. W., Maznevski, M. L., Mendenhall, M. E., and McNett, J. (eds.). Handbook of Global Management: A Guide to Managing Complexity, Malden, MA/Oxford: Blackwell Publishing; Moran, R. T., Harris, P. R. and Moran, S. V. (2007). Managing Cultural Differences, 7th ed., Burlington, MA/Oxford: Butterworth-Heinamann.
42 Donaldson, T. (1996). Values in tension: Ethics away from home, Harvard Business Review, Sept.–Oct., 48–62.
43 Buller, P. F. and McEvoy, G.M. (1999). Creating and sustaining ethical capability in the multinational corporation, Journal of World Business, 34 (4), 326–343.
44 This section is adapted from Fisher, C. D., Shoenfeldt, L. F., and Shaw, J. B. (1993). Human Resource Management, 2nd ed., Boston, MA: Houghton Mifflin; Original sources: Stace, W. T. (1988). Ethical relativity and ethical absolutism, in Donaldson, T. and Werhane, P. H. (eds.) Ethical Issues in Business, Englewood Cliffs, NJ: Prentice Hall, pp. 27–34; Shaw, W. and Barry, V. (1989) Moral Issues in Business, Belmont, CA: Wadsworth, pp. 11–13; and Donaldson, T. (1989) The Ethics of International Business, New York: Oxford University Press.
45 See, for example, Donaldson, T. (1996).
46 Donaldson, T. (1989), p. 103.
47 Adapted from Solomon, C. M., Jan. 1996, Put your ethics to a global test, Personnel Journal, p. 239.
48 Donaldson, T. (1989), p. 104.
49 Cullen, H. (2007). The Role of International Law in the Elimination of Child Labor, Leiden/Boston: Martinus Nijhoff Publishers; Heppler, B. (2008). Is the eradication of child labour “within reach”? Achievements and challenges ahead, in Nesi, G., Nogler, L. and Pertile, M. (eds.), Child Labour in a Globalized World: A Legal Analysis of ILO Action, Hampshire, England/Burlington, VT: Ashgate Publishing, pp. 17–428.
50 Donaldson, T. (1996).
51 Digh, P. (1997).
52 Adapted from Tansey, L. A. (1996). Taking ethics abroad. Across the Board, June, 56, 58; Donaldson, T. (1996).
53 Phillips. R. and Claus, L. (2002). Corporate social responsibility and global HR. Balancing the needs of the corporation and its stakeholders. International Focus. SHRM, 1–7.
54 United Nations, Our Common Future: Report of the World Commission on
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Environment and Development, accessed at www.un-documents.net/ocf-02.htm#1. Accessed 7 July 7, 2014.
55 Savitz, A. and Weber, K. (2006). The Triple Bottom Line, San Francisco, CA: Jossey- Bass, p. 3.
56 Paskoff, S. M. (2003). Around the world without the daze: Communicating international codes of conduct, paper presented to the 4th Annual Program on International Labor and Employment Law, The Center for American and International Law, Dallas, Texas, 1 October.
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Chapter 7 International Employee Relations
I would say this. We’ve had a great relationship with our workforce. I don’t look at them as union and nonunion but as Ford workers…. We have a lot of second-, third-, fourth-, fifth- and even sixth-generation workers at Ford in our company…. Those employees helped pull the auto company (through the dark days).
William Clay Ford, Jr.
Executive Chairman, Ford Motor Company1
Learning Objectives
This chapter will enable the reader to:
■ Describe the nature of union membership around the world. ■ Describe the evolution and make-up of global industrial relations. ■ Explain the relationship between unions and MNEs. ■ Describe the various strategies with which MNEs approach global
labor relations. ■ Describe the various approaches taken to non-union worker
representation. ■ Explain the litigation risks in international labor relations.
This chapter is concerned with the international context of a topic that comes with many names, for example, employee relations, employment relations, labor relations, union relations, industrial relations. Here we will primarily use the term: employee relations. Since this text is concerned with the international context, we will use the term: international employee relations (IER). Normally this content deals primarily with the development of and current status of labor unions, primarily in manufacturing and extraction industries and the public sector. However, in recent years, many countries have developed alternatives to unions to represent the interests of employees, such as works councils, co-determination, and workers’ cooperatives, and manufacturing has become a smaller component of most countries’ labor forces, that is, the service and information technology sectors have become the largest sectors in most countries’ economies. So this chapter uses
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the term employee relations to cover worker relations in its broadest context in all economic and government sectors as well as in an international sense, dealing with unions as well as other forms of employee representation.
Labor lawyers and HR practitioners are often unfamiliar with labor and employment policy laws, institutions, and practices in countries other than their own. Because the laws and customs of labor relations tend to be unique to each country, the employee and labor relations practices of MNEs need to vary as well. Indeed, MNEs are likely to face unfamiliar employee relations practices and unplanned-for restrictions in their foreign operations. As was emphasized in the last chapter, MNEs have to manage according to the employment laws of the countries in which they operate.
The most important point to understand about employee relations in the global context is that every country is different. Every country has developed its own particular set of values, practices, and regulations concerning the relationship between employees and employers. Thus businesses (and NGOs, charities, and governments) that operate internationally must develop understanding of and flexibility to deal with multiple approaches to unions and other forms of employee representation. The primary intent of this chapter, therefore, is to help readers understand this diversity of approaches in order to be able to manage their employment relations effectively. More specifically, this chapter provides an overview of labor or employment relations in the global arena and reviews a number of issues related to international employee relations, including international union membership, the evolution of international labor relations, alternative worker representative approaches, such as works councils and co- determination, and the policies and practices of MNEs in international employee relations.2
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Global Union Membership
Comparing union membership in different countries is as difficult as analyzing and comparing most other forms of international data. For example, accepting the integrity of data about union membership in different countries and being able to compare data with regard to union density (the percentage of the labor force in any given country that belongs to a union) is faced with problems like these: the sources of the basic information, definitions of terms, the nature of the statistical coverage of the reported data, reporting errors in the data, the quality of recording mechanisms for creating the data, the difficulties in keeping track of special groups who are outside the legal employment market, and the selection of the employment base for calculating union density. All of these issues vary considerably from country to country and thus make it difficult to compare and assess topics as simple as the actual union membership and density in various countries. Exhibit 7.1 displays union density for a number of countries. Data for Japan and the United States are provided for comparison. Even among this set of developed countries, the union densities are quite varied.
Exhibit 7.1: Trade Union Membership, Selected Countries
Country Trade union membership as a % of paid employment
Australia 18.2 Bermuda 23.0 Canada 31.4 Chile 14.6 China 41.2 Denmark 83.6 Ireland 29.5 Japan 17.9 Malaysia 9.3 Mauritius 25.4 New Zealand 20.5 Norway 71.8 Peru 1.8 Singapore 35.5 Sweden 80.9 Switzerland 19.8
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United Kingdom 25.8 United States 11.3 Source: International Labor Organization (based on 2012 data), http://laborsta.ilo.org/xls_data_E.html
A second issue involves the strength of trade unions, which is usually measured by the size of union membership (relative to the number of people eligible to join a union). However, this measure does not really reflect what unions do nor how effective they are, but rather focuses on potential union bargaining pressure as based in the number of members.3 The assumption often is that the more members a union has, the more influence it can exert in bargaining. Yet when a country’s laws require employers to deal with all unions, no matter how small or when the unions represent all employees, no matter the size of the union’s membership, these assumptions do not represent the reality “on the ground.” In some countries, unions represent all workers even though only a small percentage are members, while in other countries unions only represent those who are actual members. In some countries, managers and professionals like engineers and scientists belong to unions while in other countries they don’t, and in some countries, unions are seen as partners with management, while in other countries there is a long-standing antagonism between unions and firms (or between employees and their employers). In the former communist countries, unions used to be partners with management yet in most of these countries the communist party (and government) are now working to develop relationships similar to those found in non-communist countries. Thus, in some countries where unions are strong, their actual membership is small (e.g., Germany), while in other countries where unions may not be strong, their membership may actually be quite large (e.g., Mexico, Japan). Absolute union membership as a percentage of the workforce is largest in countries like Sweden while absolute membership is lowest in countries like the US. In countries such as China, unions are just beginning to develop traditional roles.
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Evolution of International Labor Relations and Organizations4
Although in the 19th century some aspects of the early union movement developed as a very international movement (after all, “l’Internationale” was the fight song of the union movement), fairly quickly unions became more nationalist and protectionist in nature, largely as a result of country variances in industrialization (which created much of the impetus for the development of unions) and the impact of two 20th-century world wars. However, at the end of World War II and partially due to the dividing of the world into a Western/capitalist sector and a Communist-dominated sector and the resulting Cold War between these two sectors, the international federations of labor divided into two factions: a Western-oriented group and a communist-supported group (and, as mentioned above, the roles of unions in these two very different economic and government systems were radically different as well). Then, with the end of the cold war in 1989–1991, and the rapid development of global trade, the traditional national focus of trade unions began to become once again more global.5 Today, largely due to the uncontrolled growth of the power of MNEs, there is strong interest in the labor movement to cross borders and join together for the achievement of their common labor-related missions. The major institutions of the international trade union movements are now using the term “international” in their names. And over the last 50 years, or so, trade unions from different nations have combined in cross-border federations to create the beginnings of an international trade union structure in an attempt to develop some international focus and capabilities to deal more effectively with MNEs and their globalization. At the same time, employers have also created equivalent trade associations to provide a cross-border and cross-industry voice for global labor relations.
The following is a short summary of the international federations and labor union organizations.
World Federation of Trade Unions (WFTU)
The WFTU was established in 1945 to bring together trade unions around the world in a single organization modeled after the UN. After a split in 1949, when many Western trade unions formed the International Confederation of Free Trade Unions (ICFTU), the WFTU is now primarily a federation of state-run unions from communist countries. Despite the fall of communist regimes in the Soviet Union and Eastern Europe, and the defection of many of its national unions in several Central and Eastern European (CEE) countries, the WFTU has declined to join the
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ICFTU and subsequently formed the International Trade Union Confederation (ITUC).
The International Confederation of Free Trade Unions (ICFTU)
The ICFTU is an international confederation of national trade unions established in 1949 after a split with the WFTU. It grouped the major unions in the Western world. The ICFTU was dissolved in 2006 to join the ITUC.
The International Trade Union Confederation (ITUC)
The ITUC is an umbrella organization of national trade union federations (154 countries and 168 million workers) to defend workers’ rights in the era of globalization. The ITUC’s primary mission is the promotion and defense of workers’ rights and interests, through international cooperation between trade unions and through global campaigning and advocacy within the major global institutions.6
European Trade Union Confederation (ETUC)
The ETUC was established in 1973 to promote the interests of working people at the European level and to represent them in EU institutions. Its prime objective is to promote the European Social Model by being actively involved in economic and social policy making at the highest level, working with all EU institutions.
World Confederation of Labour (WCL)
The WCL is an international trade union confederation inspired by the basic values of Christian humanism. It unites autonomous and democratic trade unions from countries all over the world, but mainly from Third World countries. In the last few years the WCL has adopted a critical attitude toward the neo-liberal model of economic globalization (where global free trade is promoted as the highest and best value) and questions its legitimacy.
Trade Union Advisory Committee (TUAC) to the OECD
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The TUAC is an international trade union organization that has consultative status with the OECD. It is the interface for labor unions with the OECD and its various committees, particularly those that focus on worker and human rights (for more information about the OECD and its work on workers’ rights, refer to Chapter 6 on International Employment Law, Labor Standards, and Ethics).
Global Union Federations (GUFs)
A GUF is an international federation of national and regional trade unions representing specific industrial sectors and occupational groups. Most major unions are members of one or more GUFs that represent the interests of their members. Currently there are 10 specific industry sectors or occupation groups with GUFs: education; building and woodworkers; journalists; metalworkers; textile, garment and leather workers; transport workers; food, agriculture, hotel, restaurant, catering, tobacco and allied workers; public services; chemical, energy, mine and general workers; and union network.
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Unions and Multinational Enterprises
In spite of the above-described developments in the labor movement, unions (and, therefore, labor relations) exist and operate mostly at the local and national level, even though a number of unions have the term international in their names and belong to international federations. The increase in global trade and in the number of MNEs has led to concern by trade unions about this primarily national and local focus by unions. Their major concern is that multinational firms can manipulate local unions (and, therefore, workers) in collective bargaining by having the ability to move work to areas of the world that either have no unions or where unions are weak or where, in general, wages and benefits are lower and working conditions are less protected (and, thus, the costs of labor are lower). And because unions are not organized on a global basis, and there are no international laws requiring bargaining on a cross-border basis, and because unions tend to be primarily focused on local and national concerns of their members (and thus sometimes find it difficult to work together with unions in other countries who often have different concerns), they perceive that the power balance between unions and MNEs is totally skewed toward business. MNEs operate in many countries and often in many industries. In contrast, unions almost always have membership in only one country and normally in only one industry. And thus unions can typically bring pressure to bear on only a small segment of an MNE—one industry (or even one firm within one industry) within one country.
What is currently happening in Australia illustrates the complexities for unions (local) and MNEs (international). A number of automobile companies have built manufacturing plants in Australia, e.g., Ford, General Motors, Holden, and Toyota.7
By December 2013, two-thirds of the auto industry had announced it was pulling out, citing the excessive costs of producing cars in Australia with its limited market. Toyota was due (under an earlier contract) to pay two small pay increases in 2014, in spite of a likely decision to end production in Australia by 2016 or 2017. But the enterprise agreement with the union normally requires (upheld by the courts) a vote on “no extra claims” before it could call for a vote on the pay increases. Toyota had been expressing concerns over the Australian culture (and not just its arcane union practices, but also its attitudes about overtime, loose attitudes about attendance, and overall work performance). This new effort by the auto workers union to “punish” Toyota shows a labor relations “face” that Toyota is clearly unfamiliar with. But this is still a conflict between a local union and a large multinational.
In spite of what has been said above about the development of international confederations of unions, there has been very little cooperation between unions at the collective bargaining level across national borders, and there are no union
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structures similar to or parallel to that of MNEs, so that, for example, international unions have not been able to negotiate global agreements with MNEs that would apply to all of its operations around the world (although some recent collective bargaining agreements in the airline industry—which by its very nature is international—have moved in that direction).
In practical terms, what this means to labor relations is that unions view MNEs as being able to:
■ Locate work in countries with lower social protections and lower wages and benefits (often this means countries with no unions or very weak unions), staying away from countries with stronger unions and stronger protections and higher wages and benefits.
■ Force workers in one country, faced by competition from workers in other countries, to “bid down” their wages and benefits in order to keep their jobs.
■ Take advantage of differences in legally mandated benefits for workers by restructuring the operations in countries where the costs of workforce adjustments are lowest and thus force excessive dislocation burdens on workers in these low-benefit countries.
■ Outlast workers in the event of a labor dispute in one country because cash flows (and the ability to maintain business) are at least partially maintained by operations in countries where there are no disputes.
One result is that unions are beginning to look for ways to exercise influence over labor relations on a cross-border and multinational scale. National trade union federations and more recently established international federations and GUFs (as described above) are providing assistance to national unions in dealing with MNEs and have become closely involved with institutions like the ILO and the OECD, working with them to develop, enhance, and enforce their covenants and declarations on labor standards. Their ultimate goal is to develop transnational bargaining, although right now there are no laws or regulations that require such negotiations nor any international bodies that could enforce them. As described in the previous chapter, the ILO and OECD guidelines are trying to go beyond merely suggesting that MNEs abide by the industrial relations statutes in force in each of the countries in which they operate. And national courts are beginning to defer to or consider these international standards or a firm’s parent-country laws when adjudicating labor disputes. This has been accomplished at least partially because of the pressures of these international union federations. Nevertheless, at this time these guidelines and standards are only as effective as individual firms and governments are willing to allow, as adherence to them is essentially voluntary.
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Some interesting labor disputes in different parts of the world show the increasing pressure unions are putting on MNEs. When Renault (a French company) closed its Belgian plant in Vilvoorde, Belgium, and laid off 3,100 people (1997), the Belgian Labor Court ruled that Renault broke the rules on worker consultation, which require consultation ahead of layoffs. When Marks & Spencer (a British firm) (2001) announced that it was closing its 18 French stores (and laid off 1,500 employees), the French employees obtained a court ruling that M&S had violated French labor law. Rather than closing, the stores were eventually sold to French retailer Galeries Lafayette. At Siemens in Germany (2004), although workers accepted a workweek extension from 4 days to 40 hours without extra pay, it demonstrated the role of the union as protector of employment by avoiding outsourcing over 4,000 jobs. In the United Kingdom, the unofficial strike of British Airways baggage handlers in sympathy for Gate Gourmet (2005) forced the caterer to settle the dispute and offer enhanced redundancy deals to its employees. In Mexico, the National Mining Union took on Grupo Mexico (2006) after 65 miners were killed in a mining accident. Wildcat strikes at over 70 Mexican companies paralyzed the mining and steel industry after government action failed to support labor. These strikes demonstrated the political power of organized employees. An example of a recent labor dispute includes the dispute between Kimberly Clark (USA based) in Turkey (union group: Tümka-I˙s¸).8
There still remain a number of barriers to multinational bargaining. In addition to the global power of MNEs and the fractured nature of unions, and the unwillingness of nations to get involved under the existing lack of international governing covenants, other obstacles also will need to be overcome in order for progress to occur in movement toward multinational bargaining:9
■ The widely varying industrial relations laws and practices among different countries.
■ The lack of any central, international authority for labor relations or global labor law.
■ Major economic and cultural differences among different countries. ■ Employer opposition. ■ Union reluctance at the national level, because the national leadership often
fears that multinational bargaining will transfer power from them to an international leadership.
■ Absence of a centralized decision-making authority for unions. ■ Lack of coordination of activities by unions across national boundaries. ■ Differing national priorities. ■ Employee unwillingness to subordinate local concerns to concerns of
workers in other countries.
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As MNEs become more global and more connected across borders they must deal with these international labor organizations as well as the widely varying national and local unions. It is inevitable that multi-country, maybe even multi-employer and multi-union, negotiations involving employers and unions from multiple countries will develop. Business global issues are already part of the “relevant facts” for negotiations in many MNEs. And this will only increase in prevalence and importance. Before global labor relations evolve very far, however, the following types of questions will need to be addressed:
■ What rules will apply to the resolution of disputes? ■ What rules will apply to the process of negotiations? ■ What law will cover the negotiations, e.g., between companies in two or
more countries or between companies and their unions in multiple countries?
In spite of all of the above, unions have achieved a major impact on protection of individual worker rights, and union activities have resulted in the enactment of pro-labor and pro-employee legislation, especially in the EU and Japan. Many of the EU directives and agreements (e.g., parental leave directive, part-time work directive, fixed-term contracts directive, home working and teleworking framework agreement) are a result of union pressure and unions have often become strong social partners with government and management. In some EU countries, trade unions can invite the government to extend compulsory application of a collective agreement across geography and/or an entire industry sector.
In Japan, there is a different history of development of unions. Yet, even though the structure of unions in Japan is radically different than that present in Europe and the EU, Japanese unions can also claim major impact on employment relations and employee rights, such as lifetime employment practices and protection of seniority. Now the challenge being confronted by unions is to develop global mechanisms to accommodate and/or deal with the reality of global commerce.
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MNES and Labor Relations
MNEs must share decision-making power with unions (and/or other representatives of employees, such as works councils) and, often, agencies of government, to greater or lesser degrees throughout the world but almost always to some degree. For many businesses, what they confront in their foreign operations is often quite different than what they deal with at home. So, responsibility for labor relations is frequently left to those who are most likely to be familiar with local practice, that is, the HR (or labor relations) managers at the level of the local subsidiary or joint venture.
MNEs often develop worldwide approaches to issues such as executive compensation, but such a worldwide approach to labor and employee relations is quite rare. IHR departments within MNEs follow one of these seven approaches to labor/employee relations in the global context (see Exhibit 7.2).
US firms (and, sometimes, Asian) that have strong anti-union or at least very adversarial approaches to labor relations tend to operate at the levels of options 5, 6, or 7 (see
Exhibit 7.2: Seven Approaches to Labor/Employee Relations in the Global Context
1
Hands off (by headquarters of the parent firm)
In this approach, responsibility for labor/employee relations is left totally in the hands of local managers in the host countries.
2 Monitor
In this approach, headquarters IHR managers will try to forestall major problems for the parent company by asking intelligent and insightful questions about labor and employment responsibilities at each of their foreign locations. But primary responsibility still stays in the hands of local managers.
3 Guide andadvise
This approach is a step beyond mere monitoring. Here IHR managers from headquarters will provide ongoing advice and guidance to subsidiary managers on how to conduct labor and employee relations, usually based on policies of headquarters. Of course, this requires a higher degree of knowledge about local labor relations regulations and practices. Still, overall control stays in the hands of local staff.
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4 Strategicplanning
At this level of involvement, international labor relations issues are fully incorporated into the MNE’s strategic planning. Management of all aspects of the global firm, including labor and employee relations, is integrated into a centralized program, particularly for policy purposes. Local control may still exist, but all labor relations practices will follow this global strategy.
5 Set limits and approve exceptions
MNEs that follow this approach to their international labor/employee relations provide even more specific centralized control over local practices. Subsidiaries are allowed freedom of action only within quite narrowly defined limits, and any efforts to try different approaches must be approved by headquarters.
6 Manage from headquarters
In this scenario, local subsidiary staffs have no freedom of policy or practice in their labor/employee relations activities. Indeed, all labor relations actions are directed by staff from headquarters.
7
Integration of headquarters IHR and local management
In this final approach, labor and employee relations in the field, as managed by local (country) HR and management, are fully integrated with IHR assistance from headquarters, with common strategy and policy.
Exhibit 7.2). These firms try to ensure that their headquarters’ approaches are followed as much as possible in their foreign operations. Of course, in many countries (e.g., where there are works councils and/or union negotiations are mandated), these firms must deal with third parties, whether they want to or not.
Still, much autonomy is often possible. And because each country is so different in its evolution of labor relations law and practice, leaving primary responsibility for labor and employee relations to the local level is often the only workable approach. Usually, this is achieved with certain overlying strategic objectives providing some guidance from headquarters.
It is not the intention of this book to provide in-depth coverage of union relations in various countries. Rather, a very limited sampling of the variations of the law and practice of labor relations is provided to inform students and IHR managers with a sense of the importance of understanding the impact of those variations on MNE operations around the globe. The case at the end of this chapter that describes the global labor relations scene for Ford Motor Company discusses a
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firm that has had global operations for almost 100 years.10 Obviously, for an MNE like Ford, global labor relations are indeed quite complex.
One difficulty for IHR managers in assessing the power or importance of unions in various countries arises from the inconsistencies between countries in how they count membership and the differences in who is covered by union contracts. For example, even though a relatively low percentage of workers belong to unions in France (about 9 percent), the unions play a very important role in determining government policy and legislation concerning all workers and toward general industrial policy, and employers are required by law to negotiate with any union present (represented by as few as one employee) and to implement national policies on wage rates, and so on.11 In fact, about 90–95 percent of all workers in France are covered by the contracts negotiated by unions, even though the actual membership of unions is quite low. In most Scandinavian countries, retired workers are still union members, although this is not usually the case elsewhere, and professionals such as teachers and members of professional associations, such as engineers, are sometimes included and sometimes not.
An additional problem is created by the rapid pace of change in employee relations so that data only a few years old can be out-of-date by significant amounts. Nevertheless, relative differences between countries remain quite obvious (refer to Exhibit 7.1).12 As illustrated, some countries have quite low union membership (which doesn’t necessarily indicate how many workers are covered by the contracts negotiated), while other countries have much higher union membership, such as Denmark and Sweden.
In terms of the patterns of labor relations practices themselves, some countries have developed industrial relations systems patterned after the laws and traditions of other countries. And yet others have pursued unique avenues to labor relations. Within this milieu, each country has developed a tradition and legal framework that reflects its own special history and political and social experiences. As a consequence, firms that conduct business on a multinational or transnational basis must understand and cope with a great deal of diversity in the performance of industrial relations around the world. This typically leads to decentralizing the labor relations function (much as is also true of the general HRM function), providing subsidiaries with considerable autonomy in managing employee relations.
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Evolution of Labor Relations in Different Countries
The next few paragraphs provide a very short glimpse at the evolution of labor relations in a number of countries around the world. In some countries (e.g., Canada, the United States, Germany, and Japan), the focus of union activity is basically economic. That is, unions involve themselves primarily with economic issues of concern to their members, such as setting wage rates, determining hours of work, and ensuring job security. This is usually manifested through some form of union-management collective bargaining. This form of labor relations is often referred to as business unionism.
In other countries, particularly England, France, Italy, and those in Latin America, unions tend to be very political and generally achieve their objectives through political action rather than through direct collective bargaining. This is often referred to as political unionism. This is not to say that “business-focused” unions don’t try to influence government to achieve legislation favorable to their members and that “politically focused” unions don’t participate in collective bargaining. But the historical pattern for business unions has been the former forms of activity, rather than the latter. And the opposite has been true for political unions. In addition, in some countries, union activity is focused on industry-wide or even nationwide bargaining between federations of unions and associations of employers while in other countries union relations are very decentralized, taking place almost exclusively at the level of the local firm between a local union representing workers at a single firm with that firm.
Thus, even in industrialized (and usually heavily unionized) countries, major differences in labor relations can be found relative to issues such as (1) the level at which bargaining takes place (national, regional, industry, or single firm, even a single workplace); (2) the types of workers involved (craft, industrial, service, government, profession); (3) degree of centralization of union-management relations; (4) the scope of bargaining, that is, the topics that are usually included in negotiations and contracts; (5) the degree to which the government is involved or can intervene; (6) the degree to which employment issues, such as wage rates and benefits, are determined by legislative action versus collective bargaining; and (7) the degree of unionization. In order to be effective in labor relations throughout the operations of an MNE, IHR managers need to understand these issues and differences in each of the countries in which they conduct business.
And as a last general point, economic and political issues of concern to management and unions are not static. They are constantly changing. Globalization, technological and job changes, and changing demographics are heavily impacting the role and importance of unions (and companies, for that matter) in most countries, as well.13
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Interestingly, US (and, often, Asian) MNEs often face even more difficult problems in understanding and coping with industrial relations around the world than is the case for many other MNEs, since their labor relations are quite different in many respects from those practiced in other countries. As an example from one important perspective, here is a quick summary of the primary features of the US labor relations scene:
■ Only non-supervisory and non-managerial employees have the right to organize or join unions.
■ Typically, professional and technical workers do not form or join unions. ■ The only employees who belong to unions (and that can thus bargain with
the employer) work for employers where a majority of those employees have voted in free but secret elections for union representation.
■ Contracts between such unions and employers are negotiated primarily at the local level between a single union and a single employer.
■ Such collectively bargained contracts are legally enforceable and typically last for three years.
■ The only mandatory subjects for bargaining are wages, hours, and working conditions.
■ Both unions and employers are restricted in their behaviors toward each other by a considerable amount of regulation.
■ Disagreements over the meaning of contracts are handled through established grievance procedures (not by renegotiating the contract), settled by union and management acting together and settled in the case of impasse by a privately hired, neutral arbitrator.
This highly decentralized, “business” unionism (although extensively regulated) is significantly different from the form of unionism present in most other countries.14
In most countries, labor relations practices are very different, even opposite, to these characteristics. Thus many US (and Asian) MNEs have difficulty coping with the diversity of labor relations practices, because their experiences and familiarity may well not provide adequate guidance for how to conduct labor relations in other countries.
There are also a number of issues concerning the local union environment that MNEs—no matter which country they come from—must consider. MNEs will need to seek answers to the specific types of questions regarding global labor relations practices wherever they operate (see Exhibit 7.3):
All of the questions in Exhibit 7.3 illustrate potentially significant differences between labor relations practices in different countries. This is just one of the many areas of complexity with which IHR managers and MNEs must learn to cope.
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Exhibit 7.3: Local Union Environment Issues That MNEs Need to Consider
Existing trade unions
What is the nature of the unions in the particular country? Is recognition of a union an entitlement or not?
Level of organization
How are unions organized (by firm, region, industry, national, craft)? Are unions company-wide, regional, or national? Are there multiple unions within firms, so that the MNE must negotiate with multiple, often competing unions, within the same subsidiary or organization?
Scope of unions
Is the focus general or industry specific? Is most bargaining being conducted on a national and/or industry-wide level, applying to all or most employers and employees?
Affiliations Are there political or religious affiliations? Are the unions associated with political parties and if so, which ones? Are they related to religious organizations; which ones?
Type of workers
Who belongs? Who is covered by the contracts? Is there white- collar unionization? Do managers belong to unions, such as the dirigenti in Italy? Are there closed-shop requirements or practices? That is, is the situation such that employees must belong to the union(s)?
Union density
What is the percentage of employees covered by collective bargaining agreements?
Vision of unions
Where does the focus of labor relations lie? Is it collective bargaining or individual representation or both? Is it economics or politics? What is the nature of the plant or site-level role of unions? Are there shop stewards? Are there works councils? And, if so, are they independent or essentially arms of the unions?
Negotiation partner
With whom does the firm have to negotiate? Who is the negotiation partner at company level? What is the role of government in bargaining? Employer’s associations: What is the nature and role of the employers’ associations in each country? Which associations exist? Should the MNE belong (why, why not)? What does membership entail, do most employers join, and can the firm avoid joining? Is there an obligation or recommendation to align with any of them?
Operation
What is the procedure for labor relations in the workplace? Is there a legal obligation to install employee representative bodies in the company and comply with information and
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method consultation procedures: What are the information and consultation requirements? Are ballots compulsory? Are there specific rights and protections for employee representatives?
Types of union agreement
What are the important issues typically covered by union agreements. What topics are contained in the contracts? Are they specific or general in nature?
Binding force of union agreements
Are agreements concluded at national, industry, and company level? What is the nature of the contracts or agreements with unions? Are the contracts enforceable? Are they breakable for any reason? When and under what circumstances are contracts renegotiated? If there are disagreements over the meaning or application of the terms of the contract, how are they determined? Is the contract renegotiated? Are work stoppages used? Is some form of mediation or arbitration used? Does the government play an active role in negotiations?
Strikes and industrial action
Under what circumstances can unions strike? For what reasons can and do unions go on strike? What forms of industrial action are common? If strikes occur are they legally regulated? Is ‘secondary’ industrial action common and/or legal? What sanctions are available to employers who find themselves the subject of industrial action?
Operating union-free
Is it possible to operate union-free? Can healthy employee relations be fostered in a union-free environment?
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Non-union Worker Representation
In many countries, additional forms of worker representation have evolved. Three such alternative institutions are described here.
Works Councils
Works councils are a critical component of worker relations in many countries, particularly in Europe.15 In many countries in Europe, particularly the Netherlands, Germany, France, Hungary, and Italy, there is a long tradition of worker rights to participate in decision making relevant to the operation of their employers. These rights are in addition to rights of organization and collective bargaining. Many other countries, such as the United States, Japan, China, Australia, Mexico, and the UK, do not have such histories and do not have built into their industrial relations systems the concept or practice of works councils. This makes it essential that IHR managers from such countries gain an understanding of what is involved in these works council requirements and/or retain professional legal advice.
Essentially, these works councils (which are made up of elected representatives of the firm’s workforce) have the right to receive information and to provide consultation relative to many decisions a firm makes (particularly, to ease the social consequences of restructurings by companies and within industries). The extent to which the councils have authority to approve employment-related (or even more broadly, enterprise) decisions varies from country to country. For example, since many countries in Europe have long involvement with works councils, the European Union has gradually been passing directives that require employers with more than 50 employees in all member countries (or 20 in any single country) to inform and consult with their workforces—through works councils or other, equivalent forums—on employment-related matters such as job security, work organization, and terms and conditions of employment.16 Under the most recent directive, member countries must pass legislation requiring works councils in every employer with more than 50 employees and establishing the obligation to inform and consult. Once the legislation is passed, employers—if they don’t do it on their own—can be compelled to set up an “inform and consent” arrangement if workers request it.
IHRM in Action 7.1 describes the efforts of the first American firm (Hewlett Packard) to establish an IC framework in the UK.17
IHRM in Action 7.1: Cross-Border Worker Representation at
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Hewlett-Packard
The merger of Hewlett Packard and Compaq in May 2002 triggered extensive consultation with workers in Europe. Under EU requirements, such corporate mergers require companies with 1,000 or more employees in the EU, with at least 150 of those in each of two or more member states, to consult with their employee representatives (through their works councils) on any business decisions contemplated as a result of the merger, such as layoffs, restructuring, and changed work arrangements (all of which were triggered by the merger).
Because of that experience, Hewlett Packard took the initiative under the new EU Inform and Consult Directive and the pending UK enabling legislation to become the first US firm in the United Kingdom to announce an “Inform and Consult” framework that was approved by its workforce. At quarterly meetings, HP’s management consulted with and informed their employee representatives on matters such as HP UK business strategies, financial and operational performance, investment plans, organizational changes, and anticipated critical employment decisions, such as layoffs, outsourcing, workforce agreements, and health and safety.
Key UK HP managers plus HP employee representatives elected to the HP Consultative Forum from each of the four UK business units meet on a quarterly basis. Wally Russell, HP’s European employee relations director says, “My own preference is that we be the master of our own destiny. So let’s work together now to [develop] a model that suits HP’s culture….”
In addition, an earlier EU directive required all employers with more than 1,000 employees throughout the EU and with at least 150 employees in each of two countries, to establish a European-wide works council to receive information and consultation on all decisions that cut across country boundaries. Under this directive, larger employers not only need to establish country-required works councils (which under the new directive, all countries must require), but must also establish a European-wide council. Firms that operate in Europe, but that come from countries where the concept of a works council does not exist, must learn to adapt to the EU requirements. This means that any decisions such as plant or office closings, work restructuring or transfer of work from one country to another— including outsourcing and sub-contracting, and employment downsizings—all require firms to inform and consult with their councils prior to implementation of such decisions. In some countries, such as Germany, the council must agree with the nature of the decision and its planned implementation; in other countries, such as the UK, extensive consultation about the impact and planned efforts to mitigate
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them, are required. In October 2001, the EU adopted legislation giving companies operating in the
EU the possibility of forming a central European company, also known as a “Societas Europeae” (SE), instead of having to form individual companies under the laws of each of the individual member countries. This way MNEs operating in Europe can form a single, centralized, entity to avoid the complexities of the different regulations in each of the countries in which they operate a business. The critical issue here is that, relative to employee involvement, the MNE does not need to establish an employee involvement mechanism where none already exists and this gives them, then, a way to establish a single, Europe-wide, employee- involvement procedure. While most works councils are found in continental European countries, other countries (e.g., Argentina, Bangladesh, Japan, Thailand, and South Africa) also have them. These works councils can be composed of both management and employee representatives (e.g., Denmark, Belgium); composed of employee representatives and overseen by a member of management (e.g., Japan, France); or composed of employee representatives without management oversight (e.g., Austria).
It should be noted that the minimum firm or location size for installation of works councils differs from country to country and the number of works council members varies with the number of local employees. Although works councils are core instruments of employee relations and representative bodies for information and consultation, the country-to-country variation is substantial. In some countries (e.g., Germany) they may even make joint decisions with management (co- determination) (see the next section).
Co-determination
Some countries, such as Germany, go a step further than informing and consultating with works councils. Germany has evolved a procedure referred to as “Mitbestimmung” or co-determination. Co-determination is a legal requirement in which employees are represented on supervisory boards or boards of directors and participate in major strategic decisions (that is, employees are not just consulted but management must obtain their agreement).
Co-determination differs from works councils in the sense that it includes a decision-making component. Most EU companies have some form of participation of employee representatives in the company’s decision-making process. Only three countries have no national legislation regarding board-level representation (Belgium, Italy, and UK).
Employee involvement (in most EU countries) lies on a continuum, from operational issues to full strategic decision making, from simple informing and
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consultation to works councils and co-determination. Employee involvement may range from pure attendance with an advisory role (e.g., France, although employees there may take a more active role, insisting on power similar to full acceptance or agreement on decisions that affect them) to membership and co- decision powers (e.g., Germany).
There are three corresponding systems of co-decisions:
1 Dual system: where the supervisory board (on which employee representatives have 1/3 of the members) supervises the board of directors (e.g., Austria, Germany, Denmark);
2 Single-tier system: where there is only one board of directors and the employees have one or two representatives;
3 Mixed system: obligatory participation but only advisory role (e.g., France).
Worker Co-operatives18
A third form of employee relations involves worker co-operatives. Today, the best- known of these are the set of co-operatives based in the Basque country of northern Spain (headquartered in the small town of Mondragon), called the Mondragon Co-operative Corporation (MCC). This complex of worker-owned businesses and other institutions (e.g., schools, social security, and banks) was begun in the mid-1940s by a local priest to deal with local problems of poverty, lack of education, and lack of economic opportunity in the Basque provinces of northern Spain and southern France, with the work co-operatives founded in 1956 by the priest and five young local engineers. These co-operatives have expanded and evolved to now involve over 100,000 people, of which over 65,000 are worker- owners, with annual sales now larger than US$20 billion with US$1 billion in net profits, and with 225 companies (industrial, retail, and financial), including 150 co- operatives, in many countries.
The MCC has been very successful for many reasons. These include: being located in a Basque culture that has historically involved community co-operation and being founded and encouraged by a very activist Catholic priest who believed that Catholic social teachings about the dignity of people included work and the rights of workers, the importance of family, community, and participation in work. This priest believed that if this concept of participation could be applied to economic issues, it would mean workplaces owned and managed by workers themselves. Thus, an economic system open to everyone, democratic in operation, with worker-owner solidarity and equality has evolved with evident success. It is a model that many have studied, but few have been able to emulate. Even so, it does clearly provide an alternative approach to employee-employer relations.
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Litigation Risks in Global Employee Relations
One of the most important pressures for IHRM and MNEs in international employment law and employee relations is the increased possibility of litigation. These risks involve errors in judgment and decisions in foreign jurisdictions, and mistakes when dealing with foreign employees and international assignees. In recent years there has been a significant upward trend toward holding MNEs accountable in various courts for their protections (or lack thereof) of employee and human rights in their foreign operations. Increasingly, MNEs are being sued in their home jurisdictions on the basis of allegations of breaches arising from the firm’s activities in foreign jurisdictions. In the past, MNEs have been able to block such actions on the basis that the home courts were not the appropriate jurisdictions in which to litigate the disputes. However, recent cases are illustrating that this defense may not be sufficient as foreign courts are increasingly willing to hold parent firms accountable under both their parent-country laws and those of the foreign country in which such litigations are initiated.
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Conclusions
This chapter has focused on the nature of employee-employer relations in the global context. This is the last chapter in this section of the text that deals with aspects of the context within which IHRM operates. Each aspect has been presented in the framework of importance in which it impacts IHRM policy and practice. As described in this chapter, the primary form in which employee relations has developed involves the form and activity of labor unions, although the chapter also summarizes three alternative forms of employee involvement and representation: works councils, co-determination, and co-operatives.
The chapter described and discussed the nature of unions, at local, national, and international levels, as well as the ways in which MNEs interact with those unions. Numerous examples were provided to illustrate the diversity of unions and employee relations in differing countries, showing how complex the employee relations environment is for MNEs, which have to cope with different forms of unions and local cultures and regulations related to employee relations in every country in which they do business.
Lastly, the chapter describes works councils (committees of elected employees with whom firms must inform and gain consent for business decisions that involve employees), co-determination (situations in which employees have the right to sit on boards of supervisors or directors, with varying powers to impact business decisions that impact employees), and co-operatives (a form of worker-ownership and management of business firms, the best example of which evolved in northern Spain but now has operations around the world).
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Discussion Questions
1 How do the various labor standards promulgated by international organizations affect the MNE? What is the nature of their impact?
2 How do European Union directives (such as those developed in the area of HR) impact member states and MNEs?
3 How is the labor movement evolving as a response to increased globalization?
4 What are non-union workers representations? Do you think we will see more of these types of representations in the future?
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Case Study 7.1: Global Industrial Relations at Ford Motor Company (USA/Global)
Ford Motor Company manufactures cars, trucks, and parts in 30 countries, with approximately 181,000 employees worldwide. It negotiates contracts with 56 different unions in every country where it manufactures except six (where there are no unions). In some countries, such as Italy, it must also negotiate with salaried staff and managers, who are also unionized.
Because of this great variety of unions and countries, bargaining takes on as many different forms as there are countries. For example, in Australia, all major issues are first discussed by sub-committees at the local level, which, after agreement is reached, are then taken to the full national bargaining committee for Ford Motor. In contrast, in Germany, negotiation is done for all auto companies and auto unions at the same time through the national employers’ association and the national metalworkers’ union, which represents workers at all automotive companies.
Even with this complicated bargaining reality, or maybe because of it, bargaining is handled almost exclusively at the local (country) level, with minimal coordination on a global level. As can be imagined, this not only causes coordination problems for the many unions involved, but also for Ford Motor Company itself. In spite of this, the office of the Director of International Labor Affairs Planning and Employee Relations (now consolidated in the office of Global Manufacturing and Labor Affairs) in Ford’s headquarters in Dearborn, Michigan, is literally only one person. As the Director of International Labor Affairs said, “because I work in so many countries, one of my primary roles is to educate all the parts of the business in the US about what is going on around the world and how that affects the business.”
Sources: Excerpted from a presentation by David Killinger, Director, International Labor Affairs, on Ford Motor Company’s global labor relations, delivered at the Faculty Development Seminar on International HRM at the University of Colorado, Denver, June 8, 2000; Ford Annual Report 2013 (http://corporate.ford.com/our-company/investors/reports-financial- information/annual-reports).
Discussion Questions
1 Compare union relations in two major countries. How are the unions (and employers) organized? What is the nature and role of bargaining? What
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role does the government play? Are there additional forms of employee representation?
2 What problems do you see for MNEs that must bargain with unions in multiple countries? How would you advise those problems be resolved?
3 What do you predict for the future of unions and union relations in the global economy? Why?
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Notes
1 Source: Mentioned in Morganteen, Jeff (Thursday, 27 Mar 2014), Labor unions saved Ford in our “darkest” hour: Bill Ford. CNBC, http://www.cnbc.com/id/101529786. Accessed April 7, 2014.
2 For more detail, refer to the volume in this series on these topics: Morley, M. J., Gunnigle, P. and Collings, D. G. (2006). Global Industrial Relations, London/New York: Routledge.
3 Visser, J. (2006). Union membership statistics in 24 countries, Monthly Labor Review, January, 38–49.
4 This short summary is based on the following: Baker & McKenzie (2009). Worldwide Guide to Trade Unions and Works Councils, Chicago, IL: CCH Inc.; Bamber, G. J., Lansbury, R. D. and Wailes, N. (eds.) (2010). International and Comparative Employment Relations, 5th ed., Thousand Oaks, CA: Sage Publications; Ferner, A. and Hyman, R. (eds.) (1998). Changing Industrial Relations in Europe, 2nd ed., Oxford, UK/Malden, MA: Blackwell Publishers; Hansen, E. D. (2001). European Economic History, Copenhagen, DK: Copenhagen Business School Press; Hyman, R. (2001). Understanding European Trade Unionism, London/Thousand Oaks, CA: Sage Publications; Keller, W. L. and Darby, T. J. (eds.) (2009). International Labor and Employment Laws, 3rd ed., Washington, DC: The Bureau of National Affairs and the International Labor Law Committee Section of Labor and Employment Law, American Bar Association; Morley, M. J., Gunnigle, P. and Collings, D. G. (eds.) (2006).
5 Cf., ICTUR (2005). Trade Unions of the World, 6th ed., London: John Harper Publishing.
6 William, F. and Williamson, H. (2006). International unions form body to defend workers’ rights in era of globalization. Financial Times, November 2.
7 Potter, B. (2014), Australian workplace culture partly to blame for Toyota’s exit, The Australian Financial Review, Feb. 11, retrieved at http://www/smh.com.au/business/commment-and-analysis/australian-workplace- culture-partly-to-blame-for-toyotas-exit-20140211–32djv.html#ixzz2tXZ9MiGt. Accessed Feb. 15, 2014.
8 Kimberly Clark Workers in Turkey End 43-day Strike with Gains (2014). IndustriALL Global Union website: http://www.industriall-union.org/kimberly-clark-workers-in- turkey-end-43-day-strike-with-gains. Accessed March 1, 2014.
9 Rothman, M., Briscoe, D. R. and Nacamulli, R. C. D. (eds.) (1992). Industrial Relations Around the World, Berlin: Walter de Gruyter; Levinson, D. L., Jr. and Maddox, R. C. (1982). Multinational corporations and labor relations: Changes in the wind? Personnel, May–June, 70–77.
10 Excerpted from a presentation by David Killinger, Director, International Labor Affairs, on Ford Motor Company’s global labor relations, delivered at the Faculty Development Seminar on International HRM at the University of Colorado, Denver, 8 June 2000.
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11 Baker & McKenzie (2009); Goetschy, J. (1998). France: The limits of reform, in Ferner, A. and Hyman, R. (eds.) (1998). Changing Industrial Relations in Europe, 2nd ed.; Keller and Darby (eds.) (2009); Schneider, B. (2004), Global industrial relations, presentation to the Faculty Development Program in International Human Resource Management, June 7–11, Denver, CO.
12 Frege, C. (2006), International trends in unionization, in Morley, M. J., Gunnigle, P. and Collings, D. G. (eds.), pp. 221–238; and Gooderham, P., Morley, M., Brewster, C. and Mayrhofer, W. (2004). Human Resource Management: A universal concept? in Brewster, C., Mayrhofer, W. and Morley, M. (eds.), Human Resource Management in Europe, Oxford: Elsevier, pp. 1–25.
13 Refer to Part II: Contemporary developments in global industrial relations, in Morley, Gunnigle, and Collings (eds.) (2006).
14 Bamber, G. J., Lansbury, R. D., and Wailes, N. (eds.) (2010). International and Comparative Employment Relations, 5th ed.; and Rothman, M., Briscoe, D. R., and Nacamulli, R. C. D. (eds.) (1993) Industrial Relations Around the World: Labor Relations for Multinational Companies.
15 See, for example, Baker & McKenzie (2009); Gill, C. (2006), Industrial relations in Western Europe, in Morley, Gunnigle, and Collings (eds.) Global Industrial Relations, London/New York: Routledge, pp. 71–85; and Keller and Darby (eds.) (2009).
16 Fox, A. (2003). To consult and inform, HR Magazine, October, 87–92.
17 Adapted from Fox, A. (2003). To consult and inform, HR Magazine, October, 87–92.
18 This section deals primarily with Mondragon (Spain) workers’ cooperatives. The information is drawn from Herrera, D. (2009). Mondragon Cooperative Corporation: The ten core principles and their foundations, lecture to course on the Mondragon co- operatives, delivered in Mondragon, Spain, 7 July; Kasmir, S. (1996). The Myth of Mondragon, Albany, NY: State University of New York Press; MacLeod, G. (1997). From Mondragon to America, Sydney, Nova Scotia, Canada: University College of Cape Breton Press; MCC (2007). Corporate Management Model, Mondragon, Spain: Mondragon Corporacion Cooperativia; Ormaechea, J. M. (1993). The Mondragon Cooperative Experience, Mondragon, Spain: Mondragon Corporacion Cooperativa; and Whyte, W. F. and Whyte, K. K. (1991). Making Mondragon: The Growth and Dynamics of the Worker Cooperative Complex, Ithaca, NY: ILR Press.
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Section 3 Global Talent Management
The third section of this book is titled “Global Talent Management” and has seven chapters:
■ Chapter 8: International Workforce Planning and Staffing ■ Chapter 9: International Recruitment, Selection, and Repatriation ■ Chapter 10: International Training and Management Development ■ Chapter 11: International Compensation, Benefits, and Taxes ■ Chapter 12: International Employee Performance Management ■ Chapter 13: Well-being of the International Workforce and
International HRIS ■ Chapter 14: Comparative IHRM: Operating in Other Regions and
Countries
Taken together, the above chapters provide a comprehensive overview of the essential body of IHRM policies and practices. These IHRM policies and practices serve to attract, select, develop, evaluate, compensate, and retain employees, as well as provide for their safety and well-being. So this section of the book concentrates on specific IHRM policies and practice that MNEs can use in the context of the operation of an MNE from its home-country, headquarters perspective as well as from the perspective of IHRM at the local level, which is important to the operation of foreign-owned firms and subsidiaries and other forms of cross-border ventures and alliances. Chapters 8 and 9 focus on the attracting and selecting policies and practices. Chapter 8 discusses the nature of and problems associated with workforce planning and staffing for global enterprises including an overview of the many options that MNEs have available to them. Chapter 9 builds on the previous chapter and discusses the planning and staffing issues in the MNE with primary focus on the selection of international assignees (IAs). It also describes many of the issues confronted in the IA selection process and best practices in dealing with those issues including the all-important issue of repatriation. Chapter 10 focuses on training and development in the MNE, focusing on training and preparation issues for expatriates as well as local employees in
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foreign operations and on leadership and management development in MNEs. Chapter 11 discusses compensation and benefits issues in MNEs, again focusing primarily on these issues for expatriates, but also on describing MNE attempts to design and apply common compensation and benefits programs for their operations and employees around the world. Chapter 12 focuses on the many issues related to the management of employee performance in the international arena. And Chapter 13 describes the many issues surrounding health, safety, and security for global business travelers and international assignees and their families and the design of crisis management programs to deal with these issues. Chapter 14, the last chapter in Section 3, provides an overview of the wide variation in effective and appropriate IHRM policies and practices across regions of the world. MNEs have the necessity to understand local HR policies and practices so as to make informed and effective decisions as to the practical fit of headquarters’ policies and practices with tradition and law across the many regions of the world.
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Chapter 8 International Workforce Planning and Staffing
Our leaders search for the brightest talent from around the world and give them the resources they need to be the best at what they do.
Samsung Corporation1
Learning Objectives
This chapter will enable the reader to:
■ Describe the process of international workforce forecasting and the challenges involved in planning the international workforce for an MNE.
■ Explain the many options available to MNEs for staffing their operations in terms of the different types of international employees that MNEs can draw on to staff their operations in the global marketplace.
■ Describe the implications of the different staffing options and the various types of employees for the MNE.
The quality of a firm’s talent is central to its ability to learn, innovate, and perform. Having the right talent, at the right place, at the right time, and at the right price is an important global issue for every enterprise.2International workforce planning and staffing refers to the process of estimating employment needs, recruiting, selecting, and repatriating talent in organizations with operations in different countries (see Figure 8.1). The challenge of staffing the global enterprise is both complex and difficult. In addition to normal home-country hiring responsibilities, MNE staffing includes staffing in all foreign operations plus the highly challenging responsibilities connected to relocation of employees from one country to another. In today’s talent shortage environment, staffing by MNEs has become the central problem of global talent management.
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Figure 8.1 The International Workforce Planning and Staffing Process
Until quite recently, MNE staffing policies and practices were developed from the perspective of headquarters and the culture of the parent country, involving primarily concerns about employees sent on expatriate assignments to foreign subsidiaries and the staffing of local employees at home and in host country subsidiaries. But today, staffing policies and practices have become much more complex, involving a mobile, global workforce, located in acquired enterprises in foreign locales, plus those located in traditional subsidiaries, joint ventures, and partnerships, and involving local hires, hires from countries around the world, and employees from any operation on assignment to any other operation. Partially as a result of this globalizing of staffing, one of the recent trends has included a shift in the numbers of workers in MNEs from Western countries to a growing number from emerging markets. MNEs have even gone outside the boundaries of their organizations in their search for talent by using outsourcing, offshoring, insourcing, and, sometimes open source talent.3
This chapter introduces the nature of and problems associated with the planning for the staffing of MNEs’ international operations. The chapter begins by describing the challenges involved in planning the international workforce for an MNE. And then it describes the many options now being reviewed by MNEs for staffing their operations around the world. Lastly, it presents some of the problems presented in trying to evaluate which approach works best when.
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International Workforce Planning
The objective of global workforce planning is to estimate employment needs of the MNE and to develop plans for meeting those needs. The term workforce applies to an enterprise’s employees. The term labor force applies to the pool of potential employees, the labor market, from which a firm attracts and hires its workforce. The size—and location—of the potential labor force from which a firm recruits employees varies according to many factors, such as the participation rates of men and women in various locations, the overall unemployment rate, whether only local people would be expected to apply for particular jobs, whether people with the necessary education or skills are available locally, etc. As has been stated a number of times, one of the characteristics of today’s global economy that adds complexity to HR management is the broad scope of enterprises’ operations— likely to be spread all over the world, in dozens if not hundreds of locations, using an equally large number of languages, dealing with a like number of cultures, and subject to various employment laws. The labor pool from which MNEs recruit staff is therefore also located in all those places, speaking all those languages, expressing all that diversity of cultural values and behaviors, and regulated by widely varying employment laws.
As a consequence, enterprises with international operations must find staff in whatever location(s) they operate (or relocate the staff they need—if unavailable locally—to those locations), learn to recruit and hire in multiple locations and cultures, and deploy staff where it makes most sense for the enterprise. In the best of circumstances, HR professionals will be asked to provide information about the adequacy of local labor markets prior to their firms’ decisions about where to locate their global operations and/or whether to participate in any cross-border acquisitions, joint ventures, or alliances. But, if not prior to such decisions, at least after such decisions are made, HR will be tasked with ensuring the timely staffing of the new or existing international operations. Because of the possible shortage of many skilled workers, the acquisition and deployment of talent is a key global HR imperative. In today’s global environment, successful organizations of the future will be those who can attract the best global talent and nurture, develop, and retain it by having a compelling work environment and sophisticated succession management strategies.4
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Factors that Impact International Workforce Planning
There are several factors that can impact the process of international workforce planning, illustrated in Figure 8.2.
Availability of Data
One of the major obstacles to MNE workforce planning is the lack of accurate data about labor forces in many countries, particularly in less developed and emerging economies. Ideally, data about such labor force characteristics as participation rates (percentage of men and women of working age who work or look for work), levels and quality of education and literacy, availability of skill training, language skills, and unemployment rates, by country and metropolitan areas within countries, would be available to help IHR plan for their firms’ local workforces. When available, these data are usually prepared by an agency of the government, or sometimes by international agencies, such as the International Labour Organization (ILO) or the Organization for Economic Cooperation and Development (OECD). But in many emerging markets such government agencies don’t always exist or the data they provide are inadequate, inaccurate, and/or politically motivated. In any case, they often do not provide data that are adequate for IHRM departments to be able to assess whether the people with the necessary skills and education are available or can be developed in any particular location in the numbers necessary to staff planned or acquired operations.
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Figure 8.2 Factors That Impact International Workforce Planning
This usually implies that IHR professionals must develop such data from independent sources. Sometimes, such data is available from international or local consultancies. And, often, adequate information can be accessed from sources such as local chambers of commerce, embassies, firms that aid foreign companies in local employee sourcing, etc. In addition, IHR managers can often get some of the information they need from other firms that have prior experience in that particular foreign locale. The key point is that MNEs should not make the assumption that local labor forces will be adequate to provide the talent they need (although this is exactly what is typically done—leaving it up to HR to locate and hire the necessary workforce). This adequacy should be one component of the executive decision-making process for where and with whom to do business. In any case, it is IHR that is expected to provide such information.
Population Characteristics: Shortages and Surpluses5
Probably the most important labor force issue for developed economies is their aging populations and the resulting labor shortages, with more people retiring than
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entering the labor force to replace them, although the 2007 to 2009 global recession with its consequent high levels of unemployment may have forestalled the importance of this concern. In contrast, the labor force issue of concern in most developing and emerging economies is their large young labor forces who often lack the skill sets that jobs in MNEs require.
To a significant extent, these characteristics determine the nature of the labor pool in various countries, although other issues also contribute. Male and female labor force participation rates vary so much from country to country that this factor alone has a major impact on the size of any country’s labor pool.6 Of course, today, technology makes it possible to use workers from almost any location without them having to relocate to where the employer is. And where people want to live may also influence MNEs in their decisions as to where to locate their work.
In terms of aging, countries such as Japan, Germany, and the UK have a large percentage of their populations aged over 60 while countries such as India, Mexico, and South Africa have a small percentage of their populations aged over 60, with much higher percentages of their populations under the age of 25.7 In some ways, these opposing profiles provide balance in the global labor force, with the surplus of young workers in the developing economies providing labor for the aging and shrinking labor forces in the developed countries. This happens in many ways, including the importing of workers and the exporting of jobs, through foreign direct investment, cross-border joint ventures and partnerships, outsourcing and subcontracting, and offshoring.
The following IHRM in Action8 illustrates another example of how firms are coping with the labor shortage, in this case how the Dutch have dealt with it by hiring the retired. Indeed, all of these responses to labor shortages are intertwined, as countries seek new ways to deal with the shortages. Various countries and firms are discussing the preferences of using various hiring options, ranging from immigrants to retirees to working mothers to robots and computers. Not all options are equally desired in different cultures and countries. And these shortages suggest to MNEs that are pursuing strategies to extend their global operations into developed countries that they must take into consideration the possible lack of availability of the types of employees they may need to staff those operations.
IHRM in Action 8.1: Dealing with Labor Shortages in the Netherlands
Frans Tuijntjes, a former pilot who has flown all over the world, is now selling men’s clothing and loving it. Recruiting the elderly—men and women
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who are either bored in retirement or need to supplement their pensions—is a new Dutch strategy to combat their labor shortage. In a program referred to as 65+, the Dutch created an employment agency designed specifically for recruiting the elderly.
Dutch companies find that their older employees are unusually motivated, experienced, and loyal. A short time ago, the Dutch welfare state was subsidizing retirement and encouraging people to retire early. Many people opted out. But now, with a labor shortage due to low birth rates over the last 40 years and fast economic growth in the Dutch economy, firms are finding the tight labor market is hampering growth because they can no longer fill vacancies.
Interestingly, the labor shortage is prompting a national debate [in the Netherlands as elsewhere] on some sensitive issues: How many more immigrants should be let into the country? Can the government force people to retrain? Should the government raise the retirement age and by how much?
At any rate, the retired Dutch who have gone back to work are finding it a rewarding experience. Frans Tuijntjes, the retired pilot, says, for example, “I’ve sold airplanes, so I figured I could sell a suit.” He says his part-time job at Marks & Spencer is a lot of fun because he gets to meet a lot of people and he can use his many skills, such as practicing his multiple languages.
For firms that want to conduct business in emerging markets, IHRM’s role in ensuring a qualified local workforce can be critical. For example, when the Edinburgh-based marine service firm BUE Marine moved into Azerbaijan’s capital, Baku, to take advantage of its natural resources, it faced a large number of HR challenges, ranging from nepotism and theft to low skills and overstaffing and deceitful résumés. What they found was that when companies want a foothold in a developing country, they need to research labor costs, cultural differences, benefits, legal jurisdictions, and how to hire people locally, as well as the role that government plays in contracts and enforcement.9 It falls upon IHRM to forestall labor problems and to provide information to senior executives on the costs of dealing with (or not) these kinds of such critical issues.
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Increasing Diversity of Labor Forces and Workforces
One of the results of increased globalization, modern technology, and global communications on the global labor market is that people with the education and skills needed in today’s global economy are increasingly available everywhere, making potential employees available from all racial and ethnic origins and nationalities.10 This has the effect of dramatically increasing the level of employee diversity with which global firms must cope. In addition, employees in the global firm come from many groups that in the past and in many countries did not participate much in the labor market, including the young and/or old, male and/or female, disabled, married or single, people from various religious affiliations, etc.
Labor Mobility: Emigration and Immigration
The world is experiencing migration (emigration and immigration) on an unprecedented scale. Some of it is voluntary and some of it is forced. Some of it is legal and some of it is considered illegal. Some of it is planned and purposeful and some of it is unplanned and without direct purpose. However, in all cases, it is creating mobility of workers in such large numbers that formal and informal emigration has to be taken into consideration as MNEs examine their options for developing their global workforces.
Millions of people work outside their home countries, either as traditional expatriates (on assignment by their employers) or hired to emigrate to fill vacant jobs in other countries. Some countries like the Philippines purposefully manage a percentage of their labor force to work in other countries every year. Others, such as Mexico, lose many workers with unofficial migration to their neighbors. And some, like Estonia, Romania, and Poland, lose many workers (legitimately) to other countries in their region, such as in this case to other countries in the European Union. In addition, millions are forced from their homes because of civil unrest or natural disasters and become permanent refugees. And some trade treaties such as the one that created the foundation for the European Union (1957 Treaty of Rome) include provisions to facilitate movement of workers between countries. This allows people to seek the best possible work opportunities, facilitates EU firms in creating high-quality workforces by drawing on talent from throughout the EU membership, and eventually levels the wage and benefits “playing field” across the member states, so that firms do not gain advantages or disadvantages because of differences in wages or in government practices between countries. Other treaties such as NAFTA, Mercosur, and ASEAN do not yet include such labor mobility provisions, but if the EU is developing the model for such regional trade treaties, it
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may only be a matter of time before other regions begin to look at ways to facilitate labor mobility as well (refer to the discussion of these treaties in Chapter 6 on employment law).
Brain Drain and Job Exporting
One of the major concerns created by the increasingly mobile labor force is what many countries, particularly emerging and developing countries, refer to as a brain drain, as their educated and skilled citizens leave for jobs with better pay in the developed countries. From the point-of-view of developing countries, it is often wrong for firms from the rich countries to recruit and relocate their citizens after the major resources that they have expended on educating and training their citizens. They feel they need these human resources for the development of their own economies.
An alternative to this brain drain, and one that is increasingly pursued by many global firms and is encouraged by the governments of developing economies, is to export the work and jobs from the developed economies to developing countries, through subsidiaries, joint ventures, outsourcing, and offshoring. Both sides can benefit from this arrangement: the firm gets top talent from the foreign countries in a period and location of labor shortage in their home country and at a lower cost and the developing country gets to hold on to its top talent and gets jobs and income from the MNEs.
In summary, today’s typical MNE, with operations in multiple countries (from dozens to over 100 countries), has a workforce that spans the globe. The task of IHR managers in these firms is to facilitate the hiring of competent, high- performing talent that enables sustainable, competitive advantage throughout the global marketplace. Planning for and hiring such a workforce is a complex activity. It involves determining what education and skills are needed and figuring out where to find that talent and how to recruit it and hire it. This is difficult enough for local hires for local operations. It is much more difficult for global operations. The first part of this chapter has described some of the complexities in that process.
The labor market is different in every country—and often also between regions within countries. The challenges for collecting or creating the information necessary for workforce planning and forecasting are often difficult to overcome. And yet the health of today’s MNE is a function of IHRM’s ability to match their firms’ workforce forecasts with the supply of global talent. Indeed, “In a fast- changing global economy, world-class workforce planning is the key to success.”11
With global workforce forecasts and plans in place, MNEs’ next moves are to fulfill those plans through recruiting and staffing, the subject of the rest of this chapter.
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International Staffing Approaches12
Staffing for the MNE involves hiring at the local level (in both the parent country and in all foreign locations where it does business or has operations of any kind) as well as management of the mobile workforce, that is, the employees who are hired in one locale and are relocated for varying times and purposes to other locales. In
staffing the MNE, firms can use four approaches ,13
as illustrated in Exhibit 8.1. Three approaches are mostly used to staff important positions in subsidiaries such as managerial and executive positions.14 Each approach has its own advantages and disadvantages.
It is important to note that as Exhibit 8.1 implies, IHR staffing practice is challenged by the problems associated with recruiting, hiring, training, compensating, managing performance and welfare, and retaining and deploying a global workforce, sourced from multiple locations and managed under the constraints of multiple national cultures and legal systems.
Exhibit 8.1: International Staffing Approaches
Ethnocentric Staffing Approach Advantages Disadvantages
MNEs tend to hire from the HQ country and send employees on international assignment to the subsidiaries
This approach is used when:
■ There is a strong need for the HQ to control the subsidiaries.
■ The subsidiaries are in early stages of development.
■ There is a lack of local talent.
■ Quickly fill key positions in subsidiaries when local talent is not available.
■ Allows HQ to control and coordinate subsidiary operations, and to maintain a common corporate culture across subsidiaries.
■ Allows parent-
■ Costly because PCNs are used.
■ Tension between PCNs and host- country nationals (HCNs) (e.g., because of compensation differences).
■ Prevents or slows the career development
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■ MNEs that have a global business strategy are most likely to use this approach.
(PCNs) to acquire international experience.
development process of HCNs.
Polycentric Staffing Approach Advantages Disadvantages
MNEs prefer to use locals from the subsidiary country
This approach is used when:
■ Need for localizing operations becomes important for competitive advantage.
■ Each subsidiary is relatively autonomous and adapts to its local conditions.
■ MNEs that have a multi- domestic business strategy are most likely to use this approach.
■ Access to local communities and markets.
■ Sends signal to the local community and government that subsidiary is committed to the local culture.
■ Relatively less costly than PCNs.
■ Locals may not be committed to the MNC.
■ Locals may not be able to acquire international experience.
■ For locals, career development and promotion opportunities may be limited.
Regio-Centric Staffing Approach Advantages Disadvantages
MNEs tend to favor
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using people from a specific region
This approach is used when:
■ There is a strong need to organize subsidiaries into regions.
■ Each region works as a unique unit with considerable autonomy.
■ The MNE has several regional headquarters.
■ Key positions are filled by third-country nationals (TCNs) and HCNs.
■ Reduces costs by sharing resources within a region.
■ Managers can develop region- specific expertise.
■ Able to respond to specific needs of a region.
■ Lack of multicultural perspective.
■ Career opportunities limited to specific regions.
■ Not easy for region-based managers to move to company HQs.
Geocentric Staffing Approach Advantages Disadvantages
MNEs source talent from anywhere in the world, regardless of nationality
This approach is used when:
■ MNE has a network of subsidiaries with various degrees of centralization and
■ Employees can develop a geocentric mindset.
■ Hires the best talent available.
■ Career opportunities for top performers are truly global.
■ Managing a large number of international assignees can be costly (e.g., relocation and training costs).
■ Managing work authorizations in several countries is a
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decentralization. ■ Highly
integrated process across subsidiaries.
■ MNEs that have a transnational business strategy are most likely to use this approach.
■ Employees can work with other employees from different geographic, cultural, and regional backgrounds.
countries is a complex process.
■ Requires a very high level of communication among employees from several countries.
Based on Scullion, H. and Collings, D. (2006). Global Staffing, London: Routledge; Collings, D. and Scullion, H. (2006). Global staffing, in Stahl, G. K. and Björkman, I. (eds.) Handbook of Research in International Human Resource Management, Cheltenham, UK, Edward Elgar; Harzing (2004); Borg, M. and Harzing, A.-W. (2004). Composing an international staff, in Harzing, A.-W. and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., Thousand Oaks, CA/London: Sage Publications, pp. 251–282.
Traditional International Assignees and Local Nationals
Until quite recently, staffing of MNEs was simplistically described as involving only three types of international employees: parent-country nationals (PCNs), host-country nationals (HCNs), and third-country nationals (TCNs)15 (see Exhibit 8.2).
Most of the IHR literature has concerned itself with PCNs, When PCNs are transferred (posted/assigned/relocated) to another country, to work in a foreign subsidiary or other
Exhibit 8.2: Traditional International Assignees and Local Nationals
Strengths Weaknesses
■ Familiar with ■ Cross-
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Parent-country nationals Employees of the MNE who are citizens of the country where the MNE’s corporate headquarters is located
the MNE’s corporate cultural values, goals, and objectives
■ International experience may lead to career opportunities
■ Provides control over the subsidiary’s operations
■ Effective transfer of corporate values culture and knowledge from HQ to subsidiary and vice versa
cultural adjustment to the new culture can be difficult
■ Can clash with local government’s policy of promoting local hires
■ Can be costly (e.g., relocation, compensation, possibility of failure)
■ Repatriation process can be challenging and difficult
Host-country nationals Employees of the MNE who work in the foreign subsidiary and are citizens of the country where the foreign subsidiary is located
■ Familiarity with the local cultural, economic, political and legal environment
■ Relatively less costly (e.g., limited or no relocation, local compensation levels)
■ Can respond effectively to the host country’s requirements for localization
■ Lacks familiarity with parent- country culture
■ Lowers or reduces the ability to maintain control over the subsidiary operations
■ May not be
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of the subsidiary’s operations
■ Accepted by the local colleagues, workers, employees, and government officials.
the most qualified
■ Low loyalty to HQ
Third-country nationals Employees of the MNE who are citizens of a country other than the parent country or the country of the subsidiary to work in one of its foreign subsidiaries
■ Generally viewed as a compromise between PCNs and HCNs
■ Less expensive to maintain than PCNs
■ Can add skills not available in country of the subsidiary
■ Can add diversity/ multiculturalism to the work environment
■ Easier to relocate (e.g., move from subsidiary to subsidiary)
■ Lacks familiarity with parent- country culture and MNE corporate culture
■ Mobility may be limited due to travel restrictions in certain countries or locations
■ May not be accepted well by the local nationals
Based on Scullion, H. and Collings, D. (2006). Global Staffing, London: Routledge; Collings, D. and Scullion, H. (2006). Global Staffing, in Stahl, G. K. and Björkman, I. (eds.) Handbook of Research in International Human Resource Management, Cheltenham, UK, Edward Elgar; Harzing (2004); Borg, M. and Harzing, A.-W. (2004). Composing an international staff, in Harzing, A.-W. and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., Thousand Oaks, CA/London: Sage Publications, pp. 251–282.
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type of operation (such as a joint venture or alliance) of the MNE for more than one year, they are generally referred to as expatriates or international assignees. Historically, the term “expatriate,” as used by companies, referred to employees who were relocated from the parent company or headquarters to foreign subsidiaries or “overseas” operations. Today, the term “international assignee” is more generally used to describe the process of moving any employee from one country to another for a period of more than one year, while staying in the employment of the same firm.
When expatriates return home, they are referred to as repatriates. Administering the traditional expatriate has historically been the primary time-consuming responsibility of the IHR manager and staff (and the primary research focus of academics).
Most of the literature in IHRM that deals with expatriates or international assignees—individuals who are or have been on international assignments—has assumed that all employees who are on foreign assignments are traditional expatriates. Studies have invariably referred to “international assignment experience” or “expatriate” to simply refer to anyone who has been on an international assignment for more than one year. But, as with everything else in IHRM, international assignments have also become more complex. So, the next few paragraphs provide an introduction to the many different types of international assignees (IAs), before the chapter describes in more detail the many issues surrounding recruiting and staffing for international assignments.
It is important to point out that when host-country nationals (HCNs) are relocated to the headquarters of the parent firm, generally for assignments of one year or less, for the purpose of learning the organization and its products and culture, they are generally referred to as inpatriates (although they are probably viewed by themselves and their home-country families, colleagues, and friends as expatriates from their home countries). Inpatriation is discussed in the next chapter.
Purpose(s) of Assignments
There have been a number of approaches to describing the purposes for sending people on international assignments.16 In general, these purposes can be combined into two broad categories: demand-driven and learning-driven. The demand- driven purposes include using IAs as general managers or directors, for subsidiary start-ups and to roll out new products, for technology transfer, to solve problems, to perform functional tasks such as accounting, sales, and manufacturing, and for organizational control. The learning-driven purposes include management development (of both international business skills and general management skills for both PCNs and HCNs), transfer of knowledge, and the socialization of locals
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into the corporate culture and values. Except for the need for general managers, increasingly all of these purposes are being pursued with shorter-term assignments (business travel, commuters, or transfer for less than a year, for sure less than three years), rather than the more common three- to five-year relocations found in years past.17 Some of the demand-driven purposes are being converted to permanent transfers or what is often referred to as localization.
As more firms globalize and develop more operations in an ever-increasing number of locations, they have begun to create additional options for staffing foreign work assignments. One consequence of this has been an effort to find a better term to describe the many types of international employees, as a replacement for “expatriate.” Thus terms such as “international assignee,” “transpatriate,” even “transnational” have been used by various companies in attempts to find a term that might describe anyone on a foreign assignment. None has been found, as will be shown in the next section, which covers all types of foreign employees. The term most often used today, “international assignee,” is generally used as a “catch-all” term but mostly refers to the traditional PCN on a typical expatriate assignment as well as to the inpatriate and other HCNs and TCNs who are moved from subsidiary to subsidiary. Yet, even with a generally expressed dissatisfaction with the term “expatriate,” observation at many recent IHRM conferences suggests it is difficult to break the habit of the use of this term.
Today’s Diversity of International Employees
Even though the use of expatriates has seemed to be the logical choice for staffing international operations, at least for start-ups, technology transfer, and major managerial positions, such as director general and sales manager, several current problems with the use of expatriates has led MNEs to seek other options for achieving their objectives in their foreign operations. Some of these issues include making mistakes in the choice of employees for international assignments, the high cost of these assignments, difficulties in providing adequate training and support for employees and their families on international assignments and the resulting problems with their adjustment to the foreign situation, too-frequent failures of international assignees, local countries’ desires for hiring local employees and managers, problems encountered in managing repatriates, and a growing suspicion that local hires may actually perform better.18 One result of this is that many MNEs are finding that it no longer makes sense to give all attention and priority to expatriates.
Indeed, international managers can and do come from just about everywhere, not just the HQ of the traditional large MNE.19 Exhibit 8.3 provides a summary of the many
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Exhibit 8.3: Types of International Assignees
Local hires or nationals
Employees who are hired locally (a host-country national hired under a polycentric staffing approach).
Domestic internationalists
Employees who never leave home but conduct international business with customers, suppliers, and colleagues in other countries (via telephone, teleconference, email, fax, or even snail mail).
International commuters
Employees who live in one country (typically their home country) but who work in another (host) country and regularly commute across borders to perform aspects of their work. They may live at home in one country yet commute on a daily or weekly basis to another country to work.
Frequent business trips
Employees who, on a frequent basis, take international trips that last a few days, weeks, or months at a time. These international trips usually include travel to a variety of countries or continents to visit MNE sites or customers.
Short-term international assignees
Employees on assignments that last less than one year but more than a few weeks (increasingly being used to substitute for longer-term international assignments and typically do not include the relocation of the employee’s family).
International assignees
This is an international assignment that lasts more than one year and includes full relocation. This is the traditional expatriate and the focus of most research and surveys about international employees. These international assignments may be intermediate-term assignments (12 to 24 months) or long-term assignments (24 to 36 months).
Localized employees
Often referred to as localization, this normally refers to the situation where an employee is sent to work in a foreign country but hired as a local employee (with some allowances for relocation). This may be because they really want to work in that country, often because they marry a local spouse or for some other reason want to spend the rest of their careers in that location. It may also involve an international assignee who is converted to permanent local status once the assignment period is over. Obviously, this option reduces the overall costs for the MNE.
Permanent These are employees who spend essentially their whole
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cadre or globalists
careers in international assignments, moving from one locale to another.
Stealth assignees
This is the term used to describe international assignees who are relocated by their managers without ever informing HR (that is, they “fly under the radar”), so that they do not show up in the records, benefits, and support systems used to manage such employees. Many short-term assignees fall under this category.
Immigrants (A)
This refers to traditional TCNs, employees who are hired to work in a foreign subsidiary but whose home of citizenship is another country, thus they become immigrants to the country of the subsidiary.
Immigrants (B)
These are people hired by the parent firm (either in country or as new immigrants and brought into the country) to work in the parent country. Making things even more complex, immigrants may be born in a foreign country and raised in the parent (of the firm) country; they may be born and raised in a foreign country and then later in life immigrate; or they may be born in the parent country of foreign immigrant parents and raised in either the parent country or their native (foreign) country. Any of these possibilities creates varying skills and cultural competencies.
Internships (temporary immigrants)
These are workers brought into a firm’s home country to work for short (six months to two years) periods as interns or trainees, used especially to fill in for labor shortages.
Returnees These are emigrants who are hired (or selected, if already employed by the firm) to return to their home countries to work for the firm there.
Boomerangs
These are individuals who have emigrated and are hired by firms in the firm’s parent country to return to their original homes or are foreigners with experience in the firm’s parent country, who have returned to their original homes and are now hired to work in the foreign (to the firm, but home to the individual) country
Second- generation expatriates
These are naturalized citizens (immigrants who have become citizens) and are sent on foreign assignments to countries other than their countries of birth. The assumption is that since they have lived through the “expatriate” experience once, they should be better able (than those without this experience) to handle it the second time.
Just-in-time These are ad hoc or contract expatriates, who are hired from
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Just-in-time expatriates
outside the firm just as they are needed and just for one assignment.
Reward or punishment assignees
These are employees who are late in their careers and who are either given a desirable foreign assignment to enjoy and to pad their pensions for when they retire in a couple of years (pay is higher on foreign assignments) or are sent to a difficult locale or undesirable assignment as a way to sideline them to finish out their careers, rather than have to discipline or terminate them because of marginal performance.
Outsourced employees
This is the situation that occurs when the MNE decides to pay someone else (in another country) for the services of an “employee” or group of employees. That is, the firm moves work to another country, subcontracting to a local firm to do the work. If the employees stay in the employ of the firm, yet are located in a foreign locale, this is generally referred to as offshoring. In recent years, global employment companies (GECs) have evolved, which provide a few employees or whole staffs for overseas locations. Some firms use their own GEC to house all of their globally mobile employees, simplifying pay and benefits, since everyone in the GEC gets the same pay and benefits, no matter where they work within the firm, possibly with cost- of-living adjustments. Other firms use independent GECs to staff overseas work.
Virtual IEs
This is the situation where all or most of the work is performed across borders via electronic media: tele conferences, email, telephone, video conferences, fax, etc. Virtual cross-border teams are discussed in more detail in Chapter 10, Training and Development.
Self-initiated foreign workers
This term refers to individuals who travel abroad (usually as tourists or students) but who seek work as they travel and are hired in the foreign location, often by firms from their home countries. They may also be individuals who travel to foreign countries seeking work in those countries. In either case, the initiative is taken by the individuals who are purposely seeking work in a foreign country. Or they are individuals who travel to another country for schooling or training and then stay to work.
Retirees This refers to the hiring of a firm’s retirees for short-term foreign assignments.
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different types of international employees that MNEs draw on to staff their operations in the global marketplace.20 There are many different options available to MNEs, and there are probably even more examples that the authors have yet to come across.
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International Staffing Choices: Implications for MNEs
IHRM professionals need to develop an appreciation for the fact that their responsibilities related to their international employees (IEs) vary according to the particular form of international employee and their countries of operation, the type of foreign operation (for example wholly owned subsidiary or international joint venture), or the firm’s phase of globalization.21
This increased variety of employees presents all sorts of new challenges for the selection, preparation, deployment, and management of a global workforce. Not the least of these is the increased need by all managers—and for IHR managers in particular—to increase their cross-cultural awareness, knowledge, and skills, their foreign language abilities, and their overall management competencies within this new international setting.
For example, firms have much to learn about how to manage the performance of a global workforce. The performance management of traditional expatriates, themselves, is not always handled well (this is discussed in Chapter 12), even though many global enterprises have many years of experience dealing with them. But the cross-national interaction among all the many different types of international employees described in this chapter and between global managers and IEs creates many new performance management problems, which become even more difficult as the variety of employees expands. All of these become critical concerns: the impact of national culture on performance and how it is defined, on standards for performance, on the review-ability of reviewers, on who reviews (their cultural experience and savvy), etc.22
Pay and support services are also likely to be structured differently for a short- term business traveler sent on an assignment for six months to finalize the start-up of a new foreign subsidiary than for a manager sent for three to five years to run such a subsidiary. Differences would also be pretty important between the pay and support services of the immigrant or foreign student (and each of these would be different from each other) hired to return home to work in a foreign subsidiary in comparison to a person who makes a career out of moving from one foreign assignment to another. Compensation issues are discussed in more depth in Chapter 11.
Exhibit 8.4 highlights some of the types of questions that IHR and the global enterprise need to address in order to better manage their global workforces. These questions can help guide readers as they read the rest of the chapters in this section.
Exhibit 8.4: Questions to Better Manage a Global Workforce
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1 What is the extent of the use of each type of IE?
2 How does the preparation and support for each type of IE vary? What form does the preparation and support take for each type of IE?
3
Does the international strategy or structure of the firm influence the type of IE employed? Or, stated from the other direction, which type of IE tends to be used under which strategy (international, multi-domestic, global, transnational) or structure (subsidiary, joint venture, alliance, sub-contract) or managerial orientation (ethnocentric, region-centric, geo-centric)?
4
Which international-business or cross-cultural competency is required by which type of international employee? For example, does every type of international employee require full cross-cultural preparation, training, and support? Does every type need full knowledge of how to conduct international business?
5 Which performance management problems arise for which type of international employee? And which solutions are most appropriate?
6
Are there specific management, organizational, and IHR outcomes that differ according to the type of international employee? For example, do difficulties with performance or retention vary with type of international assignment? Do the staffing, training, compensation, and management solutions also vary with the type of international assignment?
7
For which type of work and business purposes—management, sales, control, technology transfer, business development, product development, management development—are the various types of international employees used? Why? Which is most effective? Will the outsourcing and offshoring of this type of work continue? What will be the impact on the domestic workforces of MNEs that do this?
Purposes for these various employment or assignment situations will vary significantly. For example, these purposes could include any of the following: an ongoing assignment to perform manufacturing operations, a project team to install a new product, a short-term negotiation of a deal, intermediate-term transfer of technology, longer-term managerial and control assignments (managing director, comptroller), personal developmental assignments, or assignments to start new operations. Obviously the end result that is sought in each situation is different and the skills and competencies sought by the employing organization should also vary according to the purpose of the assignment. At the same time, the need for cross- cultural understanding and competency may be similar.
■ Which types of international employee are most cost-effective? Which
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provide the best business results? The extent of the cost variances and the ability of IHRM to measure and to manage these differences (and the extent to which IE choices are made based on these differences) needs to be examined. In the authors’ experience, even though the costs of IE assignments are rarely measured, the benefits are almost never measured, making any assessment of ROI of foreign assignments almost always impossible. Since MNEs are under constant and strong cost pressures, it would seem that this should be an area for major attention (and for payoff from results of such attention).
■ What are the best practices among various types of international firms in terms of the utilization of various types of international employees?
■ Do varying types of IE experience result in differential amounts of stress or other forms of personal problems? Recently, researchers have begun to look at issues such as stress as associated with varying forms of international activity, seeking, for example, to identify the extent and nature of particular problems associated with different types of international assignments.23
The answers to the types of questions suggested here and the analyses of these problems can go a long way toward helping to fill the business need for ensuring the best (most effective, productive/profitable, and cost-efficient) utilization of employees in this increasingly complex global business environment. In order for IHR to adequately fulfill its mission in support of the MNE’s staffing, it needs to clarify which type of international employee works best when and for which purpose.
Managing a global workforce creates many issues for IHRM.24 This chapter has provided an introduction. The rest of this section provides detail of the many components of the whole process. Most of the section deals with the management of international assignees. But, as this chapter has pointed out, firms with a global workforce in multiple countries must also cope with local workforces as well as the mobility of employees from country to country.
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Conclusion
This chapter provides an introduction to planning, forecasting, and staffing the global enterprise. It began by providing a description of the constantly changing labor markets around the world and discussed how MNEs plan for creating their workforces from those labor markets. The nature of those markets in various countries, in terms of their demographic characteristics, the skills and abilities of their individuals, and their accessibility and cost varies dramatically from country to country and region to region and can be a major determinant in the success of IB decisions such as where to locate operations. The chapter also provided an overview of the many options that MNEs have available to them for that staffing.
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Discussion Questions
1 Why is planning and forecasting a global workforce so difficult? 2 Why are so many countries bothered by their “brain drains”? 3 If you are given the opportunity in your next job to go on an extended
foreign assignment, what types of support programs would you expect or ask for? If you are working in IHRM, what policy or practices would you create to deal with foreign assignments?
4 What are the trends over the next 10 years in global staffing for many MNEs?
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Case Study 8.1: Firms Woo Executives from “Third” Countries (Global)
In the new world of a global workforce and firms’ foci on global talent management, multinational firms are tapping more “third-country” nationals for overseas posts. The increase in operations in emerging markets, the high costs of traditional international assignments, and shortages of needed skills in many markets has led to the search for employees from countries other than the parent country of headquarters or the host country of subsidiaries, employees who are referred to as “third-country” nationals (TCNs). These TCNs often win jobs because they speak several languages (particularly English and the host-country language) and know an industry and or foreign country well. The average number of third-country nationals continues to rise from year to year, according to consultants such as Organization Resources Counselors.
Pioneer Hi-Bred International employs 29 TCNs in key jobs abroad, triple the number five years earlier, partly because they accept difficult living conditions in Africa and the Middle East. Raychem has a dozen such foreigners in top European posts, up from eight a few years ago. “The numbers are going to increase” as Europe’s falling trade barriers ease relocation, suggests Edward Keible, a senior vice-president. A Frenchman runs the company’s Italian subsidiary, a Belgian is a sales manager in France, while a Cuban heads the unit in Spain.
Scott Paper, whose ranks of TCN managers has grown from two to 13 within a couple of years, says it will step up its recruitment of young foreigners “willing to move around Europe or around the Pacific,” says Barbara Rice, their HR chief.
Sources: European Migration Network Focused Study 2013: Attracting Highly Qualified and Qualified Third Country Nationals, European Commission; Baker & McKenzie (2014). Mobilizing the work force globally. The Global Employer, (2), 1– 3; Fouad, S., Hahm, W. and Leisy, B. (2010). Managing Today’s Global Workforce, New York: Ernst & Young; Lubblin, J. S. (1991). Firms woo executives from “third countries,” Wall Street Journal, September 16, B1
Discussion Questions:
1 What culture-related problems and issues do you see in these uses of third- country nationals?
2 How can those culture-related concerns be understood and dealt with? 3 What role does international HR need to take in coping with the cultural
issues presented by the use of TCNs?
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4 Are there other alternatives for finding enough talent to fill global needs?
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Notes
1 Source: Samsung corporate website (www.samsung.com). Values and pphilosophy. Retrieved from http://www.samsung.com/us/aboutsamsung/samsung_group/values_and_philosophy/. Accessed Nov. 24, 2014.
2 Sparrow, P., Scullion, H., and Tarique, I. (eds.) (2014). Strategic Talent Management: Contemporary Issues in International Context, Cambridge: Cambridge University Press; Collings, D. (2014). Integrating global mobility and global talent management: Exploring the challenges and strategic opportunities. Journal of World Business, 49, 253–261, Tarique, I., and Schuler, R. S. (2010). Global talent management: Literature review, integrative framework, and suggestions for further research. Journal of World Business, 45(2), 122–133.
3 This term refers to the ability of firms to use the input of non-employees for in-house projects, much like the development of “open source” software. Sometimes this is referred to as the “Wiki Workplace,” which refers to the use of mass collaboration, which is taking root in the workplace connecting internal teams to external networks or individuals facilitated by the Web 2.0 platform for collaboration. As a result, the boundaries of the organization are extended in terms of the workforce that can be accessed by the firm. See, The wiki workplace, in Tapscott, D. and Williams, A.D. (2006). Wikinomics: How Mass Collaboration Changes Everything, New York: Portfolio Penguin Group, pp. 239–264.
4 Kelly, L. K. (Heidrick and Struggles) (2007). Mapping global talent. Essays and Insights,, Economist Intelligence Unit, London: The Economist.
5 There are many references on this subject—although there has been far less attention to it during the 2007–2010 global recession. Even so, many employers have expressed difficulties in finding employees with the high level of skills they need, even during a period of high unemployment. Here are only a few of the references to labor shortages: 2013 Talent Shortage Survey, Research Results, Manpowergroup (www.manpowergroup.com); Spears, V. P. (2012). Global talent shortage worries multinationals more than revolution or recession. Employee Benefit Plan Review, 67(2), 27; Boardman, M. (1999). Worker “dearth” in the twenty-first century, HR Magazine, June, 304; Golzen, G. (1998). Skill shortages around the globe. HR World, November– December, 41–53; Herman, R., Olivo, T., and Gioia, J. (2003). Impending Crisis: Too Many Jobs, Too Few People, Winchester, VA: Oakhill Press; Johnston, W. B. (1991). Global work force 2000: The new world labor market. Harvard Business Review, March–April, 115–127; Leonard, S. (2000). The labor shortage, Workplace Visions, 4, 1– 7; Patel, D. (2001). HR trends and analysis: The effect of changing demographics and globalization on HR. Global HR, July–August, 9–10.
6 Female labor force participation rates as % of active (employed plus unemployed) population between the ages of 15 and 60. Rates published by OECD, 2013. www.oecd.com, Accessed 15 Sept. 15, 2013.
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7 Estimates from data provided by the World Bank, World Development Indicators. Available at www.worldbank.com/world-development-indicators. Accessed Oct. 13, 2014.
8 Adapted from, Amid shortage of workers, Dutch find reward in hiring the retired (2000). San Diego Union-Tribune, April 23, p. A–29.
9 Hall, L. (2001). Talent mapped out, Global HR, April, 30, quoting Alan Tsang, Managing Director for Asia of the search and selection firm Norman Broadbent.
10 Friedman, T. L. (2005). The World Is Flat, New York: Farrar, Straus and Giroux.
11 Sullivan, J. (2002). Plan of action, Global HR, October, 22.
12 See, for example, Caligiuri, P., Lepak, D., and Bonache, J. (2010). Global Dimensions of Human Resources Management: Managing the Global Workforce, New York: Wiley; and Dickman, M. and Baruch, Y. (2011). Global Careers, London/New York: Routledge.
13 Perlmutter, H. V. and Heenan, D. A. (1986). Cooperate to compete globally. Harvard Business Review, March/April, 135–152.
14 Harzing, A.-W. (2004). Composing an international staff, in Harzing, A.-W. and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., Thousand Oaks, CA/London: Sage Publications, pp. 251–282.
15 See, for example, Harzing (2004).; Caliguiri, Lepak, and Bonache 2010; Fernandez, F. (2005). Globalization and Human Resource Management, New York: HNB Publishing; Gross, A. and McDonald, R. (1998). Vast shortages in talent keep employers searching. International HR Update, July, 6; Melton, W. R. (2005). The New American Expat, Yarmouth, ME: Intercultural Press; Schell, M. S. and Solomon, C. M. (1997). Capitalizing on the Global Workforce, Chicago: Irwin; Stroh, L. K., Black, J. S., Mendenhall, M. E., and Gregersen, H. B. (2005). International Assignments: An Integration of Strategy, Research, and Practice, Mahwah, NJ/London: Lawrence Erlbaum Associates; Vance, C. M. and Paik, Y. (2010). Managing a Global Workforce, 2nd ed., Armonk, NY/London: M. E. Sharpe. The terms PCN, TCN and HCN were first introduced into the IHRM literature by Patrick Morgan, at that time (1986) director of international HR at Bechtel: Morgan, P. (1986). International human resource management: Fact or Fiction? Personnel Administrator, 31 (9), 43–47.
16 See, for example, Edström, A. and Galbraith, J. R. (1977). Transfer of managers as a coordination and control strategy in multinational organizations. Administrative Science Quarterly, 22 ( June), 248–263; Harzing, A.-W. (2001a). Of bears, bumble-bees, and spiders: The role of expatriates in controlling foreign subsidiaries. Journal of World Business, 36 (4), 366–379; Hays, R. (1974). Expatriate selection: Insuring success and avoiding failure. Journal of International Business Studies, 5 (1), 25–37; Roberts, K., Kossek, E. E. and Ozeki, C. (1998). Managing the global work force: Challenges and strategies, Academy of Management Executive, 12 (4), 6–16; Tahvanainen, M. (1998). Expatriate Performance Management, Helsinki: Helsinki School of Economics Press; and Tung, R. L. (1991). Selection and training of personnel for overseas assignments.
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Columbia Journal of World Business, 16 (1), 68–78.
17 Carpenter, M. A., Sanders, W. G. and Gregersen, H. B. (2001). Bundling human capital with organizational context: The impact of international assignment experience on multinational firm performance and CEO pay. Academy of Management Journal, 44 (3), 493–511; Harzing, A.-W. (2001a); Harzing, A.-W. (2001b). Who’s in charge? An empirical study of executive staffing practices in foreign subsidiaries. Human Resource Management, 40 (2), 139–158; Stahl, G. T., Miller, E. L. and Tung, R. L. (2002). Toward the boundaryless career: A closer look at the expatriate career concept and the perceived implications of an international assignment. Journal of World Business, 37 (3), 216–227; and Tung, R. L. (1998). American expatriates abroad: From neophytes to cosmopolitans. Journal of World Business, 33 (2), 125–144.
18 Adler, N. J. with Gundersen, A. (2008). International Dimensions of Organizational Behavior, 5th ed., Mason, OH: Thomson/South-Western; Bachler, C. (1996). Global inpats: Don’t let them surprise you. Personnel Journal, June, 54–56; Forster, N. (2000). The myth of the international manager, International Journal of Human Resource Management, 11, 126; Groh, K. and Allen, M. (1998). Global staffing: Are expatriates the only answer? Special report on expatriate management. HR Focus, March, 75–78; Minehan, M. (1996). Skills shortage in Asia, HR Magazine, 41, 152; Tung, R. (1987). Expatriate assignments: Enhancing success and minimizing failure, Academy of Management Executive, 1 (2), 117–126.
19 Black, J. S., Morrison, A. J. and Gregersen, H. B. (1999). Global Explorers: The Next Generation of Leaders, New York/London: Routledge; Fernandez, F. (2005). Globalization and Human Resource Management, New York: HNB Publishing; Ferraro, G. (2002). Global Brains: Knowledge and Competencies for the Twenty-first Century, Charlotte, NC: Intercultural Associates; Hodge, S. (2000). Global Smarts: The Art of Communicating and Deal-making Anywhere in the World, New York: Wiley; Keys, J. B. and Fulmer, R. M. (eds.) (1998). Executive Development and Organizational Learning for Global Business, New York/London: International Business Press; McCall, M. W., Jr. and Hollenbeck, G. P. (2002). Developing Global Executives: The Lessons of International Experience, Boston, MA: Harvard Business School Press; Moran, R. T., Harris, P. R. and Moran, S. V. (2007). Managing Cultural Differences, 7th ed., Burlington, MA/Oxford: Butterworth-Heinemann; Rosen, R., Digh, P., Singer, M. and Phillips, C. (2000). Global Literacies: Lessons on Business Leadership and National Cultures, New York: Simon & Schuster; Scherer, C. W. (2000). The Internationalists: Business Strategies for Globalization, Wilsonville, OR: Book Partners; Stroh et al. (2005); Vance, C. and Paik, Y. (2011), Managing a Global Workforce, 2nd ed., Armonk, NY/London: M. E. Sharpe.
20 This is just a summary. If the reader would like more information, more complete descriptions, and references to support these different types of international employees, please contact the lead author, Dr. Dennis Briscoe, at [email protected].
21 See, for example, Adler, N. and Ghadar, F. (1990). Strategic human resource management: A global perspective, in Pieper, R. (ed.), Human Resource Management:
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An International Comparison, Berlin: de Gruyter, pp. 235–260; Black, J. S., Gregersen, H. B. and Mendenhall, M. E. (1992); Stroh, L. K., Black, J. S., Mendenhall, M. E., and Gregersen, H. B. (2005). International Assignments: An Integration of Strategy, Research, & Practice, Mahwah, NJ/London: Lawrence Erlbaum Associates; Evans, P., Pucik, V., and Björkman, I. (2011). The Global Challenge: International Human Resource Management, 2nd ed., New York: McGrawHill/Irwin; Luthans, F., Marsnik, P. A., and Luthans, K. W. (1997). A contingency matrix approach to IHRM, Human Resource Management, 36(2), 83–199; and Shenkar, O. (1995). Contingency factors in HRM in foreign affiliates, in Shenkar, O. (ed.), Global Perspectives of Human Resource Management, Englewood Cliffs, NJ: Prentice Hall, pp. 197–209.
22 Borkowski, S. C. (1999). International managerial performance evaluation: A five country comparison. Journal of International Business Studies, 30(3), 533–555; Briscoe, D. R. (1997). Assessment centers: Cross-cultural and cross-national issues, in Riggio, R. E. and Mayes, B. T. (eds.), Assessment centers: Research and applications [Special Issue], Journal of Social Behavior and Personality, 12(5), 261–270; Caligiuri, P.M. (1997). Assessing expatriate success: Beyond just “being there.” New Approaches to Employee Management, vol. 4, 117–140; Gregersen, H. B., Hite, J. M., and Black, J. S. (1996). Expatriate performance appraisal in U.S. multinational firms, Journal of International Business Studies, 27(4), 711–738; Milliman, J., Nason, S., Gallagher, E., Huo, P., Von Glinow, M. A., and Lowe, K. B. (1998). The impact of national culture on human resource management practices: The case of performance appraisal. Advances in International Comparative Management, 12, 157–183; and Oddou, G., and Mendenhall, M. (2000). Expatriate performance appraisal: Problems and solutions, in Mendenhall, M. and Oddou, G. (eds.), Readings and Cases in International Human Resource Management, 3rd ed., South Western, pp. 213–223.
23 See, for example, DeFrank, R. S., Konopaske, R., and Ivancevich, J. M. (2000). Executive travel stress: Perils of the road warrior. Academy of Management Executive, 14(2), 58– 71; and Harris, H. (2000). Alternative forms of international working, Worldlink, 10(4), 2–3.
24 This introduction to the rest of this section of the text is partially based on Boudreau, J. W. (2010). IBM’s Global Talent Management Strategy: The Vision of the Globally Integrated Enterprise, Alexandria, VA: Society for Human Resource Management; CARTUS and National Foreign Trade Council (2010). Navigating a Challenging Landscape, Global Mobility Policy and Practice Survey, New York: Authors; Deloitte Development LLC (2010). Smarter Moves: Executing and Integrating Global Mobility and Talent Programs, New York: Deloitte Touche Tohmatsu; and Gerdes, D. R. and Kessler, J. H. (eds.) (2010). Mobilizing the work force globally—best practices to maintain compliance and manage staffing needs, in Baker & McKenzie, The Global Employer, XV (2). May issue.
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Chapter 9 International Recruitment, International Selection, and Repatriation
People who work at BP as an expat often describe their position overseas as one of the most fulfilling and valuable experiences they’ve ever had.
BP Corporation1
Learning Objectives
This chapter will enable the reader to:
■ Describe the broad issues involved in staffing subsidiaries with international assignees or expatriates.
■ Describe the various issues involved in recruiting international assignees or expatriates.
■ Describe the general process of selection of international assignees (IAs) for international assignments and the issue of failure in an IA assignment and reasons for it.
■ Describe the characteristics of successful IA selection programs and exemplary practices.
■ Explain the essential nature of repatriation.
The previous chapter introduced the complex responsibilities of international workforce planning and staffing for firms that operate in a multinational environment. In addition to normal domestic hiring responsibilities—which in today’s global economy often involve the recruitment and selection of employees from numerous nationalities and cultures—the international staffing manager takes on a number of new responsibilities, including recruiting and staffing the traditional types of employees utilized by international businesses (e.g., PCNs, HCNs, and TCNs). This chapter focuses primarily on the issue of recruiting, selecting, and repatriating traditional PCNs, or expatriates, although some of the chapter discusses the selection of the other traditional types of international employees (HCNs and TCNs) as well.
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■ Recruiting involves searching for and attracting qualified applicants to create a pool of candidates for screening for possible hiring.
■ Selecting focuses on gathering and analyzing information about applicants in order to select the most suitable person or persons for the job.
■ Repatriating refers to the process of bringing international assignees (IAs) and their families back “home” from their foreign assignments.
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Staffing with Expatriates or International Assignees
Typical employment practices for managerial, marketing, and technical operations positions in foreign subsidiaries, particularly in the early stages of “going international,” place heavy emphasis on the use of expatriates.2 There are many reasons that MNEs transfer personnel from one country to another. But the key reasons still appear to be for their technical or functional expertise, for control, and to start new operations.3 In addition, MNEs are increasingly recognizing the importance of international experience for higher-level managerial positions, making development through an international assignment an increasingly prominent focus, as well (although, as will be shown later in this chapter, the rhetoric may be stronger than the reality).4
Historically, the term “expatriate,” as used by companies, referred to employees who were relocated from the parent company or headquarters to foreign subsidiaries or “overseas” operations. Today, the term “international assignee” is more generally used to describe any employee who is relocated from one country to another for a period of more than one year, while staying in the employment of the same firm. Both terms are used throughout this text.
Exhibit 9.1 illustrates the four common options used by MNEs to staff their foreign operations. The first option in Exhibit 9.1—secondment, while remaining an employee of the parent firm—is the most commonly used practice to relocate expatriates—either from headquarters out to subsidiaries or from subsidiaries to headquarters or to other subsidiaries. The other options—transfer of employment, global employment company, and dual employment are used less frequently.
Even though global enterprises are using multiple ways and multiple types of employees to staff their international businesses, there is still major interest in and use of traditional international assignees (option 1 in Exhibit 9.1). Many large multinationals that have been international for a long time, such as Unilever, the large Anglo-Dutch consumer products firm, Royal Dutch Shell, an Anglo-Dutch oil company, and Ford Motor Company, move managers from subsidiary to subsidiary and country to country (as well as from HQs out to subsidiaries) to help build global relationships and to develop a common corporate identity and business culture among their management ranks, as well as to ensure they have the necessary talent in the right location at the right time.
Exhibit 9.1: Employment Options for International Transfers
Who will be the employer? The typical options involve one of these four:
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1 Secondment—the employee remains employed by the home country employer (normally headquarters but sometimes a subsidiary) and is “loaned” or seconded to work for an entity (normally a subsidiary or sometimes headquarters) in the host country. This is the typical expatriate or inpatriate.
2 Transfer of Employment—the employee is terminated by the home country employer and is rehired by a new employer in the host country.
3 Global Employment Company—the employee is terminated by the home country employer and transferred to the employment of a global employment company (GEC). The GEC in turn seconds the employee to work for an entity in a host country. Sometimes the GEC is owned by the home country employer and services all the subsidiaries of the parent firm.
4 Dual Employment—the employee maintains more than one employment relationship simultaneously during the course of the assignment (that is, works for two or more employers with split payroll).
Source: Baker & McKenzie (2014). The Global Employer: Focus on Global Immigration and Mobility, Baker & McKenzie International, a Swiss Verein with member law firms around the world.
Increasing use of international assignees. In the typical MNE of any size, there are divergent forces operating relative to the use of international assignees:
■ Larger MNEs use a greater number and percentage of local hires, but they also need international experience in their management team. So to develop this experience, they are increasingly likely to move managers from the parent company or regional HQs, as well as their foreign managers, to assignments in countries other than their countries of origin.
■ Firms that are newly developing their international businesses, of which there are a constantly increasing number, typically rely heavily on international assignees from the home office for the development of that business, both because they trust their existing managers more than unknown foreign managers and because they lack experience in working with foreign operations and it seems easier to establish their new foreign businesses with their existing managers.
■ Sometimes there is simply a shortage of qualified skills in local nationals, although, with global communications and hundreds of thousands—if not
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millions—of students from the developing world getting higher education in developed countries and many developing or emerging economies providing world-class education to millions of their own citizens, this is rapidly becoming less of a concern. A more pressing concern is the lack of supervisory and managerial skills in these emerging markets.
Several studies show that the number of international assignees is increasing, and the prediction5 is that the absolute numbers will continue to grow as global business opportunities are expanding, especially in large markets like China and India.
It is important to keep in mind that the number of international assignees can vary with the stages of international operations. The use of international assignees (especially from HQs) is high during the initial stages of foreign operations in order to implement operational and office start-up—and all that is involved with this in a new country, technology transfer—including production and management technologies, and product-knowledge transfer. The number of international assignees will then decline as the firm’s local managers and technical and functional staff assimilate this knowledge. The number may later expand, again, as local operations become increasingly integrated into a global operational framework. In addition, as enterprises become more global, they develop a need for international managers with greater international experience as they develop their worldwide competitive advantages. However, at this stage, these global managers may well come from any country, not necessarily, or even primarily, from the country of the parent company.
Thus, the global movement of employees is essential to multinational organizations doing business in different countries. As stated by Baker & McKenzie, the world’s largest global employment law firm: “Getting the right people to the right places at the right time with proper support in a lawful manner is critical to the success of global business.”6
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The International Recruitment Function
Recruitment is defined as the process that involves searching for and attracting qualified applicants to create an applicant pool for open positions. Recruitment is highly dependent on the workforce planning process discussed in the previous chapter. Recruiting begins after an organization’s immediate and long-term labor needs are defined. For example, several questions7 such as the following need to be addressed before the recruiting process can start:
■ How many positions does the organization need to fill? Are these needs short term (less than a year) or long term (greater than a year)?
■ Does the organization need applicants for short-term assignments or long- term assignments?
■ What compensation strategy does the organization want to pursue? That is, does the organization intend to offer compensation packages that are below market average, at market average, or above market average?
■ Does the organization seek applicants who differ from the company’s current employees? How will this affect the recruiting process?
■ What type of competencies does the organization seek in new applicants?
Once the number, types, and quality of employees being sought are specified, then organizations need to determine which labor markets—which are potentially widely geographically dispersed—are most likely to provide the employees desired. This process of finding candidates is referred to as sourcing, and there are two broad recruiting sources available to organizations: internal recruiting sources and external recruiting sources.
Internal recruiting sources focus on global candidates from within the organization and include:8
■ Global talent management inventories: Electronic records of work-related information for employees from throughout the organization including their knowledge, skills and abilities, education, past performance, interests, etc.
■ Attendees from in-house global leadership programs: Educational programs designed to provide global leadership competencies to high potential employees.
■ Former/current expatriates: Individuals who have been on foreign assignments or are currently on an assignment.
■ Nominations: Recommendations from current or potential supervisors and/or former or current expatriates.
■ Internal job posting/intranet: Job advertisement that can only be viewed by
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current employees, usually posted on the company’s intranet system. It is expected that employees with an interest in an international assignment will look for these postings and apply when they see a job for which they have an interest.
■ International succession planning programs: Internal programs designed to prepare high potential employees for overseas positions such as “look-see visits” or “short-term developmental” foreign assignments.
Internal recruiting sources are often favored because they reduce labor costs, are valued by employers and employees, and can enhance the reputation of the company as an employer of choice. However, internal recruiting sources can also limit the size and to some extent the quality of the applicant pool, and may encourage infighting and inbreeding.
External recruiting sources locate candidates from outside the organization and include:9
■ Employee referrals: Recommendations from current employees or expatriates.
■ Job fairs: Organized events where employers and potential applicants can meet each other.
■ Company Internet sites: Companies’ dedicated career websites that allow potential applicants to learn about employment opportunities within the organization. Each country/region/subsidiary within the firm may have its own dedicated career website.
■ Executive search firms: Recruiting firms that specialize in particular types of individuals, jobs, or industries. Particularly helpful here are search firms with global networks and contacts.
■ Professional associations or networks: Members of professional associations and networks are potential applicants (e.g., LinkedIn) or may provide a platform or network for connection to possible international assignments.
■ Competing firms: Current expatriates or former expatriates from competitor firms are potential applicants. Recruiting existing employees from other firms is referred to as employee raiding, which can be unethical or illegal in certain environments or countries.
■ Generic global leadership programs for the public (offered by consulting firms or training companies) or offered in universities and colleges: Most of these programs typically prepare interested managers or senior-level students for global leadership positions.
Managers should always use multiple recruiting sources so as to increase diversity and to generate a larger pool of applicants.
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Although all of the above recruiting sources may be used to find candidates for foreign assignments (PCNs or TCNs) or HCNs for local hires, attracting candidates to work internationally raises an important challenge for MNEs10—how to find individuals interested in a specific international assignment as well as those interested in permanent international careers.11 MNEs need to use recruiting sources that find candidates with high receptivity to international careers,12 which refers to an individual’s attitude toward international careers and is one of the most frequently studied factors in assessing why people undertake careers in international work.13
Several factors influence an individual’s receptivity to an international career or willingness to accept an international assignment (these factors are described in more detail in the selection section later in the chapter):14
■ job suitability/technical ability; ■ cultural adaptability; ■ personality characteristics; ■ desire for foreign assignment; ■ the maturity of the candidate; ■ ability to handle foreign language(s); ■ possession of a favorable outlook on the international assignment.
In addition to the above factors, there are other factors that can influence receptivity to international careers:
■ prior international experience; ■ age; ■ gender; ■ family status; ■ marital status; ■ education; ■ destination country; ■ opportunities for career support; ■ company culture; ■ career and repatriation planning; ■ length of the foreign assignment; ■ overseas health care plan; ■ income tax equalization policy; ■ host country housing assistance; ■ spouse job assistance; ■ spouse’s willingness to travel overseas; ■ children’s education allowance.
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Another challenge for MNEs, especially if recruiting candidates from an external labor market, is to develop an employer reputation15 that attracts candidates to the organization. Employer reputation—sometimes referred to as employer brand— refers to the evaluation by potential candidates of an organization as a desirable place of work and to seek international experience. An organization’s employer reputation is strongly based on the signals or messages the organization sends to individuals outside the organization. These signals can come through the media (e.g., newspapers and business magazines), former employees, recruiting advertisements, customer reactions to company products and services, and company websites, and can include information about potential compensation, benefits, prestige, and career advancement. For potential candidates, employer reputation is critical since most candidates’ understanding of an organization is limited to the employer’s reputation in the marketplace rather than the organization’s actual HR policies and practices.16
The final challenge for MNEs is to manage talent shortages that occur when employers cannot find workers with the needed competencies.17 Talent shortages occur in countries during times of economic boom, as well as in times of economic uncertainty.18 This is more serious in the service sector, especially when economic conditions improve.19
In the context of talent shortages, the challenge for MNEs to develop strategies to attract high performers and specialists. Location (where to find talent) becomes a critical issue.
The following IHRM in Action illustrates this point:
IHRM in Action 9.1: Locating Near the Talent with a Global Workforce
Today, it is still important to be located near your customers. But in the war for talent, it may be equally as important to be located in the best place to attract the high performers and specialists your business needs. Over the last few years, specific locations have arisen as preferred places to live and work. High talent employees can establish themselves in locales that enable them to create the life-work balance that meets their current needs.
So, where are such places? As it turns out, people don’t look so much at countries as they do at cities,
and often it is small cities that provide the lifestyles they are looking for. For example, it includes Groningen, a small, obscure town in the north of the Netherlands, and Eindhoven, another small town—but major business location —in the Netherlands. Of course, the traditional, popular big cities continue to
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have appeal, but there are also new areas that are attracting the talent that today’s MNEs need.
In Europe, this would include an area marked on a map by a gentle curve drawn from Barcelona, across southern France, northern Italy, Switzerland, and southern Germany, an area that already boasts the highest per capita income level in the world. The big cities of interest in Europe still include Amsterdam, Brussels, London, Paris, Nice, Berlin, Milan, Dublin, and Zurich. In Asia, these cities would include Sydney and Brisbane, Auckland, Singapore, Kuala Lumpur, Tokyo, Seoul, and Shanghai. If a global firm cannot find talent where its customers want them to locate, then maybe it needs to figure out where the talent is and go there.
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The International Selection Function
Selection refers to the process of gathering and analyzing information about applicants in order to select the most suitable person or persons for the job. The selection decision for international assignees is critically important. Errors in selection can have major negative impact on the success of overseas operations as well as on the careers of relocated managers.
Selection Decisions
A good selection decision will identify, and/or most likely predict, IAs who are likely to perform well on the assignment (in a different culture) and to remain in their foreign assignments until the end of their contracts.20 In addition, a good selection decision will predict IA who are most likely to stay committed to their organizations while on the assignment and after returning from the assignment.21
Successful expatriate experience
From the perspective of HQs, an important consideration in making good selection decisions is to fully understand the process of a “successful expatriate experience” (see Figure 9.1).
As with all HRM activities, a thorough job analysis of the assignment (including an examination of the foreign work environment and culture) is necessary in order to make appropriate international assignment selections. Thus, the first step in understanding the process of a “successful expatriate experience” is to fully analyze the requirements in both technical and cultural terms of the jobs to which expatriates will be assigned (see Part A in Figure 9.1) as well as of the country of assignment (see Part B in Figure 9.1).22 Based
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Figure 9.1 Successful Expatriate Experience Source: Adapted from Briscoe, D. R. and Gazda, G. M. (1989). The successful expatriate, Proceedings: Managing in Global Economy, third biannual international conference, Eastern Academy of Management, Hong Kong, November.
on this information, the candidate is evaluated for his/her ability to successfully live and work overseas (Part C in Figure 9.1). If the candidate is selected, then he/she is prepared for the overseas assignment (Part D in Figure 9.1), and supported during the assignment depending on the length of the assignment (Part E in Figure 9.1). Then the IA is prepared to repatriate to the home country (Part F in Figure 9.1), and eventually returns to the home country (Part G in Figure 9.1).
Shortage of Potential IAs
Increasingly the problem of selection of international assignees involves finding employees with the necessary skills to function successfully in the new “global” environment and convincing them to take on the assignment. Because of dual
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career families, disruption of employees’ lives, employee work-life balance concerns, and uncertainty about the impact of a foreign assignment on their careers, employees are becoming increasingly reluctant to take on international assignments.23
Competency Profile
The competency profile of an assignee is an important aspect of the selection decision-making process. Exhibit 9.2 lists the skills that are being cited as important for the twenty-first-century expatriate manager.24 In the words of two MNE executives:25
“The top 21st-century manager should have multienvironment, multicountry, multifunctional, multicompany, multi-industry experience,” according to Ed Dunn, corporate vice president of Whirlpool Corp. Michael Angus, chairman of Unilever PLC, adds, “Most people who rise toward the top of our business will have worked in at least two countries, probably three. They will probably speak another language and they most certainly will have worked in different product areas.”
Exhibit 9.2: The 21st-century Expatriate Manager Profile
Core skills Managerial implications
Multidimensionalperspective Extensive multi-product, multi-industry, multifunctional,multicompany, multicountry, and multienvironment experience.
Proficiency inline management
Track record in successfully operating overseas strategic businessunits and/or a series of major overseas projects.
Prudent decision-making skills
Competence and proven track record in making the right strategicdecisions.
Resourcefulness Skillful in getting him/herself known and accepted in the hostcountry’s political hierarchy.
Cultural adaptability Quick and easy adaptability into the foreign culture—individualwith as much cultural mix, diversity, and experience as possible.
Core skills Managerial implications
Effective people skills in dealing with variety of
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Cultural sensitivity cultures, races,nationalities, genders, religions. Sensitive to cultural difference.
Ability as ateam builder Adept in bringing a culturally diverse working group together toaccomplish the major global mission and objectives of theenterprise.
Physical fitness and mental maturity
Endurance for the rigorous demands of overseas assignments.
Curiosity andlearning Constant interest in learning about all aspects of internationalcultures, foreign countries, and global business.
Augmented skills Managerial implications
Computer literacy Comfortable exchanging strategic information electronically.
Prudent negotiatingskills Proven track record in conducting successful strategic businessnegotiations in multicultural/multinational environments.
Ability as achange agent Proven track record in successfully initiating and implementingstrategic and global organizational changes.
Visionary skills Quick to recognize and respond to strategic business opportunities and potential political and economic upheavals in the host country.
Effective delegatoryskills Proven track record in participative management styleand ability to delegate in cross-cultural environments.
Internationalbusiness skills Proven track record in conducting business in the globalenvironment.
Sources: Black, J. S. (2006). The mindset of global leaders: Inquisitiveness and duality, in Mobley, W. H. and Weldon, E. (eds.), Advances in Global Leadership, vol. 4, pp. 181–200; Black, J. S., Morrison, A. and Gregersen, H. (1999). Global Explorers: The Next Generation of Leaders, New York: Routledge; Howard, C. G. (1992). Profile of the 21st-century expatriate manager, HR Magazine, June, 96; Marquardt, M. J. and Berger, N. O. (2000). Global Leaders for the 21st Century, New York: State University of New York Press; and Rosen, R., Digh, P., Singer, M. and Philips, C. (2000). Global Literacies: Lessons on Business Leadership and National Cultures, New York: Simon and Schuster.
Placing high importance on the alignment of selection decisions with corporate
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strategy and goals is also becoming more common.26 Successful global firms link their global staffing decisions to their global business goals. The more important the international strategy and the more complex the structure developed to implement that strategy, the more critical are the international staffing decisions.
Selection decisions also need to consider the receiving (host country) managers and location. Successful international assignments make demands not only on the IA but also on both the receiving manager and company as well as the sending manager and company.27 Often the sending manager has little (or no) international experience and, therefore, does not have a clear idea of what it takes to handle a foreign assignment—and may also downplay the importance of the difficulties of the foreign assignment. And receiving managers may have the same problems— they have not worked at headquarters or elsewhere outside their home countries and they do not know what strengths it takes for a successful expatriate assignment. Thus, the sending company can have a negative impact on the success of the IA by relying on domestic experience for guidance on how to manage and evaluate the IA and not understanding the pressures of the foreign environment. And the receiving firm may compound the problems by not understanding the perspective of the parent company.
From the viewpoint of persons being considered for international assignments, studies suggest that two specific factors—in addition to a strong personal interest in getting a foreign experience, usually based on having previously enjoyed living overseas—are primary in their decisions to take on such an assignment: increased pay and perceived improved career opportunities. This suggests the importance of paying close attention to the following factors when making selections for international assignments.
Criteria for Selection
The specific criteria an MNE uses to select its IAs play a major role in determining their future successes or failures in their international assignments. First this section takes a look at a number of criteria that are used by various global firms to select their IAs. Then the section examines the consequences of making mistakes in either choosing IAs or in preparing and supporting them in their assignments or in helping them make a successful return to home at the end of their international assignments. The most important selection criteria for international assignments include job suitability/technical ability, cultural adaptability, and desire for international assignment.
■ Job suitability/technical ability. Most firms primarily base their choices for international assignments on candidates’ technical expertise.28 That is,
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the primary focus is on their ability to perform the target job requirements. Experience suggests, however, that all the other topics discussed in this text are at least as important as the individual’s job competencies. Nevertheless, at least in smaller and medium-sized firms (and, regrettably, still too often in larger firms), the parent-company supervisor usually makes the choice of individual to be sent on an international assignment and that choice is usually based on the individual’s perceived ability to fill a perceived (and usually immediate) functional or technical need in the foreign operation.
■ Cultural adaptability. Experience in MNEs suggests that cultural adaptability is at least as important to the successful completion of an overseas assignment as is the individual’s technical ability.29 Expatriates must be able to adjust to their new and often alien environments while effectively delivering their technical and managerial expertise. They must graciously accept their new cultures but not at the expense of not getting their jobs done. While technical expertise is usually important (and the primary reason most firms send a particular expatriate to a foreign assignment), the principal difficulty faced by most expatriates lies in the inabilities of the managers and their families to adapt to the foreign cultures. Maybe not surprisingly, American firms tend to be more likely to place the most emphasis on the individual’s work experience and expertise than is the case for many MNEs from other countries, and as a consequence tend to experience more difficulties with expatriate adjustment. One of the most important components of cultural adaptability is cross- cultural adjustment,30 which refers to the extent to which individuals are psychologically comfortable living in a new culture and is conceptualized as an individual’s reactions to and feelings about working in the host country (work adjustment), about interacting with host country nationals (interaction adjustment), and about the general non-work environment in the host country (general adjustment).31
■ Personality characteristics.32 Researchers have found that successful and well-adjusted international assignees tend to share certain personality traits. Certain personality characteristics enable international assignees to be open and receptive to learning the norms of new cultures, to initiate contact with host nationals, to gather cultural information, and to handle the higher amounts of stress associated with the ambiguity of their new environments. The Big Five personality traits33 have been related to cross-cultural adjustment, work performance, and IAs’ desires to terminate their assignments.34 The Big Five personality traits include:
1 Extroversion (extent to which an individual is sociable, active, talkative, fun
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loving, and affectionate)35
2 Agreeableness (extent to which someone is cooperative, sociable, forgiving, tolerant, and argumentative)36
3 Conscientiousness (the degree to which an individual is purposeful, hardworking, organized, dependable, and self-disciplined)37
4 Emotional stability (describes individuals in terms of anxiety, calmness, self- confidence, worry, insecurity, and nervousness)38
5 Openness to experience (extent to which an individual is original, intellectual, curious, creative, imaginative, and conventional)39
■ One of the most important personality characteristics, with respect to predicting IA success is openness to experience.40 IAs high on openness to experience are likely to:41
■ correctly assess the social environment in the new culture; ■ accurately perceive and interpret the new culture; ■ have fewer rigid views of right and wrong, and what is appropriate
and inappropriate in the new culture; and ■ accept the values, norms, and accepted behaviors in the new culture.
■ Desire for foreign assignment (candidate and family). Since adaptation to the foreign culture is so important to an IA’s performance, his or her desire for that foreign assignment is critical to their willingness to make the necessary efforts to adjust. This needs to be assessed in the early stages of candidate review.
In addition to the above criteria, selections for international transfer are also most successful when the following factors are also evaluated:42
■ The maturity of the candidate (i.e., being a self-starter, able to make independent decisions, having emotional stability, sensitive to others who are different, and having a well-rounded knowledge of on- and off-the-job subjects to facilitate discussion with foreign colleagues and contacts who are often quite knowledgeable and interested in such topics).
■ Ability to handle foreign language(s). Local language ability has shown to be positively related to international assignee success.43
■ Possession of a favorable outlook on the international assignment and locale by the expatriate and his or her family (i.e., s/he wants to go overseas).
■ And possession of appropriate personal characteristics, such as excellent health, this being an appropriate time in the individual’s career and family life, individual resourcefulness, adaptability, and desire to learn and
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experience new things and new people; all are related to increasing the likelihood that a foreign assignment will be successful.
Testing for Successful IAs
Several companies and consultants have compiled profiles of successful IAs and, from these, developed IA selection tests.44 These profiles are then used to screen potential IA candidates on the generally valid assumption that candidates with similar profiles are more likely to do well in international assignments. These profiles usually include factors such as experience, education, personal interests and activities, signs of flexibility, family situation, and desire for such assignment. Some of the tools are basically self-assessment tools for candidates for international assignments and their partners, to allow them and their employers to assess their readiness for such an assignment. And some of the tools provide information to help coach candidates on any necessary preparation they need for a successful assignment.
When an organization first begins to develop international business, it normally doesn’t have the luxury of developing its own international managers in-house. And it may not have employees who already have the necessary knowledge and experience or cultural and language competencies. It will need to recruit such people from the outside or acquire the expertise from consulting firms. Of course, many firms pursue international opportunities with inexperienced managers and salespeople, but this inevitably leads to months, and often years, of frustration while these managers “learn the [international] business.” Such expertise can also sometimes be recruited from the overseas countries themselves. And, over the long term, future foreign managers can often be recruited from local universities of either the country of the parent firm or the countries in which the firm is operating.
Selection Methods
Different organizations rely on differing procedures in their selection of individuals for international assignments. They rely on varying criteria, as summarized above. And they use one or more of the following in application of those criteria. This is just a short summary of selection methods and illustrates that methods used in selection for international assignments are probably not much different from the methods used in domestic staffing decisions. As with everything international, however, the differences lie in the impact of culture in how these procedures are applied and in the focus in each procedure.
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■ Interviews (IA and spouse/partner) may be best done with a representative of the home country (representing the technical requirements of the position), a representative of the host country (possibly the host manager), and an interculturalist, i.e., someone with the ability to assess the candidate’s and family’s ability to adjust to the foreign culture.
■ Formal assessment. There are a number of formal assessment instruments designed by industrial psychologists that primarily evaluate a candidate’s personal traits and competencies that have been found to be important to successful foreign culture adjustment, such as adaptability, flexibility, openness to new experiences, and good interpersonal skills.45 Critical here is whether such instruments are reliable and valid for predicting expatriate success. IHR or other managers who seek to use such instruments need to make sure they get evidence of their reliability and validity from any consultant or manager that is requesting their use.
■ Committee decision. In many large MNEs, the process of selecting individuals for international assignments is a committee decision, a committee made up of someone from corporate HR, home country HR, host country manager, director of development, and the individual’s functional manager with a decision based on the individual’s preferences, assessment of past performance and future potential, needs of the foreign assignment, and developmental needs of the individual candidate.
■ Career planning. The choice of IA may be made as one step in the individual’s career and succession plan with the MNE.
■ Self-selection. Many MNEs use some combination of the above procedures but rely, in the end, on self-selection by the candidate (after being accepted through the above “screens”). In particular, the MNE is interested in candidates taking the time (and usually using some type of formal self- assessment instrument) to look at the issues involved with relocation to a foreign country and culture and assessing whether they think they are ready or have the necessary skills, experience, or attitudes to be successful in the overseas assignment.46 Such self-assessment may result in the individual realizing they aren’t ready now for such a move, but that they would like to take such an assignment at some later time in their career. So, rather than relocating now, they begin a process to gain the skills and experiences necessary to be chosen for such an assignment at a later date. This self-assessment process then is part of a larger career planning process. Candidates may also self-opt out when they realize the importance of their family members (and their lack of desire to relocate to another country) in making the international assignment successful.
■ Internal job posting and individual bid, usually then combined with interviews and/or other assessment actions.
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■ Recommendations from senior executives or line managers with overseas human resource needs.
■ Assessment centers. A few organizations use assessment centers as a tool for evaluating candidates for suitability for foreign assignments.47 But it is rare for MNEs to adequately think through the impact of culture on all the aspects of assessment centers, including everything from the nature of the exercises used to the cultural sensitivities of the evaluators used, in order to be able to use such a tool to assess IA candidates for international assignments.
The actual selection methods used are probably an extension of procedures used for domestic staffing decisions. Thus, there may be an ad hoc nature to this, using whatever technique seems easiest and quickest given the circumstances surrounding any particular need for an IA. Smaller firms are likely to use less formal and more ad hoc procedures, while larger, more experienced firms are likely to have developed more formal and standardized procedures. The primary outcome of the selection process is to choose individuals who will stay for the duration of their global assignments and who will accomplish the tasks for which they were sent abroad. Executives who make these choices should, therefore, consider both enterprise-based as well as individual- and family-based factors to enhance the probability that the international assignment will be successful.
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Mistakes and Failures
MNEs want to select managers who, with their families, will be most able to adapt to another country and who also possess the necessary expertise to get the job done. Many firms that lack experience in international operations often overlook the importance of cultural adaptation. Indeed, even more experienced firms may do this as well. This attitude, combined with firms’ inclinations to choose employees for foreign relocation because of their technical competencies, generally leads to individuals being sent on international assignments without the benefit of training or help in acculturation.48 This may—and all too often does—lead to failures in foreign assignments with individuals returning home early, or even being dismissed in the foreign locale.
Success or failure is a more complex issue than simply not completing the assignment.49 Success or failure for international assignees is usually defined in terms of three types of failure: drop out, finishing the assignment but without cultural adaptation or acceptance of the local experience, or turnover upon repatriation. An IA drop-out returns early from the assignment but usually stays with the company. Although this is considered a failure, in fact, it is better than not realizing at all that the assignment was a mistake. In a failure with assignment completion but without job or cultural adaptation, the IA does not return early but performs poorly and is ineffective in the assignment. As a result of this type of failure the IA may initiate projects that are costly and not effective, damage relationships with the local employees, or drive out high potential local nationals. A last type of failure is when the assignee leaves the company within a short period of time (usually thought of as within one year) after repatriation. This is the most costly type of failure for the company.
Exhibit 9.3: Definition of Expatriate Failure
■ usually defined in terms of early return home or termination; ■ but could also be defined in terms of:
■ poor quality of performance in foreign assignment; ■ employee not fully utilized during assignment; ■ personal dissatisfaction with experience (by expatriate or
family); ■ lack of adjustment to local conditions; ■ no acceptance by local nationals; ■ damage to overseas business relationships;
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■ not recognizing or missing overseas business opportunities; ■ inability to identify and/or train a local successor; ■ leave soon after repatriation; ■ not use foreign experience in assignment after repatriation.
■ Compounding factors:
■ length of assignment; ■ degree of concern about repatriation; ■ overemphasis in selection on technical competence to
disregard of other necessary attributes; ■ degree of training for overseas assignment; ■ degree of support while on overseas assignment.
These three forms of assignment failure are the traditional forms of failure that MNEs have focused on. However, international assignment failure can also be defined in terms of personal dissatisfaction with the experience, lack of adjustment to local conditions, lack of acceptance by local nationals, or the inability to identify and train a local successor (see Exhibit 9.3). In addition, a number of factors seem to influence the severity of expatriate failure rates (and help to explain why Japanese and European firms don’t experience the high rates of expatriate failure experienced by many American firms). These include length of assignment (longer assignments appear to be based on the employer’s willingness to provide the IA with more time to adjust and to “get up to speed” in job performance, which is more common among Japanese and European firms), receipt of training and orientation (with training and orientation about the new country and culture being associated with more successful adaptation), the lack of participation by HR in the selection process, too much emphasis placed on expatriates’ technical expertise to the exclusion of other attributes that might aid in adaptation, and lack of support provided by home office for IAs and their families while on foreign assignment.
Exhibit 9.4: Reasons for Expatriate Failure
■ inability of spouse/partner to adjust or spouse/partner dissatisfaction; ■ inability of expatriate to adjust; ■ other family-related problems; ■ mistake in candidate/expatriate selection or just does not meet
expectations; ■ expatriate’s personality or lack of emotional maturity;
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■ expatriate’s inability to cope with larger responsibilities of overseas work;
■ expatriate’s lack of technical competence; ■ expatriate’s lack of motivation to work overseas; ■ dissatisfaction with quality of life in foreign assignment; ■ dissatisfaction with compensation and benefits; ■ inadequate cultural and language preparation; ■ inadequate support for IA and family while on overseas assignment.
Sources: Adapted from National Foreign Trade Council (NFTC), Society for Human Resource Management (SHRM), and GMAC Global Relocation Services (GMAC GRS)/Windham International Global Relocation Trends Annual Survey Reports, 2000–2014; Stroh, L. K., Black, J. S., Mendenhall, M. E. and Gregersen, H. B. (2005). International Assignments: An Integration of Strategy, Research, & Practice, Mahwah, NJ/London: Lawrence Erlbaum Associates; and Tung, R. L. (1987). Expatriate assignments: Enhancing success and minimizing failure. Academy of Management Executive, 1 (2), 117–126.
A number of surveys and studies have found the most important factors in the early return of expatriates lie in the inability of their families (and/or themselves) to adjust to the foreign assignment.50 To the extent that preparation is provided, often the parent company will provide that preparation only for the new transferee, not to his or her family. In addition, after arrival in the foreign locale, IAs have the advantage of personal contacts and involvement with their colleagues at work, while their spouses and families are often left on their own to “figure out” their new surroundings and to develop local relationships, often with little understanding of the culture and an inability to speak or read the language. Thus the individual expatriate often finds adjustment easier and less “lonely” than does his or her spouse and family. Exhibit 9.4 lists the most common reasons for expatriate failure, when defined as early return or termination from the foreign assignment.51
Of course, the IA’s inability to adjust and/or experience of difficulty in merging with the new culture can also be major handicaps.52 Too often, expatriates bring stereotypes and prejudices against the foreign culture—as well as strongly felt biases in favor of their own culture’s ways of doing things—that keep them from feeling comfortable in their new foreign assignments.53
MNE Mistakes in IA Selection
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MNEs typically do a number of things that lead to problems with their international assignees.54 These include:
■ Decision to relocate people made with too little lead time. ■ Assignees not provided with any or adequate pre-relocation cultural
training and/or language training. ■ Spouses or partners not included in the decision to relocate. ■ Spouses/partners and kids not included on pre-assignment visits. ■ Spouses/partners and kids not included in language lessons. ■ Spouses/partners and kids not included in cultural training. ■ Spouses/partners do not receive counseling on jobs and other opportunities. ■ Spouses have no home office contact. ■ Little or no support is provided for IA or family before or after arrival in
the host country.
Challenges to Successful Staffing with IAs
All of this discussion points to the reality that there are many challenges to MNEs in their quests to ensure that the best employees are selected for international assignments. The following paragraphs summarize eight specific issues: spouses and partners, language, family, women expatriates, lifestyle, localization (or “going native”), career development, costs, and inpatriation.
Spouses or Partners
It is not just the business situation that determines expatriate success. There are also a number of personal and cultural issues that are also important. For example, research by ORC (Organization Resources Counselors) found that international HR managers believe that dual-career-couple overseas assignments are among the top five challenges they face.55 According to a survey by Bennett Associates of accompanying career spouses, worldwide, active involvement in the career of the accompanying spouse is the type of assistance preferred by dual-career couples above all other possible interventions.56
According to surveys by Runzheimer International and ORC, nearly 50 percent of firms offer some form of spouse assistance for dual-career international assignees.57 Of those firms, 87 percent provide ad hoc interventions (helping in ways that seem necessary) but only 13 percent have formal policies. Support programs for spouses fall into three broad categories: personal adjustment, career maintenance, and offset of loss of income. These surveys find that support services
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by employers for trailing spouses were critical to their satisfaction with their foreign relocations. The types of interventions found in these surveys to be desirable included the following:
■ Pre-acceptance assessment sessions and site visits. ■ Career and life planning counseling. ■ Pre-departure and re-entry job hunting trips. ■ Couple/family counseling. ■ Specially adapted cross-cultural/language training. ■ Relocation assistance to help spouse settle in and network quickly. ■ Search firm retained to help spouse find employment. ■ Company employment or consulting opportunities. ■ Intra- and inter-company networking and job search assistance. ■ Visa and work permit assistance. ■ Shorter-term assignments for expatriate employee. ■ Commuter marriage support. ■ Tuition and/or training reimbursement. ■ Paying for professional development trips. ■ Arranging and paying for child care provisions. ■ Partial compensation replacement for spouse. ■ Increased employee compensation, bonus, and non-cash benefits. ■ Re-entry outplacement services (to find job upon return to home country). ■ Tax equalization for second income. ■ Spouse “inconvenience” or incentive payment. ■ Set allowance to be applied to a “cafeteria” selection of assistance programs.
Language
One of the continuing issues with both IAs and foreign workforces concerns the issue of language. As mentioned earlier the ability to speak and understand the local language has shown to be positively related to international assignee success.58 Do IAs on foreign assignment need to learn the language of the country to which they are posted? And to what extent do local employees need to know or learn the language of the parent firm? Like concern with cultural differences, concern with language differences also impacts most of international business. And it certainly is an issue with the selection of IAs.
Even though English has become the international language of business, with most large MNEs using English among their top management around the world, it is just as important for international assignees to have a working knowledge of the language of the countries to which they are assigned as it is for the local
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management of subsidiaries to speak the language of the parent firm. IAs need to speak their customers’ and colleagues’ languages—if their business relationships are going to flourish.59 MNEs approach the need to provide language training in a variety of ways, but they typically find the increased numbers of employees who can speak foreign languages an asset in the development of their global businesses.
Foreign language training provides employees with language skills that are needed to communicate with co-workers and individuals in other countries.60 In surveys of expatriates, language is often mentioned as the most important personal or professional challenge in their assignments.61 An expatriate living in Germany says, “Speaking only English during an assignment is a big mistake. You can be a friend and a colleague speaking English, but to be ‘one of them,’ you must speak their language.”62 An expatriate living in Brazil offers the advice: “Persevere with the language at all costs.”63 Often, one major factor in the inability of MNEs to fill key expatriate assignments is the lack of language expertise and preparation. And as is discussed in this section, many firms do not provide any opportunities for language training.
English has become the international language of business for a number of reasons.64 Even so, not all interactions are likely to take place in English, particularly within the host country. As stated above, dealing with customers, suppliers, and employees is often best done in the local language. Still, transnational exchanges are more and more expected to take place in English. It is in fact now estimated that estimated that, after Chinese (Mandarin), English is the most commonly used language in the world.65 One result of this may be that employing local nationals that are fluent in English may be as important as requiring expatriates to be fluent in the local language(s). Even so, it is clear that an ability to speak the local language is still quite important—for IAs to deal with local nationals and local customers and suppliers, as well as to adapt to the host culture (and be accepted into that culture), both of which are major keys to successful expatriate assignments.
Family
Many of the challenges presented by IAs involve their families. Increasingly, the types of managers and specialists that either seek foreign assignments or are asked by their employers to relocate have spouses (or partners) and/or children. Often the spouses or partners are involved in their own careers (as discussed in the first topic of this section on challenges). If the IA candidate has an unmarried partner, it is likely to be quite difficult for the MNE to acquire a visa for the partner. The IAs may have problems with their adolescent children, health problems with family
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members, dependent parents who they have responsibility for, marital conflicts, or mental health problems of their own, such as depression—or even something like a flying phobia, or special education requirements for their children (such as children with disabilities or learning problems or gifted children—or even children getting ready for college). In addition, candidates for expatriation (or members of their families) with medical problems like AIDS, substance or alcohol abuse, or problems like multiple sclerosis, can cause what may seem like insurmountable problems for IHRM and the firm in being able to get overseas work visas. These types of individual or family problems are both a problem in expatriate selection as well as posing problems for acceptance into and adaptation to foreign cultures. And yet firms, in order to find the numbers of expatriates they need and stay away from possible charges of illegal discrimination in staffing decisions, must accept and find ways to accommodate IA candidates with these types of problems.
Many of these concerns make a health screening of the international assignee and her or his spouse and family members advisable, both to determine if a health problem exists that might either preclude relocation or be aggravated by a relocation or need special support services. Often even minor health problems are not treatable in the foreign country because qualified health professionals or facilities are not available.
Probably the most important of the family challenges today revolve around the dual-career couple and problems with relocating non-married partners. In both cases, an IA candidate’s partner can pose difficult-to-resolve challenges for IHR.
Women Expatriates
Most IAs are men. Gradually, over the last 25 years or so, the percentage of women on international assignments, as determined by surveys, has increased from about 5–6 percent to 20–22 percent today.66 This low percentage may have as much to do with stereotypes about foreign acceptance of women in professional or managerial roles as to the realities in the host countries.67 Early research showed that one of the key factors in women not receiving overseas assignments was that selecting executives generally assumed that women would not be accepted in the foreign culture.68 Other barriers to women receiving international assignments include their dual-career marriages, domestic managers not choosing them, perceptions that women were not interested in such assignments, etc.69 In recent years the number of women who have successfully taken on foreign assignments, even to countries such as Japan, Brazil, and China, has risen considerably, although it still is a relatively small proportion of the total IA population, except in some industries, such as banking.70 Of course the assignment of women IAs, except in
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very specialized professional positions, is likely to remain limited to some countries such as Saudi Arabia.71
The evidence, though, suggests that the fact that there are only a comparatively few women working abroad for MNEs may be due more to bias and stereotyping in the home country and company than to prejudicial treatment or limitations in the host country or foreign subsidiary.72 Women are not only as likely to welcome such opportunities as are their male colleagues (for the same reasons their male counterparts seek them), but they often perform better than their male colleagues, even in traditionally male-dominated cultures, such as in Asia and the Middle East.73
Typically, female expatriates are treated first as representatives of their firms or as professionals, and rarely experience the bias that the stereotypes from their home firms presume. This isn’t meant to imply that women never experience stereotyping and treatment in line with cultural norms that may not accept women in the workplace, except in very menial tasks. This does happen.74 But the evidence suggests that women are frequently quite successful in international assignments.75
In addition, women expatriates also have trailing spouses and unmarried partners and families to consider, and thus need to be given the same considerations received by their male counterparts. Women are clearly interested in international positions and have demonstrated that they can perform well in global assignments.76 Increased global competition pressures MNEs to make the best use of all of their resources, including their women employees.77
Lifestyle
Increasingly MNEs are having to deal with employees who either seek foreign assignments or who are eligible for such postings who live what might be referred to as “alternative” lifestyles that may not be acceptable in target foreign locations. This might involve “gay” or unmarried couples or single parents or employees who live with their parents or who are taking care of elderly parents. Or it just might concern employees who are involved in outside-of-work activities that are very important to the individual and they may not be able to pursue them in the host location. All of these situations create challenges for IHR to overcome.
Localization or “Going Native”
One challenge that has been confronted by many MNEs involves expatriates that stay for an extended period (usually at the firm’s request, but sometimes at the IA’s
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request) in a foreign assignment (beyond their original assignments).78 This becomes an issue because IAs in this situation continue to draw their expatriate allowances and incentives, even though they have learned to live “like locals.” These particular IAs may be critical to the success of the foreign operations, which may make it difficult to change their status. Often they have married a local and are raising a family in the foreign locale. To deal with this issue, many firms have developed policies, such as requiring that all IAs convert to a local compensation package if they stay on their assignment for longer than the assignment contract period. Even with such a policy, it still creates problems for dealing with this particular situation. Without such a policy, this can be an especially challenging problem.
Career Development
Since it is often expected that an international assignment is highly developmental, and since many firms now expect managers above some level in the organization to have international experience, it is becoming more common to make a posting to a foreign assignment a critical part of an individual’s career plan.79 The challenge is to manage this process, both from the standpoint of the organization (where key managers may have their own ideas as to who they want to fill open foreign positions) and the individual, who may not see the career advantages. The firm may state the importance to one’s career advancement, but observation suggests that IAs on return to the parent firm are not always given assignments that use or take advantage of the foreign experience.
Costs of International Assignments
From the firm’s perspective, a major IA challenge is to contain costs. Moving employees from country to country is expensive, both in direct remuneration (compensation and benefits) and the administration of their relocation expenses. Consequently, many MNEs are searching for ways to reduce the costs.80 For example, MNEs are dealing with these high costs by replacing IAs with more short-term assignments and extended business trips, outsourcing the administrative aspects of managing IAs, and looking for ways to reduce the compensation incentives and add-ons that make international assignments so expensive. And at least some MNEs are recognizing they can minimize the costs of failed assignments through developing better selection processes, better preparation and orientation, better destination support services for both IAs and their families, and improved repatriation processes. But even though firms say IAs are too expensive, some
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surveys find that many firms are not doing much to counter the high costs.81
Inpatriation
As mentioned in the previous chapter, the term “inpatriate” was developed to describe particular employees (HCNs or TCNs) who are relocated from a foreign subsidiary or joint venture to the parent company in the HQ country. This posting is usually for a relatively short period of time (from a few months to one or two years) and is for the purpose of teaching the “subsidiary” employee about the products and culture of the parent firm and to introduce the employee to the operations, ways of thinking, and corporate culture of the headquarters.82
Increasingly, these assignees are also used to fill functional or technical needs in the parent company for a limited period of time or to serve on multinational teams for a specified period of time. The challenges of selecting and managing inpatriates are basically the same as those for expatriates. From the standpoint of the foreign subsidiary, the inpatriate is an “expatriate,” going on a foreign assignment. From the standpoint of headquarters, the individual is an inpatriate. In this situation, the issues for IHRM are to consider the experiences of headquarters in receiving relocated employees—in addition to the “normal” issues related to the experiences of any relocated employees.
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Successful Expatriation and “Best Practices”
Expatriation success is the flip side of the issue of expatriate failure. Typically, expatriate success is defined as:
1 completion of the foreign assignment (achieving the original goals and objectives);
2 cross-cultural adjustment while on assignment; and 3 good performance on the job while on the foreign assignment.83
Sometimes these factors are viewed as a unitary construct, that is, they are seen as a package of issues that go together to define a successful assignment. But research shows them to be separate constructs, meaning that each needs attention.84 This demonstrates that the foreign environment (company and national culture and practices), local management, technical skills, and expatriate personal characteristics all ultimately play a role in expatriate success.
A number of IHR consulting practices, surveys, and research projects have identified what might be considered “exemplary practices” in the selection of IAs.85
A summary of these findings can be found in Exhibit 9.5. Following these suggestions will go a long way toward helping IHR be successful in its management of international assignees.
Host-Country Nationals
In general, MNEs staff their subsidiaries—at least below the top management levels—with local nationals (AKA host-country nationals, HCNs). At times, these workers may be supplanted by TCNs, described in the next section, and international assignees from the home office or region. Of course, whether or not there are enough potential employees with adequate training, education, and technical, business, managerial, and language skills is always of utmost importance to an MNE strategy of staffing with HCNs. In the case where the decision is made to locate a subsidiary or business unit in a country where the local population lacks the necessary education or training (or there is a shortage of the types of workers the MNE needs, as is increasingly the case, for example, in China86), then IHR must find other ways to staff the necessary workforce, for example by training locals, hiring TCNs, or bringing in parent-company international assignees.
Relying on Local Managerial Talent
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Expensive international assignees and their not-infrequent failures in assignments, combined with a general trend toward local staffing (using and developing local talent), regiocentrism (using regional talent), and geocentrism (a truly global approach to resources, markets, and staffing), has led in recent years to a greater reliance on local managers in foreign operations.87 Foreign nationals already know the language and culture and do not require huge
Exhibit 9.5: Best Practice in IA Selection
■ Involve HR in global strategic planning. ■ Link each assignment to corporate strategies. ■ Involve HR in assignment decisions and support services. ■ Help assignees and their families make the smoothest transition into,
during, and out of assignments. ■ Utilize an assessment process that promotes the selection of the best
employees for international positions. ■ Administer consistent international assignments through
comprehensive programs that cover each step from design of the assignment to return of the employee and family.
More specifically, these reports suggest:
■ Periodically, review relocation policies and practices to ensure fit with the current business and strategic situation.
■ Train home office staff in dealing with international assignees. ■ Be honest about the job and location when recruiting candidates for
foreign assignments. ■ Provide adequate lead time for relocation. ■ Involve spouse/partner/family at the outset of the expatriation process
(i.e., at the beginning of the selection process). ■ Provide language and cultural training for IA and family. ■ Recognize the importance of dual-career and trailing spouse/partner
issues, financially and otherwise (pre-departure job counseling, networking contacts, education and training, job hunting assistance, legal assistance for work permits, career assistance upon repatriation, etc.).
■ Provide pre-assignment site visit for whole family. ■ Don’t neglect repatriation issues.
Sources: GMAC Global Relocation Services/Windham International, National
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Foreign Trade Council, and SHRM Global Forum (2014 and previous years). Global Relocation Trends Annual Survey Report, New York: GMAC GRS/Windham International; Lomax, S. (2001). Best Practices for Managers and Expatriates, New York: John Wiley & Sons; Stroh, L. K., Black, J. S., Mendenhall, M. E. and Gregersen, H. B. (2005). International Assignments: An Integration of Strategy, Research, & Practice, Mahwah, NJ/London: Lawrence Erlbaum Associates; Vance, C. M. and Paik, Y. (2006). Managing a Global Workforce, Armonk, NY: M. E. Sharpe.
relocation expenditures. In addition, host-country governments tend to look favorably on a greater degree of local control and the development and use of local personnel and may even have passed legislation that requires the use of local workers in foreign enterprises and JVs. Indeed, some countries require that most staff come from the local labor force. On the negative side, however, local managers may have an inadequate knowledge of home-office goals and procedures and may have difficulty with the parent-company language. Thus the staffing of foreign positions—particularly key managerial and technical ones—is necessarily decided on a case-by-case basis. Firms that are new to international business may feel more comfortable having parent-country managers in control in the firm’s new foreign locales, while MNEs that have been global for many years and have operations around the world may find it easier to operate with fewer parent-country nationals on international assignments. It is also likely that these global MNEs will be more likely to move managers and functional specialists from country to country for developmental purposes as well as for control and coordination reasons, rather than using traditional expatriates. Lastly, the need for large numbers of highly qualified personnel has also made it increasingly necessary to use larger numbers of foreign (host-country/local) nationals.88
Most MNEs favor hiring local nationals for foreign subsidiaries, home-country nationals at headquarters, and, where a regional organization exists, a mix of foreign and home-country managers for regional positions. Within this general approach, however, the nationality mix will vary with the nature of the firm’s business and its product strategy. Where area expertise plays a major role, as in the case of consumer goods and/or a limited product line, the use of home-country personnel for overseas assignments will be minimal. Where product expertise is highly important and/or industrial markets are being served, home-country personnel will be used more extensively for foreign assignments because they generally have quick access to the home-country sources of supply and technical information. Service industries also tend to have more home-country personnel in foreign posts, particularly where the firm is serving home-country multinationals
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in foreign areas, as has been the case in banking.89
Third-Country Nationals
TCNs tend to be used particularly in situations where there is either a shortage of people with the skills the firm needs or where there is a relatively free movement of people from one country to another. In recent years, with the global shortage of, for example, IT and computer specialists and engineers, many firms have relied on the hiring of people from third countries who have these skills to fill positions in their foreign subsidiaries, just as they do at home. And, increasingly, TCNs are being used if parent-company managers and technicians are not readily available or not available in the numbers needed, for example, to make major staffing commitments to new operations in China and India.90
While much of the world’s skilled and unskilled human resources are being produced in the developing world, most of the well-paid jobs are being generated in the cities of the industrialized world (or their enterprises)—although this is changing as more developed country firms subcontract to firms in developing countries, hire employees offshore to work via telecommunications, invest directly in operations in the developing world, and entrepreneurs and business leaders in developing countries develop their own successful global enterprises. This increasing equality of jobs and talent between where the potential employees are and where the jobs are has several implications:
■ It will trigger massive relocations of people, including immigrants, temporary workers, retirees, and visitors. The greatest relocations will involve young, well-educated workers flocking to jobs, wherever they are located.
■ It will lead some industrialized nations to reconsider their protectionist immigration policies as they come to rely on and compete for foreign-born talent.
■ It may boost the fortunes of nations with “surplus” human capital. Specifically, it could help well-educated but economically underdeveloped countries such as China, the Philippines, India, Egypt, Cuba, Poland, Hungary, Brazil, Argentina, South Africa, and, maybe, Mexico.
■ It will compel labor-short, immigrant-poor nations like Japan to improve labor productivity dramatically to avoid slower economic growth. They will use more technology and transfer more work to labor-surplus and cheaper labor locales.
■ It will lead to a gradual standardization of labor practices among industrialized countries. Within 50 years or so, European standards of
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vacation time (five to six weeks) will likely be common in the US. The 40- hour work week will have been accepted in Japan. And world standards governing workplace safety and employee rights will emerge.91
Much attention has focused on the current or looming labor shortages in the industrialized world, particularly in the US, Europe, and Japan, due to their aging populations.92 Yet the overall world labor supply continues to grow (primarily in the developing world). In addition, the growth in the labor force in the developing world is magnified by the entrance of women into the labor force, a phenomenon that has pretty well worked itself out in most of the developed world (although not all of it, as participation rates for women are still quite low in some developed countries, such as Germany and Japan). When these demographic differences are combined with the different rates of economic growth between the developed and developing world, it becomes more likely that firms in the developed world will increasingly seek workers among the developing countries and will move jobs to those countries as well. Just as product and service markets have become or are becoming global, such is also happening to labor markets. In one sense, this may alleviate the pressures created by labor surpluses in developing countries; but in another sense it may also exacerbate the economic differences between the countries of the developing world and those of the developed world as MNEs hire the educated and trained citizens of developing countries, lessening those countries’ available human resources for their own developmental needs.
An extension of the focus on local managers and technical specialists, as described at the end of the previous section on HCNs, involves the increasing willingness to look for management and technical expertise from all countries for assignment to any country. These TCNs are often the solution to overseas staffing problems.
Immigration Law
An important concern to IHRM staffing concerns the nature and application of immigration law. This topic was introduced in Chapter 4, but needs consideration here because it is central to staffing the global firm, as new immigrants are hired, visas are acquired for international assignees, and HR managers work with officials in other countries as they arrange work visas for the managers and technicians they send abroad as expatriates. It is beyond the scope of this book to examine the wide variety of immigration regulations found in varying countries. Suffice it to say that every country controls immigration quite closely and now, with increased concern over global terrorism, most countries are even more concerned about the level and nature of immigration into their countries. It is necessary for IHR
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managers to either manage all the forms of visas and immigration issues their firms confront or to know where to get the necessary expertise to ensure that the firm adheres to every nation’s laws and policies.
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Repatriation
At the end of the assignment, the IA either repatriates to the home country, is redeployed to another country, or becomes localized in the host country. As mentioned earlier, repatriation involves the move of the IA and family back “home” from the foreign assignment. For many expatriates and their families, the move “back home” is even more difficult than the original move abroad. Even so, it is often overlooked or minimized in the management of the total expatriation process.93
The international experience is generally challenging, exciting, highly developmental, and full of visibility and exposure for the assignee. The international assignee is the representative of the parent company, of headquarters, and is therefore looked to for perspective, help, and favors. In addition, because the compensation practices of most MNEs reward their international assignees quite well, the IA and family typically live quite well in the foreign location, often better than they did “at home.” Thus expatriates usually return from such experiences quite “charged”—and with high expectations that their employers will use their new experiences and excitement in new and better positions and family and friends back home will share their enthusiasm.
But if an MNE is to reap the benefits of its IAs’ learning while on foreign assignments, it is imperative that these valuable employees stay with the organization long enough to share their experiences. This should encourage MNEs to place a strong emphasis on the repatriation experiences of their IAs.
The kinds of practices that MNEs have used to ensure a successful expatriation and repatriation experience include assigning a “sponsor” back home to look after the expatriate while s/he is away (including keeping the expatriate informed about significant events and changes back home and looking after the expatriate’s career interests, including putting the expatriate’s name into consideration for key openings when the expatriate is ready to return home), providing career counseling to ensure job assignments upon return that meet the needs of the repatriate, orientation for the expatriate and his/her family for adjustment back into the home culture, use of the skills acquired overseas in special task forces and projects, and special support networks for the repatriate and her/his family both during the overseas assignment and upon return home.94 These steps go a long way toward ensuring a successful readjustment. IHRM in Action 9.2 describes how Monsanto Corporation has redesigned its repatriation efforts in order to more effectively use its expatriates and their international experiences, integrating them with their domestic operations.95
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IHRM in Action 9.2: Repatriation at Monsanto
Monsanto Corporation undertook a detailed change of its repatriation policy, concentrating on the logistical planning for returning its expatriates home, the kinds of skills and cultural development the company wanted its expatriates to learn, and the placing of its repatriates, after their return, in projects where their recent overseas experience was needed. The manager of international assignments in human resources at the time said there was growing concern about the firm gaining from the personal and cultural development that expatriates were assumed to experience while on their foreign assignments.
Amato says that the repatriation process now begins six to 18 months prior to return in both the host and the home countries. This primarily involves identifying a position for the expatriate to return to for which the operating unit is responsible. An extensive orientation program is also run for the employees and their families.
The repatriate orientation is exceptionally thorough: he or she is debriefed with peers and managers in the new job and is expected to provide recommendations about global development and to provide a view other than that of domestic Monsanto. Peers are expected to discuss the differences and changes in the organization that occurred while the expatriate was abroad. Managers are encouraged to free up repatriates for committees, work groups, and demonstrations where their new global knowledge is needed, over and above the employee’s regular job. Repatriates are counseled to be aware of how much they and the organization have changed when they come back.
Challenges on Re-entry
But the reality is more likely to be: “out of sight, out of mind.” Firms often fail to use the experience or knowledge gained internationally and most likely have not thought much about the career implications of this experience. Typically, the repatriate is reassigned to a position similar to the one he or she left two or three years before while their colleagues most likely have been promoted. Repatriates often find it difficult to relate the value of their global experience to managers with a domestic focus.96 Domestic managers, themselves usually without any international experience, cannot relate (this is also likely to be true for the expatriate’s friends and colleagues). For the repatriate, this makes re-entry and the job search within the company quite challenging. The global experience may be
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viewed as helpful to the specific foreign situation; but the domestic manager usually views domestic experience as more important. To many domestic line managers, developing international experience and a global mindset to operate internationally is the CEO’s problem. Globalization is often not a concern to the line manager trying to achieve a specific set of local objectives.
Organizational Support for Repatriates
MNEs can provide several support practices to repatriates to address the above problems. These practices can be organized according to three phases: before the foreign assignment, during the foreign assignment, and after the completion of the foreign assignment. Figure 9.2 shows the various IHRM practices that support the repatriation process.
Before the Foreign Assignment
Figure 9.2 Organizational Support for Repatriates
Career-related planning for expatriates needs to begin prior to an international assignment and be updated regularly during the assignment. The assignment needs to be part of a larger plan for the firm so that the repatriate returns to a specific position that uses the international learning and experience. One of the programs used by some firms is a back-home mentor or sponsor, who is both a contact in the home office for the expatriate who is at least partially responsible for looking after the interests and prospects of the expatriate while he or she is on assignment, but who also provides an avenue for keeping the IA informed about what is going on back home.
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During the Foreign Assignment
Support activities during this period are critical in terms of ensuring a high retention rate.97 There has to be clear, constant, and regular communication between the home office and the expatriates. The expatriates should be provided with opportunities to travel back to the home country to share experiences and knowledge with other members of the organization. This provides the expatriate with the opportunity to maintain high visibility with supervisors and peers. Expatriates should also be assigned mentors to guide future career development.98
Intraoffice communications through emails and intranet should include the expatriate and the expatriate should be actively encouraged to communicate with colleagues and mentors back home.99
After the Completion of the Foreign Assignment
The readjustment is not only challenging for the international assignee but for the family members as well. Repatriates and their families often have trouble adjusting to the lifestyle back home. Reverse cultural shock (readjustment to the home culture) is often experienced by the IA (and accompanying family). Most people are changed by the foreign experience and not only must relearn their original culture and lifestyle, but probably view it quite differently than when they left. Indeed, time does not stand still while the expatriate is abroad. While changes at home may be all but invisible to those who experience them gradually (those at home), to the returnees, they can be overwhelming.100 Just as MNEs need to provide their expatriates with cross-cultural training for the move abroad, so should they prepare their expatriates for the move back home and prepare themselves to use these individuals’ overseas experiences in their home assignments. This preparation can make the difference between an overall favorable attitude by the repatriates about the whole experience and a failed expatriate experience. Ultimately, an unfavorable attitude will likely lead to the individual returnee’s turnover. A dissatisfied repatriated employee is more likely to resign and seek a position with another employer that will utilize that individual’s foreign experiences and skills.
Knowledge Transfer upon Repatriation101
The foreign assignment provides repatriates with the opportunity to gain international knowledge (e.g., knowledge about complexities of global operations,
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characteristics of national markets, business climate, cultural patterns). They have firsthand experience of how their organization is viewed in another country. As such, repatriates play an important role in accelerating the transfer of knowledge from host countries to headquarters, and vice versa. MNEs need to design the most appropriate mechanisms (e.g., mentoring programs, training sessions) for capturing, retaining, and integrating the knowledge and expertise gained by their repatriates.
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Conclusion
This chapter focused on the IHRM responsibility for staffing. It explained issues related to recruiting, selecting, and repatriating in MNEs, but primarily it focused on expatriation and repatriation, the movement of employees from country to country, and the employment of host-country and third-country nationals. Because the use of parent-country nationals is so important to IHRM in MNEs, much of this chapter discussed the selection and management of PCNs, including their failures and adaptation to foreign assignments, and their repatriation at the end of their assignments. The chapter also examined the difficulties experienced in the selection and management of IAs and suggested some of the approaches successful MNEs use to ensure positive experiences with those expatriates and repatriates.
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Discussion Questions
1 If you are given the opportunity in your next job to go on an extended foreign assignment, what types of support programs would you expect or ask for?
2 If you ever have the responsibility to select an associate for a foreign assignment, how would you go about doing that and what characteristics would you look for to ensure success?
3 What do you think is the most significant challenge for IHRM in managing international assignees? Why?
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Case Study 9.1: A World Marketplace for Jobs in Project-Based Work Environment (Global)
It used to be necessary to bring workers to where the work was. But with the advent of the World Wide Web, the Internet, and mobile phones and the global communication they make possible, it is now possible to send work to wherever workers are by putting together multinational project teams, by using the Internet to recruit employees on a global scale, or by using open-source software to accommodate global collaboration. These new styles of work and employment are arising particularly in response to the capabilities of the computer and to the chronic needs for IT skills in growing numbers of industries.
For example, one firm from Bern, Switzerland, recruited from the web a group of doctorates in discrete mathematics and graph theory from as far away as Belarus, India, Israel, and Ireland, for a semiconductor design project. Team members never left their home countries and the team leader never left his home office. And the task group beat its deadline.
In industry after industry, as customers expect quicker service and competition forces shrinking product life cycles, employers are being driven to apply a “Hollywood model” to their tasks. They assemble the best talent available at the moment from anywhere in the world (which is the way teams are put together to film a movie). When the project is complete, the team breaks up and the members move on to new projects. The end result is a new and highly efficient global labor market unlike any seen before.
Even for small businesses: their new talent pool is the world. A new generation of online services is providing small businesses with opportunities to find specialized expertise and affordable labor. Main Street businesses can shop a virtual international bazaar of freelancers to recruit computer programmers in Russia, graphic designers in Italy, or data analysts in India. A small business of one can look to the world like a very large company and have access to all kinds of services. Technical advances have made remote work and virtual teams more feasible. And, increasingly, freelancers are taking on assignments like customer service, data entry, writing, accounting, human resources, marketing, payroll— virtually any “knowledge process” that can be performed remotely, even setting up and managing business profiles on social networking sites like Facebook and Twitter.
In some cases, the cost savings can be substantial: for example, the hourly rates of programmers in Russia, India, or Pakistan are a fraction of those in North America or Europe. And these freelance marketplaces also allow small businesses to assemble teams quickly, find specialized expertise, begin new initiatives, and then be able to drop everything when it’s no longer needed.
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When John Wilde, chief executive of Tailor Made Products, a small manufacturing firm in a small town in Wisconsin, in the US, wanted to build a website for a new line of children’s kitchen gadgets called the Curious Chef, he turned to oDesk and hired a firm in India. He paid about US$20,000, which he estimates was roughly half what he would have paid in the US.
Sources: Travelling talent. (2014, Oct 10). The Economist (Online); www. https://www.odesk.com (2014); Pattison, K. (2009). Enlisting a global work force of freelancers. The New York Times, June 24, 2009, Small Business Guide; Norris, C.D. (2000). Already starting: A world marketplace for jobs. International Herald Tribune, August 8, 6.
Discussion Questions
1 Where are the best places in the world to live (and work)? Where do you want to live and work? Do you want to work from home? Are you interested in working on global teams? What skills and competencies will enable someone to live and work wherever he or she wants? Are you interested in creating or working on a micro-multinational?
2 What are the human resource implications of these new ways of working?
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Notes
1 Source: http://www.bp.com/en/global/corporate/careers/working-at-bp/expats.html. Accessed Jan. 25, 2014.
2 For more complete discussion of the management of expatriates, refer to the following sources:, Brewster, C. (1991). The Management of Expatriates, London: Kogan Page; Fernandez, F. (2005). Globalization and Human Resource Management, New York: HNB Publishing; Lomax, S. (2001). Best Practices for Managers and Expatriates, New York: Wiley; Melton, W. R. (2005). The New American Expat, Yarmouth, ME: Intercultural Press; Scullion, H. and Collings, D. G. (eds.) (2006). Global Staffing, London/New York: Routledge; Morgan, B. S. (ed.) (2014). The Global Employer: Focus on Global Immigration and Mobility, Chicago: Baker & McKenzie; Stroh et al. (2005); and Caligiuri, P.M. and Colakoglu, S. (2007). A strategic contingency approach to expatriate assignment management, Human Resource Management Journal, 17(4), 27– 54
3 GMAC Global Relocation Services/Windham International, National Foreign Trade Council, and SHRM Global Forum (2014 and previous years). Global Relocation Trends Annual Survey Report, New York: GMAC GRS/Windham International; Morgan, B. S. (ed.) (2014).
4 For more information on international experiences see Takeuchi, R., Tesluk, P., Yun, S. and Lepak, D. (2005). An integrative view of international experiences: An empirical examination. Academy of Management Journal, 48, 85–100: Selmer, J. (2002). Practice makes perfect? International experience and expatriate adjustment. Management International Review, 42, 71–87.
5 For example, see Cartus (2014). Trends in global relocation. Global Mobility Policy and Practices, Danbury, CT: Cartus; Brookfield (2013). Global Mobility Trends, New York and Toronto: Brookfield Global Relocation Services.
6 Morgan, B. S. (ed.) (2014), p. 1.
7 Jackson, S., Schuler, R., and Werner, S. (2012). Managing human resource, Cengage Learning; Mason, OH; Heneman, H., and Judge, T. (2009). Staffing Organizations, Middleton, WI: McGraw-Hill Irwin; Phillips, J., and Gully, S. (2009). Staffing Organizations, Upper Saddle River, NJ: Pearson, Prentice Hall.
8 Based on Heneman, H., and Judge, T. (2009); Phillips, J., and Gully, S. (2009).
9 Heneman and Judge (2009); Phillips and Gully (2009).
10 Tarique, I., and Schuler, R. (2008). Emerging issues and challenges in global staffing: A North American perspective. The International Journal of Human Resource Management, 19 (8), 1397–1415.
11 Ibid.
12 Tharenou, P. (2002). Receptivity to Careers in International Work—Abroad and at Home,
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Australian Journal of Management, 27, 129–136 ; Tharenou, P. (2003). The initial development of receptivity to working abroad: Self-initiated international work opportunities in young graduate employees, Journal of Occupational and Organizational Psychology, 76, 489–515.
13 Tharenou (2002); Tharenou (2003). Also see the work on self-initiated expatriation: Cao, L., Hirschi, A., and Deller, J. (2014). Perceived organizational support and intention to stay in host countries among self-initiated expatriates: The role of career satisfaction and networks, The International Journal of Human Resource Management, 25(14); Tharenou, P. (2013). Self-initiated expatriates: An alternative to company-assigned expatriates? Journal of Global Mobility, 1(3), 336–356; Doherty, N., Dickmann, M., and Mills, T. (2011). Exploring the motives of company-backed and self-initiated expatriates. The International Journal of Human Resource Management, 22(3), 595; Doherty, N., Richardson, J., and Thorn, K. (2013). Self-initiated expatriation and self- initiated expatriates. Career Development International, 18(1), 97–112; Nolan, E. M., and Morley, M. J. (2014). A test of the relationship between person-environment fit and cross-cultural adjustment among self-initiated expatriates, The International Journal of Human Resource Management, 25(11), 1631; Rodriguez, J. K., and Scurry, T. (2014). Career capital development of self-initiated expatriates in Qatar: Cosmopolitan globetrotters, experts and outsiders, The International Journal of Human Resource Management, 25(7), 104; Selmer, J., and Lauring, J. (2011). Acquired demographics and reasons to relocate among self-initiated expatriates, The International Journal of Human Resource Management, 22(10), 2055; Tharenou, P., and Caulfield, N. (2010). Will I stay or will I go? Explaining repatriation by self initiated expatriates, Academy of Management Journal, 53(5), 1009.
14 Another term used in the expatriate management field is “willingness to accept a foreign assignment.” This list includes factors that influence both an individual’s receptivity to an international career and his/her willingness to accept a foreign assignment. The list was derived from: Konopaske, R. and Werner. S. (2005). US managers’ willingness to accept a global assignment: Do expatriate benefits and assignment length make a difference? The International Journal of Human Resource Management, 16(7), 1159–1175; and Tharenou (2002); Tharenou, P. (2003). For additional information see Benson, G., Pérez-Nordtvedt, L., and Datta, D. (2009). Managerial characteristics and willingness to send employees on expatriate assignments, Human Resource Management, 48(6), 849; Konopaske, R., Robie, C. and Ivancevich, J. (2005). A preliminary model of spouse influence on managerial global assignment willingness, The International Journal of Human Resource Management, 16(3), 405–426.
15 For more information see Friedman, B. (2009). Human resource management role implications for corporate reputation. Corporate Reputation Review, 12(3), 229–244; Baruch, Yehuda (1997). Evaluating quality and reputation of human resource management. Personnel Review, 26(5), 377–394; Hannon, John M, and Milkovich, George T. (1996). The effect of human resource reputation signals on share prices: An event study. Human Resource Management, 35(3), 405
16 Caligiuri, P., Colakoglu, S., Cerdin, J., and Kim, M. (2010). Examining cross-cultural and
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individual differences in predicting employer reputation as a driver of employer attraction. International Journal of Cross Cultural Management: CCM, 10(2), 137.
17 Sparrow, P., Scullion, H. and Tarique, I. (2014). Strategic Talent Management: Contemporary Issues in International Context, Cambridge University Press.
18 Tarique, I., and Schuler, R. (2010). Global talent management: Literature review, integrative framework, and suggestions for future research. Journal of World Business, 45, 122–133.
19 Tarique, I. (2014). Seven Trends in Corporate Training and Development: Strategies to Align Goals with Employee Needs, Upper Sadler River, NJ: Pearson.
20 Caligiuri, P., Tarique, I., and Jacobs, R. (2009). Selection for international assignments. Human Resource Management Review, 19, 251–262; Black, J. S., Mendenhall, M. E. and Oddou, G. (1991) Toward a comprehensive model of international adjustment: An integration of multiple theoretical perspectives. Academy of Management Review, 16(2), 291–317; Caligiuri, P.M. (2000a). Selecting expatriates for personality characteristics: A moderating effect of personality on the relationship between host national contact and cross-cultural adjustment. Management International Review, 40(1), 61–80; Doms, M., and zu Knyphausen-Aufseß, D. (2014). Structure and characteristics of top management teams as antecedents of outside executive appointments: a three-country study. International Journal of Human Resource Management, 25(22), 3060–3085; Bhatti, M. A., Kaur, S., and Battour, M. M. (2013). Effects of individual characteristics on expatriates’ adjustment and job performance. European Journal of Training & Development, 37(6), 544–563; Downes, M., Varner, I. I., and Hemmasi, M. (2010). Individual profiles as predictors of expatriate effectiveness. Competitiveness Review, 20(3), 235–247.
21 Caligiuri, Tarique and Jacobs (2009); Florkowski, G., and Fogel, D. (1999). Expatriate adjustment and commitment: The role of host-unit treatment. International Journal of Human Resource Management, 10, 782−807.
22 Refer to the model.
23 Global mobility in the context of global talent management. World Bank Community Conference on Global Mobility, Washington DC, 2011.
24 Dragoni, L., Tesluk, P. E., VanKatwyk, P., In-Sue, O., Moore, O. A., and Hazucha, J. (2014). Developing leaders’ strategic thinking through global work experience: The moderating role of cultural distance. Journal of Applied Psychology, 99(5), 867–882; Holt, K., and Kyoko, S. (2012). Global leadership begins with learning professionals. T+D, 66(5), 32–37; Caligiuri, P., and Tarique, I. (2014). Individual accelerators of global leadership development, in Osland, J., Li, L. and Wang, L. (eds.), Advances in Global Leadership, 8th ed., Bingley, UK: Emerald Publishing; Caligiuri, P. and Tarique, I. (2009). Developing managerial and organizational cross-cultural capabilities, in Cary Cooper and Ron Burke (eds.), The Peak Performing Organization, Abingdon, UK: Taylor & Francis; Caligiuri, P., and Tarique, I. (2009). Predicting effectiveness in global leadership activities. Journal of World Business, 44, 336–346; Black, J. S. (2006). The mindset of global leaders: Inquisitiveness and duality, in Mobley, W. H. and Weldon, E.
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(eds.), Advances in Global Leadership, vol. 4, pp. 181–200; Black, J. S., Morrison, A. and Gregersen, H. (1999). Global Explorers: The Next Generation of Leaders. New York: Routledge; McCall, M. W., Jr. and Hollenbeck, G. P. (2002). Developing Global Executives: The Lessons of International Experience, Boston, MA: Harvard Business School Press.
25 Quoted in Howard, C. G. (1992). Profile of the 21st-century expatriate manager. HR Magazine, June, 93–100.
26 See, for example, Caligiuri, P., Tarique, I. and Jacobs, R. (2009). Selecting international assignees. Human Resource Management Review, 19, 251–262: Donegan, J. (2002). Effective expatriate selection: The first step in avoiding assignment failure. Expatriate Advisor, spring, 14–16.
27 Hawley-Wildmoser, L. (1997). Selecting the right employee for assignments abroad. Cultural Diversity at Work, 9 (3), 1, 12–13.
28 See, for example, the discussions of this point in Collings, D.G. and Scullion, H. (2012). Global staffing, in G.K. Stahl, I. Björkman and S. Morris (eds.), Handbook of Research in International Human Resource Management (2nd ed.), Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, pp. 142–161; Lazarova, M. B. and Thomas, D.C. (2012). Expatriate adjustment and performance revisited, in Stahl, G.K., Björkman, I. and Morris, S. (eds), Handbook of Research in International Human Resource Management, 2nd ed., Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, pp. 271–292; and Stroh et al. (2005).
29 Cf endnote 16.
30 Black, J. S. (1990). The relationship of personal characteristics with the adjustment of Japanese expatriate managers. Management International Review, 30, 119–34; Black, J. S., and Gregersen, H. B. (1991). When Yankee comes home: Factors related to expatriate and spouse repatriation adjustment. Journal of International Business Studies, 22, 671– 694.
31 Black, J. S. and Stephens, G. K. (1989). The influence of the spouse on American expatriate adjustment and intent to stay in Pacific Rim overseas assignments. Journal of Management, 15, 529–44; Caligiuri, P., Tarique, I., and Jacobs, R. (2009). Selection for international assignments. Human Resource Management Review, 19, 251–262.; and Strohet al. (2005).
32 Caligiuri, P., and Tarique, I. (2012). International assignee selection and cross-cultural training and development, in Stahl, G. K., Björkman, I., and Morris, S. (eds.), Handbook of Research in International Human Resource Management, 2nd ed., Cheltenham, UK and Northampton, MA: Edward Elgar Publishing; Caligiuri, P., Tarique, I., and Jacobs, R. (2009). Selection for international assignments. Human Resource Management Review, 19, 251–262.; Stuart (2009).
33 Digman, J. (1990). Personality structure: The emergence of the five factor model. Annual Review of Psychology, 41, 417–440. McCrae, R., and John, O. (1992). An introduction to the five factor model and its applications. Journal of Personality, 60,
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175–216.
34 Caligiuri, P. (2000b). The big five personality characteristics as predictors of expatriate success. Personnel Psychology, 53, 67–88; Caligiuri (2000a).
35 Costa, P., and McCrae, R. (1992). Normal personality assessment in clinical practice: The NEO Personality Inventory. Psychological Assessment, 4, 5–13; Caligiuri (2000b).
36 Barrick, R., and Mount, K. (1991). The big five personality dimensions and job performance: A meta-analyses. Personnel Psychology, 44, 1–26.; Costa, P., and McCrae, R. (1992). Normal personality assessment in clinical practice: The NEO Personality Inventory. Psychological Assessment, 4, 5–13.
37 Barrick, R., Mount, K., and Judge, T. (2001). Personality and performance at the beginning of the new millennium: What do we know and where do we go next? International Journal of Selection and Assessment, 9, 9–30; Barrick, R., and Mount, K. (1991). The big five personality dimensions and job performance: A meta-analyses. Personnel Psychology, 44, 1–26.
38 Barrick and Mount (1991); Costa and McCrae (1992).
39 Barrick and Mount (1991); Costa and McCrae (1992).
40 Caligiuri, P., and Tarique, I. (2012); Caligiuri, P., Tarique, I., and Jacobs, R. (2009). Selection for international assignments. Human Resource Management Review, 19, 251– 262; Caligiuri, P. (2000b).
41 Caligiuri, P., and Tarique, I. (2012); Caligiuri (2000a).
42 See, for example, Kempen, R., Pangert, B., Hattrup, K., Mueller, K., and Joens, I. (2015). Beyond conflict: The role of life-domain enrichment for expatriates. International Journal of Human Resource Management, 26(1), 1–22; Mahajan, A., and Toh, S. M. (2014). Facilitating expatriate adjustment: The role of advice-seeking from host country nationals. Journal of World Business, 49(4), 476–48; van Erp, K. M., van der Zee, K. I., Giebels, E., and van Duijn, M. J. (2014). Lean on me: The importance of one’s own and partner’s intercultural personality for expatriate’s and expatriate spouse’s successful adjustment abroad. European Journal of Work and Organizational Psychology, 23(5), 706–728; Kawai, N., and Strange, R. (2014). Perceived organizational support and expatriate performance: Understanding a mediated model. International Journal of Human Resource Management, 25(17), 2438–2462; Hippler, T., Caligiuri, P., and Johnson, J. (2014). Revisiting the construct of expatriate adjustment. International Studies of Management and Organization, 44(3), 8–24; Black, J. S. and Mendenhall, M. (1990). Cross-cultural effectiveness: A review and a theoretical framework for future research. Academy of Management Review, 15, 113–136; Brocklyn, P. (1989). Developing the international executive. Personnel, March, 44–48; Callahan, M. (1989). Preparing the new global manager. Training and Development Journal, March, 29–31; Conway, M. E. (1998). Sexual harassment abroad. Global Workforce, Sept., 8–9; Hixon, A. L. (1986). Why corporations make haphazard overseas staffing decisions. Personnel Administrator, March, 91–94; Hogan, G. W. and Goodson, J. R. (1979). The key to expatriate success. Training and Development Journal, January, 50–52; Lanier, A. R.
400
(1979). Selecting and preparing personnel for overseas transfers. Personnel Journal, March, 160–163; Stuart, K. D. (1992). Teens play a role in moves overseas. Personnel Journal, March, 71–78; Tung, R. L. (1987). Expatriate assignments: Enhancing success and minimizing failure. Academy of Management Executive, 1 (2), 117–126; Tung, R. L. (1988). Career issues in international assignments, Academy of Management Executive, 2 (3), 241–244.
43 Mol, S., Born, M., Willemsen, M., and Van der Molen, H. (2005). Predicting expatriate job performance for selection purposes—A quantitative review. Journal of Cross- Cultural Psychology, 36, 590−620; Bhaskar-Shrinivas, P., Harrison, D., Shaffer, M., and Luk, D. (2005). Input-based and time-based modes of international adjustment: Meta- analytic evidence and theoretical extensions. Academy of Management Journal, 8, 257−281.
44 This discussion is based on Frederick, M. (2011). Key considerations for a successful global assignment, Webinar, IOR Global Services, www.iorworld.com, Dec. 14; and Stuart, D. K. (2009). Assessment instruments for the global workforce, in M. Moodian (ed.) Contemporary Leadership and Intercultural Competence: Exploring the Cross- cultural Dynamics Within Organizations, Thousand Oaks, CA: Sage, 175–190. Also see assessment tools such as Self Assessment for Global Endeavors (http://rw- 3.com/solutions/), Global Competencies Inventory (http://kozaigroup.com/inventories/the-global-competencies-inventory-gci/), Intercultural Development Inventory (http://idiinventory.com/), and Tucker Assessment Profile (http://tuckerintl.com/).
45 Refer to endnotes 27 and 39.
46 Caligiuri and Tarique (2012).
47 Briscoe, D. R. (1997). Assessment centers: Cross-cultural and cross-national issues, in Riggio, R. E. and Mayes, B. T. (eds.), Assessment Centers: Research and Application, special issue of the Journal of Social Behavior and Personality, 12 (5), 261–270.
48 For overviews of these issues, look at Dowling, P. J., Festing, M., and Engle, A.D., Sr. (2013). International Human Resource Management, 6th ed., Andover, UK: Cengage; Stroh et al. (2005); Vance, C. M. and Paik, Y. (2011). Managing a Global Workforce, 2nd ed., Armonk, NY/London: M. E. Sharpe.
49 Nasif, E. G., Thibodeaux, M. S. and Ebrahimi, B. (1987). Variables associated with success as an expatriate manager. Proceedings, Academy of International Business, Southeast Region, annual meeting, New Orleans, November 4–7, 169–179.
50 Refer to sources in previous notes plus Black, J. S. and Gregersen, H. B. (1991). The other half of the picture; Antecedents of spouse cross-cultural adjustment, Journal of International Business Studies, second quarter, 225–247; Fuchsberg, G. (1990). As costs of overseas assignments climb, firms select expatriates more carefully, Wall Street Journal, April 5, B–1, B–5; Gomez-Mejia, L. and Balkin, D. B. (1987). The determinants of managerial satisfaction with the expatriation and repatriation process, Journal of Management Development, 6 (1), 7–18; Savich, R. S. and Rodgers, W. (1988).
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Assignment overseas: Easing the transition before and after, Personnel, August, 44–48; Tung (1988).
51 Adapted from National Foreign Trade Council (NFTC), Society for Human Resource Management (SHRM), and GMAC Global Relocation Services (GMAC GRS)/Windham International Global Relocation Trends Annual Survey Reports, 1993–2014; Stroh et al. (2005); and Tung (1987).
52 Sanchez. J. I., Spector, P. E., and Cary, C. (2000). Adapting to a boundaryless world: A developmental expatriate model. The Academy of Management Executive, 14, 96–107.
53 Black, Mendenhall, and Oddou (1991).
54 Based on Perraud, P. and Davis, A. (1997). Assignment success or failure: It’s all in the family, presented to the annual conference of the Institute for International Human Resource Management, early division of the US Society for Human Resource Management, Los Angeles, CA, April 15–17; and Global Mobility in the Context of Global Talent Management (2011). World Bank Community Conference on Global Mobility, Washington, DC.
55 Perraud and Davis (1997).
56 Bennett, R. (1993). Solving the dual international career dilemma. HR News, January, C5.
57 Reported in Expatriate Advisor, autumn, 28-–29; Punnett, B. J. (1997). Towards effective management of expatriate spouses, Journal of World Business, 32 (3), 243–257; Thaler- Carter, R. E. (1999). Vowing to go abroad, HR Magazine, November, 90–96.
58 Mol, S., Born, M., Willemsen, M., and Van der Molen, H. (2005). Predicting expatriate job performance for selection purposes—A quantitative review. Journal of Cross- Cultural Psychology, 36, 590−620; Bhaskar-Shrinivas, P., Harrison, D., Shaffer, M., and Luk, D. (2005). Input-based and time-based modes of international adjustment: Meta- analytic evidence and theoretical extensions. Academy of Management Journal, 8, 257−281.
59 Dolainski, S. (1997). Are expats getting lost in translation? Workforce, February, 32–39.
60 Caligiuri, P., Lazarova, M, and Tarique, I (2005). Training, learning, and development in multinational corporations, in H. Scullion and M. Linehan (eds.), International Human Resource Management, London/ New York: Palgrave Macmillan, pp. 71–90.
61 See, for example, Is there a problem, officer? Second time around expat describes benefits of language skills, Global Voice, Berlitz Newsletter of International Communication and Understanding (no date), 6 (1), 1; and Reading across Boundaries Newsletter of International Orientation Resources, July, 1994, 1–6.
62 Reading across Boundaries (1994), 1.
63 Ibid.
64 Solon, L. (2000). The language of global business, SHRM Global, December, 12–14.
65 The world’s most widely spoken language, cited from a number of sources posted on the website of St. Ignatius High School website, www.ignatius.edu/. Accessed Mar. 13.
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2015.
66 Refer to surveys by Mercer Human Resources Consulting (www.mercerhr.com) and GMAC Global Relocation Services/Windham International, Prudential Relocation, and Cendant International Assignment Services.
67 Adler, N. J. (1984a). Expecting international success: Female managers overseas, Columbia Journal of World Business, 19 (3), 79–85; Adler, N. J. (1987). Pacific Basin managers: A gaijin, not a woman. Human Resource Management, 26 (2), 169–191; Adler, N. J. (1984b). Women do not want international careers—and other myths about international management. Organizational Dynamics, 13 (2), 66–79. Adler, N. J. (1984c). Women in international management: Where are they? California Management Review, 26 (4), 78–89; Adler, N. J. and Izraeli, D. (eds.) (1988). Women in Management Worldwide, Armonk, NY: Sharpe; Adler, N. J. and Izraeli, D. N. (eds.) (1994). Competitive Frontiers: Women Managers in a Global Economy, Cambridge, MA and Oxford: Blackwell; Corporate women: A rush of recruits for overseas duty, Business Week, April 20, 1981, 120ff; Jelinek, M. and Adler, N. J. (1988). Women: World-class managers for global competition. Academy of Management Executive, 2 (1), 11–19; Kirk, W. Q. and Maddox, R. C. (1988). International management: The new frontier for women. Personnel, March, 46–49; Lockwood, N. (2004). The Glass Ceiling: Domestic and International Perspectives, Alexandria, VA: SHRM Research Quarterly.
68 Adler, N. J. (1984d). Managers perceive greater barriers for women in international versus, domestic management. Columbia Journal of World Business, 19 (1), 45–53.
69 Ibid.; Pomeroy, A. (2006). Outdated policies hinder female expats. HR Magazine, December, 16 (reporting on survey results from Mercer Human Resource Accounting); Mercer HR Consulting (2006). More females sent on international assignment than ever before, survey finds, retrieved from www.mercerhr.com, 12/30/2006.
70 See above, plus surveys by GMAC Global Relocation Services/Windham International/SHRM Global annual reports.
71 Abraham, Y. (1985). Personnel policies and practices in Saudi Arabia. Personnel Administrator, April, 102; Thal, N. and Caleora, P. (1979). Opportunities for women in international business, Business Horizons, December, 21–27.
72 Adler (1984b); Golesorkhi, B. (1991). Why not a woman in overseas assignments? HR News: International HR, March, C4; Kirk and Maddox (1988).
73 See above, plus Brown, L. K. (1989). Women in Management Worldwide, Armonk, NY: Sharpe; Catalyst (2000). Passport to Opportunity: U.S. Women in Global Business, New York: Catalyst; Maital, S. (1989). A long way to the top. Across the Board, December, 6– 7.
74 Ibid., 41–44; Sappal, P. (1999). Sometimes it’s hard to be a woman. HR World, January– February, 21–24.
75 Caligiuri, P.M. and Cascio, W. F. (1998). Can we send her there? Maximizing the success of Western women on global assignments. Journal of World Business, 33 (4), 394–416;
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Caligiuri, P.M. and Cascio, W. F. (2000). Sending women on global assignments, World at Work Journal, second quarter, 34–41; Caligiuri, P.M. and Tung, R. L. (1999). Comparing the success of male and female expatriates from a US-based multinational company. International Journal of Human Resource Management, 10, 763–782; Taylor, S. and Napier, N. (1996). Working in Japan: Lessons from Western expatriates. Sloan Management Review, 37, 76–84.
76 Varma, A., Stroh, L. K. and Schmitt, L. B. (2001). Women and international assignments: The impact of supervisor-subordinate relationships. Journal of World Business, 36 (4), 380–388.
77 Harris, H. (1999). Women in international management, in Brewster, C. and Harris, H. (eds.), International Human Resource Management, London: Routledge.
78 Joinson, C. (2002). No returns: “Localizing” expats saves companies big money and can be a smooth transition with a little due diligence by HR. HR Magazine, November, 70– 77.
79 See, for example, Black, J. S., Gregersen, H. B., Mendenhall, M. E., and Stroh, L. K. (1999). Globalizing People through International Assignments, Reading, MA: Addison Wesley; Hauser, J. (1997). Leading practices in international assignment programs. International HR Journal, summer, 34–37; McCall, M. W., Jr. and Hollenbeck, G. P. (2002). Developing Global Executives: The Lessons of International Experience, Boston, MA: Harvard Business School Press; Stahl, G. K., Miller, E. L. and Tung, R. T. (2002). Toward the boundaryless career: A closer look at the expatriate career concept and the perceived implications of an international assignment. Journal of World Business, 37, 216–227; Stroh et al. (2005).
80 Gregson, K. (1997). Outsourcing international assignments. International HR Journal, fall, 38–40; Joinson, C. (2002). Save thousands per expatriate. HR Magazine, July, 73–77; Smith, J. J. (2006). Executives say HR needs to improve to attract top global talent, reporting on findings reported in the Economist Intelligence Unit’s CEO Briefing: Corporate Priorities for 2006 and Beyond, retrieved from http://www.shrm.org/global/news_published/CMS_0117960.asp. Accessed June 15, 2007.
81 Smith, J. J. (2006). Firms say expats getting too costly; but few willing to act, reporting on findings of the KPMG 2006 Global Assignment Policies and Practices survey, retrieved 9/11/2006 from http://www.shrm.org/global/news_published/CMS_018300.asp.
82 The term “inpatriates” is a little more than 10 years old. It is a term developed by MNEs to describe a particular type of international employee, as described in the text. Subsequently, most of the literature describing inpatriates has been written by practitioners, consultants, or journalists writing in magazines with a primarily practitioner readership. For example, refer to Bachler, C. J. (1996). Global inpats: Don’t let them surprise you. Personnel Journal, June, 54–64; Cook, J. (1998). A whole new world. Human Resource Executive, March 19, 1–2; Copeland, A. P. (1995). Helping foreign nationals adapt to the U.S. Personnel Journal, February, 83–87; Finney, M.
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(2000). Culture shock in America? For foreign expatriates, absolutely. Across the Board, May, 28–33; Harvey, M. G. and Buckley, M. R. (1997). Managing inpatriates: Building a global core competency. Journal of World Business, 32 (1), 35–52; Harvey, M. G., Novicevic, M. M. and Speier, C. (2000). An innovative global management staffing system: A competency-based perspective. Human Resource Management, 39 (4), 381– 394; Joinson, C. (1999). The impact of “inpats.” HR Magazine Focus, April, 5–10; Kent, S. (2001). Welcome to our world. Global HR, February–March, 32–36; Lachnit, C. (2001). Low-cost tips for successful inpatrition. Workforce, August, 42–47; Ladika, S. (2005). Unwelcome changes. HR Magazine, February, 83–90; Solomon, C. M. (1995). HR’s helping hand pulls global inpatriates on board. Personnel Journal, November, 40–49; Solomon, C. M. (2000). Foreign relations. Workforce, November, 50–56.
83 Caligiuri, P.M. (1997). Assessing expatriate success: Beyond just “being there,” New Approaches to Employee Management, 4 (1), 17–40.
84 Ibid.
85 Many of the references in this chapter deal with various aspects of Best Practice in selection of IAs. In addition, refer to Berlitz International, PHH Relocation, and SHRM Institute for International HRM (1996–1997), executive summary, International Assignee Research Project, Berlitz, PHH, SHRM; Lomax, S. (2001). Best Practices for Managers and Expatriates, New York: Wiley; Black, J. S. and Gregersen, H. B. (1999). The right way to manage expats. Harvard Business Review, March–April, 52–63; Herring, L. and Greenwood, P. (2000). “Best practices” leverage international assignment success in the United States. International HR Journal, spring, 21–28; Institute of Personnel and Development (1999). The IPD Guide on International Recruitment, Selection, and Assessment, London: IPD; Melton (2005); Prudential Relocation Global Services (no date). Leading Practices in International Assignment Programs, Valhalla, NY: Prudential Relocation; Stroh et al. (2005); Toh, S. M. and DeNisi, A. S. (2005). A local perspective to expatriate success. Academy of Management Executive, 19 (1), 132–146; GMAC Global Relocation Services/Windham International, National Foreign Trade Council, and SHRM Global Forum (2007 and previous years), Global Relocation Trends Annual Survey Report, New York: GMAC GRS/Windham International; Lomax, S. (2001). Best Practices for Managers & Expatriates, New York: John Wiley and Sons; Stroh et al. (2005); Vance, C. M. and Paik, Y. (2006). Managing a Global Workforce, Armonk, NY: M. E. Sharpe.
86 Barboza, D. (2006). Sharp labor shortage in China may lead to world trade shift. The New York Times, April 3, A1, A10; Clouse, T. (2006). Firms in China faced with tight supply of skilled labor. Workforce Management, September 11, 37–38; Fox, A. (2007). China: Land of opportunity and challenge. HR Magazine, September, 38–44; Lee, D. (2006). Job hopping is rampant as China’s economy chases skilled workers. Los Angeles Times, February 21, C1.
87 Kent, S. (1999). Cultivating home-grown talent. HR World, November–December, 24– 28.
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88 Halley, J. (1999). Localization as an ethical response to internationalization, in Brewster, C. and Harris, H. (eds.), International Human Resource Management, London: Routledge; Kent, S. (1999). Cultivating home-grown talent. HR World, November– December, 24–28; Solomon, C. M. (1995). Learning to manage host-country nations. Personnel Journal, March, 21–26.
89 Robock, S. H. and Simmonds, K. (1989). International Business and Multinational Enterprises, 4th ed., Homewood, IL: Irwin, p. 559.
90 Smith, J. J. (2006). More third-country nationals being used, retrieved from the SHRM Global HR Focus Area: http://www.shrm.org/global/news_published/CMS_017348.asp. Accessed June 15, 2006.
91 Friedman, T. L. (2005). The World Is Flat: A Brief History of the Twenty-First Century, New York: Farrar, Straus and Giroux; Johnston, W. B. (1991). Global work force 2000: The new world labor market. Harvard Business Review, March–April, 115–127.
92 For example, refer to Briscoe, D. R. (2008). Talent management in the global learning organization, in Vaiman, V. and Vance, C. M. (eds.), Smart Talent Management: Building Knowledge Capital for Competitive Advantage, Cheltenham, UK/Northhampton, MA: Edward Elgar Publishing, pp. 195–216; Herman, R., Olivo, T. and Gioia, J. (2003). Impending Crisis: Too Many Jobs, Too Few People, Winchester, VA: Oakhill Press; Johnston (1991); Leonard, B. (2006). Immigration rises sharply in most developed nations, retrieved from the SHRM Global HR Focus Area: http://www.shrm.org/global/news_published/CMS_017977.asp. Accessed Jan. 31, 2006; Richman, L. S. (1990). The coming world labor shortage. Fortune, April 9, 70–77; Schramm, J. (2006). Global Labor Mobility, Workplace Visions, No. 2, Alexandria, VA: Society for Human Resource Management; Templeman, J., Wise, D.C., Lask, E. and Evans, R. (1989). Grappling with the graying of Europe. Business Week, March 13, 54– 56.
93 Adler, N. J. and Gundersen, A. (2008). International Dimensions of Organizational Behavior, 5th ed., Ohio: Thomson/Southwestern; Black, J. S. (1991). Returning expatriates feel foreign in their native land. HR Focus, August, 17; Brewster, C. (1991). The Management of Expatriates, London: Kogan Page; Harvey, M. G. (1989). Repatriation of corporate executives: An empirical study. Journal of International Business Studies, spring, 131–144; Howard, C. G. (1987). Out of sight—not out of mind. Personnel Administrator, June, 82–90; Stroh et al. (2005); Tyler, K. (2006). Retaining expatriates. HR Magazine, March, 92–102; Vance and Paik (2006); Welds, K. (1991). The return trip. HR Magazine, June, 113–114.
94 Brewster, C., Bonache, J., Cerdin, J.-L. and Suutari, V. (2014). Exploring expatriate outcomes. The International Journal of Human Resource Management, 25 (14), 1921– 1937; Brewster, C. (1991). The Management of Expatriates, London: Kogan Page.
95 Adapted from Ettorre, B. (1993). A brave new world: Managing international careers. Management Review, April, 15.
96 Shumsky, N. J. (1999). Repatriation can be the most difficult part of a global assignment.
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CRN News, May, 21.
97 See Oddou, G., Szkudlarek, B., Osland, J. S., Deller, J., Blakeney, R., and Furuya, N. (2013). Repatriates as a source of competitive advantage: How to manage knowledge transfer. Organizational Dynamics, 42(4), 257–266; Bailey, C., and Dragoni, L. (2013). Repatriation after global assignments: Current HR practices and suggestions for ensuring successful repatriation. People and Strategy, 36(1), 48–57; Ren, H., Bolino, M. C., Shaffer, M. A., and Kraimer, M. L. (2013). The influence of job demands and resources on repatriate career satisfaction: A relative deprivation perspective. Journal of World Business, 48(1), 149–159; Oddou, G., Szkudlarek, B., Osland, J. S., Deller, J., Blakeney, R., and Furuya, N. (2013). Repatriates as a source of competitive advantage: How to manage knowledge transfer. Organizational Dynamics, 42(4), 257–266; Kraimer, M. L., Shaffer, M. A., Harrison, D. A., and Ren, H. (2012). No place like home? An identity strain perspective on repatriate turnover. Academy of Management Journal, 55(2), 399–420. Lazarova, M and Caligiuri, P. (2001). Retaining repatriates: The role of organizational support practices. Journal of World Business, 36(4), 389–401; Kraimer, M., Shaffer, M., and Bolino, M. (2009). The influence of expatriate and repatriate experiences on career advancement and repatriate retention. Human Resource Management, 48(1), 27; Lazarova, M and Cerdin., J. (2007). Revisiting repatriation concerns: Organizational support versus career and contextual influences. Journal of International Business Studies, 38(3), 404–429.
98 Lazarova and Caligiuri (2001); Kraimer, Shaffer, and Bolino (2009); Lazarova and Cerdin (2007).
99 Lazarova and Caligiuri (2001).
100 Munkel, N. and Nghiem, L. (1999). Do multinationals face up to the challenges of repatriation? KPMG Expatriate Administrator, 4, 6–8.
101 Lazarova, M., and Tarique, I. (2005). Knowledge transfer upon repatriation. Journal of World Business, 40, 361–373.
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Chapter 10 International Training and Management Development
It is part of our philosophy as an attractive employer to invest continuously in developing the skills of our employees. In the past seven years alone, we have invested approximately €1.5 billion in training.
Norbert Reithofer
Chairman of the Board of Management, BMW Corporation1
Learning Objectives
This chapter will enable the reader to:
■ Advocate for training and development programs for the MNE’s global managers and workforce.
■ Identify the challenges of training an international workforce. ■ Explain key learning objectives that drive training programs aimed at
enabling a productive global workforce. ■ Design cross-cultural training programs that enable international
assignees to successfully complete their assignments and develop an effective global management team.
■ Develop a global mindset, global competencies, and global leadership in the international organization.
■ Improve the effectiveness of global and virtual teams.
MNEs confront a number of special problems related to the training and development (T&D) of their global workforces and managers. Responsibility for T&D is traditionally one of HR’s core functions. So when an enterprise’s international business reaches a significant level, when it is involved with multiple subsidiaries and partnerships in other countries, when it transfers its technology to other countries, when it develops and pursues a global strategy and markets its products and/or services on a global scale, and when it relocates a number of employees to international positions, the T&D function takes on a new and more complex nature.
In this chapter, T&D is examined from the perspective of MNEs. Training refers
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normally to activities designed to develop or improve employee job skills. Development is the term that refers primarily to the development of managers and executives (or the preparation of employees to become managers and/or executives, although less frequently it refers more broadly to career development of all employees). In this text, when the term “development” is used, the discussion is concerned primarily with management, executive, and leadership development. T&D is almost always imbedded in the HR department, and in this chapter the discussion will primarily be focused on the training and management development activities of MNEs, including needs assessment and instructional design issues that arise when T&D programs are developed and delivered for a global workforce. These design concerns include the sharing of knowledge and best practices across MNEs, the design and delivery of global management/leadership development programs, the development of global mindsets for managers and employees, the special training needs of people on international assignments, the importance of technology today in both the content of training and the delivery of that content, and the preparation of employees to work effectively in virtual and global teams.
In addition to the adoption of formal global training and management development programs, the increasingly complex nature of global firms also requires attention to the development of informal relationships and networks. These, too, may require training or access to learning opportunities to facilitate. IHR needs to be prepared to analyze the MNE’s formal and informal global training and development needs, to design, develop, and implement T&D programs to meet those needs, and to evaluate whether these T&D initiatives ultimately help the MNE achieve a competitive advantage in its global operations. It is the objective of this chapter to provide the basics for this IHR responsibility.
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The Training Function
Since an MNE’s human capital may be its most important source of competitive advantage, a well-trained and educated global workforce is critical to success in the global marketplace.2 Therefore, the following seven imperatives have been suggested as keys to global organizational learning and T&D.3 Further, these imperatives provide a statement of the values that underlie this chapter’s discussion of training and management development for successful MNEs.
■ Think and act globally. That is, a global enterprise must think about and prepare for a presence in all the critical markets in the world, not just in its home region.
■ Become an equidistant global learning organization. That is, learning must be facilitated from and in all cultures.4 In Kenichi Ohmae’s words: “It may be unfamiliar and awkward, but the primary rule of equi-distance is to see—and to think—global [not local] first. Honda, for example, has manufacturing divisions in Japan, North America, and Europe—all three legs of the [major markets of the world]—but its managers do not think or act as if the company were divided between Japanese and overseas operations. In fact, the very word overseas has no place in Honda’s vocabulary, because the corporation sees itself as equidistant from all its key customers.”5
■ Focus on the global system, not its parts. That is, T&D programs need to focus on breaking down the silos of departments and even the boundaries between countries and those that separate customers and suppliers. They should focus on the “big picture” global organizational system.
■ Develop global leadership skills. That is, global leadership requires competencies different from those needed in the domestic marketplace. These should be one of the key foci of global training and development programs.
■ Empower teams to create a global future. That is, cross-border and virtual teams should be increasingly used and empowered to perform critical organizational projects and problem-solving activities. In addition, these global teams can, themselves, be a major tool in the development of cross-cultural competencies.
■ Make learning a core competence for the global organization. That is, the global organization needs to become a global learning organization, where learning and development permeates all that the organization does.6
As Arie de Geus, former head of strategic planning at Royal/Dutch Shell,
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put it, “Over the long term, the only sustainable competitive advantage may be an organization’s ability to learn faster than its competitors.”7
■ Both the global organization and its individual members must constantly reinvent themselves. That is, constant self-development must become the cornerstone of strategies for success for both individuals and organizations in today’s highly competitive global economy.
The challenge of mastering the ever-and-rapidly-changing and expanding global needs of individuals and organizations may be overwhelming. But it is exactly this challenge for IHRM that is addressed in this chapter on global training and management development.
Issues Related to Global Training and Development
The instructional model, referred to by the acronym ADDIE8 (analysis, design, development, implementation, evaluation), as commonly used by instructional designers, focuses on the various stages of T&D. Many of the decisions that are made during these stages are impacted by the fact that T&D programs in an MNE are developed and used in multiple locations, cultures, and languages. When enterprises operate subsidiaries and partnerships around the world, the training of the members of their global workforce takes on special importance and difficulty. The major issues related to global training and development center around the design, development, implementation, and communication of the training programs, including both technical and non-technical training.
It is risky to roll out global training programs without localizing the content and implementation, since such centralized approaches are likely to reduce both the acceptance and effectiveness of the training interventions. Localization of training programs requires “needs analysis” based at the local level and includes localized translation, adaptation to the local cultural practices, and compliance with local laws affecting training. Too often, corporate T&D simply tries to apply successful training programs from headquarters. But this often does not work. The types of problems confronting the MNE when it begins to discuss the need for training of its local workforces around the world include the following:9
■ Who should deliver training in the foreign subsidiaries and joint ventures? Trainers from headquarters? Local trainers? Independent trainers?
■ How should the training be delivered? Are there local cultural differences and learning preferences that need to be considered?
■ What are the effects of language differences? Will there be translation problems (for both written and orally presented materials)? Are there
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differences in the meanings of words? Are there terms and phrases that don’t exist in the “foreign” language(s)? Who should take responsibility (headquarters personnel, host-country specialists, or third-party vendors) for translation? Should training programs be exported from headquarters or should overseas employees be brought to centralized or regional training facilities? How effective is e-learning in the MNE? Can training programs be developed in various locations and made available to everyone? What are the effects of the various options?
■ Should courses for management development be handled differently than training for host-country and third-country employees?
■ To ensure respect for each host country’s culture, should each subsidiary or joint venture develop its own training? Do they have the capability? Or are there strong reasons to insist on centrally developed training programs?
■ How does an MNE adapt a training program (in terms of both the content and the process of the training) to different countries and cultures?
■ And, last, the needs analysis must to assess the differing content (skills and knowledge) that each locale requires.
Of course, part of the challenge for MNE trainers and IHR is that there are no easy answers to these questions. Because of that, many firms develop international training practices to fit their particular needs and resources, and make assumptions about what should work best. The approaches taken by differing MNEs to training of local workforces in their foreign subsidiaries and joint ventures range from total localization, with all training designed and managed at the subsidiary level, to total integration, with all training directed from headquarters and with the goal of full integration with the culture and perspectives of the parent firm. These issues are discussed in more detail in the section on cross-cultural training and development and as modeled in Exhibit 10.3, later in the chapter.
Localized Approach to Global Training and Development
Cross-cultural differences play an important role in the design, development, and implementation of T&D in MNEs. In addition, the effectiveness of T&D is likely to be impacted by structural concerns such as legal obligations to train, labor force educational levels, and different approaches to education and educational systems. For example, an American MNE spent several million dollars on upgrading its IT systems in all of its plants around the world, as well as on training initiatives to make sure that everyone understood the new system.10 Yet its HR director couldn’t understand why months after the training had taken place, some subsidiaries were still using the old procedures. Although the Scandinavians and the British
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welcomed the new ideas, the French, Italians, and Latin Americans were reluctant to accept another dictate from US headquarters. And although the Asians didn’t complain during the training sessions, they, too, failed to implement the new system. It’s a common scenario, says Richard Harlow, senior development consultant at global training consultancy TMA in the UK.11
Time and time again, I hear similar stories of global training initiatives not having the desired effect. And it boils down to a number of reasons. Sometimes badly interpreted material is to blame, other times internal politics may be at play, or perhaps employees in a particular location are just not accustomed to the way the briefing/training is delivered. And companies end up digging deeper in their pockets to retrain or troubleshoot.
Sometimes, firms face such disappointments because they simply transfer a program devised at HQ straight to another country, without taking cultural norms into account. The problems go much deeper than just translating the training material into another language; trainers have to work around the cultural nuances as well. In many cases, the “global” training falls flat because it is just completely inappropriate for the particular culture.
Although there is no general roadmap for adjusting T&D programs to local conditions and cultures, at a minimum, IHR professionals must make the effort to understand local laws, practice, level of employee skills and knowledge, and employer obligations in order to improve the probability of achieving the required learning and development objectives. The next sections deal with T&D localization issues in terms of culture, language, learning styles, education levels and forms, local T&D laws, and transfer of learning.
Culture
National (and even professional and organizational) culture influences training in a number of ways. Before they set up a training program in a foreign subsidiary, IHR professionals must understand how that culture views the educational process. For instance, in many Asian cultures, education is considered to be a very authoritarian phenomenon—although this is changing with the increasing interaction and integration of enterprises around the world and the subsequent exposure to different training methods and approaches. The teacher is seen as the expert whom students should respect. Teachers impart knowledge through one- way conversation: the teacher lectures and students listen respectfully. In such a context, students do not ask questions, and teachers do not solicit students’ opinions. In such high-power distance cultures, the atmosphere is formal and respectful toward authority. In contrast, for example, US educational techniques,
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which are less formal, and which focus on interactivity and encourage student participation, can be ineffective in such Asian environments.
The degree of deference to instructors influences the extent to which a participative style can be used and the extent to which participants will ask questions or offer opinions and become involved in open discussion. Culture will influence adherence to a hierarchy among students, such as deference to the most senior member of a training group in discussion and stating of opinions. Culture influences all forms of interactions with instructors, as well, and influences what a training group will accept in terms of behavior of instructors, e.g., degree of formality and appearance. Culture influences the roles of students, e.g., based on their gender and positions, in ways that may be different from that which is familiar to the trainer or to those who developed the training. Training that is delivered to employees from cultures that are foreign to that of the people who designed the training or delivered by people from different cultures must take into account these and other issues related to culture or the success of the training may be limited.
Exhibit 10.1 illustrates how the cultural characteristics of a number of countries might influence choice of training pedagogies.12 As Exhibit 10.1 suggests, students from high-power distance cultures (acceptance of status differences between students and instructors) and strong uncertainty-avoidance cultures (unwillingness to take risks and to try new things) are likely to desire and perform better in training programs that rely more heavily on structured and passive learning techniques, such as reading assignments and lectures versus those who come from weak uncertainty-avoidance and low-power distance cultures, who will probably do better with experiential training techniques (class discussions, interactive activities, and team projects). Of course, individuals within a culture may vary from these guidelines and any particular country subsidiary may have developed a company culture that supports the use of training techniques that are different from the norm for the particular culture.
Learning Styles
Learning styles are also related to culture. It is clear that, in addition to differing personal learning styles, people from differing cultures and countries are used to differing training and teaching styles. And thus their most comfortable learning approach needs to be considered in the design and delivery of training.
Exhibit 10.1: The Match of Training Techniques to Country Culture
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Source: Tyler, K. (1999). Offering English lessons at work, HR Magazine, December, 112–120.
Education Levels and Forms
One of the reasons that the provision of training and management development to multiple subsidiaries around the world is so complex is because the basic educational infrastructure varies so much from country to country. The basic level of literacy varies dramatically; the nature of the educational system and the type of education it provides varies significantly (e.g., whether theoretical or practical in orientation); the level, nature, and availability of higher education varies; the availability of vocational education varies considerably; and teaching and, therefore, learning styles used in any country’s school system vary from country to country as well. Familiarity with various teaching techniques and media as well as relationships between students and instructors also vary so much that it is often
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impossible to transfer directly either the content or the method of instruction from one place to another. And increasingly, young people who have grown up with technology may expect different training styles as well.
Language
There are a number of issues in global T&D that involve language. One has to do with whether to provide training for the global workforce in a single, common language, or to translate training programs into varying languages for the global workforce. If the training is provided in a single language that language will likely be the language of the HQ or English. Another has to do with providing language classes, themselves, in order to enable employees to be able to interact more effectively both within the enterprise as well as to interact effectively with external constituencies, such as suppliers, sub-contractors, and customers (refer back to the Barden case in Chapter 8). In today’s shrinking world, the ability to communicate accurately and effectively takes on increasing importance. Even though “business” English has become the primary language in which global business is conducted, it is clear that being able to sell, negotiate, discuss, and manage in the language of one’s neighbors, customers, and employees can improve the probabilities of successful communication and, therefore, successful business transactions.
MNEs have learned how important foreign-language skills are. The ability to speak another language is seen as so important it has become a major plus when recruiting new employees. Language acquisition opens the door to deeper cultural understanding—speech patterns, thought patterns, and behavior patterns (for example, of customers) are interlinked. And, therefore, language study is a link to better understanding (and interaction with) the customer (as well as with employees). Increasingly within MNEs, internationalists having multilingual and multicultural capabilities are becoming the most sought-after type of employee. As a specific example, Chinese (particularly Mandarin) has become more popular for foreigners as firms send increasing numbers of employees on assignment to China. Making this issue more difficult, however, is the increasing use of short-term business travel to manage an MNE’s foreign operations. It is relatively impractical to expect such traveling managers and executives to be able to speak the five to 10 languages they need for a typical trip to subsidiaries and/or customers/suppliers/sub-contractors, etc., to say nothing of the next five to 10 languages for the next trip. Many MNEs today operate in dozens of countries. Many large MNEs operate in well over 100 countries, with as many local languages in use. For these reasons, among others, using a single language for international interactions, such as training and development activities, makes much practical sense. Invariably, and for many reasons, English has become the language
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of choice for the conduct of most aspects of international business. Therefore, teaching everyone to speak a common language, usually English, has
become popular, at least in some firms. Such programs (usually referred to as ESL —English as a Second Language—or ESOL—English for Speakers of Other Languages) not only help new employees adapt (in the case of recent immigrants into an English-speaking country, for example) but also help others do their jobs better and increase worker loyalty and improve customer relations.13 Again, for an example of this in a local manufacturer, refer to the Barden case described in Chapter 8. To the extent possible, language lessons should be presented in terms of workplace situations and required skills, which enhance the training’s immediate usefulness. Even some countries, such as South Korea, have recognized the value of fluency in English for their citizens, such that they are developing a large multi- campus university facility (to have at least 12 branches from prestigious Western schools) where everyone will speak English and all programming will be in English.14 The intent is to bolster opportunities for Koreans and to attract investment from abroad. For at least South Korea, widespread ability in English is seen as a competitive advantage in the global economy.
Another area of central concern relates to the language of the training itself. Global enterprises must make difficult decisions about whether to translate training materials into the languages of local (foreign) workforces and whether to provide the training, itself, in the language(s) of local workforces (either through the use of local trainers or through translators, if the trainers come from regional or corporate headquarters training groups and they don’t speak the local language). If the decision is made to provide the training through translators, then the selection of interpreters and translators needs to be given special attention, since being good at interpretation and translation requires more than training in the original and the foreign language. It also requires close familiarity with the nature of the business and any technical and special managerial terminology that may not translate easily into the foreign language or back into the original language (refer back to the discussion of language and translation in Chapter 5 on culture, particularly the section on cross-cultural research).
In addition, of course, MNEs may be obligated by local law (or national pride) to provide the training in the language(s) of the country in which they operate. For example, even though Chinese employees may understand the training in English, they may want to receive the training in Mandarin as a matter of pride. In the state of California, in the US, all training, such as safety training, must be provided in any language of employees if the enterprise has more than 15 employees for whom a language other than English is their first language.
Training and Development Laws
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MNEs must also take account of national laws and regulations. These laws may focus on the requirement to spend a certain percent of payroll expenses on training (or, alternatively, pay a percentage of payroll expenses in taxes to a government- sponsored training program), to train on certain subjects (i.e., safety, sexual harassment, cross-train, reduction in force, etc.), to translate material into the local language, to provide financial resources for employees to receive training, or to comply with labor contracts.
Transfer of Learning
Finally, transfer-of-learning issues are especially critical in cross-border T&D. This has to do with the extent to which people receiving training are able to (and/or actually do) apply what they learn to their jobs. Trainers have to consider not only the nature of cross-border training (as discussed above) but also must pay close attention to who needs to receive training. In the end, transfer-of-learning concerns (in the traditional sense of transfer from training program to job performance as well as in the sense of transfer from one country to another) arise in a number of special situations for the multinational enterprise, including in the merging of various company and national cultures in cross-border acquisitions and joint ventures, when coping with increased cross-national diversity due to the development of global workforces, and when dealing with the many problems of cross-cultural work teams.
Standardized Approach to International T&D
Even though there are many cultural reasons to localize training, MNEs also must think about how to integrate their T&D activities, not only to achieve economies of scale and scope, but to ensure that the same T&D is available for all of their worldwide employees on a timely basis. In a globally integrated enterprise there will always be a need to develop T&D interventions around common processes, practices, and organizational principles. This is especially the case in non-technical training (e.g., around management and leadership development issues). With the advance of communication and IT technologies, barriers to information and knowledge being readily accessible to everyone have been quasi-eliminated. MNEs are now taking advantage of the development opportunities provided through IT by making training programs on virtually every conceivable topic available through company-sponsored websites or from global online sites. MNEs are developing learning portals and making technical information and a wide array of T&D courses available to their employees online and accessible through
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personal computers, laptops, personal digital assistants (PDAs) and downloadable to handheld devices, such as cell phones, iPads, and other types of tablets. The once very expensive development of computer-based training (CBT) is being democratized and put at the fingertips of everyone through e-learning tools.
Problems with e-learning, however, remain and should not be overlooked. Although e-learning may be an efficient and cost-effective means of delivering training, there may still be implementation and cultural acceptance issues. These may include issues such as the following: Is the training standardized (reflecting parent-country management and regulations only) or is it localized to reflect local management practices and laws? Does everyone have access to the technology and is everyone familiar with its use? How acceptable is the type of training being offered and the form of communication in which it is delivered in different cultures? Have all or most of the online courses been developed only in the country of headquarters or only in Western, developed countries? Are there courses available in local languages and covering topics of importance to local subsidiaries? Even though there may be good reasons to pursue standardization of T&D programs, some localization is likely to always be necessary and desirable.
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Virtual and Global Teams
The changing nature of organizations (and the type of work and the manner in which it is performed) requires that employees work increasingly on projects and in teams.15 Global interconnectedness, especially as a result of delocalization, disassembly of work in manufacturing and services, and the development of new technologies, has made the use and nature of teams increasingly more global, virtual, and common. And, now, where a team was usually thought of as comprising 5 to 15 people, larger teams (as many as 100 or more) are increasingly becoming common in MNEs.16 These teams, in turn, must now organize themselves in sub-teams to achieve their goals. This has made it increasingly necessary for MNEs to organize training programs and curricula around the formation and management of teams.
Teamwork and team effectiveness have been subjects of research in organizational behavior for many decades and are heavily influenced by culture.17
For example, how does one build and earn trust in different societies; how do team members from different cultures manage conflict on their teams; and how do team members from different cultures deal with confrontation when there is a problem on a team? Friendships and personal networks that are formed with people inside and outside of the group, business-centered relationships that are developed with people in other parts of the organization, and relationships that extend into the social sphere (often referred to as social capital) have all been found to also be important to successful team operation.18 Indeed, team members from cultures that are relationship-rather than task-oriented may be more effective in utilizing their networks to benefit the team than are people who come from cultures where the nature of the deal is most important. The point is that the cultural norms of the people who are members of a team have a lot to do with how—and how well—the team will function. And this makes training for team members quite important, to ensure smooth interaction between team members.
Individuals’ preferred team roles impact the overall effectiveness of teams, but do not adequately take into account the global and cultural context in which teams now increasingly must operate, such as their increased size.19 First, team members are increasingly geographically dispersed and work in different time zones. Second, cross-border teams are more likely than domestic teams to be very heterogeneous in terms of national cultural and ethnic backgrounds. Third, they tend to be larger than co-located teams because they often work on issues related to the global enterprise and must have geographic representation. Fourth, they most likely communicate in English, which is likely to not be the native language of many or most of the global team members. No matter how challenging effective teamwork may be in co-located teams, the problems are compounded in dispersed teams due
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largely to the fact that team members are (usually) not working face-to-face. Hence, virtual teams present some unique leadership and training challenges. IHR becomes the function responsible for making sure that global team members receive the necessary training to work effectively with one another.
Figure 10.1 Effectiveness of Homogeneous and Heterogeneous Teams Source: DiStefano, J. J. and Maznevski, M. L. (2000). Creating value with diverse teams in global management. Organizational Dynamics, 29(1), 45–63.
Long before the current interest in virtual global and far-flung teams, researchers have been interested in assessing whether culturally homogenous teams are more or less effective than heterogeneous teams.20 The results indicate that diverse teams that are well managed perform better than homogeneous teams, but poorly managed diverse teams do not perform with the same effectiveness as homogeneous teams. The reason for the increased performance of well-managed heterogeneous teams is due to the synergy that comes from their diversity. The reason for their ineffectiveness when poorly managed comes from their problems overcoming the complexity of their teams (see Figure 10.1). When heterogeneous teams can overcome the difficulties of managing their diversity, they are able to capture the benefits of their synergy and be more effective than is the case with homogeneous teams. Thus, a major topic for team training becomes diversity training, whether the teams are co-located or dispersed, cross-border, and virtual.
Since MNEs are increasingly using these cross-border and virtual teams, their effectiveness has become of paramount importance. Creating training programs that help create such productivity then becomes a high priority for IHR. Several sets of best practices with regard to the effectiveness of virtual teams are currently being proposed. Tips for virtual teams include: start with a face-to-face meeting in order to develop personal relationships; keep the team as small as practical; have a code of practice for communicating; communicate regularly, but don’t overdo it; ensure everyone understands everyone else’s roles; have a supportive sponsor;
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keep strong links with the parent organization; and reward team results—not how individual people work.21
Best practices related to virtual team leadership include:
1 establishing and maintaining trust through the use of communication technology;
2 ensuring that distributed diversity is understood and appreciated; 3 managing virtual work-life cycle meetings; 4 monitoring team progress using technology; 5 using team building to enhance virtual team performance; 6 continuing periodic face-to-face meetings; 7 enhancing visibility of virtual members within the team and outside the
organization; and 8 enabling individual members of the virtual team to benefit from the team.22
As more MNEs are using virtual and global teams, the knowledge of how to make these teams more effective and how to prepare employees for such team experiences can be expected to grow in the future. And one could predict that the need for and delivery of training programs (on a global basis) to improve team effectiveness can also be expected to grow.
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Global Leadership Development
T&D is also responsible for the development of managers and global leaders for the MNE. Here, too, the effect of globalization is being felt. Most early and contemporary management and leadership development theories originated in the Western world. At the turn of the 21st century, with its rapid globalization, a number of leadership books23 questioned whether the characteristics that made Western leaders effective should be universally applied. If leadership theories are context-specific, then it became legitimate to question whether US- and Western- centric leadership concepts and practices are as effective in multicultural and international environments as they have been in Western contexts. Hence, a number of new “global leadership” theories and models emerged as a complement to the emerging “global company” model.
Global Leadership Theories
The GLOBE (acronym for Global Leadership and Organizational Behavior Effectiveness) research project is the largest academic study on leadership from a global perspective (based on data from 62 countries).24 The primary objective of the research was to identify global leadership characteristics that are universally accepted and effective across cultures. The main finding of the GLOBE research has been that charismatic/transformational leadership styles are strongly endorsed across cultures. Transformational leadership is a leadership style in which leaders develop (transform) their followers into new leaders.25 Transformational leaders focus themselves and their followers on achieving higher-level visions and missions (through the development of commitment, trust, loyalty, and performance). They take the time to get to know the people they work with, what these people need to know to perform at their best, and how far they can be stretched, challenged, and supported. They are respected for taking stands on important causes and concerns; for encouraging people to question and to use their intelligence; and for being able to tap into the full potential of those being led.
The identification of high-potential individuals, the development of their leadership skills through challenging job assignments, and the accelerated learning processes geared at key talent for succession planning in the global organization are considered crucial competitive advantages, especially in an era of increased war for talent. The following provides a short summary of these processes that are so critical to global management development.
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Global Executives: Developing Managers in the Global Enterprise
There comes a time in the development of global enterprises when they examine the development of their managers from an international perspective. They begin to realize that not only is international experience necessary for their parent- country managers, but they also begin to realize the importance of developing managerial talent throughout their organizations. Indeed, probably the most formidable task in human resources facing global firms today is the development of a cadre of team members, managers, and executives who have a deep understanding of the global marketplace, have the capability to transfer this knowledge into resolute global action, and who expect to see their rewards and personal and professional growth linked to opportunities for global careers in which to exercise this understanding.26 Global companies need executives (and probably other employees as well) who can easily switch from one culture to another, people who are fluent in several cultures and languages, and who can work effectively as part of an international team, keeping misunderstandings to a minimum.27 Such executives are the keys to global business success. But it’s not easy to build a cadre of such leaders. To date, too many companies have been slow to become truly culturally aware simply because their key decision-makers lack the necessary international experience and exposure, and, therefore, global vision.
Many global firms have invested well in the development of their local staffs (in both their parent-country and host-country operations) and can thus identify competent managers who are well qualified to handle local operations in most of their principal markets. At the same time, though, they are short of seasoned executives with broad international skills who are closely attuned to the firm’s global strategy. Too much localization has often resulted in insufficient globalization of the managerial ranks. But reversing this reality is not easy, in terms of both the cost and complexity of developing a new breed of global executives and the challenge this creates for the established process of management development.
Often, the global business environments that international firms experience are radically different than what they are used to. In such situations, IHR must tailor its policies and practices to local conditions while at the same time modifying the mindset and technical skills of local managers and employees to accept and match world class standards. To facilitate and manage this globalization, it becomes critical for firms to identify and develop leaders who are capable of functioning effectively on a global scale and with a global perspective. In a global economy, this strategic preparation of global leaders has become a major component of IHR’s contribution. In essence, IHR must design HR processes, including global training and management development programs, which encourage and facilitate the organization so as to ensure that its “global whole” is greater than the sum of
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its domestic parts. The following IHRM in Action describes Colgate’s global management
development program.28 It provides a good synthesis of many of the ideas presented here and it seems to have paid off well for Colgate, making it one of the most successful of global firms.
IHRM in Action 10.1: Global Management Development Program at Colgate Palmolive
Mary Beth Robles, a New York native, is director of marketing for Colgate- Palmolive in Brazil. Fluent in English, Spanish, and Portuguese, in addition to a little French, she is a product of Colgate’s global management development program. Robles epitomizes their international cadre of employees, the people behind their global sales, almost 70 percent of which comes from outside the US. She’s lived in Madrid and D.C. and her stints for the company include Mexico, Uruguay, and Atlanta, in addition to her current position in Sao Paolo.
Colgate-Palmolive has been operating internationally for more than 60 years. Its products, such as Colgate toothpaste, Palmolive soap, Fab clothes detergent, and Ajax cleanser, are household names in more than 170 countries.
Colgate understands global complexities, having been in the global arena for decades. It doesn’t underestimate the importance of HR and staffing needs for bottom-line results. However, it wasn’t until quite recently that Colgate looked to HR to design a strategy that would directly affect its global staffing.
As Colgate-Palmolive greatly expanded its overseas reach, it began to focus more clearly on its need for a global workforce. It became clear that HR’s ability to identify and develop global talent to meet business goals would directly impact the bottom line. As HR addressed this issue, it became clear that certain decisions were going to have to be made, decisions that were complicated by the size and scope of the global business. For example, how were they going to staff their overseas operations? When was it most effective to rely on expatriates versus local nationals? Who is it best to send abroad? What personal and professional qualities lead to success? What about host-country employees? How could they develop a team of global managers?
Next, a global team of 25 Colgate HR leaders and senior line managers began a year-long quest to develop a global staffing plan. The group met to develop global criteria for selection, succession planning, coaching, and
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performance management. Brian Smith, director of global staffing and HR strategy, said:
This global business strategy requires identifying a certain type of manager who understands not only the particular niche and communities in which we operate locally, but who also has that global perspective and understands the tremendous benefits of a global product line. It allows managers to move quicker and be more competitive internationally, while it demands that they wear a global hat and take the global perspective.
One direct result of this planning was the Global Marketing Program. It takes approximately 15 high-potential recent MBA graduates per year and rotates them through various departments for 18 to 24 months. Recruits learn about the sales process, experience the global-business development group, and get exposed to manufacturing and technology. After their stint at company headquarters, they’re deployed overseas. The program is seen as such a powerful tool for creating the international cadre of global management that Colgate needs, that more than 15,000 people stand in line for the slots every year. Typically, participants have a master’s degree, speak at least one foreign language, and either through past experiences or personal travels, demonstrate an interest in living abroad.
As Colgate moves these people up the global ladder, it looks for individuals who have developed functional competencies, who have developed sensitivity to diverse cultures, and who understand their own expectations of living abroad. The fact that Colgate rotates the individuals early in their careers helps people figure out early on if they can handle this kind of responsibility. If they can, it is common in this program for someone to move functionally from finance to marketing to human resources, and move from Ivory Coast to Panama to Thailand before returning to New York headquarters some dozen years later. And it isn’t just about recruiting US nationals; it attracts people from around the world.
Building on the success of the Global Marketing Program, the company has replicated it in other functional areas as well, such as in finance and human resources. In addition to recent grads, other high-potential people early in their careers already in the company are also encouraged to apply. It gives them exposure and perspective.
As a part of these programs and for other business needs, Colgate offers an array of overseas assignments to its employees: long-term, short-term, and stop-gap for particular expertise needs. Because of the firm’s reputation, it attracts people who want to become globalites—those who want global skills so that they can have international careers anywhere in the world. Colgate makes possible a diverse and fluid environment in which people frequently
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move in and out of US headquarters. The result is that fully 60 percent of the company’s international assignees are from places other than the US, and since 1960, half its CEOs have not been US nationals. In addition, all of the top executives speak at least two languages. This is a global company for which management development on a global scale has certainly paid off.
Patterns of Global Management Development
As important as management development with an international focus is for today’s MNEs, the reality is that there has not been much research into patterns or methods employed for such development by major firms. Nevertheless, the following few paragraphs summarize what has been identified.29
The most important of these common elements for MNEs is the priority placed on identifying and developing management talent. At firms such as IBM, Shell, Philips, and Unilever, responsibility for international executive development is so important that it is specifically a board concern and the executive in charge of this activity reports directly to the CEO. These firms have found that the lack of globally savvy management talent has been a major inhibitor in setting up overseas businesses or developing new global projects, even in some cases preventing them from staffing projects that have been technically feasible. Even smaller firms have come to understand the importance of having a cadre of global managers. In the words of Graham Corbett, who a few years ago was senior partner for KPMG’s Continental European practice: “We are on a fast growth track, and our major task is to attract and develop enough professional talent to enable us to support the [global] growth rates we are experiencing.”30
Firms from different countries appear to have evolved varying approaches to management development. Yet there are some common elements among them. These include practices such as:
1 the early identification of individuals with executive potential, either through early-in-career assessment procedures and close monitoring of job performance or recruiting at only elite universities and “grand écoles” or the use of in-house apprenticeships that lead to increasing levels of management responsibility; and
2 the use of close monitoring and mentoring of those individuals who have been identified through whichever procedure(s) to be candidates for positions of executive leadership.31
The primary purpose of the close monitoring is to manage the careers and job
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assignments of these high-potential employees. The movement (or mobility) of these individuals is controlled so as to ensure that they experience job assignments, including overseas assignments, of adequate variety, challenge, and appropriate responsibility (to include multiple functional, product, and country experiences, and important developmental content, often away from the individual’s area of proven expertise) and length, so as to ensure that individuals learn how to achieve results in new settings and through new associates, particularly colleagues from other countries and cultures. A number of observers have also noticed that this mobility among international locations creates informal networks that enable information and problem solving to be shared worldwide in a more effective way than the formal, traditional, hierarchical structures appear to provide.
Senior executives from Europe, Asia, and the US indicate that their firms have a shortage of managers with the necessary competencies to operate effectively in a global marketplace.32 They indicate that this is a major constraint on their abilities to expand their operations and to compete well in the global marketplace. In this context, then, IHR managers must ask themselves the following questions: If global enterprises do indeed have such shortages, then what does a global executive “look like” (so that they can be developed)? That is, what are their characteristics? And how can an MNE develop them? Or is it possible to just copy in the international arena that which is done on the domestic front? This section of the chapter addresses these types of questions.
Identification of High-Potential Leaders
The way organizations identify their leaders is influenced by cultural practices and different leadership identification approaches that can be traced according to national culture.33 The “elite cohort” approach is a model for identifying talent at the time of initial entry into the workforce when cohorts are recruited from top universities, carefully selected, screened, trained, and developed for a number of years. It is most typical of the Japanese model of leadership identification. The “elite political” approach is a model for identifying talent at the time of entry when individuals are recruited from elite schools (such as the “grandes écoles” in France). The top graduates are given managerial positions without a trial period. This model is most typical of Latin European countries, particularly France. In the “functional” approach, leaders are identified for their functional excellence. This is quite typical in German companies. In the “managed development” approach, the decentralized responsibility for functional development lies at the local level while the overall process of management development is centralized at the corporate level. This is most typically found in large multinational companies. Each of these culture-based models of leadership identification follows a somewhat different
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leadership development plan. By contrast, in many developing countries, where many large businesses are either family-owned or government-owned enterprises, top managers tend to come from family ties or political connections.
Development of Global Leadership Competencies
Some research has argued that leadership is not a function of position but of action.34 Through in-depth interviews of 130 global executives from some 50 companies throughout North America, Europe, and Asia, Black, Morrison, and Gregersen concluded that two-thirds of the global leadership capabilities are driven by global dynamics and one-third by business-specific dynamics.35 They found that global leaders require a certain set of unique skills and abilities that arise from country affiliation, and from industry, company, and functional dynamics. Global leadership was found to be a function of being interested and competent in global business. In their study, every global leader had a core set of global attributes and was consistently competent in four important areas:
■ Inquisitiveness (curiosity)—the characteristic of inquisitiveness and curiosity was the glue that held the other characteristics together. Effective global leaders are unceasingly curious. Far from being overwhelmed by all the differences in language, culture, government regulations, and so on that exist from one country to another, they are invigorated by the diversity. They love to learn and are driven to understand and master the complexities of the global business environment.
■ Perspective (how leaders look at the world)—global leaders also have a unique perspective on the world. While most managers have learned to avoid uncertainty and structure their environments to get rid of it, global leaders view uncertainty as an invigorating and natural aspect of international business.
■ Character (emotional connection and unwavering integrity)—global leaders show the ability to connect emotionally with people of different backgrounds and cultures through the consistent demonstration of personal integrity. This is essential for engendering trust and goodwill in a global workforce and with a global firm’s many customers and partners.
■ Savvy (exceptional business and organizational savvy)—demonstrated by the ability to recognize global business opportunities and then to mobilize organizational global resources in order to capitalize on them. Global leaders are highly skilled at both identifying market opportunities and applying organizational resources to make the most of those opportunities.
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MNEs are not only interested in developing leadership throughout their organizations, they also want their leaders to have global competencies and experiences. It is almost unheard of today that the CEO or senior leader of any large MNE could occupy such a position without prior international experience (although it is still too common in smaller and newer MNEs). Therefore, many MNEs are insisting on the development of a set of global competencies in the job descriptions of their key leaders and managers, including the ability to:36
■ Describe clearly the forces behind the globalization of business. ■ Recognize and connect global market trends, technological innovation, and
business strategy.
Exhibit 10.2: Skills of the Transnationally Competent Manager versus Those of the Traditional International Manager
Transnational skills
Transnationally competent managers
Traditional international managers
Global perspective
Understand worldwide business environment from a global perspective
Focus on a single foreign country and on managing relationships between HQs and that country
Local responsiveness
Learn about many cultures Become an expert on one culture
Synergistic learning
Work with and learn from people of many cultures simultaneously
Work with and coach people in each foreign culture separately or sequentially
Create a culturally synergistic environment
Integrate foreigners into theorganizational headquarters’ national organizational culture
Transition and adaptation
Adapt to living in many foreign cultures
Adapt to living in a foreign culture
Cross-cultural interaction
Use cross-cultural interaction skills on a daily basis throughout assignments
Use cross-cultural interaction skills primarily on foreign assignments
Collaboration Interact with foreign colleagues as equals
Interact within clearly defined hierarchies of structural and cultural dominance
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Foreign experience
Transpatriation for career and organization development
Expatriation or inpatriationprimarily to get the job done
Source: Adler, N. J. and Bartholomew, S. (1992). Managing globally competent people. Academy of Management Executive, 6(2), 52–65.
■ Outline issues essential to effective strategic alliances. ■ Frame day-to-day management issues, problems, and goals in a global
context. ■ Think and plan beyond historical, cultural, and political boundaries,
structures, systems, and processes. ■ Create and effectively lead worldwide business teams. ■ Help one’s company adopt an effective global organization structure.
The skills and competencies required by transnational firms have been further differentiated from those traditionally expected of managers in less-complex international firms.37 First, transnational managers must understand the worldwide business environment from a global perspective, not just from a multi-domestic perspective. And they must develop a series of skills for working with businesses and people from multiple countries and cultures. Exhibit 10.2 summarizes the skills of a transnational manager and contrasts them to those required of the traditional international manager.
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Global Mindset: An Introduction
People try to make sense out of the confusing effects of globalization with their existing mindsets. Essentially people’s mindsets are the interpretive frameworks that come from their experiences and cultures and that guide how they classify and discriminate events and people in ways that help them to understand what they observe and perceive. These mindsets determine people’s perceptions of and reactions to international experiences and observations of people from other countries and cultures. But their lack of international experience and exposure often limits their abilities to be successful in their international experiences (except maybe as travelers, although a domestic mindset can cause problems even while traveling). In the words of Catherine Scherer, who has studied those whom she calls internationalists, a global mindset is characterized by tolerance, flexibility, curiosity (inquisitiveness), and the ability to deal with ambiguity.38 Everyone seems to agree that a global mindset is crucial to effective global management. Yet, because of the rather elusive nature of the concept of global mindset, the next few paragraphs first define what it is, identify its major characteristics, identify patterns of organizations with a global mindset, and discuss how people can develop a global mindset.
The development of a global mindset is at the core of global leadership development. First, this section takes a look at the concept of a global mindset.39
One of the goals of many management development programs in the global arena is to develop a cadre of managers who have what is referred to as a global mindset.40 As will be discussed, an international management development program alone may not achieve this objective, depending on its components. This global perspective includes sensitivity to multiple cultures and their differences, work experience in more than one country, and knowledge and willingness about how to seek customers, financial resources and supplies, technology, innovations, and employees throughout the world.
The internationalization of jobs, companies, technology, products, money, and neighborhoods has caught many people and firms off-guard. People’s domestic thinking has not caught up with the global reality of a flat world: life and business is being globalized at a fast pace. Few people have much long-term experience working or living with people from other cultures. The result is that few people are familiar with the rules to follow when engaging in business across international borders. And most people assume that the rules they are familiar with and that work well “at home” should be adequate when they work abroad. But, as has been emphasized throughout this book, this is seldom the case. Thus, the opportunities for being embarrassed and making mistakes are ever present. Often, the reaction of managers and employees, in their interactions with colleagues, customers, and
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suppliers from other countries is: “Why can’t they be like us?” But they aren’t and their ways of behaving and conducting business too often seem strange and difficult. Because of this, businesses are increasingly concerned about how to develop managers and employees that exhibit a global mindset, that is, an ability to think and function effectively in a multiculture world.
Definition of a Global Mindset
Knowing how to live and work across cultures is the essential competency of people with a global mindset. For most people, developing this mindset is both an emotional education as well as an intellectual one. The lessons are professional— and yet often also profoundly personal.41 It is the complexity of the professional lessons and the transformational quality of the personal lessons that leads to the broader perspective of those with a global mindset. It is in fact this unique perspective that underlies this quality called a global mindset. One author, with extensive international business experience and writing for the American Society for Training and Development, says this global mindset
is a way of being rather than a set of skills. It is an orientation to the world that allows one to see certain things that others do not. A global mindset means the ability to scan the world from a broad perspective, always looking for unexpected trends and opportunities that may constitute a threat or an opportunity to achieve personal, professional, or organizational objectives.42
Another set of authors, who are European academics and consultants, define the global mindset in terms of both its psychological (personal) and its strategic (professional) perspectives.43 That is, they see it as “the ability to accept and work with cultural diversity” as well as involving “a set of attitudes that predispose individuals to balance competing business, country, and functional priorities which emerge in international [situations] rather than to advocate any of these dimensions at the expense of the others.”
Ultimately, the global manager must become the facilitator of personal and organizational change and development on a global scale. To achieve this, the global manager must not only be attentive to and a developer of organizational cultures, values, and beliefs that reach well beyond the manager’s own cultural, technical, and managerial background, but s/he must also be a consummate reframer of the boundaries of the world in which s/he works.44 This global mindset is about balancing perspectives, not just about being global. The global manager needs to continue to understand, appreciate, and accommodate local, cross-cultural differences and variations while at the same time maintaining a global view. As a precaution, however,
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… academics and others writing from a normative perspective sometimes have the tendency to see global or cosmopolitan as superior to local, calling for a “universal way that transcends the particular of places.” What is “local” is seen as parochial and narrow-minded. However, in our view, global mindset requires an approach that may be seen as the opposite to such one-dimensional universalism—it calls for a dualistic perspective, an immersion in the local “particulars” while at the same time retaining a wider cross-border orientation.45
Characteristics of a Global Mindset
Learning a global mindset requires the developing of a new set of competencies. Even though there is much disagreement over exactly what are the characteristics of those who possess this global mindset, the following is a synthesis of the efforts to describe these characteristics.46 Those with a global mindset exhibit the ability to:
■ Manage global competitiveness—they have broader business skills, exhibiting the ability to conduct business on a global scale as well as to design and manage complex international structures and strategies.47 They demonstrate awareness of national differences, global trends and options, and the global impact of their decisions and choices. These technical and business skills provide them with credibility in their various international assignments.
■ Work and communicate with multiple cultures—they show the ability to interact with people (employees, customers, suppliers, colleagues) from many cultures with sensitivity to their cultural and language differences. They understand differing cultural contexts and incorporate that understanding in their work and communication styles. And they understand the impact of cultural factors on communication and work relationships and are willing to revise and expand their understanding as part of their personal and professional growth and development.
■ Manage global complexity, contradiction, and conflict—they show the ability to manage the complexity, contradictions, and conflict that are experienced when dealing with multiple countries and cultures. They develop a sensitivity to different cultures and cultural values; they function effectively in different cultural environments;48 and they show the ability to handle more complexity and uncertainty than is experienced by their domestic counterparts.49 They consider more variables when solving problems and are not discouraged by adversity.
■ Manage organizational adaptability—they demonstrate the ability to
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manage organizational change in response to new situations (that is, they are able to manage the global corporate culture and adapt it to multiple cultural environments). They show the ability to reframe their fields of reference, to be flexible, changing the cultures in their organizations when necessary.50 And they possess extensive curiosity and openness toward other ways of living and speaking, from which they draw ideas for organizational adaptation.
■ Manage multicultural teams—they are able to effectively manage (and manage effective) cross-border and multicultural teams. They value the diversity present in such teams and are able to be a cross-border coach, coordinator, and mediator of conflict for such teams.51 They relate well with diverse groups of people and are able to develop the necessary cross- border trust and teamwork that is important to the effective performance of such teams.52
■ Manage uncertainty and chaos—they are comfortable with ambiguity and patient with evolving issues that are so characteristic of global experience. They can make decisions in the face of uncertainty and can see patterns and connections within the chaos of global events. They show extensive curiosity about other cultures and the people who live in them.
■ Manage personal and organizational global learning—both for themselves and for others with whom they work.
The success of employees’ and managers’ interactions with global customers, suppliers, and colleagues often is dependent on their abilities to think and act with a global frame of mind and reference. Indeed, the ability to cope with the conflict between a global focus and a local/national focus is one of the critical competencies in today’s business world.53 Such a global mindset predisposes people to cope constructively with these competing priorities (global versus local), rather than advocating one set of cultural values (most likely to be the individual’s home country values) at the expense of all others. This mindset involves being able to form and sustain a holistic global outlook; a completely different way of looking at the world, and being able to synthesize the many complex and conflicting forces.54
Characteristics of Organizations with a Global Mindset
An organization with a global mindset is often referred to as geocentric. That is, the ultimate goal of its leaders is to create an organization with a globally integrated business system that has a leadership team and workforce that have a worldwide perspective and approach. They recruit employees for their global and expatriate potential, because their perspective is that all employees must contribute
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to the global success of the firm. The whole workforce needs to be globally aware and to support the enterprise’s global strategy. As indicated by IBM’s CEO Sam Palmisano,55 a globally integrated enterprise, such as IBM, is a fundamentally new architecture where the firm is locating work and operations anywhere in the world based on the combination of best locations for economics, employee expertise, and the right business environment and then integrating their operations horizontally and globally. One of the key challenges of this model is that it needs to create a pool of truly global leaders. In Palmisano’s words the challenge is, “How do we develop people who can lead truly global teams and operations and understand cultural and societal norms and expectations all around the world? Where will this new generation of leaders come from?”
Acquiring a Global Mindset
The four Ts (travel, training, team, and transfer)56 have been described as effective ways to develop a global mindset. However, the bottom-line experience that is required for developing a global mindset is living in another culture and going through the culture shock that is necessary to learning how to accept and to enjoy living in the foreign culture.57 Although frequent international business travel and short-term international assignments (defined as less than one year) help broaden a person’s perspective, they do not develop the cultural and leadership skills that are required for acquiring a global mindset. Reasons given for this are that short-term travel and assignments do not require acculturation and assimilation into a foreign culture. Hence, they are not as effective at developing a global mindset because they do not really require the person to acquire the coping skills to overcome cultural shock.58
A number of people have argued that, in the end, employees who seem able to operate effectively in a global environment are not just described by a list of attributes that are largely extensions of the knowledge, skills, and abilities needed by those who are effective in a purely domestic environment. Indeed, the evidence is accumulating that at some point a fundamental transformation takes place for globally successful people—a transformation that can be described in shorthand as the acquisition of a global mindset.59 Such transformed people become more cosmopolitan, they extend their perspectives, and they change their cognitive maps of the world. Out of this deep change, the individual develops a new perspective or mindset. This is not just a new view of oneself but also a new view of one’s organizational and professional role. This change goes far beyond a change in the skill-set—it is a change in the person. It is known that these deep changes in personal identity occur as a result of being confronted with a higher level of
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complexity in the environment—and that is precisely what happens in an international assignment. Not only does the person develop new perspectives, but he or she also develops skills in the taking of new perspectives, and developing and holding multiple perspectives. This ability to acquire and hold multiple, perhaps competing, perspectives (i.e., the ability to see a situation through another person’s eyes) is a quality of a more “evolved” identity.60 As studies are now finding, the lessons of cultural adaptability are pretty much only learned with expatriation, that is, through living in another culture.61
As with most managers and executives, global executives also report learning from challenging assignments, significant other people, perspective-changing events, etc. But, when these experiences take place in different cultures, they take on a decidedly different tone; they are decidedly more complex—and more effective. Learning to function in a country significantly different than one’s own is an experience for which there is no substitute. And then doing it a second time, in a yet substantially different culture, is transformational. However, people don’t necessarily learn about others or develop this global mindset purely through being in close proximity or through osmosis. Proximity doesn’t necessarily lead to better communication or understanding. Nor does common sense and goodwill take the place of deliberate education. That is, one must work at it, one must want to learn from their new cultural experiences and must let go of the attitude that what is familiar is necessarily best.62 To develop cultural literacy or competency, one must take deliberate steps to learn about another country’s or culture’s practices and values. One must make a concerted effort to learn about the deep values that motivate people and provide the context for their actions. One must experience the culture shock of coping with a new culture in order to begin to fully understand it so as to function effectively within it. In addition, such learning is enhanced through the coaching and mentoring of someone who has previously undergone this type of experience. It is this type of experience and learning that IHRM and MNEs must facilitate and encourage.
Many MNEs, learning from their own and others’ experiences, now make overseas experience a necessity for the career progression of executives.63 These international assignments, of course, work best when the expectations of the organization and the individual are aligned. That is, the real (and psychological) contract between the firm and the individual assignee needs to be in agreement and both sides need to live up to their obligations and to the other sides’ expectations.64 And this requires constant vigilance by both sides as well as regular discussions about both expected consequences from the assignment and how the assignment is to unfold compared to how it actually does unfold. (For an example of the sorts of problems that can arise when these practices are not followed, refer to the integrative case at the end of the book on Fred Bailey.)
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Cross-cultural Preparation and International Assignments
The first international training responsibility for an HR manager usually involves the training and preparation of international assignees and their families. Indeed, for many enterprises that have recently “gone international,” this may well be the only international training issue looked at for some time after the enterprise begins developing its international operations. Management development programs will typically not involve any international considerations and the training of local workforces stays primarily the concern of local-national HR managers. Yet, at some point, the global enterprise usually comes to recognize the importance of training and preparing its expatriates. That is the subject of this section of the chapter.
The preparation of international assignees prior to going abroad (and after arrival) is at least as important to their successful performance as selecting the right candidate and family in the first place. For example, recent surveys have found that a majority of organizations understand the importance of intercultural training or cross-cultural training;65 cross-cultural training should be provided to both the family and IA, and cross-cultural training was important to assignment success.66
And yet the inability to adjust or to perform the expected role—both of which can be improved through training and orientation—generally provide the major reasons for “failure” in an overseas assignment. When international executive relocations fail, they generally fail either because expatriates can’t fathom the customs of the new country or because their families can’t deal with the emotional stress that accompanies relocation.67 In both cases, orientation to the “culture shock” they will experience in their new environments seems particularly important.
Cross-cultural Adjustment
Many international assignees and their families experience difficulties adjusting to their new, foreign situations.68 Most of the time, the spouse or significant other (usually a woman, since most—about 80 percent—of IAs are men, although this is slowly changing) has to give up a job, house, friends, and family to accompany her spouse on his foreign assignment. The husband may also give up house, friends, and family, but he still has his job and relationships from work at the new assignment. Consequently, the wife typically has more difficulty adapting to the foreign environment. Some of the adjustment problems faced by people, men and women, as they move to a new, unfamiliar, foreign assignment relate to their
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changing routines, to the culture shock they experience as they try to figure out how to perform. Many of life’s established routines have to change in a foreign locale. This includes everything from eating habits and favorite foods to initiating and developing relationships. This disruption takes significant energy and time to combat. And the greater the scope, magnitude, and criticality of the disruptions the more draining and, depending on one’s success in dealing with them, the more depressing they can be. Culture shock is the set of psychological and emotional responses people experience when they are overwhelmed by their lack of knowledge and understanding of the new, foreign culture and the negative consequences that often accompany their inadequate and inexperienced behavior. The psychological and emotional symptoms of culture shock include frustration, anxiety, anger, and depression. Disruption of one’s routines is usually the key cause of these consequences.
But culture shock often leads to reactions that go beyond even this. Most people don’t experience culture shock at the beginning. There is usually a form of euphoria and excitement about the new experiences in the early stages of the assignment—what is often referred to as the “honeymoon” period. The IA and family usually don’t even know enough at this stage to understand they are breaking local cultural taboos. But after a while, the IA and her/his family will begin to realize they don’t know or understand many of the basic cultural ground rules, and this creates a major blow to their egos. The more significant the ground rules being broken, the more significant the blow to one’s ego, and the greater the subsequent feelings of culture shock and depression. Some never recover from this culture shock and many of these return home early. Yet others stay and eventually work their way through culture shock, learn to understand and accept the local culture, and gradually adjust to living and working in—even integrating into and enjoying—the foreign locale. The pain of mistakes is the primary cause of culture shock but it is the learning to which these mistakes lead that shows the way out of it. Once a cultural mistake is made and, more importantly recognized, it is less likely to be repeated or to become an ongoing source of frustration, anger, or embarrassment. Gradually, by making mistakes, recognizing them, and observing how others in the culture behave (and putting forth the effort to understand the deeper values that underlie local cultural behavior), people learn what to do and say and what not to do and say.69
The Design and Delivery of Cross-cultural Training
Training for cross-cultural adjustment should focus on helping IAs and their families do three things: 1) become aware that behaviors vary across cultures, including being different than what they are used to, and provide practice at
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observing these differences; 2) build a mental map of the new culture so they can understand why the local people value certain behaviors and ideas and how they might appropriately integrate into those behaviors and ideas; and 3) practice the behaviors they will need to be effective in their new overseas assignments. Without training of this sort, most people are much less likely to be successful in learning how to adapt to their new cultures.70
Exhibit 10.3 provides an outline of the five phases of a process for designing an effective cross-cultural training (CCT) initiative.71 The five phases are:
1 Identify the type of global assignment for which CCT is needed. 2 Determine the specific cross-cultural training needs (from the organization-
level, assignment-level, and the individual-level). 3 Establish the goals and measures for determining training effectiveness. 4 Develop and deliver the CCT program. 5 Evaluate whether the CCT program was effective.
The more effort and time both trainers and trainees put into such training and preparation, that is, the more rigorous the training, the more likely the IA and family members will be to learn the behaviors and attitudes they will need for success in the foreign assignment and to remove the barriers based in lack of knowledge about the assignment and the new location. Matching rigor to the needs of the IA and family and to the degree of “differentness” of the new country and culture is the key to the design of a valid cross-culture training and preparation program (Exhibit 10.3).
Preparation for the International Assignment
Experienced IHR managers think it is essential for success in international assignments to first provide international assignees (IAs) and their families enough information about the assignment and location for them to be able to make informed decisions about the desirability of such an assignment (beyond the self- assessment discussed in the prior chapter).72 This needs to be more than a short familiarization trip to the proposed location, even though this is important and should be seen as a necessary part of the preparation and orientation process. Both the employee and spouse should be well briefed on the new assignment’s responsibilities, as well as on the firm’s policies regarding IA compensation, benefits, taxes, security procedures, and repatriation. In addition, the employee and family need to be provided with all the information, skills, and attitudes that they will need to be comfortable, effective, and productive in the overseas assignment. Much of this orientation and training must be focused on the cultural values and
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norms of the new country and their contrast with those of their home country. Exhibit 10.3 illustrates how many of these concerns might be sequenced and delivered in the preparation of an IA for an overseas assignment.73 Given a number of different types of problems that IAs and their families might face plus a number of possible development objectives, the particular methods chosen for training and orientation should vary as well.
First, in the development of such an IA preparation and training program, IHR must recognize the various types of problems that exist for IAs. These range from difficulties with business relationships (either within or external to the firm or with headquarters), difficulties within the IA’s family, or difficulties with either the host- or home-country governments. Each of these potential sources of difficulty has its own particular solutions with its own specific objectives that will help overcome the problems. For example, developing a working knowledge of the host-country language can lead to improvements in a number of the possible relationship concerns. And the particular development methods chosen should be matched to specific development needs. As the differences between the culture of the IA and his or her family become greater relative to that of the new foreign location, the length and rigor of the training should also become greater.74 Ultimately, the objective is for the IA to be successful in his or her assignment, to remain in the foreign locale for the duration of that assignment, and to return to the parent firm to an assignment that effectively uses the IA’s new skills and motivation.
In terms of design for training for international assignees, research and writing about training, in general, has suggested a number of guidelines that seem appropriate here.75 For example, training needs to take into account the influence of the environment, which seems particularly relevant to cross-cultural training. And it ought to progress in terms of
Exhibit 10.3: Five-Phase Process for Designing Effective CCT Programs
Phase Description
(PHASE ONE) Identifying the type of global assignment
This phase identifies the type of foreign assignment for which cross-cultural training is needed. There are various types of foreign assignments and cross-cultural training will differ based on the goals required for the successful completion of each assignment.
This phase determines the specific cross-cultural trainingneeds from the three levels:
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(PHASE TWO) Determining training needs
1 Organization level: How does cross-cultural training support the firm’s business strategy?
2 Assignment level: What cross-cultural competencies are needed to successfully complete the foreign assignment?
3 Individual level: Are there any special needs that have to be addressed for the individuals receiving training?
(PHASE THREE) Establishing goals and measures
This phase involves establishing short-term goals and long- term goals for determining cross-cultural training effectiveness: Short-term cross-cultural training goals focus on cognitive, affective, and behavioral changes. Long-term cross-cultural training goals focus on improving the rate of cross-cultural adjustment
(PHASE FOUR) Developing and delivering the program
This phase develops and delivers the cross-cultural trainingprogram.
1 Determining the specific instructional content (culture general vs. cultural specific).
2 Determining the methods to deliver the instructional content (didactic vs. experiential).
3 Timing of delivery (pre-departure vs. post-arrival). 4 Mode of delivery (face to face vs. technology based,
such as web based).
(PHASE FIVE) Evaluating the program
This phase evaluates whether the cross-cultural training program was successful in meeting short- and long-term goals (established in phase three).
Source: Adapted from Tarique, I. and Caliguiri, P. (2004), Training and development of international staff, in Harzing, A.-W. and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications.
content and pedagogy in relation to the knowledge, experience, and competencies of the trainees. Lastly, it has been suggested that IA training should focus on developing the acquisition of knowledge and facts about other cultures; the ability to adapt to diverse conditions, to communicate in other cultures, to scan the country environment capably, to show skill at human relations in another culture, learn the appropriate etiquette and protocol, and to manage stress effectively in a
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foreign environment; as well as the ability to perform well in the assigned business or organizational tasks in another culture.76
In the broader picture, many firms divide their preparation of IAs into two categories: counseling and training. The counseling component deals primarily with the mechanics of a move abroad while the training tries to develop skills and sensitivities to national and cultural issues that will better enable the IA and family to adapt to and enjoy their new situation. Increasingly, firms are realizing how important such preparation is to the international business success of their IAs.
Such an extensive program of preparation can minimize the high level of premature returns and bad experiences due to maladjustment to foreign assignments by IAs and their families and the consequent inadequate levels of performance in the foreign assignment.
Even though there is much controversy as to the ability of people to learn about other cultures through training programs (some authors suggest one must experience a culture firsthand in order to gain a real understanding and/or adaptation to it—this is discussed in more detail in the section on developing global executives), at least some evidence suggests that these sorts of training programs do help.77 Indeed, the experience of the American University-based Business Council for International Understanding in its work with Shell Oil Company in the United States shows that pre-departure training can reduce dramatically the IA failure rate).78 For example, prior to providing any training to its employees being sent to Saudi Arabia, Shell was experiencing a 60 percent early return rate. With three days of training, that rate dropped to 5 percent. With a six-day pre-departure program, the figure dropped to 1.5 percent! It is estimated that without any pre- departure cross-cultural training, only about 20 percent of Americans sent overseas do well.79
As stated in the discussion of culture shock, IAs and their families must learn to cope with—depending on the country—a varying number, importance, and criticality of disruptions to their normal routines and ways of living. Accordingly, effective pre-departure training must vary its content and intensity according to the distance between what is normal and familiar and what will be experienced in the new assignment. The greater the distance between the home culture and the host culture (i.e., cultural distance), the more extensive and lengthy the training should be. And, whenever possible, both pre-departure and post-arrival training should be provided, with the post-arrival training focusing on the more complicated aspects of the new culture, since the typical IA and family is not ready for the more detailed cultural training until they have experienced the culture firsthand.80
The paragraphs in this section have primarily focused on the training and preparation of international assignees and their families. But some form of training
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and/or orientation would also seem appropriate for other employees of an MNE, especially those working on the international side of the business and/or managing diverse workforces. This would include domestic internationalists, international commuters, business travelers, and virtual internationalists, as well as traditional short-term and long-term international assignees. If the global enterprise really wants to expand its workforce’s global business capabilities, then it seems essential that it provides cross-cultural training and orientation to everyone.
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Knowledge Management and MNEs
A true transnational company is globally integrated through standardization of business processes, responsiveness to local pressures in order to adapt to local cultural and legal practices, and the sharing of knowledge across the enterprise.81
Although the benefits of knowledge management are well known, effectively sharing knowledge and best practice across the MNE is much harder to achieve. Many barriers to knowledge sharing in domestic environments become exaggerated when the firm gets larger, more complex, and global. Common barriers to knowledge management and sharing include:
■ ignorance and lack of relationships; ■ lack of a system for sharing; ■ belief that knowledge is power (so one doesn’t want to share it); ■ insecurity about the value of one’s knowledge; ■ lack of trust; ■ fear of negative consequences related to sharing what one knows; ■ the belief that best practices do not move across borders and cultures; ■ language and translation issues; ■ superiority and/or condescending attitudes; and ■ intra-organizational competition.
As discussed throughout this chapter and text, IHRM must work to minimize these types of barriers and to facilitate the sharing of knowledge and learning throughout the multinational enterprise. Only through the types of programs and practices discussed in this chapter can MNEs develop the human capital necessary for successful global operations.
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Conclusion
This chapter on T&D in the MNE has focused on one of the key assets of successful MNEs, namely the development of competent workforces, employees that are capable of operating in global teams and with the most recent technologies equipped with global mindsets, and are able to provide leadership in the global arena. It also has emphasized the importance of cross-cultural preparation, especially for international assignees. While many of these elements are considered to be the “soft” part of global management, an MNE’s ability to build these competencies in its workforce is considered a key global competitive advantage.
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Discussion Questions
1 What are the major issues related to international T&D? 2 How can the effectiveness of global virtual teams be improved? 3 How can global leadership be developed? 4 How does one acquire a global mindset? 5 What is the role of cross-cultural preparation in international assignment
management? 6 How can MNEs overcome barriers for knowledge sharing across borders?
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Case Study 10.1: Management Training in Africa (Malawi)
Malawi was once a British colony—but is now a relatively small (population about 17.4 million) but independent country in Central Africa. Thus, it inherited a British administrative tradition, which is very Western and very bureaucratic. And thus it also benefits from significant investment from Western MNEs, with many local subsidiaries. However, traditional Malawi cultural values, which emphasize family membership and attention to status, are also superimposed onto local and multinational business administrative systems, mostly imported from Europe and the US. In the Malawian culture, workers view employers as an extension of their families. They expect to be provided with a broad array of benefits from their employers, such as housing and transportation. Malawi society also places great importance on status differences. The relationship between managers and subordinates is viewed as authoritative; workers give deference and expect managers to act paternally. Malawians view proper protocol as very important. Managers often resist accepting individual blame for their mistakes and do not directly criticize their subordinates. Malawian managers rarely delegate authority because the culture believes that delegation strips managers of their authority and thus lowers their status in the eyes of their subordinates. How do these cultural practices influence the development of T&D programs by MNEs in Malawi? MNEs setting up local operations in Malawi must consider the following three realities when developing training programs:
■ Western models of innovation, motivation, leadership, etc. will not work well in Malawi. For example, most Western (European and Anglo) management experts believe that proper leader behavior depends on the situation: there is no one right way to lead. However, the Malawian culture believes that leaders should always be authoritative. Consequently, HR professionals must first learn how these issues apply in a Malawian culture and then train Malawian workers accordingly.
■ Status-conscious Malawian managers will resent being told to attend a training program. They will interpret this gesture as an indication that they are considered “below-average” performers—and will assume that their subordinates will make the same assumption. A company must thus carefully prepare a strategy to solicit trainee attendance in a way that will not cause managers to “lose face” with their peers or subordinates.
■ Training methods must be congruent with employee learning styles. Malawians learn best in “process-oriented” education settings. Consequently, training methods that use experiential and small-group
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techniques and other “supportive learning” techniques should be used in lieu of those that focus on lectures and rote learning.
Source: Adapted from Jones, M. L. (1989). Management development: An African focus. International Studies of Management and Organization, 19(1), 74–90; and updated (2014) from the following: http://www.afribiz.info/content/2014/foreign- transnational-corporations-in-malawi; and 2014 CIA World Factbook. Available at https://www.cia.gov/library/publications/the-world-factbook/.
Discussion Questions
1 Are there any training techniques that are culture free? Why or why not? 2 How would you design a training program (e.g., to use a new software for
tracking sales) for Malawi? What would it look like? Who should deliver it? How should it be delivered? What language and cultural variables would you take into consideration?
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Notes
1 Norbert Reithofer, Chairman of the Board of Management, BMW (from 2013 annual report).
2 See, for example, Stephan, M., Vahdat, H., Walkinshaw, H., and Walsh, B. (2014). Global Human Capital Trends 2014: Engaging the 21st Century, a Report by Deloitte Consulting LLP and Bersin, Westlake, TX: Deloitte University Press; Lionbridge 2104 Global Training and Development Survey. Survey Results. Published by Lionbridge Lionbridge Technologies (www.lionbridge.com), Waltham, Massachusetts; The very BEST learning organizations of 2013 (2013). T+D, 67 (10), 34–82; Training Top 125. (2012). Training, 49 (1), 66–107; Beliveau-Dunn, J. (2013). Developing talent amid rapid change. HR Magazine, 58 (1), 36–38; Cleghorn, L. (2014). Addressing the challenges of growing mobility: International. Benefits and Compensation International, 44 (3), 25; Ruiz, G. (2006). Kimberly-Clark: Developing talent in developing world. Workforce Management, 85 (7), 34; the chapter on “Growing people” in Sirkin, H. L., Hemerling, J. W., and Bhattacharya, A. K. (2008). Globality: Competing with Everyone from Everywhere for Everything, New York: Business Plus.
3 Keys, J. B. and Fulmer, R. M. (1998). Introduction: Seven imperatives for executive education and organizational learning in the global world, in Keys, J. B. and Fulmer, R. M. (eds.), Executive Development and Organizational Learning for Global Business, New York: International Business Press, pp. 1–10. Also see the entire special issue of Human Resource Management, Summer/Fall 2000, nos. 2 and 3; Oddou, G. R. and Mendenhall, M.R. (2013). Global leadership development, in Mendenhall, M.E., Osland, J.S., Bird, A., Oddou, G.R., Maznevski, M.L., Stevens, M., and Stahl, G. (eds.), Global Leadership, 2nd ed., London/New York: Routledge, pp. 160–174; and Sparrow, P., Brewster, C. and Harris, H. (2004) Globalizing Human Resource Management, London/New York: Routledge.
4 Slocum, J., Jr., McGill, M. and Lei, D. T. (1994). The new learning strategy: Anytime, anything, anywhere. Organizational Dynamics, 23 (2), 33–47.
5 Ohmae, K. (1990). The Borderless World, New York: Harper Collins, 18.
6 See, for example, Jamrozy, K. (2013). The current state of research on culture of learning organization. Organization and Management, (157), 77–88; Argote, L. (2012). Organizational Learning: Creating, Retaining and Transferring Knowledge, New York: Springer; Kearney, J., and Zuber-Skerritt, O. (2012). From learning organization to learning community. The Learning Organization, 19 (5), 400–413; Watkins, K. E., and Dirani, K. M. (2013). A meta-analysis of the dimensions of a learning organization questionnaire: Looking across cultures, ranks, and industries. Advances in Developing Human Resources, 15 (2), 148; Wen, H. (2014). The nature, characteristics and ten strategies of learning organization. The International Journal of Educational Management, 28 (3), 289–298; Ahmed, P. K., Kok, L. K. and Loh, A. Y E (2002). Learning Through Knowledge Management, Oxford, England and Woburn, MA:
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Butterworth-Heinemann; Argyris, C. (1999). On Organizational Learning, 2nd ed., Oxford, England and Malden, MA: Blackwell Publishers; Chawla, S. and Renesch, J., (eds.) (1995). Learning Organizations: Developing Cultures for Tomorrow’s Workplace, Portland, OR: Productivity Press; Davenport, T. O. (1999). Human Capital: What It Is and Why People Invest It, San Francisco: Jossey-Bass; DiBella, A.J. and Nevis, E. C. (1998). How Organizations Learn, San Francisco: Jossey-Bass; Dotlich, D. L. and Noel, J. L. (1998). Action Learning: How the World’s Top Companies Are Re-Creating Their Leaders and Themselves, San Francisco: Jossey-Bass.
7 de Geus, A. (1980). Planning is learning. Harvard Business Review, March–April, 71; and de Geus, A. (1997). The Living Company, Boston: Harvard Business School Press; Sparrow, Brewster and Harris (2004).
8 For an explanation of the ADDIE model see Mayfield, M. (2011). Creating training and development programs: Using the ADDIE method. Development and Learning in Organizations, 25 (3), 19–22; Rothwell, W. J. and Kazanas, H. C. (2004). Mastering the Instructional Design Process, 3rd ed., San Francisco: CA: John Wiley & Son.
9 Adapted from Geber, B. (1989). A global approach to training. Training, September, 42– 47. See also Schuler, R.S., Tarique, I. and Jackson, S.E. (2004). Managing human resources in cross-border alliances, in Cooper, C. and Finkelstein (eds.), Advances in Mergers and Acquisitions, New York: SAI Press, pp. 103–129; Odenwald, S. B. (1993). Global Training: How to Design a Program for the Multinational Corporation, Homewood, IL: Business One Irwin and Alexandria, VA: The American Society for Training and Development; Reynolds, A. and Nadler, L. (1993). Globalization: The International HRD Consultant and Practitioner, Amherst, MA: Human Resource Development Press; and Miller, V. A. (1994). Guidebook for Global Trainers, Amherst, MA: Human Resource Development Press.
10 Sappal, P. (2000). ¿Entiendes? Capiche? Comprenez-vous? HR World, September/October, 28–32.
11 Quoted in Sappal (2000).
12 Skerlavaj, M., Su, C., and Huang, M. (2013). The moderating effects of national culture on the development of organisational learning culture: A multilevel study across seven countries. Journal for East European Management Studies, 18 (1), 97–134; Hassi, A., and Storti, G. (2011). Organizational training across cultures: Variations in practices and attitudes. Journal of European Industrial Training, 35 (1), 45–70; Coget, J. (2011). Does national culture affect firm investment in training and development? The Academy of Management Perspectives, 25 (4), 85; Burke, M. J., Chan-Serafin, S., Salvador, R., Smith, A., and Sarpy, S. A. (2008). The role of national culture and organizational climate in safety training effectiveness. European Journal of Work and Organizational Psychology, 17 (1), 133; Flynn, D., Eddy, E. R., PhD., and Tannenbaum, S. I., PhD. (2006). The impact of national culture on the continuous learning environment: Exploratory findings from multiple countries. Journal of East–West Business, 12 (2), 85–107; Francis, J. L. (1995). Training across cultures. Human Resource Development Quarterly,
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6 (1), Spring, reprinted in Albrecht, M. H. (ed.) (2001). International HRM, Oxford, England and Malden, MA: Blackwell Publishers, pp. 190–195, adapted from Hofstede, G. (1991). Cultures and Organizations: Software of the Mind, New York: McGraw-Hill; and Pfeiffer, J. W. and Jones, J. E. (1983). Reference Guide to Handbooks and Annuals, San Diego: University Associates. Similar efforts are reported in Keys, J. B. and Bleicken, L. M. (1998). Selecting training methodology for international managers, in Keys, J. B. and Fulmer, R. M. (eds.) (1998).
13 Tyler, K. (1999). Offering English lessons at work. HR Magazine, December, 112–120.
14 Sang-hun, C. (2010). English-language schools sprout in South Korea, downloaded 8/23/2010 from The New York Times, http://www.nytimes.com/2010/08/23/world/asia/23schools.html.
15 Lockwood, N. (2010). Successfully transitioning to a virtual organization: Challenges, impact and technology, Society for Human Resource Management Research Quarterly, first quarter; O’Neill, T. A., Lewis, R. J., and Hamley, L. A. (2008). Leading virtual teams —Potential problems and simple solutions, in Nemiro, J., Beyerlein, M., Bradley, L., and Beyerlein, S. (eds.), The Handbook of High-Performance Virtual Teams: A Toolkit for Collaborating Across Boundaries, San Francisco: Jossey-Bass; Right Management Consultants (2005). Understanding the HR Dimensions of Virtual Team Building, Executive Research Summary, Philadelphia: Right Management Consultants.
16 Gratton, L. and Erickson, T. J. (2007). Eight ways to build collaborative teams. Harvard Business Review, November, 100–109.
17 Katzenback, J. R. and Smith, D. K. (2003). The Wisdom of Teams, New York: Harper Business Essentials.
18 See Oh, H., Labianca, G., and Chung, M-H. (2006). A multilevel model of group social capital. Academy of Management Review, 3, 569–582; and Labianca, G. (2004). The ties that bind. Harvard Business Review, October, 19.
19 Belbin, R. M. (1996). Management Teams: Why they Succeed or Fail, London: Butterworth-Heinemann. See also www.belbin.com.
20 DiStefano, J. J. and Maznevski, M. L. (2000). Creating value with diverse teams in global management. Organizational Dynamics, 29 (1), 45–63.
21 Maitland, A. (2004). Virtual teams’ endeavors to build trust. Financial Times, 8 September; Right Management Consultants (2005). Virtual teaming study: High-tech global teaming still needs human touch. Communique, downloaded 5/10/2005 from http://www.envoynews.com/philadelphia/e_article00039803.cfm?x=b4Syd43,b1p6cFKh.
22 Malhotra, A., Majchrzak, A. and Rosen, B. (2007). Leading virtual teams. Academy of Management Perspective, 21 (1), 60–70.
23 Some of the leadership books that take a global perspective and question the Western- centric view of leadership include: Trompenaars, F. and Hampden-Turner, C. M. (2000). 21 Leaders for the 21st Century, Oxford: Capstone; Evans, P., Pucik, V., and Barsoux, I. (2011), The Global Challenge: International Human Resource Management, New York:
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