Business Management

Cindy says: One of the biggest changes in business has been the explosion of the global marketplace. Business competes not just across the country but around the world. Americans tend to be Eurocentric (the viewpoint that Western civilization is superior). We must recognize that foreign cultures deserve to be valued in the same manner as a diverse workforce is valued and that what is acceptable behavior in the United States can be anything but in another country.

Zac is an assistant manager for Kawasaki Heavy Industries, a global company with US manufacturing plants. After escorting US employees to company meetings in Japan, Zac has some amusing stories to tell. His favorite is about the fellow who went around waving and saying “Hi” to everyone. Hi in Japanese means yes, so imagine how strange this literal “yes-man” appeared. Another interesting difference is giving and receiving business cards. In the United States, one would usually put a business card away after receiving it, but in Japan, that would be considered extremely rude. There, one must leave the card lying on the table until all business is concluded.

What will you discover about global issues in Chapter 16?

GLOBALIZATION OF BUSINESS AND HRM

LO 16-1

Identify and discuss the reasons for increasing business globalization and the stages through which companies move from local to global operations.

We live in a world that is dynamically globally interconnected.1 The major factor increasing the complexity of the environment is the globalization of markets2—the buying and selling of goods and services worldwide. Globalization is one of the most vital business trends of the past 50 years,3 as large corporations have employees from and conduct business all over the globe.4 Think about the complexity of FedEx’s environment, delivering to more than 220 countries and territories.5Therefore, it has to follow the rules and regulations of different governments in countries with different economies, labor forces, societies, and so on. Refer to Chapter 2, Exhibit 2-5, for a review of the SWOT analysis of the environment. Clearly, to be successful, companies need global leaders.6Having a global mind-set is a key standard for contemporary managers.7 For example, Carlos Ghosn is the chairman of three companies, Renault, Mitsubishi, and Nissan, on two different continents conducting business globally. Today’s managers—and students of management—cannot afford to underestimate the importance of the global environment to business.8

SHRM HR CONTENT

See Appendix: SHRM 2016 Curriculum Guidebook for the complete list

C. Ethics (required)

3. Individual versus group behavior

17. Foreign Corrupt Practices Act

F. Managing a Diverse Workforce (required)

5. Language issues

13. Cultural competence

K. Total Rewards (required)

B. Employee Benefits

11. Global employee benefits

14. Outsourcing (secondary)

O. Globalization (required—graduate students only)

1. Global business environment

2. Managing expatriates in global markets

3. Cross-border HR management

4. Repatriating employees post international assignment

6. Inshoring

7. Offshoring/outsourcing

9. Cross-cultural effectiveness

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Get the edge on your studies. edge.sagepub.com/lussierhrm3e

• Take a quiz to find out what you’ve learned.

• Review key terms with eFlashcards.

• Watch videos that enhance chapter content.

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SHRM

O:1

Global Business Environment

It is important to realize that no matter where you are, you live in and are affected by the global environment. Globalization may require you to interact effectively with people from many different cultural backgrounds:9 as an employee with coworkers, suppliers, and customers; as a customer in a local store; as a student in college; and as a consumer you use and buy products from other countries. Capital and goods flow easily between countries. Because of the ability to communicate instantly, services can generally be performed in the location where they have the lowest cost for the most efficient (notnecessarily the best, but the most efficient!) service quality. One model identifies four types of capital that flow between countries:10

• Natural capital. Natural resources such as timber, water, and minerals are “components of nature that can be linked with human welfare.”

• Social capital. This “consists of the social networks that support an efficient, cohesive society, and facilitate social and intellectual interactions among its members. Social capital refers to those stocks of social trust, norms and networks that people can draw upon to solve common problems and create social cohesion.”

• Manufactured capital. This is human-made capital like machines, tools, buildings, and other infrastructure that are used to produce other assets.

• Human capital. This “generally refers to the health, well-being and productive potential of individual people.”

If you take another look at these types of capital, there appears to be a theme throughout—humans, people, us! Because every form of capital that is exchanged between countries is controlled in some way by people, we have to figure out how to manage those individuals in order to maximize organizational returns.

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However, there are significant cultural differences between countries and regions. In fact, in many cases, there are multiple cultures in a single country. All of this makes global business more challenging. Let’s take a look at how HRM has to be managed differently in global firms.

Reasons for Business Globalization

The world was simpler when it was difficult to move goods across borders or oceans and it was just as difficult to move people between countries. A business could work in its local environment, taking only its local customers into account as it produced the goods and services that those customers wanted. However, our environment has conspired to make it easier to move both goods and people, along with abstract ideas and concrete knowledge, across borders and around the world. In turn, business must adapt to this new environment as surely as having to adapt to a climate change or a threat of disease. What has happened that created this environment?

There are many reasons why business continues to globalize on a scale never seen before. One is to increase business. Another reason businesses have reached beyond their own borders is the rise of the “global village,” with associated declining barriers to trade in goods, investment, travel, and communication. Declining barriers of distance and culture, international normative agreements on trade between countries, the rise of trade blocs, and uneven competition between domestic and international firms are other reasons why companies are expanding beyond their own countries’ borders.

INCREASE BUSINESS. Let’s face it: Most large corporations want to continue to grow. If you are a major corporation like Coca-Cola, is there any place in America to expand? No, the market is saturated. Also, the US population is only 325.5 million, a small fraction of the world’s population of 7.4 billion.11So if large corporations want to grow, they have to go overseas. However, businesses of all sizes, regardless of how saturated the US market is, also have billions of other potential customers if they go global. The other reasons for the globalization of business apply regardless of the size of the business.

THE GLOBAL VILLAGE. The global village concept has become—in many ways—a reality. Essentially the entire world can see and interact with goods and services that were only available to others in “the village” a hundred years ago. Ideas, goods, and services move easily across borders and around the world. This free flow of ideas, information, and knowledge through the use of the Internet and other media has reshaped the way people see their world. It has also allowed connections between people with shared interests in a much more intimate manner than was ever possible before. All of this serves to, among other things, bring vendor and customer closer together, creating global demand for products that the customer would not have even been aware of 25 years ago.

DECLINING TRADE BARRIERS. Declining Trade Barriers, GATT, and now the World Trade Organization (WTO). Another impetus for increasing globalization over the past 50 years was the changing disposition toward the use of tariffs and other trade barriers by country governments. During the 1920s and 1930s, many countries erected barriers to international trade in the form of tariffs—taxes that a government imposes on imported goods. The aim of tariffs is to protect domestic industries and jobs from foreign competition. However, as often happens when one entity makes a move to give it a competitive advantage but has no way to defend that advantage (no ability to protect the advantage or make it hard to copy), if one country imposed tariffs on goods coming in, other countries immediately retaliated with the same types of trade barriers to goods from the first country’s market. So retaliation became the norm when tariffs were imposed. In fact, there is at least some evidence that the Great Depression of 1929 was in part caused by these tariff and trade wars.12

Shortly after World War II, an agreement framework called the General Agreement on Tariffs and Trade, or GATT, originally signed by 23 member countries, was negotiated.13 It was the basis for an era in which tariffs and other trade barriers were significantly reduced in much of the world. Ultimately in the 1990s, the GATT agreements were formalized into the World Trade Organization, with a mission to be “the international organization whose primary purpose is to open trade for the benefit of all.”14 The WTO monitors and arbitrates trade disputes among its more than 160 member countries. Because the WTO and its predecessors have been so effective at lowering trade barriers, international trade has opened up to businesses that would not have been able to compete internationally before these organizations and agreements existed.

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In 2016, with the trend turning to protectionism, Britain voted to drop out of the EU (Brexit), which will also affect its US trade,15 and President Trump threatened protectionism. China is already moving to replace the United States as trade champion,16 and Russia, Japan, and China are rushing to fill the trade gap.17 Whether you agree with free trade or not, despite its recent setback, globalization remains an irreversible trend of our times.18 Let’s face it, just about every country needs trade to provide goods and services it doesn’t have to maintain or increase its standard of living, and the only way most large MNCs can continue to grow sales and profits, which increase jobs, is through global trade.

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Christopher Pillitz/Getty Images

Global businesses such as Nike utilize manufacturing facilities around the world and also sell their products extensively in international markets.

DECLINING BARRIERS OF DISTANCE AND CULTURE. In the 1950s, it was difficult to transport goods across country borders and over oceans. It was also difficult to communicate between one location and another. Think about it: If you wanted to call up a friend in central China in 1955, would you have been able to do so? It’s highly unlikely that you would. Along the same lines, would you be able to manage a production facility in Shanghai if you were in New York? You couldn’t easily call from one facility to the other; you certainly couldn’t just hop on an intercontinental jet and fly to Shanghai; you couldn’t contact the plant via Skype, or even email. International business was a very difficult thing to manage. That is why most businesses did not have international operations. Both communication and transportation were difficult things to accomplish in an international business.

But—things have changed! Communication to most parts of the world is nearly instantaneous. You can dial up your friend in China or get on the Internet and use a webcam to see exactly what is wrong with your production equipment in Shanghai and provide instructions on how to fix it in a few minutes. If you need to send experts to the plant, they can be anywhere in the world in about a day (in the 1950s, it would have taken about three weeks!). And as soon as it became possible to operate a business globally, managers were figuring out how to create a strategy to build a sustainable competitive advantage by doing so.

THE RISE OF TRADE BLOCS. Around the early to mid-1990s, we started seeing countries forming reasonably large trade blocs to encourage trade between member countries but discourage trade from outside the trade blocs through trade barriers, again including at least some tariffs. Although there have been recent movements toward trade protectionism in a number of countries, global trade in goods continues to grow, albeit at a slower pace than in the early 2000s, and trade blocs continue to hold at least some power. Trade blocs are groups of countries who form an association for the purpose of facilitating movement of goods across national borders. One of the early trade blocs was NAFTA—the North American Free Trade Agreement among Canada, the United States, and Mexico. Others include the European Economic Community (EEC—which later became the European Union [EU]), the Association of Southeast Asian Nations (ASEAN), and the Central American Free Trade Agreement (CAFTA), plus several others. These trade blocs allow free or low-cost passage of goods among member nations to encourage companies to specialize in certain types of goods to become more efficient and therefore lower the cost of those goods to all member countries.

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Since 2001, with the help of WTO, some dozen countries have been negotiating The Trans-Pacific Partnership (TTP), but President Trump threatens vetoing Congress’s bill to allow membership in TTP. However, that doesn’t mean the United States will not join TTP. Trump stated that he believes the United States is not getting a fair deal with present trade agreements, but he may renegotiate some changes to TTP that will gain his support for US membership. But Russia, China, and Japan are not waiting for the United States; they are maneuvering to lock in trade deals now.19

WORK APPLICATION 16-1

Identify a global business, one you have worked for if possible. Discuss the reasons it went global.

However, if you are not part of the bloc, trade barriers tend to be significant, and they will raise your cost of doing business with the countries in the bloc. One method of getting around the barriers is to become part of the bloc. This is usually accomplished by having business operations in at least one country within the bloc, which will make your company a de facto member of the bloc and reduce or eliminate this barrier. So companies will frequently build factories or design facilities, component plants, or other facilities within the bloc in order to overcome the trade barrier associated with that trade bloc.

TO REMAIN COMPETITIVE! The last reason for business globalization is simple:

Global corporations vs. Domestic organizations = One-sided competition

In many cases, if a domestic firm is competing head to head with a global firm, the competition is seriously one-sided. The global firm will source all of its capital resources from wherever they are the most efficient. If the global company sources raw materials from one country for half the cost, component production in another country for 75% of the cost, and labor from a third country for 25% of the cost of the domestic competitor, who is going to win the battle for the customers? The customer will not pay double the price for the same good of the same quality, no matter where it is made! The domestic firm is at an absolute cost disadvantage versus the global firm.

Ethnocentrism Is Out and “Made in America” Is Blurred

Parochialism means having a narrow focus, or seeing things solely from one’s own perspective. Ethnocentrism is regarding one’s own ethnic group or culture as superior to that of others. Thus, a parochial view, which we will discuss again later, is part of ethnocentrism, which is a negative stereotype.20 Another negative stereotype is the not-invented-here (NIH) syndrome, described as a negative attitude toward knowledge/technology/products from other external sources.21 Successful managers of large companies headquartered in the United States (including Coca-Cola, FedEx, GE, and 3M, to name just a few) are not ethnocentric; they don’t view their firms simply as American companies but rather as companies conducting business in a global village. If they can buy or make better or cheaper materials, parts, or products and make a profit in another country, they do so. British Petroleum (BP) has been doing business in the United States for more than 100 years and employs close to 250,000 workers across America.22

Many consumers subscribe to the idea behind “Buy American,” but few know the country of origin of the products they regularly buy. Look at the labels in your clothes and you will realize that most clothing is not made in America; around 60% of shoes and about 43% of other clothing comes from China.23 Did you know that although Nike is an American company, its clothes and sneakers are not made in the United States? Some GM cars are made in America but with more than 60% of the parts coming from foreign companies. Toyota makes some cars in America, with around 25% of the parts coming from foreign companies. So what’s really made in America? The Made in America store has a challenge stocking the store with fashionable only-American merchandise and hasn’t been able to find any electric or electronic products because they are all made abroad.24

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16-1 SELF ASSESSMENT

Products by Country of Origin

For each item, determine the country of origin. If your answer is the United States, place a check in the left-hand column. If it’s another country, write the name of the country in the right-hand column.

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1. Shell is owned by Royal Dutch Shell of the Netherlands. 2. Nestlé is headquartered in Switzerland. 3. Unilever is British. 4. Nokia was a Finnish company but was acquired by US Microsoft in September 2013. 5. L’Oreal is French. 6. Johnson & Johnson is a US company. 7. Burger King is Brazilian owned. 8. Samsung is South Korean. 9. Bayer is German. 10. Anheuser-Busch InBev is Belgian owned. 11. Volvo and 12. AMC are both Chinese owned.

How many did you get correct?

WORK APPLICATION 16-2

Do you believe in buying American products? Do you try to buy only American products, and should you?

In addition to not knowing products are foreign, some people don’t care where the products they buy come from; price is more important to them. Plus, some people prefer products, such as cars, made by foreign companies. Test your global knowledge of companies’ and products’ country of ownership by completing Self-Assessment 16-1.

Stages of Corporate Globalization

Marshall McLuhan’s “global village,” whether you like it or not, is a reality! In many ways, people around the world are becoming more similar in what they want, especially as consumers.25 The Internet and other forms of instant communication have changed the way people around the world think, act, and react. These individuals—whether in the United States, India, Russia, or Peru—desire many of the same consumer goods and services and want the same employment opportunities. So business has to expand to where the customers are and to where capable recruits are ready to go to work. But how does a business expand from being a local producer to an international firm? There are several different models of international expansion, but for our purposes, we can take a look at just one that helps to identify how companies expand globally. Nancy Adler has been studying global businesses for more than 30 years. She has noted four stages in the evolution of a company from local producer to global firm: domestic, international, multinational, and transnational.26 Take a look at the different phases in Exhibit 16-1.

As you can quickly see in the exhibit, the HRM function becomes more complex as we move further down the stages of globalization of the firm. As we move to the transnational firm, we have to develop transnational HR systems that take into account the culture and business practices of every country in which we operate.

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Exhibit 16-1 STAGES IN CORPORATE GLOBALIZATION

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WORK APPLICATION 16-3

Select a business, preferably one you work or have worked for, and describe its stage of globalization.

So, if going global complicates the management of the organization, why expand operations to other countries? Let’s take a look at some reasons for globalization and also some problems that we are sure to encounter if we decide to continue with our international expansion.

Is HRM Different in Global Firms?

“To function effectively in a multicultural global business environment, individuals and organizations must be capable of adapting smoothly and successfully across cultural boundaries.”28 This means that as the organization expands beyond its original borders, employees need to learn to change their personal perceptions from a local focus toward a broader concept of society. They need to become capable cultural chameleons—able to change on the fly in order to interact with other employees, customers, vendors, and any other stakeholders—to manage the business. Yet the evidence shows that this is one of the most significant weaknesses of individuals who have graduated with a business degree but have little work experience.29

Companies nearly always start out small and local—they have one shop or store in one town in a single country. If you remember back to Chapter 2 where we talked about organizational structure, when managing this “simple” organization structure, the complexity is minimal. Generally, all decisions are made by the boss. As we get larger and more complex, management in the organization has to change and adapt to that complexity by loosening up on centralized authority so that things can get done in a reasonable time frame.

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16-1 APPLYING THE CONCEPT

Stages in Corporate Globalization

Place the letter of the state of corporate globalization on the line next to the corresponding description of each firm.

a. domestic

b. international

c. multinational

d. transnational

____ 1. Our company exports our books to other countries through our website in America.

____ 2. Our company opened its third factory overseas to better serve our customers in those countries.

____ 3. Just because we only do business in one country doesn’t mean we don’t compete with global companies.

____ 4. Our company prides itself on not having any geographical boundaries or barriers, as we conduct business globally.

____ 5. We import tires from Japan and sell them in America.

Ultimately, in many industries at least, the company will consider international operations of some type to gain a competitive advantage over its competitors. And along with the creation of an international presence, the complexity of the firm goes up even more. This is the point at which HR must become a different and more complex department. International operations require us to rethink every major function in HRM. For example:

• Staffing. Home-country, host-country, and third-party employees all require different sourcing, training, disciplinary actions, and compensation and may require many other differences in management.

• Training. From orientation to culture and religion to language problems and managing infrastructure, training will need to be modified. For instance, safety training will need to be provided in multiple languages in many cases, and it will have to be accomplished so as to comply with multiple country laws and regulations.

• Employee and labor relations. Different countries’ laws concerning employee relations require HR to become competent in legal issues where the company operates. Many countries’ labor laws are strongly oriented toward protection of the individual employee—much more so than in the United States—and the HR manager must become competent in all of these legal differences. In addition, cultural attitudes and national laws also affect when and how employees are disciplined.

• Compensation. Should the company pay local average wages, home-country average wages, or other wage levels? How do incentives work with employees from different cultures?

These are just a few of the many issues that must be taken into account as we move from a single-country business to a global firm. Throughout the rest of this chapter, you will learn more about global HRM functions.

LEGAL, ETHICAL, AND CULTURAL ISSUES

LO 16-2

Identify and discuss the five dimensions of Hofstede’s model of culture and how the GLOBE Dimensions differ from Hofstede.

“If you see in any given situation only what everybody else can see, you can be said to be so much a representative of your culture that you are a victim of it.”

—US Senator S.I. Hayakawa

Legal, ethical, and especially cultural issues also have to be examined by companies considering global operations. The HR department has responsibility for many of these issues, including international labor laws, organizational ethics policies, communication training, and cultural training—for both national culture adaptation and corporate culture orientation.

Licensed Video Hofstede’s Cultural Framework

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International Laws

As the company begins to operate in more than one country’s market, the managers, including HR managers, have to ensure that the company complies with each country’s legal requirements. In what areas does HRM need to adapt as we move more toward a multinational or transnational firm? The major HR laws tend to be in the areas of staffing, labor relations, and disciplinary action/termination. Let’s look at a few examples that allow us to see the types of complexity involved in global operations.

CHINA30,31

• “Dispatch” workers (temporary or contract workers) are capped at 10% of total employment.

• Employers can include a noncompete clause in employment contracts but must pay the worker who leaves the company during the noncompete period.

• Government constrains both hiring and firing practices to a great extent. Employees can only be terminated for one of the identified statutory reasons (including criminal conduct, violation of company rules, corruption, etc.) or at the end of their employment contract. There is no employment-at-will.

• Severance must be paid to terminated employees in nearly all cases.

BRAZIL32,33

• Most labor relations are regulated by national laws; there is no employment-at-will.

• Employees have a right to 30 days of vacation per year.

• Overtime pay is required for more than 8 hours per day or 44 hours per week.

• A bonus is typically paid to all workers at the end of the year.

• Temporary workers can only be used as a general rule in two situations: to substitute for a regular employee on leave or during an extraordinary increase in workload. They can generally only be used for a maximum of 3 months.

GERMANY34,35

• Although negotiations for a minimum wage beginning in 2015 are currently occurring, wages are controlled for most workers by employee unions’ collective bargaining agreements.

• “Temporary” workers must actually be temporary. The general limit is no more than 18 months.

• In terms of age discrimination, companies are allowed to use the fact that a worker is vested in their state pension to justify dismissal.

• Workers generally have protection against dismissal except in three cases: personal capability or health, misconduct, or redundancy (downsizing).

• “Works councils” elected by and acting on behalf of employees in nonunion environments negotiate various working conditions with employers.

As you can see from just these examples, employment and labor law in different countries is highly complex. Your organization will need to do significant research before moving operations into another country to avoid violating that country’s labor laws.

US Law

You know that most organizations within the United States are subject to a variety of EEO laws. But are employees of foreign companies working in the United States subject to the same laws, and are employees of US companies operating in other countries subject to these laws? Again, the EEOC gives us guidance on these situations.

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According to the EEOC,

All employees who work in the U.S. or its territories . . . are protected by EEO laws, regardless of their citizenship or work authorization status. Employees who work in the U.S. or its territories are protected whether they work for a U.S. or foreign employer.36

So if you are in the United States or a US territory, you are covered by US EEO laws.

But what about Americans working outside the United States? According to the EEOC, “U.S. citizens who are employed outside the U.S. by a U.S. employer—or a foreign company controlled by a U.S. employer—are protected by Title VII, the ADEA, and the ADA.” However, “U.S. employers are not required to comply with the requirements of Title VII, the ADEA, or the ADA if adherence to that requirement would violate a law of the country where the workplace is located.”37 Finally, if you are employed by a foreign company in a country other than the United States, the laws of that country would apply, so you would not have the protection of US EEO laws in such a case.

The United States also has a law specifically addressing corruption and bribery by US national companies while operating in other countries. The Foreign Corrupt Practices Act (FCPA) bars US–based or US–listed companies from bribing foreign officials in exchange for business. The FCPA also requires companies to keep accurate books and records concerning their foreign operations. However, it is sometimes hard to tell the difference between a legitimate business expense and a bribe.38 So global companies need to clarify the difference in their code of ethics, top managers must set a good example, and penalties for unethical and illegal behavior must be enforced.

SHRM

C:17

Foreign Corrupt Practices Act

Remember that different countries have different employment laws that must be obeyed. So think about the complexity facing the HR executive working for a multinational company doing business in more than 100 countries! Thus, multinationals need HR legal specialists in each country.

International Ethics

Recall our discussion of ethics in Chapter 15 in which we noted that ethics are based on societal values, principles, and beliefs. This creates some issues for businesses operating in multiple countries. Different countries’ cultures have different values and beliefs and therefore will have different ethics—at least to some extent—as what is considered ethical in one country may not be considered ethical in another country. Whose ethical perception should be followed in situations in which the values in one country conflict with those in another? How do employees know how they are expected to act?

The answer to this question should be found in the company code of ethics. Remember that this code is the document that is used “to project the values and beliefs of the organization to their employees.” So even though the company culture may not exactly match the culture of a country where they are doing business, the company has laid out a set of principles that employees can apply to a situation to determine whether they are acting ethically according to the organization’s desires. But how does that word culture affect the employees in the company? Let’s take a look.

National Culture

Recall that we discussed organizational culture in Chapter 2. All of that information also applies to national culture, but national culture is even more powerful in many cases. It is what people have known their entire lives, and like the old adage about a fish in water not knowing that there is any other possible environment, people who have lived their lives in one culture many times don’t even realize that there are other options for values, beliefs, and culture. This view of the world is called parochialism— a narrow-minded view of the world with an inability to recognize individual differences. Managers in global organizations cannot survive with a parochial view of the world.

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Joshua LOTT/AFP/Getty Images

Ursula Burns, CEO of Xerox, has helped Xerox become one of the world’s most ethical global companies. This requires an understanding of the values in other cultures and how they affect behavior.

Thus, employees from different countries do not see the world in quite the same way because they come from different national cultures.39Understanding national culture is important because it affects nearly every aspect of human behavior,40 making cultural sensitivity an important skill.41 For the MNC, all the workplace diversity exists, plus national culture as well.42 Therefore, capability to manage such cultural diversity has become one of the most important skills for global leaders.43

Differences in national culture influence the effectiveness of different managerial behaviors, so if you are going to have to manage in an international setting, you will need to understand the cultures that you are dealing with. For instance, singling out and praising an individual worker in Japan is tantamount to yelling at an American employee on the shop floor and telling them that the report they wrote looked like it was written by a third-grader. Japan, as a highly collectivist culture (we will discuss this momentarily), does not single out the individual for either praise or discipline in a public setting.

SHRM

F:13

Cultural Competence

HOFSTEDE’S MODEL OF NATIONAL CULTURE. Let’s look at the first way that we can classify country cultures in order to determine how to train managers to successfully work with employees in that culture—Hofstede’s model of national culture.

SHRM

C:3

Individual Versus Group Behavior

Geert Hofstede is a trained psychologist who was hired in the 1960s by IBM (at the time, one of the few really global companies in the world with about 100,000 employees in more than 70 countries) to help them identify cultural differences within countries in which they operated.44 His data allowed him to develop a model of national culture that is still widely used today. He originally identified five dimensions—each of which allows a country culture to be plotted along a continuum. He later added another dimension, but we will stick with the original five, since that is the model that most people know about. Each dimension was measured on a scale of 0 to 100, with 100 being the highest exhibition of that dimension. (More countries were added to Hofstede’s model in later years, resulting in some scores moving above 100.) Let’s look at the dimensions of the model in Exhibit 16-2.45 These cultural dimensions continue to be studied.46

WORK APPLICATION 16-4

Give an example of cultural diversity you have encountered, preferably at work.

After reading through the exhibit, you are probably saying to yourself, “So what?” What is the value in knowing that Russian culture is oriented toward the short term, Japan is highly masculine, and India is moderately collectivist? The value in the model is in knowing how significant the differences are between two countries’ cultures. The greater the difference in the two cultures on each of the dimensions, the more difficult it is to bring employees from one culture into the other. For instance, if you compare China and the United States, you will find that China has high power-distance, low individualism, and a fairly low level of uncertainty avoidance and is long-term oriented.47 The United States is moderately low in power-distance and very high in individualism, has a moderate level of uncertainty avoidance, and is reasonably short-term oriented. This means that a manager coming from China to run a facility in the United States is going have some difficulty adjusting to the culture (unless they have previously been exposed to it) without significant culture-adaptation training by the organization. Similarly, putting employees from these two cultures together to accomplish any task is likely to fail unless they are given cultural training before working together. The HR department is typically charged with cross-cultural training of employees who will be working outside their native culture. (On a side note: If you ever get bored and want to watch a pretty good movie about extreme culture clash, watch a film from the 1980s called Gung-Ho with Michael Keaton. You will quickly see why cultural differences matter in business.)

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Exhibit 16-2 HOFSTEDE’S MODEL OF NATIONAL CULTURE

image

Sources: The Hofstede Centre; home.sandiego.edu/~dimon/CulturalFrameworks.pdf.

GLOBE. As Hofstede’s research became dated, Project GLOBE confirmed his dimensions are still valid today and extended and expanded his five original dimensions into nine. The project includes hundreds of companies and includes more countries. GLOBE stands for Global Leadership and Organizational Behavior Effectiveness, and it is an ongoing cross-cultural investigation of leadership and national culture. The GLOBE research team uses data from hundreds of organizations in more than 62 countries to identify nine dimensions in which national cultures are diverse. See Exhibit 16-3for a list of the dimensions with examples of country ratings.48 Notice that some of the GLOBE dimensions have the same or similar names as Hofstede’s five dimensions. As shown, through cross-cultural comparisons, there are differences,49 especially between Eastern and Western cultures.50

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GLOBAL STAFFING

LO 16-3

Briefly discuss the Big Five personality traits in relation to international assignments and the advantages and disadvantages of parent-country, host-country, and third-country nationals for international assignments

As you can see, operating a business on a global scale requires some complex sets of skills. How are we going to staff the organization with people who have both the ability and the desire to work in this type of environment? We will need to recruit people with a specific set of skills. We will also have to make some choices about what types of employees we are going to recruit and from which countries. Then we will have to determine what training is necessary for them to be successful. These choices by the HR manager can determine the success or failure of our global organization.

Exhibit 16-3 GLOBE DIMENSIONS

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Source: Adapted from M. Javidon and R. J. House, “Cultural acumen for the global manager: Lessons from Project GLOBE,” Organizational Dynamics, 29 (2001), 289–305.

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16-2 APPLYING THE CONCEPT

GLOBE Dimensions

Place the letter of the dimension of cultural diversity on the line next to the statement exemplifying it.

a. assertiveness

b. future orientation

c. gender differences

d. uncertainty avoidance

e. power distance

f. societal collectivism

g. in-group collectivism

h. performance orientation

i. humane orientation

____ 6. The people seem to prefer sports like soccer and basketball to sports like golf and track and field.

____ 7. Managers place great importance on status symbols such as the executive dining room, reserved parking spaces, and big offices.

____ 8. Managers provide poor working conditions.

____ 9. Employees get nervous and stressed when changes are made.

____ 10. Incentives motivate employees to achieve high levels of success.

Skills and Traits for Global Managers

Going back to Chapter 1, you probably remember that we identified four skill sets that managers need to have in various measures in order to be successful in their particular jobs. We noted that all “managers require a mix of technical, human relations, conceptual and design, and business skills in order to successfully carry out their jobs.” In international assignments, all of these skill sets can differ from what a manager or employee would typically learn in order to do their job. The way work is carried out—for instance in a high–power-distance culture in which employees expect to receive and carry out orders without question—may affect the way a manager does their job, so an American manager going into a high–power-distance culture would need different technical skills than normal. Certainly with multiple cultures, probably speaking multiple languages, in one location, managers will need very strong human relations skills, and even conceptual and design skills may need to vary from what the manager would consider “normal” in different cultures. And finally, as we have already noted, business skills can be significantly different due to the variance in laws, regulations, and business structures in different countries (think of the keiretsu and chaebol partnerships in some Asian countries).

Cultural values and beliefs are often unspoken and taken for granted; even with a common language accurate communication can be difficult.51 We tend to expect people to behave as we do. However, to be successful in the global village, you need to be sensitive to other cultures52 as you interact with people whose values and behaviors differ from your own.53 You need to get along with others,54 and to do so, you need to have a global mind-set.55 In fact, companies seek employees who have intercultural competences56 and those with multicultural backgrounds.57

But what else do we need to take into account before sending someone to another country to work with or manage others? Companies may want previous international experience in the employees that they are considering sending on assignments outside of their home country. The feeling is that people who have made the adjustment before will have an easier time adjusting to yet another environment. This is not always true, but it can help to have a history of living in different cultures. Culture shock (we will discuss this shortly) is thought to decrease as people are exposed to and live in multiple different cultures. This can be advantageous to both the individual and the organization because the individual can settle in and become more productive sooner if they do not have to learn how to behave within the culture.

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WORK APPLICATION 16-5

How would you assess your personality fit, family situation, and language ability in terms of an overseas assignment? Are you interested in working in another country? If so, in which country(ies) would you like to work?

We noted in Chapter 8 that it is sometimes necessary to evaluate individual traits when evaluating our employees. This is one of those cases in which it is indeed necessary. “Personality traits have been widely regarded as among the most important potential factors leading to expatriate adjustment,”58 so a global assignment is one situation in which we will need to attempt to assess the traits of the people we are considering sending to another country to live. Some very strong evidence says that expatriates will fit into a culture better if their personality traits match up well with the culture’s most significant characteristics.59

Let’s take a look at some of the information that we can get from the Big Five personality characteristics about ability to adapt to a different culture:60,61

• Extroversion. Some evidence shows that extroverts will have an easier time adjusting to a different culture. However, little evidence shows that extroverts are more effective in their work relationships. Extroverts are also less likely to terminate an international assignment early—which costs the organization a significant amount of time and money.

• Openness to experience. In most cases, people with high openness to experience will be able to adjust better to a foreign culture than those who are low on this scale.

• Conscientiousness. Conscientiousness apparently has little effect on a person’s overall ability to tolerate international work assignments.

• Agreeableness. Agreeable individuals also tend to adjust to a new culture well. Again, people who are higher in this trait are less likely to terminate their assignment early.

• Neuroticism (negative affectivity). People high on this characteristic tend to have more trouble adjusting to living conditions that are different from home and, as a result, may have a stronger negative reaction to taking on an international assignment. Higher neuroticism is correlated with a higher likelihood of terminating the assignment early.

So you can quickly see that this is one case in which we do need to take a person’s personality traits into account because they have a direct impact on their ability to do the job.

SHRM

F:5

Language Issues

Secondary only to the individual employee’s traits are the personalities and suitability of immediate familywho will accompany the employee. We have to consider the entire family when making an international assignment unless the assignment will be “unaccompanied,” which means the family will not move with the employee. If they do accompany the employee, they will need to be assessed for suitability and disposition as well as being trained right along with the employee.

All of the assessment that we will accomplish prior to sending an individual on an international assignment is designed to identify the “fit” of the individual with the assignment. Remember that we also discussed personality–job fit and person–organization fit along with ability–job fit in Chapter 6. Personality–job fit and person–organization fit will need to be measured and analyzed in conjunction with a potential international assignment just as if we were hiring the person into the organization from the outside world. They will have to adapt to the organization and the job in a very different environment from the one that they are coming from, and there is a high risk of failure in the job if we don’t do the analysis successfully.

Finally, language ability is something that may need to be taken into consideration. This will depend on the assignment, the difficulty of learning the language, the benefits of language training, and other considerations, but we do have to at least identify the possible need for the employee to speak the native language of the people in the assignment location.

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Staffing Choice: Home-, Host-, or Third-Country Employees

Our next consideration is where we will source the individual from for an international assignment. We have three generic options, each of which may be the best in some circumstances:

• Parent- (home-) country nationals—People who work for the organization in the country where the organization is headquartered

• Host-country nationals—People who live in a different country where a work assignment will take place

• Third-country nationals—People who happen to have a skill set needed for an international assignment but who are not citizens of either the home or host country

Which one we choose is probably driven by the general approach that we choose in managing the organization. These approaches are (1) ethnocentric, (2) geocentric, or (3) polycentric.62 Ethnocentricorganizations tend to believe that their values and culture are superior to those of others, and they will therefore frequently choose to staff international facilities with home-country managers. Polycentric firms will generally emphasize adapting to local culture and practices and will generally choose to use host-country employees. Finally, geocentric businesses believe in managing globally, using the best people no matter where they are located, and therefore will usually choose to mix in third-country nationals along with parent- and host-country employees.

Each of the three staffing options has advantages and disadvantages.63 Let’s identify what you might need to know in order to consider each option in Exhibit 16-4.

Exhibit 16-4 ADVANTAGES AND DISADVANTAGES OF PARENT-, HOST-, AND THIRD-COUNTRY NATIONALS

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Source: Dörrenbächer, C., Gammelgaard, J., McDonald, F., Stephan, A., & Tüselmann, H. (2013). Staffing foreign subsidiaries with parent country nationals or host country nationals? Insights from European subsidiaries (No. 74). Working Papers of the Institute of Management Berlin at the Berlin School of Economics and Law (HWR Berlin).

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16-3 APPLYING THE CONCEPT

Global Staffing

Place the letter of the type of staffing on the line next to each example statement.

a. ethnocentric

b. polycentric

c. geocentric

____ 11. I work for the American company GM, but I live in China and have been promoted to a management position.

____ 12. I work for the Japanese company Toyota, and they are sending me to America to fill a high-level management position.

____ 13. I’m French, but I work for American IBM in England, and they are sending me to work in Germany.

____ 14. I’m American and work for US Google, and I’ve already worked in two different European countries, and now they are sending me to China.

____ 15. I’m Australian and work for an Australian company, but I am looking forward to my transfer to work in America.

Outsourcing as an Alternative to International Expansion

SHRM

K:B14

Outsourcing

As an alternative to expanding the home organization, outsourcing is one way in which organizations can manage work without creating a direct international subsidiary. Outsourcing is the process of hiring another organization to do work that was previously done within the host organization. In quite a few cases, the organization to which we outsource a particular process will be located in another country. In this case, the outsourcing is often referred to as offshoring. This can have the effect of lowering the number of employees in the home-country organization and, as a result, lowering the cost of managing the human resources within that company. Nike doesn’t own any manufacturing facilities—all its manufacturing is outsourced.

SHRM

O:7

Offshoring/Outsourcing

On the other hand, in the United States and many other developed countries, there has been a recent governmental push to return jobs that have been offshored to the home country. This is called onshoring (you may also see the terms inshoring and reshoring). Onshoring is the process of shuttering operations in other countries and bringing work back to the home country to increase employment there. In some cases, this onshoring makes sense, but in others it may not. However, it is also an ethical question in the minds of a significant number of home-country citizens.

SHRM

O:6

Inshoring

The ethical question in each of these cases first involves the potential for job loss or gain within the home organization because of shipping jobs overseas. In the case of offshoring, the organization may cut entire divisions’ worth of employees and send that work to the offshore organization. Many US firms did this with customer service operations in the early 2000s, but you may also know that several high-profile failures occurred in offshoring, such as Dell moving several thousand jobs back to the United States in 2003 after significant customer complaints about support. Secondarily, companies have to be concerned with doing what is best for their shareholders and, in fact, they have a fiduciary responsibility to do so. As a result, even when there is pressure from governments to reshore jobs, companies have to consider this option very carefully before taking that step. Most Apple products are made in China, but Apple has agreed to make some of its products in the United States.

SHRM

O:3

Cross-Border HR Management

DEVELOPING AND MANAGING GLOBAL HUMAN RESOURCES

LO 16-4

Explain issues involved in negotiating the assignment and the potential effects of culture shock on the expatriate employee.

Once we have determined that we are going to expand internationally, we need to ensure that our employees will be able to successfully integrate into another country culture and complete their assignments. We need to select the right types of individuals, train them appropriately, and support them during their international assignments. Finally, we will have to make sure that they reintegrate into the home-country operations once they return from the assignment. Let’s look at some details on how we can do that.

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Recruiting and Selection

We mentioned the problems companies are currently facing with finding knowledge workers in Chapter 1. This continuing issue is causing more and more companies to source employees, including managers, from wherever they can find them. If they have to build a facility in another country to find enough of these workers, then that is what they will do. Historically, advanced companies operated out of advanced economies—what we generally call the developed countries. Talented people from these advanced companies were called on to leave their home country in order to establish or work in a plant in another country where less expensive but less skilled labor was available. However, in today’s world economy, where those low-skilled jobs are going away and we are constantly searching for knowledge workers, we have seen a shift to sourcing skilled employees from any country where they can be found and moving them to the locations where they are most needed. Many of the “lesser-developed economies,” such as the BRIC economies (Brazil, Russia, India, and China), are now developing at a rapid rate and have become sources of talented knowledge workers, where 15 years ago they were importing skilled talent to these countries.64

So, companies are now sourcing managerial and technical talent from offshore.65 Social media tools are one method that we are now using to reach these knowledge workers worldwide. LinkedIn may very well be the leading source for such talent searches. But what processes are we using to recruit and select this talent? Both recruiting and selection follow the same basic steps that we outlined for you in Chapters 5 and 6, but we have to take particular care in a few areas. Let’s take a quick look at negotiating the assignment, including individual tax issues and relocation costs.

• Negotiating the assignment. This is a bit more complex in an international recruiting and selection process. We need to make the offer in the same way we discussed in Chapter 6, but we also have to negotiate compensation differently than we ordinarily would (we will discuss this in the next major section), the length of the assignment and repatriation (we will also discuss this shortly), allowances for relocation to and from the assignment, housing arrangements, family accompaniment, income and other individual tax issues, and potentially several other items. So the negotiation process will necessarily be longer and more detailed.

• Tax issues. Taxes are one of the more complex parts of international assignments. Where will the employee pay taxes—in their home country or in the country where they are assigned? This isn’t an individual choice. It is set by the laws of the country in which the individual works, as well as sometimes by laws in their home country. So to avoid unnecessary harm to the employee, we have to assist them in developing a tax strategy for the duration of the assignment.

• Relocation costs. Relocation costs including housing can also be difficult when moving to certain locations. There may not be enough housing, or it may be prohibitively expensive (think of the cost of living in Hong Kong, where a one-bedroom apartment runs $2,000+, or Singapore, where a similar apartment would cost $2,900).66 Housing may also be substandard in some areas unless a premium price is paid. So we may have to have company housing or have contracts with local firms that will house employees for a set fee. The key is that these issues must be negotiated up front. Now let’s see what we need to do to prepare our employee for the move.

SHRM

O:2

Managing Expatriates in Global Markets

Expatriate Training and Preparation

Carlos Ghosn, the chairman of Renault-Nissan Alliance, said:

You have to know how to motivate people who speak different languages, who have different cultural contexts, who have different sensitivities and habits. You have to get prepared to deal with teams who are multicultural, to work with people who do not all think the same way as you do.67

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With increasing globalization and workforce mobility, there is a chance that you will be sent to another country to conduct business.68 It may be a brief visit, or it can be an international assignment as an expatriate. An expatriate is an employee who leaves their home country to go work in another country. As discussed, they can be home-, host-, or third-country employees. The cost of expatriates is very high, so we have to carefully select and develop these human resources.69

It can be difficult to adjust to a different language, culture, and society.70 So MNCs, such as IBM and EMC, are training managers and employees in local languages, customs, and business practices so they can be successful in the global market. Some people say that taking—or refusing—an international assignment affects career advancement, especially for top-level management. Whether you are asked to take an international assignment or not, as a global manager, you need to be flexible and adapt to other ways of behaving; you cannot expect others to change for you.71

CULTURAL TRAINING. So global competencies are becoming necessary for expatriates in the workplace, and as demand for these competencies increases, companies have to create and apply a set of tools to help prepare their employees for international assignments. Preparing employees for expatriate assignments will primarily be a training process, and the biggest training issue will usually be cross-cultural training. Why is cross-cultural training necessary? Culture shock can occur when we move from one culture to another. This culture shock can cause significant problems for the expatriate employee, and in fact there is evidence that up to 50% of employees fail to complete their international assignment, with the major reason being an inability (on the part of the employee or family members) to adapt to cultural differences.72 This inability to adapt may be because the parent company does not support the employee and family members in learning the culture that they will have to live in for an extended period of time.73 Alternately, it may be due to a bad selection process, as we noted in the section on personality traits.74 Regardless, culture shock is one of the main reasons for early termination of an international assignment. But what is culture shock? Let’s look at a diagram in Exhibit 16-5 to help explain.

SHRM

O:9

Cross-Cultural Effectiveness

If you take a look at the diagram, you will see that at about 4 to 6 months into an international assignment, many people actually become depressed because they don’t understand the culture that they have been forced to live in. This leads to hostility toward the culture, which can also cause significant behavioral changes in the employee and may make it difficult or impossible for them to interact with others in order to do their job successfully. As a result, we may have to end up bringing the employee home before the end of their assignment. This problem of serious culture shock can be mitigated, though, through cross-cultural training before the assignment begins. If people know what to expect and have some training in how to adapt, the problems associated with hostility and depression can be lessened. They will not go away, but they can be lessened, and this lessening may be enough to allow employees to ultimately adapt and be able to finish their assignment. “Effective pre-departure training is essential to support the employee to adapt to a new culture and country—as well as a new job.”75

COMMUNICATION TRAINING. A second type of training that is frequently required is communication training. Both language training and other communication training (verbal, nonverbal, and symbolic) may be needed before sending an employee on assignment. As we noted in Chapter 10, communication is sometimes difficult even when everyone is speaking the same language.76 It becomes much more difficult when there is more than one language being spoken and also when you have different nonverbal and symbolic cues based on two different cultures. Verbal communication is obviously the language being used, and nonverbal communication includes things such as hand gestures, facial expressions, and other forms of body language, all of which vary based on culture. So individuals need to be trained on how to manage their body language and other nonverbal cues.

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Exhibit 16-5 CULTURE SHOCK

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I Honeymoon phase (approximately the first 1–3 weeks). Everything is interesting and new. It is exciting to be in a new country, and you feel like you are on an adventure.

II ΩCulture shock (month 1–3, or longer). The initially interesting and new things that you recently saw are now annoying. Why can’t they do things the same way as they are done at home? You are frustrated by simple everyday things like going to the store or the bank, driving or commuting rules and procedures—and what’s that smell?

III Depression or hostility (month 4–7+). You are frustrated constantly with how different things are. You may even be depressed and not want to go outside and interact with people. You may avoid doing anything that requires that you involve yourself in the culture of the country.

IV Adaptation (month 7+). You start to accept the cultural norms and can interact with others successfully. You are now accustomed to the way things are done and the normal way to act in common situations. You feel “normal’ in your everyday activities.

But what is symbolic communication? It is communication using items that we surround ourselves with. It can be a type of clothing or hat; it can be a crucifix necklace; it can be jewelry or body piercings, or even the type of vehicle that you drive. Everything that we surround ourselves with that then conveys meaning to others is part of symbolic communication, and it can have very different meanings in different cultures. You would not want to have a visible crucifix in many Muslim countries. If you drive a large SUV in other countries, you may be considered to be a drug dealer or worse. So our employees need training on the various forms of communication.

WORK APPLICATION 16-6

Assume you were going to become an expatriate. What questions would you have about going to live and work in another country, and what specific training would you like to have?

OTHER EXPATRIATE ISSUES. Other key problems associated with expatriate employees include the following:

• Reporting structure. Who will the employee report to in the host country and at home?

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• Performance management process. Will host-country or home-country managers complete the performance appraisal and manage the employee’s performance during the assignment?

• Mentoring. Will they have a host-country mentor to assist with cultural adaptation?

• Other support. What other support will be available during the assignment?

• Repatriation. What assistance will be provided upon completion of the assignment and repatriation to the home country?

This last question is our next topic.

Repatriation After Foreign Assignments

Would you care to guess what is likely to happen after a lengthy international assignment when an individual (and possibly their family, too) returns to their home country? You probably guessed right. They are going to go through another culture shock. The same adjustment will be necessary as they return home, because they have adapted to another culture and other ways of doing everyday things. So reacculturation training will most likely be necessary.

SHRM

O:4

Repatriating Employees Post International Assignment

Repatriation generally should include a series of steps that need to occur in order to get the employee back into the home-country work routine. These items include the following:77,78

image

©iStockphoto.com/svega

Foreign assignments help develop international business skills, although adjusting to culture shock may take some time.

• Reentry training, including cultural training (things change in several years—even if you are moving back to your home culture!)

• Job placement into a position commensurate with the employee’s level of expertise and that will use their knowledge, skills, and abilities developed during their assignment in the host country

• Possibly mentoring assistance and other support to help the returning employee reintegrate quicker and more successfully

• A show of appreciation for the employee’s international service and facilitation of knowledge transfer to others who may benefit from a better understanding of the host country and its culture

Repatriation is a critical activity because there is strong evidence that there are high levels of voluntary turnover of repatriates once they complete their international assignments and return to the home office. Because the process of preparing expatriates and sending them to another country is a significant expense for the organization, we need to improve the odds that our newly returned employees will stay with the firm once they do return.

COMPENSATING YOUR GLOBAL WORKFORCE

LO 16-5

Briefly define the options for compensation of expatriate workers.

The obvious first question about compensation in a global environment is whether compensation in various countries needs to be different and, if so, why and how do we compensate a global workforce fairly? In this section, let’s discuss the components of a compensation system we discussed in Chapters 11 to 13 (pay, incentives, and benefits) as they relate to a global workforce.

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Pay

Do we need to compensate differently in a global firm? The answer is “Of course,” and the reason is that each country has a different standard and cost of living, and labor laws that vary greatly across countries must be met. We leave the discussion of the various labor laws to a global HRM course. Here we focus on expatriate pay.

I If we want to keep high-quality managers and workers in our organization while asking them to work in various countries around the world, we need to compensate them fairly. But what is fair? Is it fair to take a manager from a high-cost country and send them to a location that has a lower cost of living (United States to China), and once there, lower their pay to match the local norm? If you were the manager, would you accept this?

Conversely, if we bring a manager from a low-cost economy to a higher-cost environment, we probably need to increase their pay to match the country or region in which they will be working. However, if we return them to their home country or location, should we lower their pay back to the original rate? Another question concerns the currency in which the employee will be paid. Should we pay our employees in their home currency, or should we pay them in the local currency where they are assigned?

As you can see, compensation of a global workforce becomes pretty complex very quickly. Let’s discuss some options for paying expatriates.

WORK APPLICATION 16-7

Assume you were going to become an expatriate. What questions would you have about your pay, and which pay method would you want to have?

BALANCE SHEET APPROACH. The most common method to manage expatriate compensation is called the balance sheet approach. Using the balance sheet approach, the organization continues to pay the individual at a rate equivalent to their home-country salary, and usually in their home currency, while providing allowances during an overseas assignment to enable that employee to maintain their normal standard of living. Obviously, this is only necessary when an individual is moving to a higher-cost environment and out of their home country.

SPLIT-PAY APPROACH. A variant on the balance sheet approach is to use split pay.79 In fact, about half the organizations in a recent survey said that they use split pay as at least part of their compensation strategy.80 Split pay is a process in which the organization pays the individual partly in home-country currency and partly in the currency of their work location. This allows the individual to lower currency exchange rate risks in moving money from one location to another and to pay obligations in both their home location and their work location much more easily than if all their pay were in one currency.

16-4 APPLYING THE CONCEPT

Global Compensation

Place the letter of the type of compensation on the line next to the corresponding example.

a. balance sheet

b. split-pay

c. negotiation

d. localization

e. lump sum

_____ 16. I’m going overseas for a 6-month assignment, and they are giving me half the money in US dollars and half in euros.

_____ 17. I’m going overseas for a 6-month assignment, and they are paying me in the other country’s currency, the euro.

_____ 18. I’m going overseas for a 6-month assignment, and they are continuing to pay me in euros, but they are also giving me a US dollar allowance for the higher cost of living in New York.

_____ 19. I’m going overseas for a 6-month assignment, and we are having a meeting to discuss my compensation for while I’m away.

_____ 20. I’m going overseas for a 6-month assignment, and they are giving me one check to pay for the entire time I’m away.

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image

Stephen Brashear/Getty Images

Starbucks China vice president Molly Liu. Starbucks has an international workforce and must account for the fact that people in some cultures tend to resist individual incentive programs.

LOCAL-PLUS APPROACH. In this option, the employee will receive compensation based on the host country’s ordinary pay structures and then receive allowances to allow them to more closely match their living standard in their home country. So, for example, if the host country has similar salary structures but much higher taxes, the employee will get an allowance to help pay the higher tax costs. The same can be done for housing, educational assistance, transportation, and so on.81

OTHER APPROACHES. Other options for compensating employees on international assignments include a negotiation approach, in which the employer and employee mutually agree on a compensation package; a pure localization approach, in which the expatriate’s compensation is based on local (host-country) norms; and a lump sum option, which pays the expatriate a lump sum of money to use on items such as taxes, vehicles, housing, and similar items during their assignment.82

Compensation in an environment in which workers are operating all over the world is a very difficult process. However, HR must play a part in the analysis and implementation of a compensation system that will allow the company to attract and retain high-quality managers and employees for their facilities. The only way to do this, based on our discussions of operant conditioning and reinforcement as well as equity and expectancy theories, is to provide reasonable and fair returns to those employees for the job that they do.

Incentives in Global Firms

Effective global leaders are a vital asset that can offer a competitive advantage within organizations today.83 Former CEO Mike Duke of Walmart said that his biggest challenge was to continue to develop the leadership talent to grow the company around the world.84 But do incentive programs work the same worldwide? The answer, briefly, is “No, but they are becoming more similar over time.” In fact, in some emerging-market countries, variable pay is a higher proportion of overall compensation than in most developed markets.85 However, in other countries, variable pay still has negative connotations, especially as an individual incentive. Many countries’ cultures do not mesh well with individual incentive programs, and some do not readily accept even group incentive programs.86

WORK APPLICATION 16-8

Assume you were going to become an expatriate. Would you prefer straight salary or to have incentives? What type of incentive would entice you to take an overseas assignment?

One study of two cultures notes that “many multinational companies have ‘exported’ their human resource practices overseas,” but some studies “have revealed that people in different cultures prefer different means of reward distribution.” This study analyzed the United States (an individualistic society) compared to Hong Kong (a collectivist culture) and determined that “people in a collective culture more readily relate individual contributions to group performance and they also appreciate linking rewards with group performance.”87 There are many other studies that relate similar information concerning the effectiveness of incentive pay across the globe. The main thing that compensation professionals need to understand is that we cannot provide the same types of incentives to employees regardless of the organizational and country culture and structure. We have to understand the function of “significance” in expectancy theory and always make sure that our system rewards are significant and acceptable to our employees.

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Benefit Programs Around the World

If we just think about it, benefit programs must adapt to the part of the world in which our employees work and live, as labor laws must be met. For one thing, some countries mandate certain benefits that are not required in other countries, and we have no choice but to offer them. In other cases, the living conditions may be such that different benefit packages just make sense. Let’s take a look at some examples of differences that we might see in benefit programs in other parts of the world.

SHRM

K:B11

Global Employee Benefits

Due to government laws, companies in many of the European Union countries have to provide more benefits than in the United States. One of the most significant factors in international benefits management has been the worldwide recession that put pressure on both governments and companies to reduce their expenses. Because of these cost pressures, governments started looking at reducing the benefits that they provided to workers in their countries, especially for retirement programs and health care. Companies also felt the same cost crunch around the world and are constantly looking at ways to cut their expenses while still providing the benefits necessary to attract and retain top-quality employees.

Retirement benefits vary among countries, with some governments providing a strong centralized retirement system (Australia is a good example) and others providing very little in the way of centralized retirement planning and savings. Even in countries where there is a strong central government plan, most employees are concerned that they have not saved enough for retirement. In a survey that included employees in five countries—Australia, Brazil, India, Mexico, and the United Kingdom—in every country, “outliving retirement money” was one of the top three worker concerns.88 One reason for this is that people are living longer today than ever before—all across the globe. Another issue is that in most countries, the population is planning on retiring at an earlier age than has historically been the case. In most cases, workers plan to retire in their 60s or earlier.89 This combination of living longer and retiring earlier is creating the potential for a gap in retirement plan funding. More and more companies are working with employees to narrow this gap through a series of options. Some are providing financial counseling to show workers how much they need to be saving for retirement, and others are providing additional voluntary benefit programs through which the employee can fund additional retirement accounts that will help fill the gap in their current retirement plans.

A significant trend is the move by companies toward offering more and a larger variety of voluntary benefits that are fully paid by the employee instead of the employer providing at least part of the money to cover the cost of such benefits. In Brazil, for example, almost a third of female employees expressed interest in accident and pension funds for which they would pay 100% of the cost. Likewise, in Mexico, 56% of workers said that they would like a wider choice of voluntary benefits, and about one-fourth said they would pay the full cost for life, disability, and health insurance.90

Even if there are some significant differences in benefit plans around the world due to differing government policies, the consensus is that a good benefit package is a powerful force in employee satisfaction and retention—and employees globally like flexible benefits so that they can choose the benefits they want and need the most. Employers worldwide would be well served to start formal communications with their employees to find out what types of benefits will best serve to improve satisfaction and retention in their organizations.

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TRENDS AND ISSUES IN HRM

LO 16-6

Discuss the issue of business globalization and why it is so important.

In our last “Trends and Issues” section, we will take a look at protectionism as a surging globalization issue. So let’s get to it.

HRM in Action Culture Shock

Globalization of Business Continues as a Trend!

The world appears to be moving more toward protectionist trade policies at the present time—restructuring or even breaking up trade blocs.91 So is it really all that important to be concerned with globalization in the companies that you will be working for? The evidence says that it is. Forbesmagazine noted that “the major cause of [business model] disruption is the rapid advancement of technology and globalization, which allows new business models to be introduced at an ever-increasing rate and with rapidly declining costs.”92 A recent Brookings Institute report also notes that “On two of the three measures, the degree of globalization is continuing to rise based on the most recent available data, contrary to the claim that globalization is receding. And on two of our three measures, the global economy is more globalized today than during the peak of the early 20th century.”93 So globalization of production of both goods and services continues to move forward, despite current rhetoric by country governments.

At the same time, though, evidence is also pretty strong that some developed countries are retrenching a bit when it comes to international operations. Governments continue to pressure business to reshore some of their operations. In fact, in a 2013 survey, a majority of large manufacturers said that they are planning to reshore at least some production jobs back to the United States.94 But don’t think global business is going to go away anytime soon. Even with retrenchment of businesses in the developed economies after the 2007–2009 recession, the World Trade Organization (WTO) expected merchandise trade to grow at 2.4% in 2017.95

So the bottom line is that while companies may retrench some jobs back to their home countries, it appears that some production and service jobs will continue to be moved out of home countries to other locations around the world to take advantage of capital cost savings. This means that managers, including HR managers, are going to have to continue getting more capable in training and preparing employees for international assignments.

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DIGITAL RESOURCES

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Global Issues for Human Resource Managers*

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Global Workforce Managements

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Hofstede’s Cultural Framework*

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International Experience

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Trends in Global HR

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Lessons From a Global Learning, Virtual Classroom

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Big Five Personality*

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Training and Developing Expatriates

* premium video only available in the interactive eBook

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CHAPTER SUMMARY

16-1. Identify and discuss the reasons for increasing business globalization and the stages through which companies move from local to global operations.

The main reason is to increase business, which is aided by the world becoming a global village in which goods, ideas, services, and knowledge flow freely across national borders, creating greater demand for products. Barriers to trade have been minimized compared to historical norms, even though there is a series of trade blocs that operate in multiple countries. Barriers to transportation, communication, and culture have also lessened. But the biggest reason for globalization is to remain competitive.

The stages are domestic, international, multinational, and transnational. Domestic firms generally operate in one country’s market. International firms operate in a few, typically similar countries’ markets, primarily through importing and exporting. Multinational businesses start to source capital resources from wherever they are lowest in cost, own operating facilities in multiple countries, and integrate their various country operations. Transnational firms compete on a global scale without boundaries or barriers, strongly integrating their operations to improve efficiencies and lower costs. They are also culturally sensitive.

16-2. Identify and discuss the five dimensions of Hofstede’s Model of Culture and how the GLOBE Dimensions differ from Hofstede.

Power-distance is the degree to which societies accept that people will have different power because of their abilities and social status. Individualist cultures believe in the value of the individual and judge the individual, while collectivist cultures believe that the group is the unit of value in society, not the individual. Masculine societies value performance, winning, competition, and success, while feminine societies value relationships between members and quality of life more than winning. High–uncertainty avoidance cultures will do whatever they can to minimize risks to members of the society, and low–uncertainty avoidance cultures will not try to mitigate these risks nearly as much. Finally, short-term societies focus on immediate or short-term outcomes, while long-term societies focus on saving for the future, thrift, and persistence.

GLOBE confirmed Hofstede’s dimensions and extended and expanded his five original dimensions into nine. The dimensions include: Assertiveness—People are tough, confrontational, and competitive; Future Orientation—People plan, delay gratification to invest in the future; Gender Differences—People have great gender role differences; Uncertainty Avoidance—People are uncomfortable with the unknown/ambiguity; Power Distance—People accept power inequality differences; Societal Collectivism—Teamwork is encouraged (vs. individualism); In-Group Collectivism—People take pride in membership (family, team, organization); Performance Orientation—People strive for improvement and excellence; and Humane Orientation—People are fair, caring, and kind to others.

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Evidence shows that extroversion makes it somewhat easier to adapt to a new culture, and extroverts are therefore less likely to terminate an expatriate assignment early. People high on the openness to experience scale also adjust better to a foreign culture. There isn’t much effect on ability to enter a different culture from being highly conscientious, but agreeableindividuals do adjust to a new culture well and are less likely to terminate an assignment early. Finally, people high on the neuroticism scale tend to have trouble adjusting to a new culture and are more likely to terminate an international assignment early.

Parent-country members usually know the organization better, know the strategy and structure, and communicate better. However, language, compensation issues, cultural barriers, and national laws on income may be disadvantages. Host-country nationals present advantages with respect to the language, culture, compensation issues, and local laws and regulations, but they may not have the company knowledge that is needed, may be less loyal to the firm, and could have problems communicating with the home office. Third-country nationals allow us to hire the best person for a job and may be less expensive in some cases. They may also share a language or similar culture with the host-country office. Disadvantages include host-country laws concerning third-party employees, income and other tax rules, and potential lack of knowledge of company procedures and culture.

16-4. Explain the issues involved in negotiating the assignment and the potential effects of culture shock on the expatriate employee.

The three major issues in negotiating the assignment include:

• The actual negotiation. We need to make the offer in the same way we discussed in Chapter 6 but have to negotiate compensation differently than we ordinarily would, the length of the assignment and repatriation, allowances for relocation, housing arrangements, family accompaniment, income and other individual tax issues, and potentially several other items.

• Tax issues. Where will the employee pay taxes—in their home country or in the country where they are assigned? This is set by the laws of the country in which the individual works, as well as sometimes by laws in their home country. So we have to assist them in developing a tax strategy.

• Relocation costs. Relocation costs can be difficult. There may not be enough housing, or it may be prohibitively expensive. Housing may also be substandard in some areas unless a premium price is paid.

People who suffer from culture shock go through four phases:

Honeymoon phase. Everything is new and interesting, and the job is an adventure.

Culture shock. Things start to bother the employee. They are more frustrated with everyday things like going to the store.

Depression or hostility. Constant frustration leads to anger and potentially depression, so the employee doesn’t want to interact with local nationals and participate in the culture.

Adaptation. The individual starts to understand and accept the way things are done in this culture and feels reasonably normal acting the same way as the local citizens.

16-5. Briefly define the options for compensation of expatriate workers.

The balance sheet approach is one of the most common methods. This is when the employee is paid their home salary, but allowances are provided to “balance” the different costs associated with the overseas assignment. Another option is split-pay, when part of the compensation is paid based on the home-country norm and part is paid in the assignment-country currency to minimize exchange rate risk. The next option is the local-plus approach, when the employee receives compensation based on the host country’s ordinary pay structures and then receives allowances to allow them to more closely match their living standard in their home country. We can also use a straight negotiation approach, in which the compensation package is agreed to upfront; a localization approach, in which compensation is based on the host-country standards; or a lump sum approach, in which a set amount of money is given to the employee to use on unique expenses associated with an assignment to a particular country.

16-6. Discuss the issue of business globalization and why it is so important.

The world appears to be moving more toward protectionist trade policies. However, the degree of globalization is continuing to rise based on the most recent available data. At the same time, evidence shows that some developed countries are retrenching when it comes to international operations. Governments continue to pressure business to reshore some of their operations. But even with retrenchment, the World Trade Organization (WTO) expected merchandise trade to grow at 2.4% in 2017.

So while companies may retrench some jobs back to their home countries, it appears that some production and service jobs will continue to be moved out of home countries to other locations around the world to take advantage of capital cost savings. This means that managers, including HR managers, are going to have to continue getting more capable in training and preparing employees for international assignments.

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KEY TERMS

expatriate 591

Foreign Corrupt Practices Act 582

onshoring 589

outsourcing 589

parochialism 582

trade blocs 576

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KEY TERMS REVIEW

Complete each of the following statements using one of this chapter’s key terms:

1. _________ are groups of countries that form an association for the purpose of facilitating movement of goods across national borders.

2. _________ bars US–based or US–listed companies from bribing foreign officials in exchange for business.

3. _________ is a narrow-minded view of the world with an inability to recognize individual differences.

4. _________ is hiring another organization to do work that was previously done within the host organization.

5. _________ is the process of shuttering operations in other countries and bringing work back to the home country.

6. _________ is an employee who leaves their home country to go work in another country.

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COMMUNICATION SKILLS

The following critical-thinking questions can be used for class discussion and/or for written assignments to develop communication skills. Be sure to give complete explanations for all answers.

1. Do you expect that globalization of business will continue to expand? Why or why not?

2. Is it fair to utilize the least expensive “capital resources,” no matter where they come from? Why?

3. Is the use of a trade bloc simply another form of trade barrier that we shouldn’t use? Explain your answer.

4. How should countries manage transnational firms that have no real home country, including with tax policies and employment laws?

5. How would you as the HR manager prepare another employee for managing the workforce in a transnational firm?

6. Do you agree or disagree that people all over the world are getting more similar in their desire for certain products and services? Is this a good or a bad thing?

7. Should tariffs and other trade barriers be increased in order to protect jobs in the home country? Why or why not?

8. The United States is one of only a few countries that has a law like the Foreign Corrupt Practices Act. Does it put us at a disadvantage as compared to other countries’ businesses? If so, should it be repealed? Why?

9. Do you believe that Hofstede’s culture model is accurate? If not, what would you change to make it more useful in training people to work in a different culture?

10. Is knowing the local language always necessary when working internationally? Why?

11. Who would you rather assign to manage a foreign office of your business? Would you rather have a home-country, host-country, or third-country national? Why?

12. Should companies reshore more jobs that have been moved overseas? What are the pros and cons of doing so?

13. Would you ever consider sending someone to work in another country without cultural training if you were the HR manager? If so, in what circumstances?

14. Have you ever spent more than 6 months in a foreign country? Did you feel culture shock? If so, what did you do to get over it?

15. Can you think of some instances in which symbolic communication might be critical? Give examples.

16. Which option for compensation would you want if you were assigned by your company to work in another country? Why?

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CASE 16-1 SAND BY SAYA: THE CHALLENGES OF A SMALL BUSINESS GOING GLOBAL

Sand by Saya is a New York–based women’s luxury sandal brand that sells flip-flops with glamorous embellishment sewn on the top and receives rave reviews.(1) It maintains two full-time and two part-time employees in a location of approximately 2,200 square feet.(2) Sand by Saya is sold in nine countries as well as online. The main market of Sand by Saya is the Asia region, especially Japan and China, where Sand by Saya has contracts with major wholesalers and department stores. In the United States, the market channels are mainly their online website and consignment retailers such as Bluefly, Shoptique, and Farfetch.(3)

The CEO of Sand by Saya is a native Japanese entrepreneur named Ms. Sayaka Fukuda. She directs every part of business from product design to sales. Her main employees (both Japanese citizens) are Tsugumi, the office manager and accountant, and Asuka, who is in charge of design and production. Eugene, a college intern from Canada, was the assistant to Asuka dealing with design and production, while Karolina, a French intern, was the assistant to Ms. Fukuda working on marketing and sales part-time. Sand by Saya used to import sandals and embellishments from factories in China and assembled them in its New York office. As Sand by Saya grew, manufacturing was offshored to a Chinese factory owned by a Japanese importer, Mr. Nozawa.

The designs for the 2016 Charm Collection had been finalized in October when in early November, Sayaka told Asuka and Eugene that Mr. Nozawa thought having a cheaper line/collection with a more simple design, possibly using a metal stud technique, would increase sandal sales and the brand’s visibility. Sayaka agreed that she needed to boost sales, and if Mr. Nozawa thought lower-priced sandals would increase business, it was good enough for her. Sayaka asked her staff to develop a new inexpensive product line using modified images from the internet to create a virtual line of sandals that would be marketed to potential buyers. Eugene took issue with this approach, saying you should not try to sell what you do not have. Regardless, Sayaka was the boss, and Asuka insisted that she and Eugene create a new, less expensive sandal line. Asuka and Eugene did remind Sayaka that all production needed to be finished by February. They already had a tight schedule with Mr. Nozawa given the logistics of sending packages back and forth with his Chinese factory, and therefore an additional product line seemed nearly impossible to get out in time.

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Mr. Nozawa was right! Orders were now pouring in for the new lines of sandals, including a huge order from Mr. Saito. This was Sayaka’s main buyer, her “Walmart,” and she had to keep him happy. He thought a lower-priced line with similar quality standards would be a huge hit with his retail buyers, and he had received several pre-orders for the sandals just based upon the product descriptions he forwarded from Sayaka to his clients. She did not want to disappoint Mr. Saito and thought Mr. Nozawa could figure out a way to get her order in and make her deadlines.

Mr. Nozawa was very apologetic but also very clear—there was no way that he could, without having already run preproduction and testing, meet her deadlines, especially for the sandals that required studs. He did not carry this type of equipment in his factory, and he would have to order it and then train his employees on its usage. This would also negatively affect his manufacturing costs and therefore his price for making these sandals. Even without his factory being closed for 3 weeks for the New Year, he could not fulfill her needs. Mr. Nowaza did have an idea, though. He had several contacts in Bangladesh, and perhaps they could produce these sandals for her. He provided her with several e-mail addresses, names, and phone numbers and wished her the best.

Several days later, after numerous e-mails and phone calls by Karolina to manufacturers of sandals in Bangladesh both on Mr. Nowaza’s list as well as through her own research, a manufacturer was located. This firm already had stud technology on the premises, had access capacity to meet Sayaka’s production needs, and seem priced well within Sayaka’s per-unit cost. Eugene sent, after a nondisclosure and noncompete agreement were signed by the manufacturer, samples of their current sandal line so they would get an idea as to the quality of the sandal as well as the unique embellishments. Preproduction samples arrived back in New York at Sayaka’s a week later (early February) with a deadline for producing the units requested—Sayaka could meet Mr. Saito’s needs if she signed now!

Everyone in the shop examined the preproduction sandals, and they seemed fine. The workmanship was not as good as Mr. Nowaza’s, but the sandals seemed good enough given the lower price point for this product line. Sayaka quickly signed the papers and e-mailed them back to their new manufacturer and everyone breathed a major sigh of relief—but not for long.

It was early May, and Sayaka was on the phone with Mr. Saito and her voice was serious, and so was the speech coming out of the receiver. Even though Sayaka was speaking softly and deferentially in Japanese, everyone in the room noticed that something was wrong regardless of seeming pleasantries. Their discourse continued for almost an hour. Sayaka finally hung up the phone with a polite voice yet with trembling hands. With a very calm demeanor, Sayaka talked with her two full-time employees, Tsugumi and Asuka, very fast in Japanese. Then she turned to Karolina and Eugene, her part-time employees, and broke the news in English. “Saito will not order with us this year. He is very disappointed in the quality of our new product line. He has decided to discontinue our contract and seek other more quality-conscious suppliers.”

How did this happen? Sayaka and her staff were caught completely off guard, because all of the sandals were drop shipped to the buyers. She and her staff never saw what the sandals actually looked like as they arrived at the buyers, and therefore they had no idea what their buyers and the buyers’ customers were receiving. Saito’s returned sandals arrived a few days later, and Sayaka’s worst fears came to fruition. The sandals were very different from the preproduction sandals they had received from their new manufacturer in Bangladesh. The returned sandals were in very poor shape, used very cheap materials, and just did not fit the Sandals by Saya quality brand image. They certainly could not be sold (and now resold) under her company’s name, and she immediately called her Bangladesh manufacturer to find out why these sandals were substandard.

Speaking in very slow English, Sayaka explained the situation to the head of manufacturing at the Bangladesh plant. His response was curt and to the point. This was the level of quality that every sandal designer firm received from him given the price she had bargained for. His plant had met the prescribed specifications in the contract, and that was that. When Sayaka brought up the issue of the preproduction samples, the head of manufacturing reminded her that these samples had been developed before a price was agreed upon. If she had wanted that quality of sandal, then she should have agreed to the quoted price rather than bargain for a much lower price. From the manufacturer’s perspective, the quality of product fit that price point.

Sayaka then called her lawyer, who talked about such issues as misrepresentation and breach of contract. The bottom line was that Sayaka probably had a winning case, yet Sayaka was not hopeful, given her upfront out-of-pocket legal fees, that she would have to sue in a Bangladesh court, and that it might take anywhere from 6 months to a year to settle the case. More important, even winning a court settlement would not get her reputation back. She sat in her office wondering what she had done to get herself into this mess and how she was now going to get out of it.

Questions

1. Sand by Saya is a small five-person New York–based business, yet it has gone global. Describe its global operation and the underlying reasoning behind going global.

2. What is the current stage of corporate globalization of Sand by Saya?

3. How might international ethics apply in this case between Sayaka and her employees? Between Sayaka and her Bangladesh supplier?

4. How might cultural differences apply in this case between the Sayaka and her employees? Between Sayaka and her Bangladesh supplier?

5. Explain Sayaka’s choice of staff using home-, host-, or third-country employees. Does her choice seem to be polycentric, geocentric, or ethnocentric?

6. Sand by Saya used to import sandals and embellishments from factories in China and assembled them in its New York office, yet it later offshored manufacturing first to China and later to Bangladesh. What are the pros and cons of offshoring this type of work?

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7. What type of training might you recommend for Sayaka and her staff and why?

8. What are some global trends that may impact Sand by Saya’s human resources policies and operations?

References

(1) Anonymous. (2017, June 7). Sand by Saya. Yelp. Retrieved from https://www.yelp.com/biz/sand-by-saya-manhattan

(2) Anonymous. (n.d.). Sand by Saya. Hoovers. Retrieved June 7, 2017, from http://0-subscriber.hoovers.com.liucat. lib.liu.edu/H/company360/overview.html?companyId=6062371

(3) https://www.sandbysaya.com/pages/where-to-buy, June 7, 2017.

Case created by Herbert Sherman and Theodore Vallas, Department of Management Sciences, School of Business Brooklyn Campus, Long Island University

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CASE 16-2 THE GREAT SINGAPORE SALE AT JURONG POINT: FINDING AND RETAINING BARGAIN EMPLOYEES

Singapore is an island of 646 square kilometers, about the size of Chicago. It is located at one of the crossroads of the world. Singapore’s strategic position has helped it grow into a major center for trade, communications, and tourism. In just 150 years, Singapore has grown into a thriving center of commerce and industry.(1) Shopping is second to eating as a national pastime in Singapore. The island has an outstanding range of products that are available in shopping malls, department stores, boutiques, and bargain stores. Avid shoppers love the annual Great Singapore Sale, which usually falls in June to July. It has become a legendary annual event for both Singaporeans and visitors alike. Wide ranges of goods, including designer products, are marked down to present a mighty shopping extravaganza. The bargains are genuine and definitely give value for money. Shoppers can also expect private events that are hosted by the distinguished Sotheby’s, Christie’s, Tresors, and Glerums & Bonhams and feature exclusive items, such as works of art and jewelry. Antique rugs and carpets can also be bought at a cheaper price during the Great Singapore Sale.(2)

Jurong Point Shopping Centre (“Jurong Point”) is a leading suburban retail mall situated in the western part of Singapore. Strategically located next to Boon Lay MRT Station and Bus Interchange, Jurong Point serves as the gateway to the Jurong West industrial estate, Singapore’s key educational institutions, and the residential population in the west. Jurong Point in 2014 was the largest suburban mall in Singapore, housing about 450 retailers and showcasing their products and services to 6 million visitors a month. The revamped Jurong Point houses a range of retail zones—expanded and revamped Ginza Delights, Mongkok, Rackets & Track, Korean Street, Malaysia Boleh, Takeaway Alley, Gourmet Garden, and many more. In addition, there are also a 67-bay air-conditioned bus interchange, 11 civic community tenants, and to top it all off, a 610-unit condominium nestled above the retail podium.

Jointly owned by Guthrie GTS Limited and Lee Kim Tah Limited, Jurong Point is poised to take a leap forward to be the “heart of a vibrant community, abuzz with activity and a passion for life, offering WOW experiences for one and all.”(3) Jurong Point Shopping Centre has an HR staff of 3 employees who oversee 160 in-house staff, with an additional 2,500 employees working for the mall’s tenants. Singapore is seeing a growing number of mall projects as more foreign retailers enter the local market, with 13 new malls in the works and scheduled to open between 2014 and 2017. As competition heats up, existing retailers are seeking new and innovative ways to engage and retain their employees.(4)

HR at Jurong Point has launched a number of initiatives to attract the right talent into its fold. One of the most effective means has been the organization’s in-house staff referral program, shares Sally Yap, senior HR and administration manager at Jurong Point Shopping Centre. “They receive cash incentives if the employee is confirmed after three months.” Recruitment efforts do not stop at in-house and operational roles but extend to the tenants. The mall launched its own job portal in 2012 to help its tenants look for staff. It also runs regular recruitment fairs to attract suitable candidates. This additional help is especially valued by the mall’s smaller shops that have resource constraints, shares Yap.(5)

Jurong Point has also beefed up its service levels to keep its customers coming back for more. One of the ways it achieves this is by conducting training programs for its tenants. Employees from the mall’s various outlets are taken through bite-sized modules that focus on areas such as how to serve people better, personal grooming, and basic conversational English. The latter can be a barrier for some staff, so courses like these help them perform their daily tasks better, says Yap. “We treat our tenants like family. We won’t be strong if they are not strong.” The mall is also partnering with Singapore Polytechnic (SP) to offer a service training program for its retail and food-and-beverage staff. In this program, employees undergo 30 hours of training focusing on areas such as retail strategies and operations, visual merchandising, restaurant management and challenges, and menu design and pricing. Upon completion, course participants receive a joint certificate from SP and Jurong Point. “It’s a sweetener that will encourage them to stay at Jurong Point,” Yap says. “It adds value and enhances their employability.”(6)

Jurong Point is fully absorbing the cost of training and hopes to put 500 to 700 service staff through the program’s 2-year pilot phase. It plans to extend it to the mall’s full staff within the next 5 years. According to Yap, the customized training will focus on improving the productivity, emotional intelligence, and entrepreneurial mind-set of in-house and tenant staff.

Once employees are recruited and trained, an employee empowerment program sets the culture for the firm. A bottom-up team approach gives employees the freedom to work out the operational details with their teams. This makes decisions less hierarchical, and employees are also happier, as they are not micromanaged, says Yap. Employees are not limited to the roles that they initially signed up for. If an employee in the operations department is interested in a marketing role, they can get a transfer when the right opportunity arises. This flexibility is appreciated by the organization’s younger employees in particular. “They are more restless and don’t want to be stuck at the computer doing mundane things. We are very open to doing things differently,” says Yap.(7)

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The HR team at Jurong Point follows this ethos and takes a nontraditional approach to its role. It works very closely with other departments to push out new ideas and programs. It also serves as the umbrella HR organization for the mall’s tenants and is actively involved in ensuring a consistent culture across the property. Interaction between departments is also encouraged through activities such as overseas trips. “Every department is represented by a team member, and it allows employees to bond outside of work,” says Yap. Quarterly buffet lunches are organized to encourage employees to eat and mingle together while exchanging updates on the latest happenings. “We don’t work in silos and like to come together to support each other,” says Yap.(8)

Questions

1. Taubman Centers Inc. (TCO) is the owner, manager, and/or lessor of regional, super-regional, and outlet shopping centers in the United States and Asia. They are looking to extend their expertise to booming markets in China and South Korea. Assuming they wanted to break into the Singapore market, what international expansion strategies might they have relative to Jurong Point?

2. Assuming Taubman was to purchase Jurong Point, what legal and cultural issues must they address in order to facilitate a smooth ownership transition?

3. Given your answer to question 2, what global staffing issues would Taubman have to immediately address? Longer-term issues?

4. Human resources play a critical role in Jurong Point’s competitive strategy. What HR functions does the small HR staff focus on? Why?

5. Jurong Point’s HR staff outsources some of its functions to its tenants. What are those functions, and how does this HR strategy fit Jurong Point’s generic strategy?

6. Organizational culture seems to be a distinctive competency for Jurong Point. What is their culture, and what HR policies nurture that culture? How might this culture change if Jurong Point were acquired by Taubman?

References

(1) Marimari.com. (2014, August 4). Singapore: General information. Retrieved from http://www.marimari.com/content/singapore/general_info/main.html

(2) Marimari.com. (2014, August 4). Singapore: Shopping. Retrieved from http://www.marimari.com/content/singapore/shopping/main.html

(3) Jurong Point. (2014, August 4). Jurong Point Shopping Centre: Singapore’s largest suburban life style paradise! Retrieved from http://www.jurongpoint.com.sg/corporate/

(4) Ibid.

(5) Selvaretnam, S. V. (2014). At your service. HRM, 14(2), 17.

(6) Ibid, 18.

(7) Ibid, 19.

(8) Ibid.

Case created by Herbert Sherman and Theodore Vallas, Department of Management Sciences, School of Business Brooklyn Campus, Long Island University

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SKILL BUILDER 16-1 THE GLOBAL HRM ENVIRONMENT

Objective

To develop your global HRM awareness

Skills

The primary skills developed through this exercise are as follows:

1. HR management skills—Conceptual and design, and business skills

2. SHRM 2016 Curriculum Guidebook—Parts of multiple guides including Question 3—B: Employment Law, Question 4—F: Managing a Diverse Workforce, Question 5—I. Staffing: Recruitment and Selection, Question 6—L: Training and Development, Questions 7 and 8—K: Total Reward, Question 9—C: Ethics

Assignment

For this exercise, select a company that conducts business as an MNC or a transnational global corporation, preferably one you work or would like to work for. You will most likely need to conduct some research to get the answers to the questions that follow, such as visiting the company’s website and talking to HR professionals.

1. Explain the stage of corporate globalization.

2. List at least five countries it conducts business in and the trade agreements these countries participate in.

3. Identify some of the key differences in laws among the five countries.

4. Compare the company’s nine GLOBE dimensions for the five countries it does business in. Make a chart similar to Exhibit 16-3: GLOBE Dimensions.

5. Explain how it recruits and selects expatriate employees.

6. Describe how it trains its expatriates and families.

7. Discuss the method(s) of compensation for its expatriates.

8. Compare the compensation (pay, incentives, and benefits) among the five countries.

9. Does the company have any specific code of ethics for conducting business in other countries, and if so, describe the code.

Your professor may or may not require you to answer all nine questions. You may be asked to pass in this assignment, present your answers to the class, and/or discuss your answers in small groups or online.

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SKILL BUILDER 16-2 CULTURAL DIVERSITY AWARENESS

Objective

To develop your global cultural awareness

Skills

The primary skills developed through this exercise are as follows:

1. HR management skills—Human relations skills

2. SHRM 2016 Curriculum Guidebook—F: Managing a Diverse Workforce

Assignment

Procedure 1 (4–6 minutes)

You and your classmates will share your international experience and nationalities. Start with people who have lived in another country, then move to those who have visited another country, and follow with discussion of nationality (e.g., “I am half French and half Irish but have never been to either country”). The instructor or a recorder will write the countries on the board until several countries/nationalities are listed or the time is up.

Procedure 2 (10–30 minutes)

You and your classmates will share your knowledge of cultural differences between the country in which the course is being taught and those listed on the board. This is a good opportunity for international students and those who have visited other countries to share their experiences. You may also discuss cultural differences within the country.

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SKILL BUILDER 16-3 THE MOST IMPORTANT THINGS I GOT FROM THIS COURSE

Objective

To review your course learning, critical thinking, and skill development

Skills

The primary skills developed through this exercise are as follows:

1. HR management skills—Conceptual and design

2. SHRM 2016 Curriculum Guidebook—The guide will vary with student answers

Assignment

Think about and write/type the three or four most important things you learned or skills you developed through this course and how they are helping or will help you in your personal and/or professional life.

You may be asked to pass in this assignment, present your answers to the class, and/or discuss your answers in small groups or online.