HRMN 467 Assignment 1 Part 1
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IntroductiontoGlobalHR.pdf
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UMUC Resource, 2018
This text was adapted by Liliana Meneses under a Creative Commons
Attribution-NonCommercial-ShareAlike 3.0 License without attribution as
requested by the work’s original creator or licensee.
UMGC (2018). Introduction to Global HR.
Retrieved from: https://learn.umgc.edu/d2l/le/content/334779/viewContent/11902932/View
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GLOBAL HRM
We are quickly moving toward a global economy. While estimates vary widely, ap-
proximately 70 to 85 percent of the U.S. economy today is affected by international competition.
Recent popular books have suggested that many U.S. companies need to reassess their approach
to doing business overseas, particularly in the area of managing human resources. To a large
degree, the challenge of managing across borders boils down to the philosophies and systems we
use for managing people. We will observe that much of what is discussed throughout this text can
be applied to foreign operations, provided one is sensitive to the requirements of a particular
international setting.
1. Global Business
Global business operations can take several different forms. There are four basic types of
organizations and they differ in the degree to which international activities are separated to
respond to the local regions and integrated to achieve global efficiencies. The international
corporation is essentially a domestic firm that builds on its existing capabilities to penetrate
overseas markets. Companies such as Honda, General Electric, and Procter & Gamble used this
approach to gain access to Europe-they essentially adapted existing products for overseas
markets without changing much else about their normal operations.
A multinational corporation (MNC) is a more complex form that usually has fully
autonomous units operating in multiple countries. Shell, Philips, and ITT are three typical
MNCs. These companies have traditionally given their foreign subsidiaries a great deal of
latitude to address local issues such as consumer preferences, political pressures, and economic
trends in different regions of the world. Frequently these subsidiaries are run as independent
companies, without much integration. The global corporation, on the other hand, can be viewed
as a multinational firm that maintains control of operations back in the home office. Japanese
companies such as Matsushita and NEC, for example, tend to treat the world market as a unified
whole and try to combine activities in each country to maximize efficiency on a global scale.
These companies operate much like a domestic firm, except that they view the whole world as
their marketplace.
Finally, a transnational corporation attempts to achieve the local responsiveness of an
MNC while also achieving the efficiencies of a global firm. To balance this “global/local”
dilemma, a transnational uses a network structure that coordinates specialized facilities
positioned around the world. By using this flexible structure, a transnational provides autonomy
to independent country operations, but brings these separate activities together into an integrated
whole. For most companies, the transnational form represents an ideal, rather than a reality.
However, companies such as Ford, Unilever, and British Petroleum have made good progress in
restructuring operations to function more transnationally.
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The United States, of course, has no monopoly on international business. International
enterprises are found throughout the world. In fact, some European and Pacific Rim companies
have been conducting business on an international basis much longer than their U.S.
counterparts. The close proximity of European countries, for example) makes them likely
candidates for international trade. About half of the top fifty corporations in the world are
headquartered in countries outside the United States.
These companies are in a strong position to affect the world economy in the following ways: (1)
Production and distribution extend beyond national boundaries, making it easier to transfer
technology; (2) They have direct investments in many countries, affecting the balance of
payments; and (3) They have a political impact that leads to cooperation among countries and to
the breaking down of barriers of nationalism. Despite the successes of foreign competition, the
United States remains a formidable foe in international business; in virtually every major global
industry) American business continues to be a leader.
2. The Environment of International Business
Understanding the external environment is critical to the success of managing any international
business. The dramatic changes that have occurred in recent years in Russia and eastern Europe
will have their effects on HRM. Of probably even greater influence is the unification of markets
in the European Union (EU). In concept, the EU will turn Europe into a unified buying and
selling power that will compete as a major economic player with the United States and Japan.*
(*Originally, the EU was composed of twelve nations: Belgium, Denmark, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain , and the United Kingdom.
Recently, these countries voted to add Sweden, Finland, and Austria to their ranks.) Highlights in
HRM 1 describes some of the effects that unification may have on HRM practices within Europe.
Though there are many obstacles to complete unification, the goal of the EU is for goods,
services, capital, and human resources to flow across national borders in Europe in a manner
similar to the way they cross state lines in the United States. A similar transition will likely occur
within North America with the passage of NAFTA. In the years ahead we will have a unique
opportunity to observe the effects of globalization on HRM.
Certainly the economic environment and the physical environment (population, climate,
geography, and so on) are important factors in the making of managerial decisions. Of special
importance in international business, however is the cultural environment (communications,
religion, values and ideologies, education, social structure). Culture is an integrated phenomenon,
and by recognizing and accommodating taboos, rituals, attitudes toward time, social
stratification, kinship systems, and the many other components, managers will pave the way
toward greater harmony and achievement in the host country (the country in which an
international business operates).
Different cultural environments require different managerial behaviors. Strategies,
structures, and technologies that are appropriate in one cultural setting may lead to failure in
another. Managing relations between an organization and its cultural environment is thus a
matter of accurate perception, sound diagnosis, and appropriate adaptation. Several techniques
and approaches are available to assist employees in coping with demands imposed by the cultural
environment. Interestingly, companies in one location often push aside interorganizational
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differences to share experiences and to assist each other in resolving conflicts that arise with the
host country’s culture.
3. Domestic versus International HRM
The internationalization of U.S. corporations has grown at a faster pace than the
internationalization of HRM. Executives in the very best companies around the world still lament
that their HR policies have not kept pace with the demands of global competition. And
unfortunately, the academic community has not been a particularly good source for ready-made
answers to international HRM problems. While various journals on international business have
published articles on HRM over the years, it was not until 1990 that a journal specifically
devoted to this area--the International Journal of Human Resource Management--was started.
International HRM differs from domestic HRM in several ways. In the first place, it
necessarily places a greater emphasis on certain functions. As shown in Figure 19-4, functions
and activities of significance to international HRM include relocation, orientation, and translation
services to help employees adapt to a new and different environment outside their own country.
Assistance with taxation matters, banking, investment management, home rental while on
assignment, and coordination of home visits is also usually provided by the HR department.
The HR department in an overseas unit must be particularly responsive to the external
environment. The human consequences of failure in an international business are often more
severe than in a domestic business. International HR managers are also exposed to other risks.
Political events may result in such as the possibility of terrorist attacks on personnel. There is
also the need to change emphasis in HR operations as a foreign subsidiary matures. To their
success, most larger corporations have a full-time staff of HR managers devoted solely to
assisting globalization. McDonald’s, for example, has a team of five HR directors who travel as
internal consultants. Their job is to keep local directors in over fifty countries updated on
international concerns, policies, and programs. Other companies, such as Down Chemical, are
working rapidly to develop worldwide HR information systems that electronically link personnel
records and other forms of information.
4. International Staffing
International management poses many problems in addition to those faced by a domestic
operation. Because of geographic distance and a lack of close, day-to-day relationships with
headquarters in the home country, problems must often be resolved with little or no counsel or
assistance from others. It is essential, therefore, that special attention be given to the staffing
practices of overseas units.
There are three sources of employees with whom to staff international operations. First,
the company can send people from its home country. These employees are often referred to as
expatriates, or home-country nationals. Second, it can hire host-country nationals (natives of
the host country) to do the managing. Third, it can hire third-country nationals, natives of a
country other than the home country or the host country.
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Use of each of the three sources of overseas personnel involves certain advantages and
disadvantages. Some of the more important advantages are presented in Figure 19-5. Most
corporations use all three sources for staffing their multinational operations, although some
companies exhibit a distinct bias for one of the three sources. Over the years, and especially as
MNCs have evolved, many have steadily shifted to the use of local personnel. There are three
reasons for this trend: (1) Hiring local citizens is less costly because the company does not have
to worry about the costs of home leaves, transportation, and special schooling allowances. (2)
Since local governments usually want good jobs for their citizens, foreign employers may be
required to hire them. (3) Using local talent avoids the problem of employees having to adjust to
the culture.
At early stages of international expansion, many businesses prefer to use host-country
nationals, since these individuals can best help the company respond to local customs and
concerns. As the company’s international presence grows, home-country managers are frequently
expatriated to stabilize operational activities (particularly in less developed countries). At later
stages of internationalization, different companies use different staffing strategies; however, most
employ some combination of host-country, home-country, and third-country nationals in the top
management team.
Recently, there has been a trend away from putting expatriates in the top management
positions. In many cases, U.S. companies want to be viewed as true international citizens. To
avoid the strong influence of the home country, companies frequently change staffing policies to
replace U.S. expatriates with local managers. In Honeywell’s European Division, for example,
twelve of the top executive positions are held by non-Americans. Over the years, U.S.-based
companies, in particular, have tended to use more third-country expatriates. For example, when
Eastman Kodak recently put together a launch team to market its new Photo-CD line, the team
members were based in London, but the leader was from Belgium.
It should be recognized that while top managers may have preferences for one source of
employees over another, the host country may place pressures on them that restrict their choices.
Such pressure takes the form of sophisticated government persuasion through administrative or
legislative decrees to employ host-country individuals.
5. Recruitment
In general, employee recruitment in other countries is subject to more government regulation
than it is in the United States. Regulations range from those that cover procedures for recruiting
employees to those that govern the employment of foreign labor or require the employment of the
physically disabled, war veterans, or displaced persons. Many Central American countries, for
example, have stringent regulations about the number of foreigners that can be employed as a
percentage of the total workforce. Virtually all countries have work-permit or visa restrictions
that apply to foreigners. A work permit or work certificate is a document issued by a government
granting authority to a foreign individual to seek employment in that government’s country.
As in the United States, various methods are used to recruit employees from internal and
external sources. In any country, but particularly in the developing countries, a disadvantage of
using current employees as recruiters is that considerations of family, similar social status,
culture, or language are usually more important than qualifications for the vacant position. More
than one manager depending on employees as recruiters has filled a plant with relatives or people
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from the same hometown. In small towns much of the recruiting is done by word of mouth. Thus,
having locals involved is critical. Churches, unions, and community groups also play a role.
MNCs tend to use the same kinds of external recruitment sources as are used in their
home countries. While unskilled labor is readily available in the developing countries,
recruitment of skilled workers is more difficult. Many employers have learned that the best way
to find workers in these countries is through radio announcements because many people lack
sufficient reading or writing skills. The solution is to have a recruiter who uses local methods
within the context of the corporation's culture and needs or to put an expatriate in charge of
recruiting.
The laws of almost all countries require the employment of local people if adequate
numbers of skilled people are available. Thus, recruiting is limited to a restricted population.
Specific exceptions are granted (officially or unofficially) for contrary cases, as for Mexican
farmworkers in the United States and for Italian, Spanish, Greek, and Turkish workers in
Germany and the Benelux countries (i.e., Belgium, Netherlands, Luxembourg). Foreign workers
invited to come to perform needed labor are usually referred to as guest workers. The employ-
ment of nonnationals may involve lower direct labor costs, but indirect costs--language training,
health services, recruitment, transportation, and so on--may be substantial.
6. Selection
American corporations have had a very significant impact on foreign HRM practices. The
success of U.S.-based international businesses has caused many local firms and corporations
based in other countries to study the methods of the American firms. Employment selection
practices in U.S. corporations emphasize merit, with the best-qualified person getting the job. In
other countries, firms have tended to hire on the basis of family ties, social status, language, and
common origin. The candidate who satisfies these criteria gets the job even if otherwise
unqualified. There has been a growing realization among foreign organizations, however, that
greater attention must be given to hiring those most qualified.
In the industrialized countries, most businesses follow standard procedures of requesting
employee information, including work experiences, in interviews and on application forms.
Prospective employees may be given a physical examination and employment tests. In many
European countries an employer is forbidden to make unfavorable statements about former
employees. In Belgium and France, this prohibition was established by legislation; in Germany,
by court decision.
The Selection Process
The selection process should emphasize different employment factors, depending on the extent of
contact that one would have with the local culture and the degree to which the foreign
environment differs from the home environment. For example, if the job involves extensive
contacts with the community, as with a chief executive officer, this factor should be given
appropriate weight. The magnitude of differences between the political, legal, socioeconomic,
and cultural systems of the host country and those of the home country should also be assessed.
If a candidate for expatriation is willing to live and work in a foreign environment, an
indication of his or her tolerance of cultural differences should be obtained. On the other hand, if
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local nationals have the technical competence to carry out the job successfully, they should be
carefully considered for the job before the firm launches a search (at home) for a candidate to fill
the job. As stated previously, most corporations realize the advantages to be gained by staffing
foreign subsidiaries with host-country nationals wherever possible.
Selecting home-country and third-country nationals requires that more factors be
considered than in selecting host-country nationals. While the latter must of course possess
managerial abilities and the necessary technical skills, they have the advantage of familiarity with
the physical and cultural environment and the language of the host country. The discussion that
follows will focus on the selection of expatriate managers from the home country.
Selecting Expatriates
The problem facing many corporations is to find employees who can meet the demands of
working in a foreign environment. Unfortunately, the failure rate among expatriates has been
estimated to range from 25 to 50 percent, with an average cost per failure of $40,000 to
$250,000. Many of these causes extend beyond technical and managerial capabilities and include
personal and social issues as well. Interestingly, one of the biggest causes of failure is a spouse’s
inability to adjust to his or her new surroundings.
There are no screening devices to identify with certainty who will succeed and who will
fail. But there are requirements that one should meet to be considered for a managerial position
in an international location. Historically, expatriate selection decisions have been driven by an
overriding concern with technical competency. And this is an important criterion for success.
However, the ability to adapt to a different type of environment frequently overshadows technical
competence in the selection decision. Satisfactory adjustment depends on flexibility, emotional
maturity and stability, empathy for the culture, language and communication skills,
resourcefulness and initiative, and diplomatic skills. Companies such as Colgate-Palmolive,
Whirlpool, and Dow Chemical have identified a set of core skills that they view as critical for
success abroad and a set of augmented skills that help facilitate the efforts of expatriate
managers. These skills and their managerial implications are shown in Highlights in HRM 3. It is
worth noting that many of these skills are not significantly different from those required for
managerial success at home.
Women Going Abroad
Traditionally, companies have been hesitant to send women on overseas assignments. Executives
may either mistakenly assume that women do not want international assignments, or they assume
that host-country nationals are prejudiced against women. The reality is that women frequently
do want international assignments--at least at a rate equal to that of men. And while locals may
be prejudiced against women in their own country, they view women first as foreigners (gaijin in
Japanese) and only secondly as a women. Therefore, cultural barriers that typically constrain the
roles of women in a male-dominated society may not totally apply in the case of expatriates.
Importantly, in those cases where women have been given international assignments, they
generally have performed quite well. The success rate of female expatriates has been estimated to
be about 97 percent--a rate far superior to that of men. Ironically, women expatriates attribute at
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least part of their success to the fact that they are women. Because locals are aware of how
unusual it is for a women to be given a foreign assignment, they frequently assume that the
company would not have sent a woman unless she was the very best. In addition, because women
expatriates are novel (particularly in managerial positions), they are very visible and distinctive.
In many cases, they may even receive special treatment not given to their male colleagues.
Staffing Transnational Teams
In addition to focusing on individuals, it is also important to note that companies are increasingly
using transnational teams to conduct international business. Transnational teams are composed
of members from multiple nationalities working on projects that span multiple countries. These
teams are especially useful for performing tasks that the firm as a whole is not yet designed to
accomplish. For example, they may be used to transcend the existing organizational structure to
customize a strategy for different geographic regions, transfer technology from one part of the
world to another, and communicate between headquarters and subsidiaries in different countries.
The fundamental task in forming a transnational team is assembling the right composition
of people who can work together effectively to accomplish the goals of the team. Many
companies try to build variety into their teams in order to maximize responsiveness to the special
needs of different countries. For example, when Heineken formed a transnational team to
consolidate production facilities, it made certain that team members were drawn from each major
region within Europe. Team members tended to have specialized skills, and additional members
were added only if they offered some unique skill that added value to the team.
Selection Methods
The methods of selection most commonly used by corporations operating internationally are
interviews, assessment centers, and tests. While some companies interview only the candidate,
others interview both the candidate and the spouse, lending support to the fact that companies are
becoming increasingly aware of the significance of the spouse’s adjustment to a foreign
environment and the spouse’s contribution to managerial performance abroad. However, despite
the potential value of considering a spouse’s adjustment, the influence of such a factor over the
selection/expatriation decision raises some interesting issues about validity, fairness, and
discrimination. For example, if someone is denied an assignment because of concerns about their
spouse, there may be grounds for legal action. This is particularly true now that the Civil Rights
Act of 1991 makes it clear that U.S. laws apply to employees working for U.S. companies
overseas.
To ensure validity, selection interviews are best conducted by senior executives who have
had managerial experience in foreign countries. For example, at Mobil Oil the manager of
international placement and staffing and two assistants with foreign experience conduct a four-
hour interview with the candidate and the spouse to discuss all phases of the job. Emphasis is
placed on the culture and the adaptability demands made on the candidate and the spouse.
Assessment centers typically use individual and group exercises, individual interviews
with managers and/or psychologists, and some personality and mental ability tests to evaluate
candidates. Exercises that reflect situations characteristic of the potential host culture are usually
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included. The use of assessment centers has been shown to have high face validity and to be an
effective tool for selecting from a large pool of international managerial candidates.
A variety of measures, particularly personality inventories, can be used to determine an
individual’s ability to adapt to a different cultural environment. Such inventories as the
Minnesota Multiphasic Personality Inventory (MMPI), the Guilford-Zimmerman Temperament
Survey, and the California Test (the Indirect Scale for Ethnocentrism) are among those generally
recommended. This third test is probably the most promising of these measures, since data
suggest that high ethnocentrism correlates with overseas job failure.
The validity of any selection method is likely to be higher when it is based on a thorough
job analysis, and personality tests are no exception to this rule. In using personality inventories
and other types of personality tests, it is advisable to employ the services of a licensed
psychologist. One New York consulting firm has developed an assessment tool known as the
Overseas Assignment Inventory (OAI). Based on twelve years of research involving more than
7,000 cases, the OAI helps identify characteristics and attitudes that potential international
candidates should have. One test, the Modern Language Aptitude Test, predicts with considerable
accuracy a person’s chances of being able to learn a foreign language. Where it is essential that a
person learn a foreign language, employers find that it is important to have some assurance that
the prognosis is favorable.
7. Training and Development
Although companies try to recruit and select the very best people for international work, it is
often necessary to provide some type of training to achieve the desired level of performance.
Over time, given the velocity of change in an international setting, employees may also need to
upgrade their skills as they continue on the job. Such training may be provided within the
organization or outside in some type of educational setting.
Skills of the Global Manager
If businesses are to be managed effectively in an international setting, managers need to be
educated and trained in global management skills. A recent Korn/Ferry study of 1,500 CEOs and
senior managers found that one of the biggest concerns is that by the year 2000, there will be a
critical shortage of U.S. managers equipped to run global businesses. In this regard, Levi Strauss
has identified the following six attributes of global managers: (1) able to seize strategic
opportunities, (2) capable of managing highly decentralized organizations, (3) aware of global
issues, (4) sensitive to issues of diversity, (5) competent in interpersonal relations, and (6) skilled
in building community.
As noted throughout the book, it is particularly important for U.S. managers to learn to
work with others in teams. Unlike their counterparts in other parts of the world, U.S. managers
are frequently at a disadvantage because they lack experience in working with people from
different backgrounds. For transnational teams to perform well, team leaders need to perform
three primary roles. First, they must act as an integrator of the team, bringing people from
different functional backgrounds and cultures together. Second, they must be a catalyst for the
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team, encouraging individual team members to initiate and act on their own ideas, often across
dispersed geographical areas. Third, team leaders need to be an external advocate, representing
the team to persons outside the team and outside the organization.
Corporations that are serious about succeeding in global business are tackling these
problems head-on by providing intensive training. Companies such as Amoco, Bechtel, 3M,
Hyatt, Honeywell, and others with large international staffs prepare employees for overseas
assignments. (These firms and others, including Coca-Cola, Motorola, Chevron, and Mattel, also
orient employees who are still located in the United States but who deal in international markets.)
The biggest mistake managers can make is to assume that people are the same everywhere. An
organization that makes a concerted effort to ensure that its employees understand and respect
cultural differences will realize the impact of its effort on its sales, costs, and productivity.
Content of Training Programs
There are at least four essential elements of training and development programs that prepare
employees for working internationally: (1) language training, (2) cultural training, (3) career
development and mentoring, and (4) managing personal and family life.
Language Training
Communication with individuals who have a different language and a different cultural
orientation is much more difficult. Most executives agree that it is the biggest problem for the
foreign business traveler. Even with an interpreter, much is missed.
While foreign language fluency is important in all aspects of international business, only
a small percentage of Americans are skilled in a language other than English. Students who plan
careers in international business should start instruction in one or more foreign languages as early
as possible. Programs designed to train participants for international business, such as those
offered at the American Graduate School of International Management in Glendale, Arizona, and
the Global Management Program at the University of South Carolina, provide intensive training
in foreign languages.
Fortunately for most Americans, English is almost universally accepted as the primary
language for international business. Particularly in cases where there are many people from
different countries working together, English is usually the designated language for meetings and
formal discourse. Although English is a required subject in many foreign schools, students may
not learn to use it effectively. Many companies provide instruction in English for those who are
required to use English in their jobs. Where trainers use English to communicate information and
instructions about the job, they must recognize the discomfort that foreign trainees may
experience. Learning job skills in a second language is usually much more difficult than learning
them in one’s native tongue. In addition, certain concepts may not even exist in the foreign
trainees’ culture. The word “achievement,” for example, doesn’t exist in some Asian and African
languages. There is no direct translation for “management” in French.
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Learning the language is only part of communicating in another culture. One must also
learn how the people think and act in their relations with others. The following list illustrates the
complexities of the communication process in international business.
1. In England, to “table” a subject means to put it on the table for present discussion. In the
United States, it means to postpone discussion of a subject, perhaps indefinitely.
2. In America, information flows to a manager. In cultures where authority is centralized
(Europe and South America), the manager must take the initiative to seek out the information.
3. Getting straight to the point is uniquely Western. Europeans, Arabians, and many others
resent American directness in communication.
4. In Japan, there are sixteen ways to avoid saying “no.”
5. When something is “inconvenient” to the Chinese, it is most likely downright impossible.
6. In most foreign countries, expressions of anger are unacceptable in some places, public
display of anger is taboo.
7. The typical American must learn to treat silences as “communication spaces” and not
interrupt them.
8. In general, Americans must learn to avoid gesturing with the hand.
To understand the communication process, attention must be given to nonverbal
communication. In summary, when one leaves the United States, it is imperative to remember
that perfectly appropriate behavior in one country can lead to an embarrassing situation in
another.
Since factors other than language are also important, those working internationally need
to know as much as possible about (1) the place where they are going, (2) their own culture, and
(3) the history, values, and dynamics of their own organization.
Culture Training
Cross-cultural differences represent one of the most elusive aspects of international business.
Generally unaware of their own culture-conditioned behavior, most people tend to react
negatively to tastes and behavior that deviate from those of their own culture.
Managerial attitudes and behaviors are influenced, in large part, by the society in which
managers receive their education and training. Similarly, reactions of employees are the result of
cultural conditioning. Each culture has its expectations for the roles of managers and employees.
For example, what one culture encourages as participative management another might see as
managerial incompetence. Being successful as a manager depends on one's ability to understand
the way things are normally done and to recognize that changes cannot be made abruptly without
considerable resistance, and possibly antagonism, on the part of local nationals. Some of the
areas in which there are often significant variations among the different countries will be
examined briefly.
A wealth of data from cross-cultural studies reveals that nations tend to cluster according
to similarities in certain cultural dimensions such as work goals, values, needs, and job attitudes.
Using data from eight comprehensive studies of cultural differences, Ronen and Shenkar point
out that while evidence for the grouping of countries into Anglo, Germanic, Nordic, Latin
European, and Latin American clusters appears to be quite strong, clusters encompassing the Far
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Eastern and Arab countries are ill defined and require further research, as do clusters of countries
classified as independent. Many areas, such as Africa, have not been studied much at all.
Studying cultural differences can be helpful to managers in identifying and understanding
differences in work attitudes and motivation in other cultures. In Japan, for example, employees
are more likely to feel a strong loyalty to their company, although recent reports show that this
may be changing. Americans, when compared with the Japanese, may feel little loyalty to their
organization. On the other hand, the Latin American tends to work not for a company but for an
individual manager. Thus managers in Latin American countries can encourage performance only
by using personal influence and working through individual members of a group. In the United
States, competition has been the name of the game; in Japan, Taiwan, and other Asian countries,
cooperation is more the underlying philosophy.
One of the important dimensions of leadership is the degree to which managers invite
employee participation in decision making. While it is difficult to find hard data on employee
participation in various countries, careful observers report that American managers are about in
the middle on a continuum of autocratic to democratic decision-making styles. Scandinavian and
Australian managers also appear to be in the middle. South American and European managers,
especially those from France, Germany, and Italy, are toward the autocratic end of the
continuum; Japanese managers are at the most participatory end. Because Far Eastern cultures
and religions tend to emphasize harmony, group decision making predominates there.
Most research on motivation in work settings is about people in industrially advanced
nations. Those studies that have been done in third-world countries reveal that work motivation
can be attributed to culture strength (beliefs, values, and norms that have not been diluted by
other cultures) as well as to the level of industrialization. As Western values influence the culture
and as industrialization increases, worker motivation changes. Motivation is a dynamic process
and requires continued study in any setting. Understanding work motivation in a particular
culture is crucial to the overseas manager.
Career Development
International assignments provide some definite developmental and career advantages. For
example, working abroad tends to increase a person’s responsibilities and influence within the
corporation. In addition, it provides a person with a set of experiences that are uniquely
beneficial to both the individual and the firm. Most people who accept international assignments
do so in order to enhance their understanding of the global marketplace and to work on a project
they perceive as important to the organization.
However, in many cases, an overseas assignment is more risky for the average employee
than staying with the employer in the United States. Far too often, people who have been
assigned abroad return home after a few years to find that there is no position for them in the firm
and that they no longer know anyone who can help them. In a surprising number of cases,
returning expatriates experience reverse culture shock, and may have even more difficulty
adjusting to life at home than they did adjusting to their foreign assignment. Even in those cases
where employees are successfully repatriated, their companies often do not fully utilize the
knowledge, understanding, and skills they developed in overseas experiences. This hurts the
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employee, of course, but it may hurt equally the firm’s chance of using that learning to gain
competitive advantage.
To maximize the career benefits of a foreign assignment, two key questions about the
employer should be asked before accepting an overseas post: (1) Do the organization’s senior
executives view the firm’s international business as a critical part of their operation? (2) Within
top management, how many executives have a foreign-service assignment in their background,
and do they feel it important for one to have overseas experience? At Dow Chemical, for
example, fourteen of the firm’s twenty-two-member management committee, including the CEO,
have had overseas assignments. To ensure appropriate career development, Dow appoints what
employees refer to as a “godfather” for those who get overseas assignments. The godfather,
usually a high-level manager in the expatriate’s particular function, is the stateside contact for
information about organizational changes, job opportunities, and anything related to salary and
compensation. At Exxon, employees are given a general idea of what they can expect after an
overseas assignment even before they leave to assume it. With this orientation, they can make a
smooth transition and continue to enhance their careers.
Colgate-Palmolive and Ciba-Geigy make a special effort to keep in touch with expatriates
during the period that they are abroad. Colgate’s division executives and other corporate staff
members make frequent visits to international transferees. Ciba-Geigy provides a full repatriation
program for returning employees for the purpose of (1) reversing culture shock for the transferee
and his or her family and department, (2) smoothing the return to the home organization, and (3)
facilitating the readjustment process so that the company can benefit from the expatriate’s
knowledge and experience.
Not all companies have career development programs designed specifically for
repatriating employees. A study of 175 employers who belong to SHRM International reveals
that many U.S.-based companies are not aware of the need for such programs. Only 31 percent of
those included in the survey had formal programs. The reasons most frequently mentioned for
not having a program were (1) lack of expertise in establishing a program (47 percent), (2) cost
of the program (36 percent), and (3) no need perceived by top management for such a program
(35 percent). It is interesting to note that HR managers also did not perceive the need for training
and thus did not alert top managers to the problem.
Managing Personal and Family Life
As noted previously, one of the most frequent causes of an employee’s failure to complete an
international assignment is personal and family stress. Culture shock—a disorientation that
causes perpetual stress—is experienced by people who settle overseas for extended periods. The
stress is caused by hundreds of jarring and disorienting incidents such as being unable to
communicate, having trouble getting the telephone to work, being unable to read the street signs,
and a myriad of other everyday matters that are no problem at home. Soon minor frustrations
become catastrophic events, and one feels helpless and drained, emotionally and physically.
More and more employers are assisting two-career couples in finding suitable
employment in the same location. This assistance seems especially warranted when one
considers that the U.S. Department of Labor estimated that 81 percent of all marriages are dual
career. To accommodate dual-career partnerships, some employers are providing informal job
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help to the spouses of international transferees. However, other companies are establishing more
formal programs to assist expatriate couples. These include career and life planning counseling,
continuing education, intercompany networks to identify job openings in other companies, and
job-hunting/fact-finding trips. In some cases, a company may even create a job for the spouse--
though this is not widely practiced. The U.S. Chamber of Commerce, the U.S. State Department,
and various women’s organizations, such as Focus in London and Cairo, have initiated job
counseling, networking groups, and assistance programs in several business centers. The
available evidence suggests that while a spouse’s career may create some problems initially, in
the long run it actually may help ease an expatriate’s adjustment process.
Training Methods
There are a host of training methods available to prepare an individual for an international
assignment. Unfortunately, the overwhelming majority of companies only provide superficial
preparation for their employees. Lack of training is one of the principal causes of failure among
employees working internationally.
In many cases, the employee and his or her family can learn much about the host country
through books, lectures, and videotapes about the culture, geography, social and political history,
climate, food, and so on. The content is factual and the knowledge gained will at least help the
participants to have a better understanding of their assignments. Such minimal exposure,
however, does not fully prepare one for a foreign assignment. Training methods such as
sensitivity training, which focuses on learning at the affective level, may well be a powerful
technique in the reduction of ethnic prejudices. The Peace Corps, for example, uses sensitivity
training supplemented by field experiences. Field experiences may sometimes be obtained in
nearby “microcultures” where similarities exist.
Companies often send employees on temporary assignments—lasting, say, a few months-
-to encourage shared learning. These temporary assignments are probably too brief for
completely absorbing the nuances of a culture; however, companies such as Ferro and Dow use
them to help employees learn about new ideas and technologies in other regions.
In other instances employees are transferred for a much longer period of time. For
example, in 1985 Fuji-Xerox sent fifteen of its most experienced engineers from Tokyo to a
Xerox facility in Webster, New York. Over a five-year period, these engineers worked with a
team of American engineers to develop the “world” copier. By working together on an extended
basis, the U.S. and Japanese employees learned from each other--both the technical as well as the
cultural requirements necessary for a continued joint venture.
Deve1oping Local Resources
Apart from developing talent for overseas assignments, most companies have found that good
training programs also help them attract needed employees from the host countries. In less
developed countries especially, individuals are quite eager to receive the training they need to
improve their work skills. Oftentimes, however, a company’s human capital investment does not
pay off. It is very common, for example, that locally owned firms hire away those workers who
15
have been trained by the foreign-owned organizations. Managers of American subsidiaries in
Mexico have been heard to complain that “they must be training half the machinists in Mexico.”
Apprenticeship Training
On the whole, apprenticeship training in Europe is superior to that in the United States. In
Europe, the dual-track system of education directs a large number of youths into vocational
training. The German system of apprenticeship training, one of the best in Europe, provides
training for office and shop jobs under a three-way responsibility contract between the
apprentice, his or her parents, and the organization. At the conclusion of their training,
apprentices can work for any employer but generally receive seniority credit with the training
firm if they remain in it.
Management Development
One of the greatest contributions that the United States has made to work organizations is in
improving the competence of managers, a fact noted some years ago by Eugene de Facq, an
international management consultant. Americans have a facility for reasoning that is part of their
lives. They tend to make decisions on a rational basis and to have a better psychological
background for decision making. Decisions of European managers, by way of contrast, are
sometimes based on engineering-like and short-term thinking.
Foreign nationals have generally welcomed the type of training they have received
through management development programs offered by American organizations. Increasingly,
companies such as Motorola and Hewlett-Packard have entered into partnerships with university
executive education programs to customize training experiences to the specific needs of
expatriate managers and foreign nationals.
9. Performance Appraisal
As we noted earlier, individuals frequently accept international assignments because they know
that they can acquire skills and experiences that will make them more valuable to their
companies. Unfortunately, one of the biggest problems with managing these individuals is that it
is very difficult to evaluate their performance. Even the notion of performance evaluation is
indicative of a U.S. management style that focuses on the individual, which can cause problems
in other countries. For these reasons, performance appraisal problems may be among the biggest
reasons why failure rates among expatriates are so high and why international assignments can
actually derail an individual’s career rather than enhance it.
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Who Should Appraise Performance?
In many cases, an individual working internationally has at least two allegiances: one to his or
her home country (the office that made the assignment) and the other to the host country in which
the employee is currently working. Superiors in each location frequently have different
information about the employee's performance and may also have very different expectations
about what constitutes good performance.
Home-Country Evaluations
Domestic managers are frequently unable to understand expatriate experiences, value them, or
accurately measure their contribution to the organization. Geographical distances pose severe
communication problems for expatriates and home-country managers. Instead of touching base
regularly, there is a tendency for both expatriates and domestic managers to work on local issues
rather than coordinate across time zones and national borders. Information technology has
improved this situation, and it is far easier to communicate globally today than just a few years
ago. But even when expatriates contact their home-country offices, it is frequently not to
converse with their superiors. More likely they talk with peers and others throughout the
organization.
Host-Country Evaluations
Although local management may have the most accurate picture of an expatriate’s performance--
managers are in the best position to observe effective and ineffective behavior--there are
problems with using host-country evaluations. First, local cultures may influence one’s
perception of how well an individual is performing. As noted earlier, participative decision
making may be viewed either positively or negatively, depending on the culture. Such cultural
biases may not have any bearing on an individual’s true level of effectiveness. In addition, local
management frequently does not have enough perspective of the entire organization to know how
well an individual is truly contributing to the firm as a whole.
Given the pros and cons of home-country and host-country evaluations, most observers
agree that performance evaluations should try to balance the two sources of appraisal
information. Although host-country employees are in a good position to view day-to-day
activities, in many cases the individual is still formally tied to the home office. Promotions, pay,
and other administrative decisions are connected there, and as a consequence, the written
evaluation is usually handled by the home-country manager. Nevertheless, the appraisal should
be completed only after vital input has been gained from the host-country manager. Multiple
sources of appraisal information can be extremely valuable for providing independent points of
view--especially if someone is working as part of a team. If there is much concern about cultural
bias, it may be possible to have persons of the same nationality as the expatriate conduct the
appraisal.
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Organizational Learning
It is worth noting that bottom-line measures of performance may not fully convey the level of
learning gained from a foreign assignment. Yet learning may be among the very most important
reasons for sending an individual overseas, particularly at early stages of internationalization.
Even if superiors do acknowledge the level of learning, they frequently use it only as an excuse
for less-than-desired performance, rather than treating it as a valuable outcome in itself. What
they fail to recognize is that knowledge gained--if shared--can speed the adjustment process for
others. However, if the learning is not shared, then each new employee to a region may have to
go through the same cycle of adjustment.
Providing Feedback
One of the most interesting things about performance feedback in an international setting is that
it is clearly a two-way street. Although the home-country and host-country superiors may tell an
expatriate how well he or she is doing, it is also important for expatriates to provide feedback
regarding the support they are receiving, the obstacles they face, and the suggestions they have
about the assignment. More than in most any other job, expatriates are in the very best position to
evaluate their own performance.
In addition to ongoing feedback, an expatriate should have a debriefing interview
immediately upon returning home from an international assignment. These repatriation
interviews serve several purposes. First, they help an expatriate reestablish old ties with the home
organization and may prove to be important for setting new career paths. Second, the interview
can address technical issues related to the job assignment itself. Third, the interview may address
general issues regarding the company's overseas commitments, such as how relationships
between the home and host countries should be handled. Finally, the interview can be very useful
for documenting insights an individual has about the region. These insights can then be
incorporated into training programs for future expatriates.
9.Compensation
One of the most complex areas of international HRM is compensation. Different countries have
different norms for employee compensation. Managers should consider carefully the motivational
use of incentives and rewards in foreign countries. For Americans, while nonfinancial incentives
such as prestige, independence, and influence may be motivators, money is likely to be the
driving force. Other cultures are more likely to emphasize respect, family, job security, a
satisfying personal life, social acceptance, advancement, or power. Since there are many
alternatives to money, the rule is to match the reward with the values of the culture.
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In individualistic cultures, such as the United States, pay plans often focus on individual
performance and achievement. However, in collectively oriented cultures such as Japan and Tai-
wan, pay plans focus more on internal equity and personal needs.
In general, a guiding philosophy for designing pay systems might be “think globally and
act locally.” That is, executives should normally try to create a pay plan that supports the overall
strategic intent of the organization but provides enough flexibility to customize particular
policies and programs to meet the needs of employees in specific locations. After a brief
discussion of compensation practices for host-country employees and managers, we will focus on
the problems of compensating expatriates.
Compensation of Host-Country Employees
Host-country employees are generally paid on the basis of productivity, time spent on the job, or
a combination of these factors. In industrialized countries, pay is generally by the hour; in
developing countries, by the day. The piece-rate method is quite common. In some countries,
including Japan, seniority is an important element in determining employees’ pay rates. When
companies commence operations in a foreign country, they usually set their wage rates at or
slightly higher than the prevailing wage for local companies. Eventually, though, they are urged
to conform to local practices to avoid “upsetting” local compensation practices.
Employee benefits in other countries are frequently higher than those in the United States.
In France, for example, benefits are about 70 percent of wages and in Italy 92 percent, compared
with around 40 percent in the United States. Whereas in the United States most benefits are
awarded to employees by employers, in other industrialized countries most of them are legislated
or ordered by governments.
In Italy, Japan, and some other countries, it is customary to add semiannual or annual
lump-sum payments equal to one or two months’ pay. These payments are not considered profit
sharing but an integral part of the basic pay package. Profit sharing is legally required for certain
categories of industry in Mexico, Peru, Pakistan, India, and Egypt among the developing
countries and in France among the industrialized countries. Compensation patterns in eastern
Europe are in flux as these countries experiment with more-capitalistic systems.
Compensation of Host-Country Managers
In the past, remuneration of host-country managers has been ruled by local salary levels.
However, increased competition among different companies with subsidiaries in the same
country has led to a gradual upgrading of host-country managers' salaries. Overall, international
firms are moving toward a narrowing of the salary gap between the host-country manager and the
expatriate.
Compensation of Expatriate Managers
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Compensation plans for expatriate managers must be competitive, cost-effective, motivating, fair
and easy to understand, consistent with international financial management, easy to administer,
and simple to communicate. To be effective, an international compensation program must
1. Provide an incentive to leave the United States
2. Allow for maintaining an American standard of living
3. Facilitate reentry into the United States
4. Provide for the education of children
5. Allow for maintaining relationships with family, friends, and business associates
Expatriate compensation programs used by most U.S.-based international corporations
rest on the balance-sheet approach, a system designed to equalize the purchasing power of
employees at comparable position levels living overseas and in the home country and to provide
incentives to offset qualitative differences between assignment locations. The balance-sheet
approach comprises four elements:
1. Base pay, which is made essentially equal to pay of domestic counterparts in comparably
evaluated jobs
2. Differentials, which are given to offset the higher costs of overseas goods, services,
housing, and taxes
3. Incentives, which compensate the person for separation from family,
friends, and domestic support systems, usually 15 percent of base salary
4. Assistance programs, which cover added costs such as moving and storage, automobile,
and education expenses
The differentials element is intended to correct for the higher costs of overseas goods and
services so that in relation to their domestic peers expatriates neither gain purchasing power nor
lose it. It involves a myriad of calculations to arrive at a total differential figure. Fortunately,
employers do not have to do extensive research to find comparative data. They typically rely on
data published quarterly by the U.S. Department of State for use in establishing allowances to
compensate American civilian employees for costs and hardships related to assignments abroad.
The costs of utilizing expatriate managers are higher today than ever before. For example,
the employer’s typical first-year expenses of sending one U.S. executive to Great Britain, are
$200,000 above the base salary. Many U.S. corporations are sending fewer managers overseas,
often substituting host-country managers. Others are reducing allowances, benefits, and overseas
pay incentives. An increasing number of corporations employ foreign graduates from U.S.
M.B.A. programs. The many foreign graduate students enrolled in business programs at U.S.
universities are a pool of potential managers who combine the training and enculturation of an
American M.B.A. with their own native background.
10.International Organizations and Labor Relations
Labor relations in countries outside the United States differ significantly from those in the United
States. Differences exist not only in the collective bargaining process but also in the political and
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legal conditions. An American who works as an executive or as a manager overseas soon learns
the differences and learns how to operate effectively under conditions that are quite different
from those at home. These executives also learn that there may be no assistance of value from
headquarters and that they must rely heavily on local employees with expertise in labor-
management relations.
To acquaint the reader with the nature of labor-management relations in an international
setting, we will look at the role of unions in different countries, at international labor
organizations, and at the extent of labor participation in management.
The Role of Unions
The role of unions varies from country to country and depends on many factors, such as the level
of per capita labor income, mobility between management and labor, homogeneity of labor
(racial, religious, social class), and level of employment. These and other factors determine
whether the union will have the strength it needs to represent labor effectively. In countries with
relatively high unemployment, low pay levels, and no union funds for welfare, the union is
driven into alliance with other organizations: political party, church, or government. This is in
marked contrast to the United States, where the union selected by the majority of employees
bargains only with the employer, not with other institutions.
Even in the major industrial countries one finds national differences are great with respect
to (1) the level at which bargaining takes place (national, industry, or workplace), (2) the degree
of centralization of union-management relations, (3) the scope of bargaining, (4) the degree to
which government intervenes, and (5) the degree of unionization.
Labor relations in Europe differ from those in the United States in certain significant
characteristics:
1. In Europe, organizations typically negotiate the agreement with the union at the national
level through the employer association representing their particular industry, even when there
may be local within-company negotiations as well. This agreement establishes certain minimum
conditions of employment which frequently are augmented through negotiations with the union
at the company level.
2. Unions in many European countries have more political power than those in the United
States, with the result that when employers deal with the union they are, in effect, dealing
indirectly with the government. Unions are often allied with a particular political party, although
in some countries these alliances are more complex, with unions having predominant but not sole
representation with one party.
3. There is a greater tendency in Europe for salaried employees, including those at the
management level, to be unionized, quite often in a union of their own.
Like the United States, European countries are facing the reality of a developing global
economy. It has been increasingly evident in Europe that workers are less inclined to make
constant demands for higher wages. The trend has been to demand compensation in other ways--
through a proliferation of benefits, for example, or through greater participation in company
decision making. Various approaches to participation will be discussed later.
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Collective Bargaining in Other Countries
The collective bargaining process is typically carried out in companies operating in the United
States. When we look at other countries, we find that the whole process can vary widely,
especially with regard to the role that government plays. In the United Kingdom and France, for
example, government intervenes in all aspects of collective bargaining. Government involvement
is only natural where parts of industry are nationalized. Also, in countries where there is heavy
nationalization there is more likely to be acceptance of government involvement, even in the
nonnationalized companies. At Renault, the French government-owned automobile
manufacturer, unions make use of political pressures in their bargaining with managers, who are
essentially government employees. The resulting terms of agreement then set the standards for
other firms. In developing countries it is common for the government to have representatives
present during bargaining sessions to make sure that unions with relatively uneducated leaders
are not disadvantaged in bargaining with skilled management representatives.
International Labor Organizations
The fact that international corporations can choose the countries in which they wish to establish
subsidiaries generally results in the selection of those countries that have the most to offer.
Certainly inexpensive labor is a benefit that most strategists consider. By coordinating their
resources, including human resources, and their production facilities, companies operate from a
position of strength. International unions, such as the United Auto Workers, have found it
difficult to achieve a level of influence anywhere near that found within a particular industrial
nation. Those that have been successful operate in countries that are similar, such as the United
States and Canada.
The most active of the international union organizations has been the International
Confederation of Free Trade Unions (ICFTU), which has its headquarters in Brussels.
Cooperating with the ICFTU are some twenty International Trade Secretariats (ITSs), which are
really international federations of national trade unions operating in the same or related
industries. The significance of the ITSs from the point of view of management lies in the fact that
behind local unions may be the expertise and resources of an lTS. Another active and influential
organization is the International Labor Organization (ILO), a specialized agency of the United
Nations. It does considerable research on an international basis and endorses standards for
various working conditions, referred to as the International Labor Code. At various times and
places this code may be quoted to management as international labor standards to which
employers are expected to conform.
Labor Participation in Management
In many European countries, provisions for employee representation are established by law. An
employer may be legally required to provide for employee representation on safety and hygiene
committees, worker councils, or even on boards of directors. While their responsibilities vary
from country to country, worker councils basically provide a communication channel between
employers and workers. The legal codes that set forth the functions of worker councils in France
22
are very detailed. Councils are generally concerned with grievances, problems of individual
employees, internal regulations, and matters affecting employee welfare.
A higher form of worker participation in management is found in Germany, where
representation of labor on the board of directors of a company is required by law. This
arrangement is known as codetermination and often by its German word Mitbestimmung. Power
is generally left with the shareholders, and shareholders are generally assured the chairmanship.
Other European countries and Japan either have or are considering minority board participation.
Each of these differences makes managing human resources in an international context
more challenging. But the crux of the issue in designing HR systems is not choosing one
approach that will meet all the demands of international business. Instead, organizations facing
global competition must balance multiple approaches and make their policies flexible enough to
accommodate differences across national borders. Throughout this book we have noted that
different situations call for different approaches to managing people, and nowhere is this point
more clearly evident than in international HRM.
SUMMARY
There are four basic ways to organize for global competition: (1) The international corporation is
essentially a domestic firm that has leveraged its existing capabilities to penetrate overseas
markets; (2) the multinational corporation has fully autonomous units operating in multiple
countries in order to address local issues; (3) the global corporation has a worldview but controls
all international operations from its home office; and (4) the transnational corporation uses a
network structure to balance global and local concerns.
International HRM has greater emphasis on a number of responsibilities and functions
such as relocation, orientation, and translation services to help employees adapt to a new and
different environment outside their own country.
Because of the special demands made on managers in international assignments, many
factors must be considered in their selection and development. Though hiring host-country
nationals or third-country nationals automatically avoids many potential problems, expatriate
managers are preferable in some circumstances. The selection of the latter requires careful
evaluation of the personal characteristics of the candidate and his or her spouse.
Once an individual is selected, an intensive training and development program is essential
to qualify that person for the assignment. Wherever possible, development should extend beyond
information and orientation training to include sensitivity training and field experiences that will
enable the manager to understand cultural differences better. Those in charge of the international
program should provide the help needed to protect managers from career development risks,
reentry problems, culture shock, and terrorism.
Although home-country managers frequently have formal responsibility for individuals
on foreign assignment, they may not be able to fully understand expatriate experiences because
geographical distances pose severe communication problems. Host-country managers may be in
the best position to observe day-to-day performance but may be biased by cultural factors and
may not have a view of the organization as a whole. To balance the pros and cons of home-
country and host-country evaluations, performance evaluations should combine the two sources
of appraisal information.
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Compensation systems should support the overall strategic intent of the organization but
be customized for local conditions. For expatriates, in particular, compensation plans must
provide an incentive to leave the United States, enable maintenance of an equivalent standard of
living, facilitate repatriation, provide for the education of children, and make it possible to
maintain relationships with family, friends, and business associates.
In many European countries--Germany, for one--employee representation is established
by law. Organizations typically negotiate the agreement with the union at a national level,
frequently with government intervention. Since European unions have been in existence longer
than their U.S. counterparts, they have more legitimacy and much more political power. In
Europe, it is more likely for salaried employees and managers to be unionized.
