Easy EXAM Questions 2
Requirements are in the attachments.
4 questions. Each is about 1.5 pages. Total 6 pages.
* This is a take-home essay exam. Given that you have a week to complete the exam, I expect the answers to be comprehensive and logical.* Pick FOUR out of FIVE questions described below. Please circle below (at the right bottom corner – e.g.,
Q1), which questions you would like to be graded. If you complete all five and do not indicate clearly, I will take the lowest four scores.*Please do NOT change the format already embedded in this exam sheet (12-point font, Times New Roman, 1 inch margins on all sides, single-spacing. Your answer should be limited to maximum of 2 pages for each question.* Complete the following information FIRST:I have neither given nor received any aid from others during this exam.________________________________________Signature________________________________________Print Your Name_____________________ _____________For use by the ExaminersQ1 (25 points)Q2 (25 points)Q3 (25 points)Q4 (25 points)Q5 (25 points)Total (100 pts)
Q1: Please explain how various drivers to the internationalization of business influences human resource management practices for organizations. Describe in detail, five drivers and how these drivers influence specific human resource management practices (5 points each). Here, please specify which function of human resource management practices are being affected (job design, selection and recruitment, training & development, performance appraisal, or compensation and benefits).
Q2: Please describe in detail your understanding of what national culture is (10 points). Please try to be as comprehensive as possible (within the page limitation given). In addition, please tell me how national culture influences human resource management practices. Please use three specific examples (countries and specific HR functions) here (3 x 5 points).
Q3: Why is it important to understand the legal context of international business? Please describe how a national laws and regulations (5 points), supranational laws (5 points), and extraterritorial laws (5 points) influence human resource management practices. Again, please use specific examples for each.
Q4: Describe the nature of union membership around the world (5 points) and explain how various forms of union and non-union worker representation influences human resource management practices for multinational enterprises (10 points). In addition, explain how the existence of such labor organizations influences multinational enterprises (5 points).
Q5: What are the factors that makes up receptivity to international careers? Please select five factors that you consider most critical and explain why these factors influences receptivity to international career (4 points each). In addition, explain why receptivity to international careers is important for selection of candidate for international assignment (5 points).
IHRM Ch07 (student).pptx
International Employee Relations
Describe the nature of union membership around the world
Describe the evolution and make-up of global employee relations
Explain the relationship between unions and MNEs.
Describe the various strategies with which MNEs approach global employee relations
Describe the various approaches taken to non-union worker representation
Explain the litigation risks in international employee relations
Global Union Membership
Comparing union membership in different countries around the world is difficult
The strength of trade unions is usually measured by the size of union membership relative to the number of people eligible to join
In some countries where unions are strong, actual membership is small (e.g., Germany)
In other countries where unions may not be so strong, membership may actually be quite large (e.g., Mexico, Japan)
Absolute union membership is largest in countries like Sweden while absolute membership is lowest in countries like the US.
Evolution of International Labor Relations and Organizations
Some aspects of the early union movement developed as an international movement in the 19th century
International federations of labor divided into two factions at the conclusion of World War II: a Western-oriented group and a communist-supported group
There is strong interest today in the labor movement to cross borders and join together for the achievement of their common labor-related missions
Evolution of International Labor Relations and Organizations (cont.)
International Federations and Employee Relations in Organizations
World Federation of Trade Unions (WFTU)
Established in 1945 to bring together trade unions around the world in a single organization modeled after the UN
After a split in 1949, it is now primarily a federation of state-run unions from communist countries
International Confederation of Free Trade Unions (ICFTU)
An international confederation of national trade unions established in 1949 after a split with the WFTU
It grouped the major unions in the western world. The ICFTU was dissolved in 2006 to join the ITUC
Evolution of International Labor Relations and Organizations (cont.)
International Trade Union Confederation (ITUC)
An umbrella organization of national trade union federations (154 countries and 168 million workers) to defend workers’ rights in the era of globalization
Primary mission is the promotion and defense of workers’ rights and interests, through international cooperation between trade unions
European Trade Union Confederation (ETUC)
Established in 1973 to promote the interests of working people and to represent them in EU institutions
Prime objective is to promote the European Social Model by being actively involved in economic and social policy-making at the highest level, working with all EU institutions
Evolution of International Labor Relations and Organizations (cont.)
World Confederation of Labor (WCL)
An international trade union confederation inspired by the basic values of Christian humanism
Unites autonomous and democratic trade unions from countries all over the world, but mainly from Third World countries
Trade Union Advisory Committee (TUAC) to the OECD
An international trade union organization which has consultative status with the OECD
Interface for labor unions with the OECD and its various committees
Evolution of International Labor Relations and Organizations (cont.)
Global Union Federations (GUFs)
An international federation of national and regional trade unions representing specific industrial sectors and occupational groups
Most major unions are members of one or more GUFs
Unions and Multinational Enterprises
Locate work in countries with lower social protections (no unions or weak unions) and wages and benefits
Force workers facing competition from workers in other countries to “bid down” wages and benefits in order to keep their jobs
Unions view MNEs as being able to:
Restructure operations in countries where the costs of work force adjustments are lowest
Outlast workers in labor disputes because cash flows are maintained by operations in countries where there are no disputes
Unions and Multinational Enterprises
Barriers to Multinational Bargaining
Widely varying industrial relations laws and practices among countries
No central, international authority for global labor relations or labor law
Major economic and cultural differences among countries
Reluctance of national level union leaders
Absence of a centralized decision-making authority for unions
Lack of coordinated activities by unions across national boundaries
Differing national priorities
Employee unwillingness to subordinate local concerns to the concerns of foreign workers
Unions and Multinational Enterprises
Dealing with International Labor Organizations
What rules will apply to the resolution of disputes?
What rules will apply to the process of negotiations?
What law will cover the negotiations, e.g., between companies in two or more countries or between companies and their unions in multiple countries?
MNE AND LABOR RELATIONS
MNEs must share decision-making power with unions (and/or other representatives of employees, such as works councils) and, often, agencies of government, to greater or lesser
IHR departments within MNEs follow one of these seven approaches to labor/employee relations in the global context (see Exhibit 7.2)
EVOLUTION OF LABOR RELATIONS IN DIFFERENT COUNTRIES
In some countries (e.g., Canada, the United States, Germany, and Japan), the focus of union activity is basically economic
In other countries, particularly England, France, Italy, and those in Latin America, unions tend to be very political and generally achieve their objectives through political action rather than through direct collective bargaining
All of the questions in Exhibit 7.3 illustrate potentially significant differences between labor relations practices in different countries. This is just one of the many areas of complexity with which IHR managers and MNEs must learn to cope.
Non-Union Worker Representation
Have the right to receive information and to be consulted relative to decisions the firm makes that will have social and economic consequences for employees
The legal requirement that employees participate on supervisory boards or boards of directors
Requires management to obtain their agreement when major strategic decisions are to be made.
A third form of employee relations involves worker co-operatives
Litigation Risks in International Employee Relations
One of the greatest pressures for IHRM and MNEs is the increased possibility of litigation
In recent years there has been a significant upward trend toward holding MNEs accountable in various courts for their protections (or lack thereof) of employee and human rights in their foreign operations
MNEs are being sued in their home jurisdictions on the basis of allegations of breaches arising from the firm’s activities in foreign jurisdictions
__MACOSX/._IHRM Ch07 (student).pptx
IHRM Ch09 (student).pptx
SELECTION, AND REPATRIATION
Describe the broad issues involved in staffing subsidiaries with international assignees or expatriates
Describe the various issues involved in recruiting international assignees or expatriates
Describe the general process of selection of international assignees (IAs) for international assignments and the issue of failure in an IA assignment and reasons for it
Describe the characteristics of successful IA selection programs and exemplary practices
Explain the essential nature of repatriation
recruiting, selecting, and repatriating
Recruiting, selecting, and repatriating traditional PCNs, or expatriates
Recruiting involves searching for and attracting qualified applicants to create a pool of candidates for screening for possible hiring.
Selecting focuses on gathering and analyzing information about applicants in order to select the most suitable person or persons for the job.
Repatriating refers to the process of bringing international assignees (IAs) and their families back “home” from their foreign assignments.
Staffing With Expatriates or International Assignees: An Introduction
“Historically, the term “expatriate,” as used by companies, referred to employees who were relocated from the parent company or headquarters to foreign subsidiaries or “overseas” operations.
Exhibit 9.1 illustrates the four common options used by MNEs to staff their foreign operations.
Transfer of employment
Global employment company,
Dual employment are used less frequently
The International Recruitment Function
The process of searching for and attracting qualified applicants to create an applicant pool
Begins after an organization’s immediate and long-term labor needs are defined
Several questions should be addressed before the recruiting process starts
How many applicants does the organization need in the short term (less than a year) and the long term (one to three years)?
Does the organization need applicants with short-term commitment or long-term commitment?
Does the organization offer compensation packages below market average, at market average, or above market average?
Does the organization want applicants who are different from the company’s current employees?
What type of competencies does the organization need in new applicants?
The International Recruitment Function (cont.)
Process of finding candidates from geographically dispersed labor markets
Two broad recruiting sources available to organizations
Internal Recruiting Sources
Find candidates from within the organization
External Recruiting Sources
Find candidates from outside the organization
The International Recruitment Function (cont.)
Internal Recruiting Sources
Global Talent Management Inventories
In-house Global Leadership Programs
Internal Job Posting/Intranet
International Succession Planning Programs
The International Recruitment Function (cont.)
External Recruiting Sources
Company Internet Sites
Executive Search Firms
Professional Associations or Networks
Global Leadership Programs in Universities and Colleges
The International Recruitment Function (cont.)
Both external and internal recruiting sources may be used to find candidates for foreign assignments or HCNs
Attracting candidates to work internationally raises an important challenge for MNEs
How to find individuals interested in international work and those interested in permanent international careers
MNEs need to find candidates with high receptivity to international careers
Refers to an individual’s attitude toward international careers
The International Recruitment Function (cont.)
Rosemary Morlin (RM) – Change ‘Children education allowance’ to ‘Children’s educatoin allowance’
Receptivity to International Careers
Prior international experience
Opportunities for career support
Career and repatriation planning
Length of the foreign assignment
Overseas health care plan
Income tax equalization policy
Host country housing assistance
Spouse job assistance
Spouse’s willingness to travel overseas
Children education allowance
The International Recruitment Function (cont.)
An important challenge for MNEs, especially if recruiting candidates from an external labor market, is to develop an employer reputation that attracts candidates to the organization.
Employer reputation (also known as employer brand) refers to the evaluation by potential candidates of an organization as a desirable place of work and to seek international experience.
Another challenge for MNEs is to manage talent shortages that occur when employers cannot find workers with the needed competencies.
Talent shortages occur in countries during times of economic boom, as well as in times of economic uncertainty. This is more serious in in the service sector, especially when economic conditions improve
The International Selection Function
Refers to the process of gathering and analyzing information about applicants to select the most suitable person(s) for the job
The selection decision for international assignees is critically important. Errors in selection can have major negative impact on the success of overseas operations as well as on the careers of relocated managers.
The International Selection Function (cont.)
Successful expatriate experience
From the perspective of HQs, an important consideration in making good selection decisions is to fully understand the process of a “successful expatriate experience” (see Figure 9.1)
Shortage of Potential IAs
Increasingly the problem of selection of international assignees involves finding employees with the necessary skills to function successfully in the new “global” environment and convincing them to take on the assignment
The competency profile of an assignee is an important aspect of the selection decision making process. Exhibit 9.2 lists the skills that are being cited as important for the twenty-first-century expatriate manager
Rosemary Morlin (RM) – Insert em-rule after ‘Cultural requirements’ in A
The International Selection Function (cont.)
Critical Selection Criteria for International Assignments
Desire for Foreign Assignment
Candidate for International Assignment
The International Selection Function (cont.)
International Assignee Selection Methods
Job Posting and Bid
Mistakes and Failures
International Assignment Failures
Turnover upon repatriation
Types of Failures
Finishing the assignment but without cultural adaptation or acceptance of the local experience
Mistakes and Failures (cont.)
Definition of Expatriate Failure (See Exhibit 9.3)
Usually defined in terms of early return home or termination, but could also be defined in terms of;
Poor quality of performance in foreign assignment;
Employee not fully utilized during assignment;
Personal dissatisfaction with experience (by expatriate or family);
Lack of adjustment to local conditions;
No acceptance by local nationals;
Damage to overseas business relationships;
Mistakes and Failures (cont.)
Exhibit 9.3 Reasons for Expatriate Failure
Inability of spouse/partner to adjust or spouse/partner dissatisfaction
Inability of expatriate to adjust
Other family-related problems
Mistake in candidate/expatriate selection or just does not meet expectations
Expatriate’s personality or lack of emotional maturity
Expatriate’s inability to cope with larger responsibilities of overseas work
Expatriate’s lack of technical competence
Expatriate’s lack of motivation to work overseas
Dissatisfaction with quality of life in foreign assignment
Dissatisfaction with compensation and benefits
Inadequate cultural and language preparation
Inadequate support for IA and family while on overseas assignment
Sources adapted from National Foreign Trade Council (NFTC), Society for Human Resource Management (SHRM), and GMAC Global Relocation Services (GMAC GRS)/Windham International Global Relocation Trends Annual Survey Reports, 2000-2014; Stroh, L. K., Black, J. S., Mendenhall, M. E. and Gregersen, H. B. (2005), International Assignments: An Integration of Strategy, Research, & Practice, Mahwah, NJ/London: Erlbaum; and Tung, R. L. (1987), Expatriate assignments: Enhancing success and minimizing failure, Academy of Management Executive, 1 (2): 117–126.
Mistakes and Failures (cont.)
MNE mistakes in IA Selection:
Decision to relocate people made with too little lead time.
Assignees not provided with any or adequate cultural training or language training
Spouses/partners not included in the decision to relocate
Spouses/partners and children not included on pre-assignment visits
Spouses/partners and children not included in language lessons
Spouses/partners and children not included in cultural training
Spouses/partners do not receive counseling on jobs and other opportunities
Spouses have no home office contact
Mistakes and Failures (cont.)
Challenges to successful staffing with IAs:
Spouses or partners
Localization or “going native”
Costs of international assignments
Successful Expatriation and “Best Practices”
Staff subsidiaries, at least below the top management levels, with local nationals
The expensive international assignee and their not-infrequent failures in assignment, has led in recent years to greater reliance on local managers
TCNs tend to be used in areas where there is a shortage of people with the skills the firm needs or relatively free movement of people from one country to another
IHR managers must manage all forms of visas and immigration issues their firms confront or know where to get the necessary expertise to ensure the firm adheres to every nation’s laws and policies
At the end of the assignment, the IA
Repatriates to the home country
Redeployed to another country
Becomes localized in the host country
The move “back home” can be more difficult than the original move abroad
The IAs should stay with the organization long enough to share their experiences
Challenges on re-entry
Firms often fail to use the experience or knowledge gained internationally and most likely do not consider the career implications of this experience
The repatriate is reassigned to a position similar to the one he or she left two or three years before while their colleagues may have been promoted
Repatriates often find it difficult to relate the value of their global experience to managers with a domestic focus
Organizational Support for Repatriates
Rosemary Morlin (RM) – Change ‘relearn’ to ‘re-learn’.
Rosemary Morlin (RM) – There is no room on this slide for the copyright line.
Before the foreign assignment
Career planning needs to begin prior to an international assignment
Updated regularly during the assignment
Assignment needs to be part of a larger plan for the firm
During the foreign assignment
Regular communication between the home office and the expatriates.
Provided with opportunities to travel back to the home country to share experiences and knowledge
Assigned mentors to guide future career development
After the completion of the foreign assignment
Reverse cultural shock is often experienced by the IA
Relearn original culture and lifestyle
Prepare expatriates for the move back home
__MACOSX/._IHRM Ch09 (student).pptx
IHRM Ch01 (student).pptx
The Internationalization of Human Resource Management
Describe the many drivers of the internationalization of business
Describe the growth and spread of internationalization
Describe the different settings of international human resource management
Discuss the development of international human resource management
International Human Resource Management
The study and application of all human resource management activities as they impact the process of managing human resources in enterprises in the global environment.
The Drivers of the Internationalization of Business
Many enterprises, large and small, from all countries (developed economies and emerging) are already global—or are in the process of going global. There are many drivers of this internationalization of business
Search for new markets and reduced costs
Rapid and extensive global communication
Rapid development and transfer of new technology
Improving global education and a global talent pool
Increased travel and migration
Homogenization of culture and consumer demands
Trade between countries and within regions of the world is constantly increasing on a global basis, regionally, and thorough bilateral trade treaties between two countries
Decreased trade barriers and open markets have resulted in faster-growing economies throughout the world
Local and national governments support and encourage growing cross-border trade and foreign investment
The center of global trade is moving away from the developed countries of Western Europe, North America, and Asia Pacific to China, South Asia, and even Latin America, Eastern Europe, the Middle East, and Africa
SEARCH FOR NEW MARKETS AND REDUCED COSTS
Global competition comes from anywhere and everywhere
Competition forces organizations to search for new markets and revenues and lower costs, often best found in other countries
RAPID AND EXTENSIVE GLOBAL COMMUNICATION
The technological revolution (e.g., the internet) has made global communication much easier, quicker, cheaper, and more varied
Enables the spread of information (on a global basis) about
How people live
What they think
What they want
Creates global expectations for an ever-increasing quality of life
RAPID DEVELOPMENT AND TRANSFER OF NEW TECHNOLOGY
New technologies are developed around the world and are made available everywhere
New technologies make it possible to grow and manufacture products and deliver services with world-class quality and prices everywhere
Modern education and information technology allow every country to play a part in this global economy
IMPROVING GLOBAL EDUCATION AND A GLOBAL TALENT POOL
Improving education around the world is enabling firms everywhere to produce world-class products and services
No country or set of countries has an overriding advantage in the global economy
There is now a global talent pool that allows firms to operate almost anywhere in the world today
INCREASED TRAVEL AND MIGRATION
International travel has become easier, quicker, and cheaper
Hundreds of millions of people travel across national borders every year, for business and pleasure
They see how people in other countries live and experience goods and services that are available, all of which may be better than what is known at home
Millions of people move to other countries to work
Relocate, usually for a limited time
Fill jobs for which there are not enough local workers
Flee natural disasters or political conflicts
Firms operating internationally “export” their management philosophies and techniques to their foreign subsidiaries
Spread their knowledge and their company cultures everywhere
The World Wide Web and global transportation and logistics services have made it possible for large, as well as small, firms to conduct business virtually
If a business or an individual has a website, its business is global—anyone, from anywhere in the world who has access to the web has access to that website
HOMOGENIZATION OF CULTURE AND CONSUMER DEMANDS
Integration of cultures and values have led to common consumer demands for some types of products and services throughout the world
Distinct differences in culture across countries remain
Firms operating internationally need to be sensitive to these local differences
THE GROWTH AND SPREAD OF INTERNATIONALIZATION
Internationalization vs. globalization
Both terms refer to the ever-increasing interaction, interconnectedness, and integration of people, companies, cultures, and countries
The United Nations estimates (2010) that there are more than 82,000 large multinational enterprises (referred to by the UN as transnationals) with more than 870,000 affiliates that employ more than 77 million people worldwide (not counting sub-contractors and outsourcing).
THE GROWTH AND SPREAD OF INTERNATIONALIZATION (CONT.)
Business rankings found in publications such as Fortune Global 500 and Bloomberg Business Week focus on the largest global firms
Rankings focus on large, publicly traded firms
Findings illustrate that the global economy increasingly involves all kinds of products and services from around the world
IHRM plays an important role in attaining ranking
HR is called upon to recruit, select, develop, and retain work force talent that can achieve internationalization and global competitiveness
THE GROWTH AND SPREAD OF INTERNATIONALIZATION (CONT.)
The United Nations Conference on Trade and Development (UNCTAD) tracks the world’s Transnational Corporations (TNCs), analyzing how important these firms are to the global economy.
UNCTAD developed the TNI—Transnational Index, based on the composite of a firm’s average percentage of its foreign assets, foreign sales, and foreign employment to its total assets, sales, and employment, which identifies the relative importance of foreign business activity to the world’s largest firms.
See Exhibit 1.2
DIFFERENT SETTINGS OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT
Internationalization of HRM occurs in many different settings
HRM managers will confront at least some aspects of internationalization
“No place to hide” for HRM professionals
HRM professionals must become competent in IHRM issues in almost every job setting .
Four specific settings:
Headquarters of multinationals
Home country subsidiaries of foreign-owned firms
Government agencies and non-governmental organizations
HEADQUARTERS OF MULTINATIONALS
HRM professional work in the central or regional headquarters of the traditional MNE
This setting is most common for HR managers
Headquarters use parent company HRM policies/practices to its foreign subsidiaries or use those that are common in host countries
HOME COUNTRY SUBSIDIARIES OF FOREIGN-OWNED FIRMS
HR managers works in their home country but are employed by a local subsidiary of a foreign MNE
HR manager will have to integrate a local culture and organizational culture into the operations
Different communication styles, worker motivation philosophies, and organizational structures set in place by the parent company can cause major problems for the local HR manager
Confront many complexities of international business, particularly as they relate to IHRM
Referred to as “domestic multinationals”
Hiring—or recruiting—of immigrants can lead to many of the same internationalization concerns as those faced by traditional MNEs
Can establish small offices in other countries or recruit talent “overseas” in order to meet needs for specialized skills
GOVERNMENT AGENCIES AND NON-GOVERNMENTAL ORGANIZATIONS
Government agencies, their embassies, and the hundreds of non-governmental organizations (NGOs) are also global in scope
Send hundreds of people from parent countries to overseas operations
Employ many local and third country people to staff their activities around the globe
DEVELOPMENT OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT
HRM managers are being called upon to contribute increasing expertise to internationalization
Several IHRM-related questions need to be answered within each multinational entity
The success or failure of an enterprise is often a function of how it handles IHRM issues
International HRM vs. Domestic HRM
IHRM is responsible for more HR functions
IHRM is responsible for a broader expertise and perspective
IHRM is responsible for greater involvement in people’s lives
IHRM is responsible for dealing with and managing wider mix of employees
IHRM is responsible for more external factors and influences
IHRM is responsible for a greater level of risk
DEVELOPMENT OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT (CONT.)
Establishment of Global Professional in Human Resources (GPHR) certification by the Human Resource Certification Institute (HRCI) in 2003 was turning point in the professionalization of IHRM
Field continues to grow as a business discipline and academic field of study
As organizations have internationalized, so has IHRM
EVOLUTION OF THE INTERNATIONAL HUMAN RESOURCE MANAGEMENT PROFESSIONAL
__MACOSX/._IHRM Ch01 (student).pptx
IHRM Ch06 (student).pptx
International Employment Law, Labor Standards, and Ethics
Describe the three major legal systems and their key differences
Describe international labor law and standards and explain their impacts
List and describe the goals of the various international trade agreements
Describe how EU directives impact IHRM.
Identify the major issues impacting IHRM with regard to immigration/visas, personal data protection, anti-discrimination and harassment, termination and reduction in force, and intellectual property
Integrate existing employment laws and regulations, ethical standards, CSR, and corporate governance into IHRM policies and practices
The Institutional Legal Context of International Business
A constitution enunciates a few, long-standing, general principles to which everyone is subject. The law, then, is based on tradition as stated in the constitution
Civil code or law
Based on an all-inclusive system of written rules, of which there are three types: commercial, civil, and criminal
Most common of which is Islamic law, or Sharia, which refers to the “way” Muslims should live or the “path” they must follow
Establishment of Labor Standards By International Institutions
ILO Declaration on Fundamental Principles and Rights at Work
Freedom of association and the effective recognition of the right to collective bargaining;
elimination of all forms of forced or compulsory labor;
effective abolition of child labor;
elimination of discrimination in respect of employment and occupation.
Plays a relatively insignificant role in establishing employment laws or standards
Until recently, the UN only operated in this domain through agencies such as the International Labor Organization
International Labor Organization (ILO)
Primary goal is to improve working conditions, living standards, and the fair and equitable treatment of workers in all countries
The Organization of Economic Cooperation and Development(OECD)
Focus is broader than that of the ILO
Coordinates economic policy to address globalization issues through the promotion of economic, environmental, and social policy among its members
World Bank and International Monetary Fund (IMF)
Research on the relation between trade policy reform and labor markets (wages, unemployment, etc.)
Protection of “social safety nets” during structural reforms of economies
International trade organizations and treaties
World Trade Organization (WTO)
Replaced General Agreement on Tariffs and Trade (GATT)
Defers to ILO for pursuit of global labor standards
European Union (EU)
Social Charter sets out 12 principles of workers’ fundamental rights
Established the European Social Fund to promote worker mobility
Adoption of employment standards prevents locating of MNE in pursuit “softer” employment standards
International trade organizations and treaties (cont.)
North American Free Trade Agreement (NAFTA)
North American Agreement on Labor Cooperation (NAALC)
Bilateral agreements linking liberalization of trade and labor standards
Latin American and Asian trade agreements
A number of trade treaties have been organized and signed among countries in Latin America and Asia
Mercosur/Mercosul (e.g., Argentina)
The Andean Community (e.g., Bolivia)
The Association of South-East Asian Nations (ASEAN) (e.g., Cambodia)
Asia-Pacific Economic Cooperation (APEC) (e.g., Australia)
An emerging interdisciplinary field that refers to the processes of influencing foreign government policy and regulatory decisions that affect global trade
Trade negotiations (e.g., tariff and non-tariff trade barriers)
Impact of policy on decision-making (e.g., business interests)
Government regulations (e.g., affecting banking)
Legislation (e.g., anti-trust/competition law)
Standards (e.g., health, safety)
Industrial subsidies (e.g., agricultural, R&D)
Corporate conduct (e.g., corruption and bribery)
Global Legal/Regulatory Context of MNEs
What IHR Managers must do:
Comply with the laws of the countries in which it operates
Requires knowledge of local laws and regulations
Comply with international standards and supranational regulations
Requires knowledge of international labor standards and supranational binding regulations
Comply with the extraterritorial laws of its own country
Requires knowledge of extraterritorial laws
Global Legal/Regulatory Context of MNEs (cont.)
National Laws and Regulations
Employment laws vary significantly among countries
IHR should use local HR practitioners when possible
Laws that are either directly binding on member states or indirectly binding on employers
Directives seek to harmonize (reduce the legal diversity of) legislation among member states
Global Legal/Regulatory Context of MNEs (cont.)
Are laws that apply beyond the sovereign territory of the nation that enacted them
Apply only if they do not conflict with host county laws (foreign compulsion defense)
Examples of US Laws with Extraterritorial Intent
Title VII of the Civil Rights Act
Age Discrimination Act
Americans with Disabilities Act
Foreign Corrupt Practices Act
Global Legal/Regulatory Context of MNEs (cont.)
Integrated Enterprise Test
Interrelation of Operations
Common Ownership or Financial Control
Centralized Control of Labor Relations
Factors Determining Integration
Global Legal/Regulatory Context of MNEs (cont.)
Application of National Law to Local Foreign-owned Enterprises
Apply to local foreign-owned commercial enterprises
Friendship, commerce, and navigation (FCN) treaties make exceptions for key parent-country personnel of commercial entities
Foreign government-owned are exempted from national laws and civil claims
Immigration and Visas
Personal Data Privacy/Protection
Termination and Reduction in Force
Major Issues for IHRM
The International Framework of Ethics and Labor Standards
What is right and wrong in business conduct across borders and the impact of cultural (country and company) variances on ethical conduct of MNEs
International ethics deals with issues of corruption and bribery, and the various ethical dilemmas that MNEs face in the conduct of their international activities
International Ethics and Culture
Difficulties in understanding and working with another country’s practices are unavoidable
Differing country cultures view various employment and business conduct issues, such as bribery, gifts or favors, tax evasion, or child labor, differently
In the area of global ethics, even the best-informed, best-intentioned executives often have to rethink their assumptions
International Ethics and Culture (cont.)
Suggests that what is right is whatever a society defines as right
This definition may be at the individual (individual relativism) or at the societal (cultural relativism) level
Takes the view there is a single set of universal ethical standards or principles, which apply at all times, in all circumstances, in all cultures
Ethical Dilemmas in IHRM
An employment practice that is illegal or viewed as wrong in the home country but is legal or acceptable in the host country
Tolerating Cultural Diversity While Avoiding Moral Recklessness:
Why is the practice is acceptable in the host country but not at home?
Is it possible to conduct business successfully in the host country without undertaking the practice?
Is the practice a violation of a fundamental right?
Ethical Dilemmas in IHRM (cont.)
Assurance of Ethical Behavior and Conduct
Develop a clear set of core values as the basis for global policies and decision making
Train international employees to ask questions that will help them make business decisions that are both culturally sensitive and flexible within the context of those core values
Balance the need for policy with the need for flexibility or imagination
Corporate Social Responsibility (CSR), Corporate Governance, and Sustainability
Is the continuing commitment by business to:
Behave ethically and to contribute to the economic development of their communities
To improve the quality of life of their work forces, their families, as well as society at large
Makes MNEs aware that they produce both benefits and harm when operating globally
Can be viewed on a continuum of providing value from stockholder to external stakeholder
Corporate Social Responsibility (CSR), Corporate Governance, and Sustainability (cont.)
Umbrella of CSR Programs
Corporate Social Responsibility (CSR), Corporate Governance, and Sustainability (cont.)
Implementing a CSR Program
Develop a global CSR policy
Obtain a high level of support
Communicate CSR activities and policy
Create a CSR culture
Provide adequate training
Install reporting and advice mechanisms
Include CSR in management’s performance management
Lead by example
Corporate Social Responsibility (CSR), Corporate Governance, and Sustainability (cont.)
Refers to the basis upon which decisions are made in organizations
Involves the structure and relationships that determine how corporate objectives are met and regulated by the different performance monitoring mechanisms—the management team, board of directors, investors, and shareholders
Corporate Social Responsibility (CSR), Corporate Governance, and Sustainability (cont.)
Is defined as meeting the needs of the present without compromising the ability of future generations to meet their own
Is the decision fair to employees?
Is the decision sustainable in the long run?
Is the decision green in terms of the carbon footprint?
Is the decision-making process transparent and open for scrutiny?
Corporate Social Responsibility (CSR), Corporate Governance, and Sustainability (cont.)
Development of a Strategic Global Code of Conduct Policy
MNEs need to develop strategic policies to establish a code of conduct that defines acceptable behavior in terms of employment relations
Codes of conduct should be defended as the “company culture”
Remove the possibility of managers disagreeing with certain practices because they perceive them to go against local or national cultural practices
The decision to abide by certain labor standards is based on the defined company culture and policies, not on any given individual biases or preferences
__MACOSX/._IHRM Ch06 (student).pptx
IHRM Ch02 (student).pptx
Strategic International Human Resource Management
Describe the development of SIHRM and the process of international strategic management
Describe the evolution of the MNE in terms of various stages of internationalization and the methods firms use to enter international markets
Describe the process for developing MNE strategy and IHRM strategy and the relationship between the two
The extent and nature of research into the practice of SIHRM
Diamler-Benz loses $20 billion on chrysler
Strategic International Human Resource Management
SIHRM focuses on creating and implementing IHRM policies and practices that help achieve an MNE’s international strategy
Involves the strategic management of the IHR function and department itself
In an ideal world, a firm conducting international business will be actively engaged in strategic planning and strategic management process on a global basis (see Figure 2.1).
A strategy signals an organization’s commitment to specific markets, competitive approaches, and ways of operating
Evolution of the Multinational Enterprise
As a firm internationalizes, it moves through stages
In each stage it must make a choice of methods for market entry
With each stage, the degree of international activity increases and IHRM responsibilities become increasingly complex
Internationalization Process and Methods for Market Entry within the Five Stages
MNE Business Strategy
Provides a direction for managing various subsidiaries
Primarily guided by the extent of integration and/or local responsiveness required by the firm to manage its worldwide operations
Defined as the extent to which the subsidiaries and the headquarters develop a unified whole
Defined as the extent to which subsidiaries respond to local differences
Why do you need to be “integrative” or “locally responsive”?
Types of strategic business approaches
|Global Unified strategy implemented for all countries regardless of their cultural and national differences||Transnational Maximizes responsiveness and integration by being global and multi-domestic at the same time|
|International Simplest business strategy, requiring limited local responsiveness and limited integration||Multi-Domestic Responds to the high needs, values, and demands of a local market|
GE, Toyota, Total, Royall Dutch Shell, ExxonMobile, Vodafone Group
GE, Toyota, Total, Royall Dutch Shell, ExxonMobile, Vodafone Group successfully transnational strategy as right now
Headquarters’ International Orientation and MNE Business Strategy
Poly-centrism or Regio-centrism：多中心主义或区域中心主义
The Orientation of Senior Executives
Degree of domination of the MNE headquarters over subsidiary management and HR practices as compared to the degree of localization of subsidiary practices
The Orientation of Senior Executives
Managers use a home-country standard as a reference in managing international activities
Nissan (Nissan’s earliest exports were cars and trucks that had been designed for mild Japanese winters; the vehicles were difficult to start in many parts of the United States during the cold winter months)
Polycentrism or Regiocentrism
Host-country cultures and practices assume increased salience显著 for managers
Managers’ outlook is one of creating a global network among various elements of the global organization
Types of Staffing Policy
Key management positions filled by parent-country nationals
Host country nationals manage subsidiaries; parent company nationals hold key headquarter positions
Seek best people regardless of nationality
IHRM Strategy Formulation
Central trade-off pits pressures for centralization集权 against the need for decentralization下放
Centralization is very similar to the notion of integration 集成/综合
Decentralization is similar to the notion of local responsiveness 响应能力
Use of parent-company policies and procedures throughout a firm’s global operations
Cultural and institutional differences play a role in the matter
IHRM Strategies and MNE Business Strategies
The overall effectiveness of an IHRM strategy is contingent on the context in which it is used
An IHRM strategy’s effect on organizational effectiveness is always dependent on how well the IHRM strategy fits with, and supports, a MNE’s business strategy
IHRM Strategies and MNE Business Strategies (cont.)
|Receptive Each subsidiary is tightly connected with headquarters with very little freedom to adapt to the local conditions.||Active A MNE with this type of IHRM strategy is more likely have a transition HR function with considerably more control over HR decision making than autonomous IHRM strategy but less than in a receptive IHRM strategy.|
|Autonomous Each subsidiary has the freedom to develop and implement its own IHRM policies and practices that support local rules and conditions|
Research on SIHRM
Existing Research on SIHRM
Local culture and national managerial orientation influence the nature of HR practice
The degree of global mindset influences the nature of an MNE’s global strategy
Global strategy influences the degree of global focus in the HR strategy
Appropriate global HR practices are associated with better organizational performance
Models/Frameworks for Understanding SIHRM
In an effort to understand the role of IHRM in MNEs, scholars and researchers have suggested several SIHRM models or frameworks.
The model has five parts:
Strategic MNE components
IHRM issues, functions, and policies and practices
MNE concerns and goals
__MACOSX/._IHRM Ch02 (student).pptx
IHRM Ch05 (student).pptx
International Human Resources Management and Culture
Define and explain the concept of culture
Explain the importance of culture in IB
Describe the basic research findings of G. Hofstede and F. Trompenaars
Explain the importance of culture to IHRM
Describe the importance of culture and the difficulties encountered in IHRM research
The Nature and Importance of Culture: An Introduction
Every country has at least some variances from all others, e.g., history, government, and laws.
The more countries with which an MNE interacts, the more complex and difficult conducting business becomes
One central cause of difficulties has to do with the critical nature of the differences between the national cultures of these various countries
A Definition and Description of Culture
Culture is the characteristic way of behaving and believing that a group of people have developed over time and share in common
A group’s culture:
Gives a sense of who they are, of belonging, of how they should behave
Provides the capacity to adapt to circumstances and to transmit this knowledge to succeeding generations
Affects every aspect of the management process
Understanding culture as layers of meaning
Surface or explicit culture (the outside layer): things that can be readily observed, such as dress, food and ways of eating, architecture建筑, and customs习俗
Hidden culture (the middle layer): values, religions, and philosophies about things like child rearing, views of what is right and wrong
Invisible or implicit culture (the core): the culture’s universal truths, the bases for all of a culture’s values and beliefs
The important in developing what is referred to as “cultural competency.”
See Figure 5.2
Understanding culture as layers of meaning
Increasing Transnational Competence
Country and Regional Cultures
An increasing number of researchers are assessing whether or not the wide variety of cultures around the world can be reduced to a more limited set of cultures with similar characteristics
Research of Geert Hofstede
Fons Trompenaars and Charles Hampden-Turner
Global Leadership and Organizational Behavior Effectiveness (GLOBE): Cultural Dimensions
The Research of Geert Hofstede
Power distance Individualism or collectivism
Individualism or Collectivism
Uncertainty avoidance or tolerance for ambiguity
Masculinity versus femininity
Long- term versus short-term orientation
Pragmatic versus normative orientation
Indulgence versus restraint
Countries consistently showed similarities and difference based on these characteristics
MNEs should not attempt to impose parent country managerial practices and organizational systems on their foreign subsidiaries
The Research of Fons Trompenaars and Charles Hampden-Turner
Universalism versus particularism (emphasis on rules versus relationships)
Individualism versus communitarianism (the individual versus the
Neutral versus emotional (range of emotions expressed)
Specific versus diffuse (range of involvement with other people)
The Research of Fons Trompenaars and Charles Hampden-Turner (Cont)
Achievement versus Ascription. (Basis for according status to other people).
Sequential time versus synchronous time (how people manage time)
Internal direction versus outer direction (how people relate to their environment
Persons act and respond as their cultures have taught and influenced them to behave
Global Leadership and Organizational Behavior Effectiveness (GLOBE): Cultural Dimensions
Since the reporting of these studies by Hofstede and Trompenaars and Charles Hampden-Turner, other researchers and consultants have reported similar findings or developed alternative ways to categorize cultural values.
The Global Leadership and Organizational Behavior Effectiveness (GLOBE) research project is an example.
See Exhibit 5.3
Country Cultural Clusters
The results of several studies suggest groupings of the following countries, based on their cultural similarities:
Anglo: Australia, Canada, Ireland, New Zealand, South Africa, United Kingdom, United States
Arab: Abu-Dhabi, Bahrain, Kuwait, Oman, Saudi Arabia, United Arab Emirates
Far Eastern: Hong Kong, China, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Taiwan, Thailand
Germanic: Austria, Germany, Switzerland
Latin American: Argentina, Chile, Colombia, Mexico, Peru, Venezuela
Latin European: Belgium, France, Italy, Portugal, Spain
Near Eastern: Greece, Iran, Turkey
Nordic: Denmark, Finland, Norway, Sweden
Independent: Brazil, India, Israel, Japan, South Korea
The Observations of an Experienced practitioner
Gesteland observed that variances in four general patterns of cross-cultural business behavior provide critical help in understanding international marketing, negotiating, and managing
Deal focus versus relationship focus
Informal versus formal cultures
Rigid-time (monochromic) versus fluid-time (polychromic) cultures
Expressive versus reserved cultures
Dangers of Oversimplification
Concern that the focus on country differences falls short on two levels:
It provides little explanation of within-group differences, i.e., it treats countries or cultures as homogeneous wholes, with everyone within the country or culture being alike
It provides little understanding of how cultures change, i.e., it tends to treat cultures as a given—impermeable and static
Country Culture Versus MNE Culture
Countries develop unique patterns of
For many firms, these organizational values take precedence over country cultures, particularly when there is a conflict between the two
Cultural and Globalization
The strong influence exerted by countries’ cultural values and practices on a MNE’s business and HR practices
Adoption of similar “best practices”
The intermixing of cultural systems between different countries
The optimal trade-off between globalization and localization
Research in IHRM
Criticisms of IHRM Research
Lacks analytical rigor
Relies too heavily on description of organizational practices and not critically evaluating such practices
Suffers from expediency in research design and planning
Lacks the sustained effort needed to develop case material and other types of longitudinal studies
Research in IHRM
Factors Limiting IHRM Research
Expense: multinational or cross-border or cross-cultural research is expensive
Time and travel: requires more time and travel than domestic research
Knowledge: requires skills in multiple languages and sensitivity to multiple cultures
Cooperation: requires more cooperation among numerous individuals from different countries, companies and, often, governments
Research in IHRM
Problems Frustrating IHRM Researchers:
Inconsistent/vague definitions of terms such as culture
Inaccurate translation of key terminology
Difficulties in obtaining representative or equivalent samples of research subjects
Difficulties in isolating variables of interest in different cultures
Difficulty in isolating cultural differences—versus identifying cultural characteristics common across varying cultures—amid varying national economic and political realities
Forms of IHRM Research
Basic Forms of Cross-Cultural Research
Specific Difficulties of IHR Research
Focus of Research
Emic: identifying culture-specific aspects
Etic: identifying culture-common aspects
Metric (stimulus) equivalence
Subjectivity of the research topic and concept
Factors other than culture
Impact of Culture on IHRM
Situations in which particular cultural influences on IHRM are important include:
Recruiting and hiring practices
Building business relationships
The role and use of multiple languages and communication
Perceptions of organizational justice
Performance evaluations and feedback
Management and leadership development
Development of a global mindset
Varying perspectives on careers across cultures
“International Human Resource Management, 5e by Ibraiz Tarique, Dennis Briscoe and Randall Schuler has long been regarded as one of leading resources in the field. This new edition reinforces that reputation and brings the content up to date with contemporary trends in research and practice. Written by three of the leading scholars in the area, the volume is distinguished by its combination of insights from academic research and rich insights into IHRM in practice. It is comprehensive, accessible and authoritative, and should be required reading for any student or reflective practitioner of IHRM.”
–David Collings, Dublin City University, Ireland, and Senior Editor of the Journal of World Business
“This excellent book, a leader in the field, comprehensively covers the field of International Human Resource Management and focuses on the HRM issues and challenges facing firms as they internationalise their business operations. Each chapter provides a clear exposition and critique of the specialist literature, and case studies are used to provide rich insights into current practice. The combination of sound theory and examples from practice around the globe provides an important and up to date contribution to the field. The book is well geared to students interested in the international dimensions of HRM, and the excellent links between international strategy and HRM give students an in depth knowledge of the people management challenges faced by MNC managers in a globalised business world.” –Hugh Scullion, Established Professor of International Management, Cairnes School of Business and Economics,
NUI Galway, Ireland
“This edition of the book does a wonderful job of framing IHRM issues in the evolving, strategic context of running an international business. Pedagogically, the many practical applications and graphical presentations beautifully illustrate concepts and frameworks that will help readers grasp the rich content that the book provides.”
–Wayne F. Cascio, Robert H. Reynolds Chair in Global Leadership, University of Colorado Denver, USA, and Senior Editor of the Journal of World Business
International Human Resource Management Fifth edition
Thoroughly updated and expanded, the fifth edition of International Human Resource Management focuses on international human resource management (IHRM) within multinational enterprises (MNEs). The book has been designed to lead readers through all of the key topics of IHRM in a highly engaging and approachable way. In addition to the key topics and rich pedagogy students have come to expect, chapters have been updated, including an expanded chapter on Comparative and National Culture. Uncovering precisely why IHRM is important for success in international business, and how IHRM policies and practices function within the multinational enterprise, this comprehensive textbook provides an outstanding foundation for understanding the theory and practice of IHRM. It is essential reading for all students, instructors, and IHRM professionals.
Ibraiz Tarique is an Associate Professor of Management and Director of Global HR programs at the Lubin School of Business, at Pace University in New York City, USA. He teaches at the executive, graduate, and undergraduate levels.
Dennis Briscoe is Professor Emeritus of International Human Resource Management at the University of San Diego, USA, and owner/consultant at International Management and Personnel Systems (IMAPS).
Randall Schuler is Distinguished Professor of Strategic International Human Resources at the School of Management and Labor Relations at Rutgers University, USA, and Research Professor at the Lancaster University School of Management, UK, as well as the University of Zurich, Switzerland.
Routledge Global Human Resource Management Series Edited by Randall S. Schuler, Susan E. Jackson, Paul Sparrow and Michael Poole
Routledge Global Human Resource Management is an important new series that examines human resources in its global context. The series is organized into three strands: content and issues in global human resource management (HRM); specific HR functions in a global context; and comparative HRM. Authored by some of the world’s leading authorities on HRM, each book in the series aims to give readers comprehensive, in-depth and accessible texts that combine essential theory and best practice. Topics covered include cross-border alliances, global leadership, global legal systems, HRM in Asia, Africa, and the Americas, industrial relations, and global staffing.
Managing Human Resources in Cross-Border Alliances Randall S. Schuler, Susan E. Jackson and Yadong Luo
Managing Human Resources in Africa Edited by Ken N. Kamoche, Yaw A. Debrah, Frank M. Horwitz and Gerry Nkombo Muuka
Globalizing Human Resource Management Paul Sparrow, Chris Brewster and Hilary Harris
Managing Human Resources in Asia-Pacific Edited by Pawan S. Budhwar
International Human Resource Management, Second edition Policy and practice for the global enterprise Dennis R. Briscoe and Randall S. Schuler
Managing Human Resources in Latin America An agenda for international leaders Edited by Marta M. Elvira and Anabella Davila
Global Staffing Edited by Hugh Scullion and David G. Collings
Managing Human Resources in Europe A thematic approach Edited by Henrik Holt Larsen and Wolfgang Mayrhofer
Managing Human Resources in the Middle-East Edited by Pawan S. Budhwar and Kamel Mellahi
Managing Global Legal Systems International employment regulation and competitive advantage Gary W. Florkowski
Global Industrial Relations Edited by Michael J. Morley, Patrick Gunnigle and David G. Collings
Managing Human Resources in North America Current issues and perspectives Edited by Steve Werner
Global Leadership Research, Practice, Development Edited by Mark Mendenhall, Gary Oddou, Allan Bird and Martha Maznevski
Global Compensation Foundations and Perspectives Edited by Luis Gomez-Mejia and Steve Werner
Performance Management Systems: A Global Perspective Edited by Arup Varma, Pawan S. Budhwar and Angelo DeNisi
Managing Human Resources in Central and Eastern Europe Edited by Michael J. Morley, Noreen Heraty and Snejina Michailova
Global Careers Michael Dickmann and Yehuda Baruch
Global Leadership (2nd edition) Research, Practice, Development Mark E. Mendenhall, Joyce S. Osland, Allan Bird, Gary Oddou, Martha L. Maznevski, Michael J. Stevens, Günter K. Stahl
Manager-Subordinate Trust A Global Perspective Edited by Pablo Cardona and Michael J. Morley
Managing Human Resources in Asia-Pacific (2nd edition) Edited by Arup Varma and Pawan S. Budhwar
Human Resource Management and the Institutional Perspective Edited by Geoffrey Wood, Chris Brewster, and Michael Brookes
International Human Resource Management (5th edition) Policies and Practices for Multinational Enterprises Ibraiz Tarique, Dennis Briscoe, and Randall Schuler
International Human Resource Management
Policies and Practices for Multinational Enterprises
Ibraiz Tarique Dennis R. Briscoe Randall S. Schuler
First published 1995 by Prentice Hall Fifth edition published 2016 by Routledge 711 Third Avenue, New York, NY 10017
and by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 1995, 2004, 2008, 2012, 2016 Taylor & Francis
The right of Ibraiz Tarique, Dennis R. Briscoe, and Randall S. Schuler to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.
[First edition published by Prentice Hall 1995]
[Fourth edition published by Routledge 2011]
Library of Congress Cataloguing-in-Publication Data
Briscoe, Dennis R., 1945– International human resource management : policies and practices for
multinational enterprises / Ibraiz Tarique, Dennis R. Briscoe, Randall S. Schuler. — 5th edition.
pages cm Includes bibliographical references and index.
1. International business enterprises—Personnel management. I. Tarique, Ibraiz. II. Schuler, Randall S. III. Title.
HF5549.5.E45B74 2012 658.3—dc23 2015001046
ISBN: 978-0-415-71052-7 (hbk) ISBN: 978-0-415-71053-4 (pbk) ISBN: 978-1-315-88500-1 (ebk)
Typeset in Berling Roman and Futura
by Apex CoVantage, LLC
List of Figures List of Exhibits List of Case Studies List of IHRM in Actions List of End-of-Book Integrative Cases List of Acronyms Acknowledgments Foreword
SECTION 1: STRATEGIC CONTEXT
Introduction to Section 1
1 The Internationalization of Human Resource Management
2 Strategic International Human Resource Management
3 Design and Structure of the Multinational Enterprise
4 International Mergers and Acquisitions, International Joint Ventures, and Alliances
SECTION 2: NATIONAL AND CULTURAL CONTEXT
Introduction to Section 2
5 Country and Company Culture and International Human Resource Management
6 International Employment Law, Labor Standards, and Ethics
7 International Employee Relations
SECTION 3: GLOBAL TALENT MANAGEMENT
Introduction to Section 3
8 International Workforce Planning and Staffing
9 International Recruitment, International Selection, and Repatriation
10 International Training and Management Development
11 International Compensation, Benefits, and Taxes
12 International Employee Performance Management
13 Well-being of the International Workforce and International HRIS
14 Comparative IHRM: Operating in Other Regions and Countries
SECTION 4: ROLE AND FUTURE OF IHRM
Introduction to Section 4
15 The IHRM Department, Professionalism, and Future Trends
Integrative Cases Index
I.1 Chapter Map 1.1 Who Needs International Human Resource Management? 2.1 Basic Elements of the Strategic Management Process 2.2 Evolution of the Multinational Enterprise 2.3 Auxiliary Methods of Internationalization 2.4 MNE Business Strategy 2.5 Headquarters’ International Orientation (Senior Executives) 2.6 MNE IHRM Strategy 2.7 Integrative Framework of Strategic International Human Resources
Management in MNEs 3.1 MNE Organizational Structure 3.2 Functional Structure 3.3 Product Structure 3.4 Geographic Structure 3.5 Matrix Structure 4.1 International Mergers and Acquisitions Process of Combination 4.2 HR Issues in the Three Stages of IM&As 4.3 Four Approaches to Integration in International Mergers and Acquisitions 4.4 Four-stage Model of HR Issues in International Joint Ventures 5.1 The Three Layers of Culture 5.2 Development of Cross-cultural Competence 6.1 Umbrella of CSR Programs 8.1 The International Workforce Planning and Staffing Process 8.2 Factors that Impact International Workforce Planning 9.1 Successful Expatriate Experience 9.2 Organizational Support for Repatriates 10.1 Effectiveness of Homogeneous and Heterogeneous Teams 11.1 The Balance Sheet 12.1 A Model of IPM in an MNE
1.1 Drivers of Internationalization of Business 1.2 The World’s Top 20 Non-financial TNCs (Ranked by Foreign Assets) 1.3 IHRM Questions for International Strategy 3.1 Best Practices for the Effective Management of Cross-border and Virtual Teams 5.1 Geert Hofstede’s Cultural Dimensions 5.2 Trompenaar’s and Hampden-Turner’s Cultural Dimensions 5.3 Global Leadership and Organizational Behavior Effectiveness (GLOBE):
Cultural Dimensions 6.1 ILO Declaration on Fundamental Principles and Rights at Work 6.2 United Nations Global Compact Principles of Interest to IHRM 6.3 The Scope of Selected European Union Directives Affecting the Labor and
Social Policy of Businesses Operating in Member States 6.4 Protected Classes for Discrimination Prohibition in Select Countries 6.5 Guidance on How an MNE Might Design a Code of Conduct and Ensure an
Effective Implementation of Ethical Standards for Worldwide Operations 7.1 Trade Union Membership, Selected Countries 7.2 Seven Approaches to Labor/employee Relations in the Global Context 7.3 Local Union Environment Issues That MNEs Need to Consider 8.1 International Staffing Approaches 8.2 Traditional International Assignees and Local Nationals 8.3 Types of International Assignees 8.4 Questions to Better Manage a Global Workforce 9.1 Employment Options for International Transfers 9.2 The 21st-century Expatriate Manager Profile 9.3 Definition of Expatriate Failure 9.4 Reasons for Expatriate Failure 9.5 Best Practice in IA Selection 10.1 The Match of Training Techniques to Country Culture 10.2 Skills of the Transnationally Competent Manager Versus Those of the
Traditional International Manager 10.3 Five-Phase Process for Designing Effective CCT Programs 11.1 Hourly Compensation Costs for Production Workers in Manufacturing, 2011 11.2 Average Annual Hours Per Year Per Person in Employment 11.3 Paid Vacation Days and Legally Mandated Paid Holidays
11.4 Types of Equity Compensation 11.5 The 10 Most Expensive Countries/cities in the World 11.6 Balance Sheet Example 11.7 Cost Estimate for Three-year Assignment 11.8 Average Tax Wedge 12.1 Shifts in Western PM 12.2 Globalization of Key Elements in the Design, Implementation, and Evaluation
of the PM System of an MNE 12.3 Criteria for Appraisal of International Assignees 12.4 Raters of International Assignee Performance 12.5 Use of Different Types of Rater in PAs of Expatriates 13.1 Issues to Consider When Designing Expatriate Crisis Management Programs 14.1 World’s 30 Largest Cities (2015 and 2025) 14.2 Population and Labor Force Characteristics (Europe) 14.3 Population and Labor Force Characteristics (North America) 14.4 Population and Labor Force Characteristics (Asia) 14.5 Population and Labor Force Characteristics (Latin America and Caribbean) 14.6 Population and Labor Force Characteristics (Africa) 15.1 International Relocation Services 15.2 The Datafication of HR
1.1 Yarn Paradise: World’s Biggest Online Yarn Store (Turkey) 2.1 The Early Evolution of Manufacturing Firms: Ford Motor Company Goes
International* (USA) 3.1 Capgemini: A Transnational Organization (France) 4.1 BCE’s Acquisition of Teleglobe International (Canada) 5.1 Internationalization and Cross-cultural Expansion of a Local Manufacturer:
Barden (US) and FAG (Germany) 6.1 Non-Compete Agreements and Intellectual Property: Value Partners SA (Italy)
and Bain & Company (USA) Conflict in Brazil 7.1 Global Industrial Relations at Ford Motor Company (USA/Global) 8.1 Firms Woo Executives from “Third” Countries (Global) 9.1 A World Marketplace for Jobs in Project-Based Work Environment (Global) 10.1 Management Training in Africa (Malawi) 11.1 Compensation Problems with a Global Workforce (Global, Thailand,
Philippines, Japan, Bolivia) 12.1 Cross-Cultural Performance Evaluation in Thailand: The Case of Richard
Evans, Expatriate Managing Director (Switzerland/Thailand/UK) 13.1 Global Health and Safety Concerns (Global, Romania, UK, Ghana) 14.1 The Impact of HR on Innovation: A Six-Country Comparison (Global) 15.1 Becoming an HR Transnational at Germany’s OBI (Germany)
IHRM in Actions
IHRM in Action 1.1 Creating a Global Accounting Firm IHRM in Action 1.2 CEOs’ Perspectives on Globalization IHRM in Action 1.3 Developing a Global Appetite for Fish and Chips IHRM in Action 2.1 Implementing a Global Strategy at a Japanese Pharmaceutical IHRM in Action 3.1 Moving HR from International to Global IHRM in Action 4.1 Lessons Learned by GE in Cross-Border Acquisitions IHRM in Action 5.1 Turning McDonalds into a Global Brand IHRM in Action 6.1 Developing Global Labor Standards at Levi Strauss IHRM in Action 7.1 Cross-Border Worker Representation at Hewlett-Packard IHRM in Action 8.1 Dealing with Labor Shortages in the Netherlands IHRM in Action 9.1 Locating Near the Talent with a Global Workforce IHRM in Action 9.2 Repatriation at Monsanto IHRM in Action 10.1 Global Management Development Program at Colgate
Palmolive IHRM in Action 11.1 Developing a Global Compensation Program at Colgate
Palmolive IHRM in Action 12.1 Expatriate Performance Management at Nokia IHRM in Action 13.1 The Need for Emergency Medical on Travel in Niger IHRM in Action 15.1 IHRM in a Global Mining Company
End-of-Book Integrative Cases
Case 1 Fred Bailey: An Innocent Abroad Case 2 Bavarian Auto Works in Indonesia (Germany/Indonesia)
ADA Americans with Disabilities Act ADEA Age Discrimination in Employment Act APEC Asia-Pacific Economic Cooperation ASEAN Association of South East Asian Nations BOK Body of Knowledge BRIC Brazil, Russia, India, China BT Business Traveler C&B Compensation and Benefits CBT Computer-Based Training CEE Central and Eastern Europe CEO Chief Executive Officer CFO Chief Financial Officer CIPD Chartered Institute of Personnel and Development COLA Cost of Living Allowance CSR Corporate Social Responsibility EEA European Economic Area EFTA European Free Trade Agreement EPI Efficient Purchaser Index ESOP Employee Stock Ownership Plan ESPP Employee Stock Purchase Plan ETUC European Trade Union Confederation EU European Union FCN Friendship, Commerce, and Navigation Treaty FCPA Foreign Corrupt Practices Act FDI Foreign Direct Investment FTAA Free Trade Area of the Americas Fx Exchange Rate GATT General Agreement on Trade and Tariffs GEC Global Employment Company GHRIS Global Human Resource Information System
GI Global Integration GLOBE Global Leadership and Organizational Behavior Effectiveness GPHR Global Professional in Human Resources GUFs Global Union Federations HCN Host-Country National HQ Headquarters HR Human Resources HRCI Human Resource Certification Institute HRIS Human Resource Information System HRM Human Resource Management IA International Assignee or International Assignment IB International Business ICC International Chamber of Commerce ICFTU International Confederation of Free Trade Unions IE International Employee IHR International Human Resources IHRM International Human Resource Management IJV International Joint Venture ILO International Labor Organization ILP International Labor Organization IMF International Monetary Fund INS Immigration and Naturalization Service IPM International Performance Management IPO Intellectual Property Office IT Information Technology ITUC International Trade Union Confederation JV Joint Venture LR Local Responsiveness M&A Merger and Acquisition MNE Multinational Enterprise NAALC North American Agreement on Labor Cooperation NAFTA North American Free Trade Agreement NGO Non-Governmental Organization OECD Organization for Economic Cooperation and Development OEEC Office of European Economic Cooperation PA Performance Appraisal
PCN Parent-Country National PCT Patent Cooperation Treaty PM Performance Management PRC People’s Republic of China R&D Research and Development SAR Stock Appreciation Rights SEC Securities and Exchange Commission SHRM Society for Human Resource Management SIHRM Strategic International Human Resource Management SME Small- and Medium-sized Enterprises SOX Sarbanes-Oxley TCN Third-Country National T&D Training & Development TI Transparency International TNC Transnational Corporation TUAC Trade Union Advisory Committee UN United Nations UNCTAD United Nations Conference on Trade and Development UK United Kingdom US United States
We are grateful to many individuals who have provided valuable information, insights, cases, and assistance in completing this book. They include: Susan E. Jackson, Rutgers University; Paul Sparrow and Cary Cooper, Lancaster University Management School; Jyotsna Bhatnagar and Rakesh Sharma, Management Development Institute India; Chris Brewster, Reading University; Yadong Luo, University of Miami; Ingmar Björkman, the Swedish School of Economics; James Hayton, University of Warick; Shaun Tyson and Michael Dickmann, Cranfield School of Management; Gary Florkowski, University of Pittsburgh; Cal Reynolds, Calvin Reynolds & Associates; Hugh Scullion, National University of Ireland; Dave Collings, Dublin City University; Vlad Vaiman, California Lutheran University; Stu Youngblood, Texas Christian University; Bruno Staffelbach, University of Zurich; Bill Castellano, Rutgers University; Ed Schuler, The Schuler Group; Gerold Frick, Aalen University; Manfred Stania, Stania Management; Martin Hilb, University of St. Gallen; Christian Scholz, University of Saarlandes; Mark Saxer, Saxer Consulting; Nigel Shaw and Nadia Wicki de la Puente, Novartis; Michael Morley, University of Limerick; Charles Galunic and Isable Assureira, INSEAD; Simon Dolan, ESADE; Georges Bachtold, Blumer Machines Company; Darryl Weiss, Lockheed Martin Orincon, San Diego; Jerry Edge, RMC Consultants; Joann Stang, Solar Turbines (retired); Bernie Kulchin, Cubic Corporation; Ben Shaw, Bond University; Ed Watson, KPMG; Gardiner Hempel, Deloitte & Touche; Wayne Cascio and Manuel Serapio, University of Colorado-Denver; Bob Grove, San Diego Employers’ Association (retired), Jason Exley, MSI, Denver, CO; Shaista Khilji, The George Washington University; Akram Al Ariss, Toulouse Business School; and Elaine Farndale, Pennsylvania State University.
A special thanks to Lisbeth Claus, Willamette University, for her permission to use her contributions to the fourth and fifth editions.
Dr. Schuler thanks many students at Rutgers University in the Department of Human Resource Management for their teaching and writing suggestions, and the department’s webmaster, Renee Walker, for her work on the construction of his global website.
Dr. Briscoe thanks his graduate students at the University of San Diego and at the many other schools in the some 19 countries where he has taught IHRM, and particularly his most recent graduate assistant, Chanyu Miao, for her help in research into IHRM and country HR practices.
Dr. Ibraiz Tarique is indebted to his father, Dr. Asif Tarique, who passed away in January 2015, for teaching him the value of cultural diversity. Dr. Asif Tarique (an
international marine biologist by profession) was a global citizen who had a true passion for cultural diversity developed from living in numerous countries and experiencing different cultures, people from all walks of life, poetry, and languages. Dr. Ibraiz Tarique is grateful to his father for an upbringing as a “third culture kid” (a child who grows up in a culture other than that of his or her parents).
Dr. Ibraiz Tarique gives thanks to his family for providing unwavering support to work on this book. He is thankful to both co-authors for providing the guidance, encouragement, and support to contribute to the fifth edition. For Dr. Ibraiz Tarique, working with Dr. Schuler and Dr. Briscoe has been one of the best experiences. Dr. Ibraiz Tarique is thankful to all the individuals who helped in the research for this book. He would like to thank the Lubin School of Business, Pace University, and his excellent colleagues for supporting his interests in international human resource management. Finally, he would like to thank his students (both current and past) who continuously inspire him and remind him every day that learning is a lifelong process.
And last, Dr. Briscoe acknowledges the support from his wife, Georgia, who provided inspiration and example during a particularly difficult time for her during the writing of this fifth edition as well as the example being set by his son, Forrest, who is now showing his father how the role of professor can be so fulfilling. He also acknowledges how great it has been to work with his co-authors, Ibraiz Tarique and Randall Schuler. They went above and beyond the call of duty to provide the support and effort necessary to complete the project within tight deadlines. Their contributions made the final product much better.
Finally the authors thank the many great people at Routledge for their wonderful assistance and support throughout this project, in particular, the Global HRM Series senior editor, Sharon Golan.
Thank you all!
Ibraiz Tarique Dennis Briscoe Randall Schuler
Global HRM is a series of books edited and authored by some of the best and most well-known researchers in the field of human resource management. This series is aimed at offering students and practitioners accessible, coordinated and comprehensive books in global HRM. To be used individually or together, these books cover the main areas in international and comparative HRM. Taking an expert look at an increasingly important and complex area of global business, it is a groundbreaking series that answers a real need for useful and affordable textbooks on global HRM.
Several books in the Global HRM series are devoted to human resource management policies and practices in multinational enterprises. Some books focus on specific areas of global HRM policies and practices, such as global leadership, global compensation, global talent management and global labor relations. Other books address special topics that arise in multinational enterprises, such as managing HR in cross-border alliances, managing global legal systems, and the structure of the global HR function. There is also a book of global human resource management cases. Several other books in the series adopt a comparative approach to understanding human resource management. These books on comparative human resource management describe HRM topics found at the country level in selected countries. The comparative books utilize a common framework that makes it easier for the reader to systematically understand the rationale for the similarities and differences in findings across countries.
The fifth edition of International Human Resource Management, written by Ibraiz Tarique, Dennis Briscoe and Randall Schuler, serves as the foundation book for all the other books that focus on specific areas of global HRM policies and practices, and for the books that address special topics such as alliances, strategies, and structures and legal systems. As such, its 15 chapters provide the broadest possible base for an overview of all the major areas in the field of international human resource management. As with all the books in the Global HRM series, the chapters are based upon the most recent and classic research, as well as numerous examples of what multinational enterprises are doing today. This latest edition of this foundation book contains numerous updates and revisions that make the book even more relevant and useful to the reader, whether university student or practitioner. More material has been put into tables and exhibits to help summarize a lot of information, thus making it more quickly accessible and more interesting
for the reader. This Routledge series, Global HRM, is intended to serve the growing market of
global scholars and practitioners who are seeking a deeper and broader understanding of the role and importance of human resource management in companies that operate throughout the world. With this in mind, all books in the series provide a thorough review of existing research and numerous examples of companies around the world. Mini-company stories and examples are found throughout the chapters. In addition, many of the books in the series include at least one detailed case description that serves as convenient practical illustrations of topics discussed in the book. The companion website for this book contains additional cases and resources for students and faculty to use for greater discussions of the topics in all the chapters.
Because a significant number of scholars and practitioners throughout the world are involved in researching and practicing the topics examined in this series of books, the authorship of the books and the experiences of the companies cited in the books reflect a vast global representation. The authors in the series bring with them exceptional knowledge of the human resource management topics they address, and in many cases the authors are the pioneers for their topics. So we feel fortunate to have the involvement of such a distinguished group of academics in this series.
The publisher and editor have played a very major role in making this series possible. Routledge has provided its global production, marketing and reputation to make this series feasible and affordable to academics and practitioners throughout the world. In addition, Routledge has provided its own highly qualified professionals to make this series a reality. In particular, we want to indicate our deep appreciation for the work of our series editor, Sharon Golan. She has been very supportive of the Global HRM series and has been invaluable in providing the needed support and encouragement to us and the many authors and editors in the series. She, and the entire Routledge staff, has helped make the process of completing this series an enjoyable one. For everything they have done, we thank them all. Together we are all very excited about the Global HRM series and hope you find an opportunity to use International Human Resource Management, fifth edition, and all the other books in the series!
Randall S. Schuler, Rutgers University and the Lancaster University School of Management
Susan E. Jackson, Rutgers University and the Lancaster University School of Management
Paul Sparrow, Manchester University Management School July 2015
This book is about international human resource management (IHRM). That is, it is about human resource management in a global context. The conduct of business is increasingly global in scope, and managing human resources has become even more important in the successful conduct of global business. The motives for writing this book originally—to provide a professional and academic overview for an understanding of the design and implementation of IHRM policy and practice— continue in this edition. This fifth edition has also been written to update this most important but fast changing discipline. As with the previous editions, the majority of the book discusses the IHRM issues faced by multinational enterprises (MNEs) of all sizes, primarily—but not exclusively—from the perspective of the parent company or headquarters. But it also provides increasing attention to other forms of international organizations as well, such as governments, non-profits, and non- governmental organizations (NGOs). Since MNEs increasingly manage their workforces on a global basis, this edition not only examines global management of parent companies’ workforces, with globalized policies, shared services, and global centers of HR excellence, but also provides increased focus on management of workforces in subsidiaries, international joint ventures, and global partnerships.
In the previous two editions, a major effort was made to obtain relevant examples from many different countries. This effort has continued in the fifth edition. So the examples in the chapters as well as the end-of-chapter cases (in the book and on the text website) draw from many small and medium-sized companies (many of which will be new to the reader) from many countries, as well as some traditional and well-known large firms, which come from both large and small countries.
Sections and chapters
This book is divided into four sections (see Figure I.1 to understand how the topics relate to each other) and 15 chapters. The first two sections set the scene for International Human Resource Management: Policies and Practices for Multinational Enterprises, fifth edition, and explain why IHRM is so important to the success of international business, describing the context of global business as it relates to IHRM. Section 1 “Strategic Context,” describes the key strategic components of the context within which IHRM operates. Each of these components represents a critical part of the global environment that determines the nature of IHRM. Section 2, “National and Cultural Context,” describes three important aspects of the country and/or national environments that determine the cultural and legal contexts within which IHRM operates. Then Section 3, “Global Talent Management,” describes the IHRM policies and practices that are shaped by the context described in the first two sections. These seven chapters provide a comprehensive and thorough overview of the policies and practices of IHRM. These policies and practices are described both from a centralized, headquarters- focused perspective, as well as from the local perspective of subsidiaries, joint ventures, partnerships, and contractors. Finally Section 4, “Role and Future of IHRM,” describes the nature of today’s IHRM department, the professionalization of IHRM, and takes a look at future trends in the field. Now we describe the chapters briefly.
Chapter 1 introduces the globalization of business and describes how that has changed the nature of IHRM. It describes the evolving nature of IHRM as it meets the needs of changing multinational enterprises and explains how this has led to the development of strategic IHRM in helping MNEs attain sustainable competitive advantage in the global marketplace. This chapter also describes the basic nature and development of IHRM, differentiates IHRM from domestic HRM, and discusses some of the difficulties experienced in that development.
Chapter 2 describes the various responsibilities of IHRM and links them to the pursuit of international business strategies. The strategic decision to “go international” is one of the most important components of the IHRM environment. IHRM must understand these strategic choices and should contribute input to them in order to contribute to their successful achievement. This chapter also examines IHRM strategy and its relation to overall MNE business strategy, focusing on how varying approaches to MNE business strategy affect the nature of IHRM strategy. Finally this chapter explains how IHRM changes and contributes to the development of those various MNE strategies.
Chapter 3 discusses the growing complexities in designing the structure of multinational firms and the important role that IHRM plays in those design
decisions. The conduct of international business is increasingly complex, involving the need to—at the same time—focus on central control and influence and local adaptation to customers and culture. Too often these efforts fail, at least partially because of inadequate attention to issues within the responsibility of IHRM. This chapter describes the contributions that IHRM can and should make to the success of these organizational choices.
Chapter 4 describes the role of IHRM in cross-border mergers and acquisitions, international joint ventures, and international alliances. Cross-border acquisitions, joint ventures, teams, and alliances of various sorts are increasingly the means by which firms choose to go international and thus they constitute one of the most important components of the context for IHRM. Much of the chapter describes the role of IHRM and the IHR professional in designing, facilitating, and implementing these four specific types of cross-border
Figure I.1 Chapter Map International Human Resource Management, 5th ed. Tarique, Briscoe, Schuler.
combinations. All four types of these combinations are increasingly used and
IHRM can and should play a major role in helping ensure the success of their design and implementation.
Chapter 5, starting Section II, expands the theme that is revisited frequently throughout the text: the critical importance of country and corporate culture. Cultural differences impact everything that is done in international business and are, if possible, even more important to everything that IHR managers do. Success in international business requires a thorough understanding of cultural factors, and IHRM is involved both with helping provide that expertise to the firm as well as having to incorporate such understanding in its own global activities. Thus this introduction to IB and IHRM, by necessity, includes an introduction to the concepts of country and corporate culture. The chapter also discusses the importance of culture in both the conduct and the interpretation of IHRM research, explaining how culture affects both our understanding of IHRM and its impact. Like everything else, culture influences what we know and what we think we know about IHR.
Chapter 6 describes international aspects of the legal and regulatory environment, another of the key components in the context of IHRM. Just as is true for HRM in a domestic context, there are many aspects of law that impact the practice of human resource management when working in the global arena. This chapter discusses five of these aspects:
■ international employment law and the institutions that develop and apply it;
■ major legal systems and their key differences; ■ goals of the various international trade agreements ■ major issues international employment issues impacting HR; ■ immigration/visas, personal, data protection, anti-discrimination,
harassment, ethical standards, CSR, and corporate governance.
All of these areas of the legal and regulatory environment related to the conduct of IHRM are increasingly important to the successful contribution of IHR managers and all have a growing impact on IHR and firms operating in the global business environment.
Chapter 7 examines the broad nature of international labor standards, global employment law and regulations, and international ethics and social responsibility. First, this chapter looks at the institutional context of international business. International organizations have promulgated labor standards for MNEs. Next, this chapter looks at the global legal environment in which the MNE operates. It focuses on compliance with national and supranational laws. Further, a number of comparative regulatory issues are discussed that affect the MNE such as immigration controls, data protection, anti-discrimination and harassment,
termination and reduction in force, and intellectual property. Finally, this chapter looks at international ethics, its relation to culture, and how ethical dilemmas must be solved
Chapter 8 provides an introduction to the overall concern with planning, forecasting, and staffing the global enterprise. Chapter 8 begins by providing a description of the constantly changing labor markets around the world and discusses how MNEs plan for creating their workforces from those labor markets. The nature of those markets in various countries, in terms of their demographic characteristics, the skills and abilities of their individuals, and their accessibility and cost varies dramatically from country to country and region to region and can be a major determinant in the success of international decisions such as where to locate operations. Chapter 8 also provides an overview of the many options that MNEs have available to them for that staffing.
Chapter 9 focuses on the IHRM responsibility for staffing, but primarily on the issue of expatriation and repatriation, the movement of employees of MNE from either the parent company to a foreign subsidiary or from a foreign subsidiary to another subsidiary or to the parent firm. This chapter examines the difficulties experienced in the selection and management of expatriates and repatriates and suggests some of the approaches successful MNEs use to ensure positive experiences with those expatriates and repatriates. In addition, the chapter discusses problems that MNEs are experiencing with women and other types of non-traditional expatriates.
Chapter 10 focuses on the training and development of the MNE’s global workforce. This includes training of host-country workforces, training and preparation of international assignees, and global management development, including the nature and development of a global mindset, the competencies of global managers, and the nature of management development programs in a global context. This chapter has provided both many examples and research and writing of what firms from around the world are currently doing to offer successful global training and development programs. It is now up to IHR managers in other firms to use what was described here to develop successful global training and development programs in their own organizations.
Chapter 11 describes the complex area of compensation, benefits, and taxes for both international assignees as well as for local workforces. The chapter presents IHRM practices related to the development of compensation and benefit programs among MNEs and describes seven alternative approaches to compensation for expatriates. The chapter also discusses the many problems that MNEs confront as they try to design and implement global compensation and benefit programs throughout their global operations. Lastly, the chapter discusses many of the various approaches taken to compensation and benefits, such as vacation and pension practices, in a number of different countries.
Chapter 12 addresses the crucial issue of performance evaluation and performance management for international assignees and managers in foreign operations. It describes the many difficulties encountered in trying to implement an effective PM system in the international arena, not the least of which is figuring out how to accommodate in the evaluation process factors stemming from the nature of the local cultural environment. It is clear that it is inadequate to simply apply a PM process designed at the home-country level for domestic use to the international setting. The chapter ends with a discussion of a number of suggestions and guidelines for improving the process of implementing an effective IPM system.
Chapter 13 describes topics of importance to the IHR manager: employee health and safety in the context of the foreign subsidiary and joint venture, and health, safety, and security for global business travelers and employees on international assignments and their families. Often, because health and safety practices differ so much from country to country, responsibility for them is left in the hands of subsidiary (local) HR managers. Nevertheless, MNEs must understand and cope with local and international health and safety regulations, the widely variable practices faced in different countries, and strategic business decisions that may influence workforces and employee relations in multiple locations. This chapter also discusses the important topic of HRIS.
Chapter 14 provides an overview of the wide variances in HR practices from country to country and region to region. International enterprises have the necessity to understand local HR policies and practices so as to make intelligent decisions as to the practical fit of headquarters’ policies with tradition and law in local jurisdictions. This chapter focuses on five specific regions: Europe, North America, Asia, Latin America, and Africa. Within each region, key HRM issues are examined with implications for HRM policies and practices. In addition, this chapter discusses various HRM issues that converge among regions and countries, including managing two generations of employees including older workers, discrimination and the glass ceiling, and gaps in talent supply and demand.
Chapter 15, the last chapter, provides a glimpse at the challenges that confront IHRM. These challenges include the organizational advancement and the professionalization of IHRM. International HR managers have to further develop their understanding of their global enterprises and, as a consequence, will become better integrated into the planning and strategic management of those enterprises. As these challenges are met and IHR managers further develop their global HR competencies, multinational firms will find themselves developing world-class IHR departments. What this chapter demonstrates is that only when such an integrated, responsive, and accepted IHRM is developed will IHRM reach its potential and take its rightful place in the management of today’s successful global enterprises.
In the 15 chapters of this fifth edition of International Human Resource Management, a number of terms are used to refer to organizations that conduct international business. In general, the term MNE (multinational enterprise) is used to refer to all organizations that conduct business outside their countries of origin. Today, this can apply to bricks-and-mortar firms as well as virtual firms with primarily only a website. The term MNE is used rather than MNC (multinational corporation—which is often a more commonly used term) because in many countries there is no form of legal ownership equivalent to the American corporation, from whence derives the term MNC. So we chose a term that can be used with wider application without being tied technically to the legal structure of one particular country. Thus, in this text the generic term “enterprise” is used to refer to any type of organization involved with international business. For small- and medium-sized MNEs, the term SME is sometimes used. Generally, the term MNE is used throughout the book. When appropriate, SME will be used to highlight special characteristics of small- and medium-sized MNEs. We have also increased the discussion of non-business organizations, such as governments, NGOs, and non-profit organizations, many of which have more international exposure than do many business enterprises.
MNEs can be described as operating multi-domestically, internationally, globally, or transnationally. While these terms often seem to be used interchangeably, some distinctions can be made (for details about the differences as they relate to IHRM, refer to Chapter 3). For example, the term “global” refers to enterprises that operate all over the world and have consistent policies and practices throughout their operations. Such MNEs have a high percentage of international turnover or sales (over 50 percent outside their home countries) and a high percentage of employees outside their home countries, as well, with operations in a large number of countries, and a global perspective and attitude reflected in their business strategies and in their mission statements. These firms tend to have a highly centralized (or, at least, regionalized) policy, at least as it applies to financial issues and sharing of resources and innovations and world-class standards for their global products and services.
In contrast, transnational firms are global in scope but decentralized and localized in products, marketing strategies, and operations. That is, they take advantage of their global presence to gain access to resources (ideas, technology, capital, people, products, and services) and develop economies of scale, while at the same time maintaining a local presence that is seen as comparable to that of domestic competitors. The other terms, such as “multinational” or “international,” generally refer to MNEs that have not yet developed their levels of international
operations to this extent. Because more and more enterprises are moving in the direction of being more global, in thought at least, if not in action, the word “global” is used in the title of the series of which this book is a part. But the word “international” is used in the title and chapter headings of this text to reinforce the reality that IHRM policies and practices are often and mostly not standardized and centralized, as might be implied with the use of the term “global.”
Thus most of the topics, policies, and practices discussed throughout this text are currently applicable to most enterprises, and are likely to soon apply to most others. In this text, if the terms global, multinational, or international enterprise make a difference to the particular topic, policy, or practice being discussed, then an attempt is made to make it clear through explanation or the use of the terminology as to which type of enterprise is being described.
Each chapter begins with “Learning objectives.” These are the main objectives that we would like to see you focus on as you consider the material in the chapter. Although key terms are defined in the chapter when they first appear, they are also defined on the website under “Glossary.” Of course you will learn more than these particular objectives and terms.
Each chapter offers a case study at the end that illustrates the current experiences of a particular multinational enterprise.
Each chapter contains a case study at the end illustrating current experiences of multinational enterprises. In addition, at the end of each chapter there are “Discussion questions” that might be answered individually or in small teams. These are provided to allow the reader to apply many of the ideas in the chapter to other situations. To help instructors and readers identify cases and IHRM in Actions from specific regions or countries, there are two matrices that list countries down the left side and with IIA and cases vertically across top.
The end-of-book materials include the notes that are used in each of the chapters. These materials reflect the relevant classic and contemporary academic research worldwide and the experiences and stories of multinational enterprises. To add even more relevant information as it unfolds, the reader is encouraged to visit numerous websites that are available and suggested here. Additional websites and other materials are found on the website designed for this book: www.routledge.com/textbooks/globalhrm.
At the end of the book are two integrative cases. These cases illustrate the challenges in trying to become a successful MNE, the importance of international human resource policies and practices, and the impact of the local country environment on the effectiveness of those policies and practices.
Finally there are author and subject/company indexes. These are to provide the reader with further information about the various topics covered in this book as well as the many authors whose work has been used to compile this book.
There is an extensive website for this book, which includes:
■ history of the development of IHRM; ■ list of major websites for research on IHRM topics; ■ instructor’s manual, with slides for lectures, sample syllabi, exam questions,
and discussion guides for end-of-chapter discussion questions and for the discussion questions that accompany the cases in the text.
Section 1 Strategic Context
The first section of the book, “Strategic Context,” has four chapters:
■ Chapter 1: The Internationalization of Human Resource Management ■ Chapter 2: Strategic International Human Resource Management ■ Chapter 3: Design and Structure of the Multinational Enterprise ■ Chapter 4: International Mergers and Acquisitions, Joint Ventures, and
These chapters set the scene for International Human Resource Management: Policies and Practices for Multinational Enterprises, fifth edition, and explain why international human resource management is important for the success of international business. Together they describe the important components of the strategic context within which international human resource management policies and practices are designed and implemented. Each of these components represents an important part of the strategic context that determines the nature of IHRM. Chapter 1 describes the content and importance of international human resource management practices and policies. Chapter 2 links these international human resource management practices and policies to a multinational enterprise’s (MNE’s) business strategy. Chapter 3 describes the various choices MNEs have in the ways they divide themselves across geographically dispersed units around the world and the implications for the design and implementation of international human resource management practices and policies. Chapter 3 also describes the various structure options available to the MNE in combining those geographically dispersed units and the implications for the design and implementation of international human resource policies and practices. Finally, Chapter 4 describes the role of international human resource management practices and policies in three unique international structures of MNEs: international mergers and acquisitions, international joint ventures, and international alliances.
Chapter 1 The Internationalization of Human Resource Management
In the future, there will be no markets left waiting to emerge.
A company’s actions should be consequent to its beliefs. We believe that our ability to win is due in no small part to our people, whom we consider a competitive advantage.
Peter Brabeck-Letmathe Chairman, Nestle2
This chapter enables the reader to:
■ Describe the many drivers of the internationalization of business. ■ Describe the growth and spread of internationalization. ■ Describe the different settings of international human resource
management. ■ Explain the development of international human resource
Over the last 50 years, the economies of the world have become increasingly integrated.3 This has been driven by many forces and led by what is now referred to as the multinational enterprise (MNE)—and more recently contributed to by internationalized government agencies (such as the United Nations and the World Trade Organization), small- and medium-sized enterprises (SMEs), countries through their state- and family-owned enterprises, born-global organizations, and non-governmental organizations (NGOs). As all forms of organization have increased their global activities, all of their management functions have required adaptation to the global environment, including human resource management (HRM). This book is about the policies and practices of HRM in those organizations that operate in the global economy.
This first chapter introduces the concept of internationalization and how it has
impacted HRM, how that led to the development of international human resource management (IHRM), and why IHRM has become so critical to the success of global organizations. In addition, this chapter explains why IHRM is so different from traditional and purely domestic HRM. Broadly defined, the field of international human resource management is the study and application of all human resource management activities as they impact the process of managing human resources in enterprises in the global environment. HRM in the MNE is playing an increasingly significant role in providing solutions to business problems at the global level. Consequently, there is a need to examine how HRM policies and practices can best support the rapid advance of globalization. That is, this chapter is about the internationalization of HRM (referred to in this text as International HRM or IHRM).4
International human resource management is the study and application of all human resource management activities as they impact the process of managing human resources in enterprises in the global environment.
The following provides a short summary of what is driving the internationalization of business and its impact on HRM. Markets for most goods and services are global—with every firm or industry experiencing competitors from multiple countries; increasing cross-border investment; expanding number and value of cross-border joint ventures, partnerships, and alliances; increasing numbers of small, internet-based, multinationals (often referred to as micro- MNEs); and increasing numbers of people who cross borders (legally and illegally). Thousands of firms and millions of people work outside their countries of origin and millions of people work in their home countries for foreign-owned enterprises. Firms everywhere face foreign competition. And inputs to business activity (financial, labor, materials, technology, supplies, and consultancies) are now available everywhere at world-class quality, price, and speed, creating global standards and competition in virtually every industry and sector.
5.27 million Americans worked for foreign-owned subsidiaries in 2010 in the United States (the most recent data published by the Bureau of Economic Analysis: http://www.bea.gov/scb). A similar number of foreigners worked for foreign subsidiaries of American firms overseas. This phenomenon can be found in many countries.
What this implies is that every business and every person confronts constant global pressure for competitive excellence. Business, as well as other activities such as politics, travel, environmental concerns, and sports, has become a truly international activity, with every aspect of every organization affected, including HRM. Thus the purpose of this introductory chapter is to provide a framework for understanding how this pervasive internationalization is affecting HRM—and to introduce how IHRM today is carrying out its new obligations and how it is changing to meet the demands of this interconnected world.
The Drivers of Internationalization of Business
Many enterprises, large and small, from all countries (developed economies and emerging) are already global—or are in the process of going global. There are many drivers of this internationalization of business, the most important of which include the items listed in Exhibit 1.1.
Exhibit 1.1: Drivers of Internationalization of Business
Driver Impact on internationalization
Decreased trade barriers through trade agreements and treaties
Negotiated to facilitate and increase trade between member countries (e.g., WTO, EU, NAFTA, ASEAN, MERCUSOR)
Search for new markets and reduced costs
New markets and lower-cost operations found in other countries
Rapid and extensive global communication
Made possible with new technologies and facilitates international collaboration and easier communication and control among dispersed operations
Rapid development and transfer of new technology, including improved transportation
Technological advances are now global, created everywhere, and shared across borders, making global commerce possible
Increased travel and migration, exposure to new countries and cultures
Billions of people experience other countries and cultures every year and develop new attitudes and expectations
Knowledge sharing across borders
With global education, travel, trade, and the Internet, knowledge and ideas are spreading across borders rapidly
E-commerce By its nature is international and is increasing rapidly
Homogenization of culture and consumer demands
Increasingly, consumer demands are the same everywhere
Global Internet and social media, television,
All media are now shared everywhere and
music, movies, sports, publications, news
Competitiveness of emerging market MNEs and SMEs
Internationalization largely came from developed countries; now there are innovative and competitive firms everywhere; much world economic growth is now located in emerging markets
Together these drivers are creating new global realities for all organizations— large and small, publicly traded, privately held, family-owned, government-owned, web-based, and NGOs. When businesses internationalize (for more about this process, refer to Chapters 2 through 4), HRM responsibilities, such as recruiting and hiring, management development, performance management, compensation, employee benefits, health and safety, and labor relations, take on international characteristics, requiring international HRM professionals to facilitate HRM practices with a global focus.
The Growth and Spread of Internationalization
Because of the rapid development of these drivers, internationalization is spreading faster than ever. It has led some observers to refer to it as globalization and to define it as:
the inexorable integration of markets, nation-states, and technologies to a degree never witnessed before—in a way that is enabling individuals, corporations, and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before and in a way that is enabling the world to reach into individuals, corporations, and nation-states farther, faster, deeper, and cheaper than ever before.5
Both terms—internationalization and globalization—refer to the ever-increasing interaction, interconnectedness, and integration of individuals, companies, cultures, and countries. The expanding connections between people, companies, countries, and cultures are real, powerful, all-encompassing, and increasing in importance. Because of this, international business continues to grow in terms of the numbers and types of enterprises conducting business across borders, the amount of foreign direct investment (FDI), and the value of trade between countries.
The United Nations estimates (2010) that there are more than 82,000 large multinational enterprises (referred to by the UN as transnationals) with more than 870,000 affiliates that employ more than 77 million people worldwide (not counting sub-contractors and outsourcing).6 And these numbers grow every year. Even though the amount of new FDI dropped rather dramatically during the 2007– 2009 global economic and financial crisis, it began to recover by 2010 and by 2012– 2013 it had recovered to the pre-crisis level.7 Even during the crisis, the economic and financial health of the major emerging markets, such as the BRIC(S) countries (Brazil, Russia, India, and China—to which South Africa has been added), remained fairly robust. Indeed, emerging markets are now providing the major growth in the world’s economy.
Internationalization began with large firms from the major developed countries, primarily the US, the UK, Germany, France, and Japan. But international business is no longer only—or even primarily—the domain of well-known firms from the large or developed countries. Surveys show that enterprises from small, or developing and emerging markets are also contributing increasingly to global trade as are the tens of thousands of entrepreneurial but global micro-MNEs. For an example, refer to IHRM in Action 1.1, which illustrates how a small—200- employee—accounting business in Salem, Oregon, grew into a global business (now one of the top 100 accounting firms in the US, with branches in a number of other locations, including other countries. In addition, for another example, refer to the case at the end of the chapter, which profiles Yarn-Paradise, a small,
entrepreneurial business—referred to as a micro-MNE—in Turkey, with Internet customers around the world.
IHRM in Action 1.1: Creating a Global Accounting Firm
A 200-employee accounting firm may not top your list of global businesses with IHRM issues, but it should. Aldrich Kilbride & Tatone (AKT), an Oregon, US, accounting firm, has operated since 1973 in the small town of Salem. Wanting to grow the business, it made a number of strategic decisions to add services and locations. It opened two offices in Mumbai and Coimbatore (India) and merged with Grice Lund & Tarkington, an accounting firm based in San Diego, California. Rather than outsourcing, a route commonly used by accounting firms, AKT decided to establish its Indian offices through direct investment and hire its own year-round staff. Yet, because of the cyclical nature of the tax business, it had to overcome major hurdles to increase efficiency and create sustainable careers for its employees, regardless of location. The biggest hurdles, initially, included computer security, file sharing, and time zones. But it soon realized that culture differences and maintaining a similar organizational culture in each of its locations was an additional challenge. While AKT encourages each office to form teams of experts who can focus on specific customer needs, it also early on faced the challenge of deploying its Indian tax professionals when the frantic US tax season was done. AKT decided to partner with one of England’s top firms. Now, from May through December (the heavy time pressure for the US tax season ends in April), AKT’s India staff work to prepare the tax returns of their English partner’s clients. The global expansion of this small US accounting firm (now one of the top 100 accounting firms in the US with partnerships and offices all over the US and world) proved to be successful for employees and customers alike, because of the attention paid to people issues.
Fifty years ago the US economy accounted for 53 percent of global Gross Domestic Product (GDP), but today it accounts for less than 28 percent of global GDP (or less than 20 percent in terms of global purchasing power parity), albeit both of a much larger US GDP and of a very much larger global economy.8
Not only is the world economy much larger in absolute terms, but an ever- increasing number of countries are participating in a significant way. For many, the world is becoming flat (in the sense that no country has a commercial advantage in any particular industry), and we are entering an era of globality, with everyone competing with everyone from everywhere for everything.9 For example, one
measure of this is the ever-growing number of countries whose publicly held enterprises are represented among the world’s largest MNEs (and, of course, there are also many thousands more SMEs and family-owned enterprises—from large and small and both developed and emerging economies—that don’t show in the surveys or rankings but that also play a significant role in the conduct of international commerce). The next couple of paragraphs summarize a number of these rankings and illustrate how quickly globalization is expanding.
For example, the Fortune Global 500 (which is a ranking of the largest publicly traded and reported firms in the world, based on their revenues) now (2013) includes companies from 38 countries—obviously including firms from a number of emerging markets.10 A dozen years ago there were only 25 countries represented. Today (2013), Forbes’ Global 2000 list (a ranking of the largest public companies based on a composite of sales, profits, assets, and market value) includes firms from 63 countries.11 All regions of the world are represented, indicating how global business has become: Asia-Pacific (715 companies), Europe/Middle East/Africa (606), United States (543), and the Americas (143). In 1999, the Wall Street Journal began a list of the largest firms as determined by their market capitalization. The largest 25 firms (based on this metric) were from five countries [US (19), Japan (3), Germany (1), UK (1), and Finland (1)].12 But by 2013, there were seven (quite different) countries represented [US (14), China (4), UK (2), Switzerland (2), Australia (1), Brazil (1), and the Netherlands (1)].13 In addition, the London Financial Times developed a list of the top Global 500 firms (based on market capitalization in all the major stock markets from around the world). In 2013, the FT list included firms from 35 countries.14
When business publications first started developing these lists, their primary focus was on ranking the largest global firms. But with the increasing integration of the global economy, these publications have become additionally interested in analyses of more specific characteristics. For example, Fortune magazine developed a list of the top global companies for leaders.15 This analysis of approximately 10,000 companies worldwide was narrowed to 45 companies from 16 countries, with the top 20 companies found in eight different countries. Fortune magazine also developed a list of the most powerful women in the global economy, which profiled women from 21 different countries.16Bloomberg Businessweek has developed, among its many lists, the Global InfoTech 100, the world’s most important information technology firms, based on a composite ranking of shareholder return, return on equity, total revenues, and revenue growth.17 This list includes firms from 24 countries, large and small, developed and emerging. Bloomberg Businessweek has also developed a list of the 100 Best Global Brands, which includes firms from 13 countries, which is also based on a composite score— of marketing and financial data and expert evaluations.18 In addition, Bloomberg
Businessweek has developed a list of the 50 most innovative companies,19 based on a global survey of executives plus stock returns and three-year revenue and margin growth. In the 2010 results, “fifteen of the top 50 are Asian—and for the first time since the rankings began in 2005, the majority in the top 25 are based outside the U.S.” A final example demonstrating the internationalization of business includes a ranking of the 100 best-performing CEOs in the world by the Harvard Business Review.20 In this ranking, 67 firms were from developed countries, six were from the Asian tigers, 22 were from the BRIC countries, and five were from new emerging market countries.
All of these surveys focus on large, publicly traded firms. The key reason, of course, is that data about these firms are readily available from their stock market and government filings. The surveys do not, however, include private and family- held businesses or government-owned enterprises (no matter how large), because they do not typically publish their financial results. Some privately held firms (such as superbrands in the UK and the Hangzhou Wahaha Group in China), family- owned firms (such as Ikea in Sweden and Gianni Versace in Italy), as well as government-owned enterprises (such as Japan Post and China National Pharmaceutical Group) are among the world’s largest and most global firms. In many countries, large privately held, family-owned and -run, and government- owned businesses contribute a major component to the size of their economies. And then, of course, there are also hundreds and thousands of SMEs in most countries that sell and purchase in the global marketplace.
The United Nations Conference on Trade and Development (UNCTAD) tracks the world’s transnational corporations (TNCs), analyzing how important these firms are to the global economy. As part of this effort, UNCTAD developed the TNI—Transnational Index, based on the composite of a firm’s average percentage of its foreign assets, foreign sales, and
Exhibit 1.2: The World’s Top 20 Non-financial TNCs (Ranked by Foreign Assets)
foreign employment to its total assets, sales, and employment, which identifies the relative importance of foreign business activity to the world’s largest firms. Exhibit 1.2 shows the top 20 non-financial transnationals ranked by the value of their foreign assets. The table illustrates that the largest firms by foreign assets are not necessarily the largest by sales, number of employees, or as percentages-of-total figures. For example, this table shows that General Electric has the highest absolute value of foreign assets of all transnationals tracked by UNCTAD, yet their TNI places them quite a way down the overall rankings (TNI = 48.8).
These many surveys and rankings illustrate that the global economy increasingly involves all kinds of products and services from all kinds of organizations located in virtually every country in the world. This is radically different from the situation of even a few years ago, when only a few countries and a relatively few companies participated widely in the global economy. In addition, this internationalization is proceeding at an unanticipated and unprecedented rate. The opening of markets and the appearance of competitive foreign firms and their products in virtually
every marketplace puts intense pressure on every enterprise to develop the capacity to operate at lower costs and with greater speed, quality, customer service, and innovation, both at home and abroad. As a consequence, HR is called upon to recruit, select, develop, and retain workforce talent that can achieve this global competitiveness in a world that is increasingly complex and challenging. IBM’s chairman, Samuel Palmisano, indicates that IBM’s survey of global CEOs shows that coping with this new world is seen as the most significant challenge they face (see IHRM in Action 1.2).21 And one of the most difficult components of that challenge is finding the employees and management that are needed, which is directly the responsibility of IHRM.
IHRM in Action 1.2: CEOs’ Perspectives on Globalization
Introductory letter from Samuel J. Palmisano, Chairman, President, and CEO of IBM
In a very short time, we’ve become aware of global climate change; of the geopolitical issues surrounding energy and water supplies; of the vulnerabilities of supply chains for food, medicine and even talent; and of sobering threats to global security.
The common denominator? The realities—and challenges—of global integration [these are all issues that connect across borders].
We occupy a world that is connected on multiple dimensions, and at a deep level—a global system of systems. That means, among other things, that it is subject to systems-level failures, which require systems-level thinking about the effectiveness of its physical and digital infrastructures.
It is this unprecedented level of interconnection and interdependency that underpins the most important findings contained in this report. Inside this revealing view into the agendas of global business and public sector leaders, three widely shared perspectives stand in relief:
■ The world’s private and public sector leaders believe that a rapid escalation of “complexity” is the biggest challenge confronting them. They expect it to continue—indeed, to accelerate—in the coming years.
■ They are equally clear that their enterprises today are not equipped to cope effectively with this complexity in the global environment.
■ Finally, they identify “creativity” as the single most important leadership competency for enterprises seeking a path through this complexity.
What we heard through the course of these in-depth discussions is that events, threats, and opportunities aren’t just coming at us faster or with less predictability; they are converging and influencing each other to create entirely unique situations. These first-of-their-kind developments require unprecedented degrees of creativity—which has become a more important leadership quality than attributes like management discipline, rigor or operational acumen.
As always, our biennial examination of the priorities of CEOs around the world provides terrific insight into both the world as they see it, and ultimately, what sets the highest-performing enterprises apart. For me personally, I find one fact especially fascinating. Over the course of more than 1,500 face-to-face interviews with CEOs and other leaders, with not a single question containing the term “Smarter Planet”—and yet the conversations yielded primary findings that speak directly to exactly what IBM has been saying about the challenges and opportunities of this fundamental shift in the way the world works.
Different Settings of International Human Resource Management
Internationalization of HRM occurs in many different settings. For practical purposes, HR managers in most types of organizations will confront at least some aspects of internationalization. That is to say, the internationalization and technology factors (refer to the list of drivers earlier in this chapter) that have led to there being “no place to hide” from the internationalization of business have also led to there being no place to hide for HRM professionals. HRM professionals find themselves having to deal with—and must therefore understand and become competent in—IHRM issues in almost every job setting (see Figure 1.1.). The following provides a short summary of the most significant of these settings.
Figure 1.1 Who Needs International Human Resource Management?
Headquarters of Multinationals
This setting involves working as an HRM professional in the central or regional headquarters of the traditional MNE. This setting receives most of the attention in research and literature about the internationalization of business and is, by far, the most common situation for HR managers who confront international responsibilities. The focus is from the center (headquarters) out to the subsidiaries and sub-contractors, developing and overseeing HRM practices in all foreign operations and administering the movement of employees between headquarters and foreign locations. Increasingly, the movement of employees is also between foreign subsidiaries and headquarters and between foreign locales—all often referred to generically as international assignees. It can also mean that HRM professionals are likely to find themselves working on international assignments. The case in at least some MNEs involves IHRM becoming a major strategic partner in the organization’s global planning and in talent management of the global workforce, relegating many of the international assignee responsibilities to centralized shared service centers, or outsourcing them to specialized service providers. Typically, headquarters either applies its parent company HRM policies
and practices directly to its foreign subsidiaries, or it tries to merge its HRM policies and practices with those that are common in the host countries of their subsidiaries. However, it is common that a local HR manager will handle HR in the subsidiary, even if he or she is primarily responsible for implementing centralized (from headquarters) HRM policies and practices.
Home-country Subsidiaries of Foreign-owned Firms
The second common setting for IHR involves the HR manager working in his or her home country but being employed by a local subsidiary or acquisition of a foreign MNE. Now the HR manager is likely be on the receiving end of policy and practice coming from the foreign headquarters, reversing the role as experienced by the HR manager in the first situation. This HR manager will typically have to integrate a local national culture plus the foreign organizational culture into his or her local operations. This role has received little attention (except when a major legal or culture clash occurs), but is by no means uncommon in many countries. Examples of such situations would involve local HR managers working in the local subsidiaries or acquisitions of MNEs in places like Central Europe (auto companies, pharmaceutical companies, tobacco companies, telecommunications firms), India (software developers, call centers), China (manufacturing facilities, services), Africa (energy and extraction firms), and Latin America (commodity and natural resource firms, retail companies, banks), or even, maybe especially, HR managers working in the local subsidiaries of the large multinationals in Asia, Latin America, the US, and Europe, such as for Siemens, Walmart, Novartis, Johnson & Johnson, or IBM.
The different communication styles, worker motivation philosophies, and organizational structures and frequent lack of understanding of the host country cultures, markets, employment laws and practices, even language itself, by the parent company can cause major problems for the local HR manager, and thus force the host country HR manager to confront aspects of internationalization that are just as difficult as those confronted by the home country HR manager working at headquarters having to deal with the “export” of policy and practices.
Although they may be overlooked, another important setting for IHRM is the purely domestic (local) firm, such as a hospital, farm, dry cleaners or laundry, ski or beachside resort, road or building construction contractor, or restaurant (or the purely domestic operation of an MNE, such as a local fast food or real estate franchise or a local petrol station). In many countries (particularly true in most
locales in Europe and North America), these types of firms also confront many of the complexities of international business, particularly as they relate to IHRM. These complexities include:
■ the hiring of employees who come from another country, culture, and language (recent immigrants) or their families (who may have been born in the new country, and may be, therefore, now citizens, but who may still be more familiar with the language and culture with which they grew up at home than with that of their new country); as well as
■ having to deal with competition from foreign firms for customers and suppliers;
■ or for capital which may well come from foreign-owned firms, or competition from these firms for resources, including employees.
The hiring—or recruiting—of immigrants (or even the first generation since immigration) in local, domestic firms can lead to many of the same internationalization concerns as those faced by traditional MNEs, such as how to merge the cultures, languages, and general work expectations of employees from multiple countries, and how to respond to employees who bring to their new work situations sometimes very different languages and very different attitudes toward supervision and have very different expectations related to the practice of management and IHRM (such as performance management and compensation). Thus, even in the domestic firm, HR managers must develop much of the knowledge and experience necessary to succeed in an international environment.
In addition, traditionally local, domestic firms can find themselves “going global,” which can involve the establishing of small offices in other countries (e.g., a small accounting or architectural firm opening an office in a foreign locale, either to tap into talent for its home office operations or to provide an entrée into the foreign location). Or they might find themselves needing to recruit talent “overseas” in order to meet their needs for specialized skills that are in short supply in their home locales. In either case, the HRM challenges are not much different than those confronted by IHR managers in large MNEs.
Even though these domestic companies tend to be relatively small, increasingly they are what are referred to as “domestic multinationals.” These are successful, initially small, domestic companies—frequently in emerging markets—that are going abroad and becoming MNEs themselves. Examples of such firms include Pliva (generic pharmaceuticals, Croatia), Mittal (steel, India), Tata Consulting Services, Infosys, and Wipro (IT services, India), Lukoil (oil, Russia), Gazprom (oil and gas, Russia), Haier (home appliances, China), Mahindra & Mahindra (tractors and cars, India), Sadia (food and beverages, Brazil), Harry Ramsden’s Fish and Chips (UK), Embraer (aerospace, Brazil), Koc (diversified industries, Turkey),
Cemex (building materials, Mexico), and Comex (paint manufacturer and retailer, Mexico) to name just a few. These companies have become global players in their respective industries and are demonstrating the potential of reaching the top ranks of global competitors.22
Government Agencies and Non-governmental Organizations
Even though this text primarily discusses IHRM from the perspective of MNEs, many other types of organizations are also global in scope and are concerned with many of the same international HRM issues. For example, government agencies such as the foreign ministries of countries and their embassies and the hundreds of non-governmental organizations (NGOs) that send hundreds of people from their parent countries to their overseas operations and often also employ many local and third-country people to staff their activities around the globe, such as religious organizations including the Catholic Church, LDS Church, Moon Church, Life Church; and humanitarian organizations such as World Vision, Care, Mercy Corps, Red Cross, Habitat for Humanity, and Doctors Without Borders.
In addition, there are an increasing number of agencies that are global by purpose and function—such as the United Nations and all of its agencies,23 the World Bank, the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), the Association of Southeast Asian Nations (ASEAN), and the EU with its large concentration of employees in Brussels, Strasbourg, and Luxembourg. Many IHRM responsibilities for these organizations are similar to those faced by their commercial counterparts. Indeed, many of them have experience with international operations over a longer period of time than is true for most firms and have accumulated much significant expertise on how to best handle international HRM challenges. Challenges associated with recruiting, compensating, and managing employees in multiple countries are not much different for the International Red Cross or the World Health Organization than they are for IBM. HR managers in these types of organizations must also be internationally savvy in order to effectively carry out their responsibilities, and they often have much experience from which they can teach their private sector counterparts.
The Development of International Human Resource Management
The previous paragraphs point out that HR managers, no matter the type of organization for which they work, can and do confront aspects of IHRM. The extent of this involvement will vary according to a number of factors, such as the degree of development of the global strategy of the organization, and will invariably increase with time. But as the general internationalization of business increases in extent and intensity, HR managers are being called upon to contribute increasing expertise to that internationalization.
One aspect of internationalizing HRM that makes the task difficult and complex comes from the following: whether local HR managers are from headquarters, from the host country, or from a third country, they end up being sandwiched between their own national cultures and legal traditions—and experiences—and the cultures and practices of the firm, whether at headquarters or at the local affiliate. HR managers at the local, regional, and headquarters levels must learn to integrate and coordinate policies and practices taking place in diverse environments and with people of diverse backgrounds. Plus they are frequently also looked to for expertise in helping other managers be successful in their cross-border endeavors.
For example, some of the IHRM-related questions that need to be answered within an MNE as it establishes its international strategy include the items in Exhibit 1.3.
Since most organizations today experience one or more aspects of international HRM, the success or failure of those enterprises is often a function of how they handle their IHRM issues. As a consequence, a new set of competencies has developed within the HR function. The section below discusses some of the issues surrounding these new competencies.
Some of the differences between HRM and IHRM include the following, with IHRM being responsible for:
■ More HR functions and activities, for example, the management of international assignees, including such things as foreign income and social taxes, foreign work visas, and assistance with international relocations.
■ A broader expertise and perspective, including knowledge about foreign countries, their employment laws and practices, and cultural differences.
■ More involvement in employees’ lives, as the firm relocates employees and their families from country to country.
■ Dealing with and managing a much wider mix of employees, adding considerable complexity to the IHRM management job—with each of the various types of international employees requiring different training,
staffing, compensation, and benefits programs. ■ More external factors and influences, such as dealing with issues stemming
from multiple governments, country laws, cultures, currencies, and languages.
■ A greater level of risk, with greater exposure to problems and difficulties and, thus, exposure to much greater potential liabilities for making mistakes in HRM decisions (for example, political risk and uncertainties, legal compliance issues, and early return of employees from foreign assignments).
Exhibit 1.3: IHRM Questions for International Strategy
1 Do we have knowledgeable staffing for a global strategy? 2 Are the countries being considered for global expansion good from an
IHRM point of view, such as will it be easy to operate within a different set of employment laws?
3 Does the firm have adequate personnel to implement foreign operations?
4 How many employees will need to be relocated? How many local employees will we need to hire and does the local labor force have the necessary skills?
5 Will we be able to find and recruit the talent necessary for international operations?
6 Should we pursue centralized or localized HRM policies?
In addition to these factors, the geographic dispersion, multiculturalism, different legal and social systems, and the cross-border movement of capital, goods, services, and people that are faced by the international firm add a need for competency and sensitivity that is not found in the domestic firm. The personal and professional attitudes and perspectives of the IHR manager must be greatly expanded to handle the multiple countries and cultures confronted in the global arena—both to manage their IHRM responsibilities and to contribute to successful international business strategies by their firms—beyond those that their domestic HRM counterparts must develop. Typical domestic HR managers do not have the global contacts or networks that become necessary to learn about and to handle the new global responsibilities. They don’t typically have any experience with the business and social protocols needed to interact successfully with foreign colleagues or with the forms of organizational structure used to pursue international strategies (such as
international joint ventures or cross-border acquisitions). And the still relatively limited body of literature and publicly available seminars and training programs make it much more difficult to develop the competencies needed to successfully manage the IHRM function.
The example of Harry Ramsden’s (see IHRM in Action 1.3) illustrates just how difficult it can be to make the move to being an international firm.24
IHRM in Action 1.3: Developing a Global Appetite for Fish and Chips
Deep-fried fish and chips have long been a popular snack in England. One of England’s premium fish-and-chip shops, Harry Ramsden’s, which was founded in Guiseley, West Yorkshire, in 1928, is one of the few that have opened shops at multiple locations. By 1994 the company had eight branches in Britain, with more scheduled for opening, one in Dublin, Ireland, and one in Hong Kong. Harry Ramsden’s managers, however, dissatisfied with this success, wanted to turn Harry Ramsden’s into a truly global enterprise.
As a start, the company had set up its first international operation in Hong Kong. According to finance director Richard Taylor, “We marketed the product as Britain’s fast food, and it proved extremely successful.” Within two years the Hong Kong venture was generating annual sales equivalent to its most-successful UK operations. Half of the initial clientele in Hong Kong were British expatriates, but within a couple of years, more than 80 percent of customers were ethnic Chinese, illustrating the relative ease with which at least some products and services, such as a country’s favorite food, can transfer to another country and culture.
Emboldened by this success, Harry Ramsden’s began to open additional overseas branches, in such places as Melbourne, Australia, as well as in other more exotic locales, such as Singapore, Dubai in the United Arab Emirates, Saudi Arabia, Walt Disney World in the US, and Japan. In the first experimental shop in Tokyo, Japan, for example, the Japanese took to this product, despite their traditional aversion to greasy food.
Richard Taylor stated their international strategy:
We want Harry Ramsden’s to become a global brand. In the short term the greatest returns will be in the UK. But it would be a mistake to saturate the UK and then turn to the rest of the world. We’d probably come a cropper when we internationalized. We need experience now.
As of 2006, Harry Ramsden’s had 170 owned and franchised outlets in the UK
and internationally, and had become both Britain’s longest-established restaurant chain and the biggest fish-and-chips shop brand in the world. However, due to some poor location decisions and problems with staffing and management, some international locales have been closed, and over the last 10 years the chain has been sold a couple of times, including most recently—in 2010—to Boparan Ventures Limited, a British fish and food company, with ambitions to once again further expand Harry Ramsden’s in the UK and overseas. Clearly global knowledge and human resources capability set limits on how far and how fast a firm can “go international.”
Evolution of the International Human Resource Management Professional
Some large MNEs, such as Royal Dutch Shell, Unilever, and Ford Motor Company, have long histories of conducting international business, going back 100 years or more. By necessity of having to manage operations in many countries, these firms developed—at least at the headquarters level—considerable international HRM expertise. Even so, the specific management function called “international human resource management” is relatively new as a professional and academic area of practice and interest.
The two largest national human resource management professional associations are the Chartered Institute for Personnel and Development (CIPD) in the UK and the Society for Human Resource Management (SHRM) in the US. Many other countries have their own professional HR associations and most, including the US and the UK, belong to the much larger umbrella organization called the World Federation of Personnel Management Associations (WFPMA), now with over 60 national HRM professional societies as members.
Yet, it has only been in the last 30 years or so that HRM service providers (such as training firms, relocation firms, accounting firms, employment law firms, and HRM consulting firms) have developed a special focus on IHRM. SHRM and CIPD and a number of universities are now providing conferences and training seminars and courses on topics related to IHRM, as do many IHRM service providers, consultant groups, and other IHRM-related organizations. For details about CIPD, for example, see Sparrow, Brewster, and De Cieri’s Globalizing Human Resource Management, 2nd edition, in the series on global HRM of which this book is a member, a series that is itself a sign of the growing attention to IHRM, being the first major series of books covering many of the policies and practices of IHRM.
A turning point in the professionalization of IHRM occurred with the establishment of the GPHR (Global Professional in Human Resources) certification by the Human Resource Certification Institute (HRCI) in the US in 2003. The professionalization of IHRM is further discussed in Chapter 15. The body of knowledge for this exam is codified into six domains (all of which are covered—at least the international aspects—in this book or the additional books in the Global HRM series published by Routledge). The domains—for international HRM— include:
■ Strategic HR Management; ■ Global Talent Acquisition and Mobility; ■ Global Compensation and Benefits; ■ Organizational Effectiveness and Talent Development;
■ Workforce Relations and Risk Management; ■ Core Knowledge of IHRM.
HRM professionals can attain certification in these domains based on their experience and the passing of an examination, verifying their understanding of the body of knowledge in IHRM. Increasingly, the GPHR exam is attracting HRM professionals from around the world.
As a business discipline and an academic field of study, IHRM may well still be in its youth; yet it is very real and firmly established. There are many reasons for its youth, some of which have to do with the generally limited role of HRM within many firms, including some of the large MNEs, and some of which have to do with the lack of international knowledge and experience of HR managers themselves. With the increasing globalization discussed in the first sections of this chapter, HRM professionals have been called upon to manage a number of new (global) activities for which they often have little or no preparation, to work alongside HRM professionals from other countries with whom they have had little prior interaction, and to adapt their HRM policies and practices to multicultural and cross-cultural environments, with which they have little experience.
Since the field of HRM focuses primarily on local staffing and employment issues, its professionals have often been the last ones in their firms to focus on the impact of increasing internationalization, the last ones to take on international assignments, and thus often the last ones on the management team to contribute as fully fledged strategic partners in the internationalization of their firms. Today this is changing. IHRM professionals are now much more proactive in dealing with many new challenges and issues, including:25
■ Attracting, engaging, and retaining thousands of MNE employees in many different countries to achieve strategic global business objectives. This not only includes engaging employees and executives in many countries but also the role and importance of internationally mobile employees.
■ Aligning core HRM policies and practices with the new requirements of competing internationally, while simultaneously responding to local issues and requirements in each country of operation.
■ Enhancing global competencies and capabilities within the IHRM department, including developing global centers of excellence, shared service centers, global talent management, and mastering the necessary HR due diligence in cross-border mergers and acquisitions.26
These challenges, along with many others, are the focus of the next 14 chapters. The next three chapters in Section 1 discuss various aspects of the structure of MNEs and the role IHRM plays in their development. Section 2 discusses three
important aspects of the cultural and legal context within which IHRM must operate. Section 3 includes six chapters on the many aspects of the policies and practices of IHRM—including staffing, compensation, health and safety, performance management, and a comparison of HR practices in differing countries and regions around the world—while Section 4 describes the nature of the IHRM department, further aspects of the developing professionalism of IHRM, and trends in the future development and challenges of IHRM.
This chapter introduced international human resource management in the context of the increasing importance of international business. It illustrated how economic activity around the world has become increasingly integrated and pervasive and thus how it has impacted the development and evolution of HRM in the MNE. One of the most difficult challenges to international operations is the management of their human resources. An effective and informed HR department is vital to the success of all organizations with international operations. As a result, as organizations have internationalized, so has HRM.
1 What forces have been driving the increased internationalization of business?
2 What are the various organizational situations in which an HR manager might be involved with aspects of internationalization?
3 What are the major differences between domestic and international HR?
Case Study 1.1: Yarn Paradise: World’s Biggest Online Yarn Store (Turkey)
Yarn Paradise was created by Ferit Göksen, who was born and raised in Kaseri, Turkey. After attending college, he relocated to Istanbul to obtain his MBA from Marmara University, where he became interested in international trade and development. After he received his degree in 2001, he and his partner began selling different items on the eBay platform in Istanbul. In 2004, he combined his technology skills with his partner’s traditional business skills and together they founded GSC Tesktil. “After a few years, we wanted to focus on a specific product. We noticed there was a market for yarn, and we decided to try selling it on eBay.” Today, the business successfully utilizes the power and reach of the Internet marketplace to sell yarn products worldwide. Yarn Paradise has two websites —www.yarnparadise.com and www.iceyarns.com—and also sells on ebay.com.
The company employs between 15 and 20 people. “It’s great to be able to give 20 different families in my community a job,” explains Ferit, even though 98 percent of the company’s sales are outside of Turkey. While that was not his original intention, the Internet allowed Ferit to reach customers all over the world. About 35–36 percent of sales are to the US and the rest are divided between European countries and Asia. “Yarn Paradise has sold to almost every country in the world including Norway, France, Germany, the UK, Denmark, Sweden, Canada, Australia, Malaysia, New Zealand, Thailand, Trinidad, Ecuador, Egypt, Haiti, and many more. Sometimes I have never even heard of the country, until I get ready to ship the product,” says Ferit. Obviously, there is still much room for growth. Yarn Paradise uses companies like DHL and UPS to help with shipping and logistics. While most transactions are quick and seamless, there are some problems in countries where online commerce is still new, such as Eastern Europe. The biggest issue for Yarn Paradise is customs and customs duties. Buyers are often surprised by them and this creates a bad customer experience.
Source: eBay inc (2014). Micro-multinationals, global consumers, and the WTO, Report from a global conference at the 2013 WTO Public Forum on e-commerce and trade, downloaded at http://www.ebaymainstreet.com/sites/default/files/eBay- WTO-PF2013.pdf
1 Yarn Paradise is a micro-MNE. What is likely to be its next stage of growth? 2 What will be its next human resource challenges stemming from further
1 HSBC corporate website: http://www.hsbc.com/about-hsbc/advertising/in-the-future.
2 Source: http://www.nestle.com/asset- library/documents/investors/others/nestle_ar_2013_en_letter.pdf.
3 There have been many books written on internationalization and globalization. Here is a sampling of some of the recent better ones: Bhagwati, J. (2004, 2007), In Defense of Globalization, Oxford/New York: Oxford University Press; Friedman, T. L. (2005, 2006, 2007), The World Is Flat: A Brief History of the Twenty-First Century (versions 1.0, 2.0, 3.0), New York: Farrar, Straus and Giroux; Friedman, T. L. (2008), Hot, Flat, and Crowded, New York: Farrar, Straus and Giroux; Sirkin, H. L., Hemerling, J. W., and Bhattacharya, A. K. (2008), Globality: Competing with Everyone from Everywhere for Everything, New York: Business Plus; Steger, M. B. (2003), Globalization: A Very Short Introduction, Oxford: Oxford University Press; Stiglitz, J. E. (2003), Globalization and Its Discontents, New York: W. W. Norton & Co.; and Wolf, M. (2004), Why Globalization Works, New Haven, CT and London: Yale University Press.
4 For a complete overview of the field of international human resource management, please see the full set of books on various IHRM policies and practices and varying regional and country approaches in the Routledge Global HRM series.
5 Friedman, T. L. (1999). The Lexus and the Olive Tree, New York: Farrar, Straus and Giroux.
6 United Nations Conference on Trade and Development, World Investment Report 2010 (most recent report available), New York and Geneva: United Nations.
8 CIA World Factbook (2013). www.cia.gov.cia/publicationsfactbook; World Bank: www.world-bank.org/WEBSITE/EXTERNAL/DATASTATISTICS; Bureau of Economic Analysis, US Department of Commerce: www.bea.gov/national/xls/gdplev.xls.
9 Friedman (2005, 2006, 2007); Sirkin et al. (2008).
10 The Fortune Global 500 (2013). Fortune, July.
11 De Carlo, S. (Sr. Editor) (2013). The world’s biggest public companies, Forbes, April 17. http://www.forbes.com/sites/scottdecarlo/2013/04/17/the-worlds-biggest-companies.
12 Wall Street Journal, 2013.
13 WSJ, 2013.
14 Financial Times Global 500 (2013), 17th Annual, as of 28 March, http://www.ft.com/intl/indepth/ft500.
15 Burke, D., Hajim, C., Elliott, J., and Tkaczyk, C. (2007). The top companies for leaders, Fortune, October 1, pp. 109–116.
16 Fortune 50 most powerful women, downloaded 03/07/2010 from:
17 The InfoTech 100 (2013), Bloomberg Businessweek, June 1, pp. 41–42.
18 100 Best Global Brands (2013), Bloomberg Businessweek, September 28, pp. 50–56.
19 Arndt, M., and Einhorn, B. (2010), The 50 most innovative companies, Bloomberg Business Week, April 25, pp. 34–40.
20 Hansen, M. T., Ibarra, H., and Peyer, U. (2013), The best performing CEOs in the World, Harvard Business Review, 91: ½, Jan.–Feb., 81–95.
21 Excerpted from the introductory letter from John Palmisano, Chairman, President, and CEO of IBM, to the 2010 report Capitalizing on Complexity: Insights from the IBM Global Chief Executive Officer Study. Downloaded July 4, 2010, from: ftp://public.che.ibm.com/common/ssi/pm/xb/n/gbe03297usen/GBE03297USEN.PDF.
22 Business Week (2006), Emerging giants, July 31, pp. 41–49; O’Neill, J. (2001), Building better global economic BRICs. Research Report, New York: Goldman Sachs; Sirkin et al, (2008); Stengel, R. (2010), The Global Forum, Time, February 8, p. 4.
23 Fernandez, F. (2005). Globalization and Human Resource Management: Adapting Successful UN Practices for the Private and Public Sectors, New York: HNB Publishing.
24 Abrahams, P. (1994). Getting hooked on fish and chips in Japan, Financial Times, May 17; updated in 2014 from websites: www.harryramsdens.co.uk; http://en.wikipedia.org/wiki/Harry_Ramsden’s; www.market-reports.co.uk; www.telegraph.co.uk/HarryRamsdens-new-owner-mulls-Asian-expansion.html.
25 Based on Sparrow, P., Brewster, C., and De Cieri, H. (2012), Globalizing Human Resource Management, 2nd ed., London: Routledge; Brewster, C., and Sparrow, P. (2008), Les noveaux róles et les defies et la GRHi (The new roles and challenges of the IHRM function), in Waxin, M.-F., and Barmeyer, C. (eds.), Gestion des Ressources Humaines, France: Editions Liaisons Rueil-Malmaison, pp. 507–547; Faugoo, Deepika (2009), Globalization and its impact on human resource management, competitive advantage and organizational success in modern day organizations, in Odrakiewicz, P. (ed.), Innovation in Management: Cooperating Globally, Poznan: Poznan University College of Business and Foreign Languages, Poznari: PWS BiJo Publications, pp. 529– 535; Fernandez (2005); Schramm, J. (2008), Workplace trends: An overview of the findings of the latest SHRM Workplace Forecast, SHRM Workplace Visions, 3, 1–8; Scullion, H., Collings, D. G., and Gunnigle, P. (2007), International human resource management in the 21st century: Emerging themes and contemporary debates, Human Resource Management Journal, 17(4), 309–319.
26 Sparrow et al. (2012); Briscoe, D. R. (2008). Talent management and the global learning organization, in Vaiman, V., and Vance, C. M. (eds.), Smart Talent Management: Building Knowledge Assets for Competitove Advantage, Cheltenham, UK, and Northampton, MA: Edward Elgar, pp. 195–216; Farndale, E., Scullion, H., and Sparrow, P. (2010), The role of the corporate HR function in global talent management, Journal of World Business, 45(2), 161–168; Fernandez (2005); Schuler, R. S., Jackson, S. E., and
Tarique, I. (2010). Framework for global talent management: HR actions for dealing with global talent challenges, in Scullion, H., and Collings, D. (eds.), Global Talent Management, London: Routledge, pp. 17–36; and Tarique, I., and Schuler, R. S. (2010), Global talent management: Literature review, integrative framework, and suggestions for further research, Journal of World Business, 45(2), 122–133.
Chapter 2 Strategic International Human Resource Management
I think as a company, if you can get those two things right—having a clear direction on what you are trying to do and bringing in great people who can execute on the stuff— then you can do pretty well.
This chapter will enable the reader to:
■ Describe the development of SIHRM and the process of international strategic management.
■ Describe the evolution of the MNE in terms of various stages of internationalization and the methods firms use to enter international markets.
■ Describe the process for developing MNE strategy and IHRM strategy and the relationship between the two.
■ Understand the extent and nature of research into the practice of strategic IHRM.
This chapter is about Strategic International Human Resource Management (SIHRM). While the first chapter described the new global business realities and introduced IHRM,2 this chapter describes international business strategy and how IHRM supports and enhances the international business strategies of the firm.
MNEs, in order to be successful in the global marketplace, must develop strategies to conduct business that take advantage of global resources and markets. In order for IHRM managers to make an effective contribution to that success, they must contribute to and be a part of the global strategic management of the business. Strategic management refers to the approaches that managers employ in running a company and that are derived from the firm’s vision and objectives.
Since firms differ in their levels of international development and in the extent of their international operations, IHRM managers must develop the capabilities to
assist in that development and in those various levels of global operation. This chapter provides an introduction to how these variances in the strategic development of the international activities of firms influence IHRM and how SIHRM supports those varying strategies and activities.
As outlined in Chapter 1, the new realities for MNEs, including reduced transportation and information costs around the world and the removal of social and political barriers to trade, are making the globalization of business proceed at unexpected and unprecedented rates.3 The opening of markets and the appearance of competitive foreign firms places pressures on virtually every major (and most minor) industries in virtually every country. These developments impact HRM on a number of fronts.4 The increased intensity of competition places great pressure on firms to develop the capacity to operate at lower costs and with greater speed, quality, customer service, and innovation, both at home and abroad. IHRM is called upon to hire, develop, and retain the workforce that can achieve this global competitiveness, often in dozens of countries. Therefore, this chapter introduces the contribution of IHRM to the strategic management of the MNE and introduces the ways in which the global strategy impacts the management of IHRM.
The chapter starts with a general description of the process of international strategic management and then follows with an explanation of the evolution of international business strategy and describes how IHRM fits into the overall strategic management of the MNE. This includes describing the links of global business strategy to the performance of HR responsibilities in international business and discussing the outcomes that a strategically managed international business might expect from effectively tying together an international business strategy and SIHRM. The chapter then summarizes the findings of research studies on the nature and role of strategic IHRM.
Strategic International Human Resource Management: An Introduction
SIHRM is the part of IHRM that focuses on creating and implementing IHRM policies and practices that help achieve an MNE’s international vision and objectives, that is, its international strategy. It also involves the strategic management of the IHR function and department itself.
In an ideal world, a firm conducting international business will be actively engaged in strategic planning and strategic management process on a global basis (see Figure 2.1). Based on an organization’s vision, goal, and mission, the organization will regularly perform an environmental analysis or scan (of its external threats and opportunities and its organizational strengths and weaknesses) and from that analysis develop its global strategies, which are then implemented for global success. Finally, evaluation of success of implementation of chosen strategy is needed to make any changes and re-evaluate the strategy, with whatever changes are called for by the results of the evaluation (this is the feedback loop of the model). Still in this ideal world, all components of the firm will be closely integrated into that planning and will be involved with similar strategic planning within their own areas of responsibility.
Figure 2.1 Basic Elements of the Strategic Management Process
As mentioned earlier, strategic management, in general, is the array of competitive moves and business approaches that managers employ in running a company and that are derived from the firm’s vision and objectives. In crafting a strategic course, management is saying that “among all the paths and actions we could choose, we have decided to go in this direction and rely on these particular ways of doing business.”5 A strategy signals an organization’s commitment to specific markets, competitive approaches, and ways of operating. A company’s strategy is thus the “game plan” its management has for positioning the firm in its chosen market arena, for investing money and people in the development of particular business capabilities, for developing sustainable competitive advantage, for pleasing its customers, and, thus, for achieving superior business performance. These strategies are developed in either or both of two ways: pro-actively, as a forward-looking plan to deal with anticipated market forces, or reactively, as a
response to what the firm is experiencing in the marketplace. In most firms, strategies that are developed stem from a combination of these forces.
A strategy signals an organization’s commitment to specific markets, competitive approaches, and ways of operating. A company’s strategy is thus the “game plan” its management has for positioning the firm in its chosen market arena, for investing money and people in the development of particular business capabilities, for developing sustainable competitive advantage, for pleasing its customers, and, thus, for achieving superior business performance.
Senior executives devise specific strategies for their organizations because of two very compelling needs:
■ the need to actively shape how their firm’s business will be conducted; ■ the need to mold the independent decisions and actions initiated by
departments, managers, and employees across the company into a coordinated, company-wide game plan.
Both motives have become increasingly complex in today’s global business environment. Yet …
Among all the things managers do, nothing affects a company’s ultimate success or failure more fundamentally than how well its management team charts the company’s long-term direction, develops competitively effective strategic moves and business approaches, and implements what needs to be done internally to produce good day- in/day-out strategy execution. Indeed, good strategy and good strategy execution are the most trustworthy signs of good management.6
In terms of HR, many of the same issues arise—albeit in a much more complex way—when a firm’s strategic planning “goes international” as when its strategic planning is concerned only with domestic issues. When management begins to develop and implement global strategic plans, they also begin to concern themselves with global human resource issues.7 Indeed, HR issues are among the most critical issues for successfully competing in the international marketplace. And because of that, HR should be providing input to the international strategic decision making at every step, helping with mission and goal setting, the environmental scan, design of specific strategies, and, of course, helping to implement the chosen strategies.
Once the decision is made to go international (whether this is a pro-active or
reactive choice), the task of all managers—including HR managers—is to implement that decision, to convert the strategic plan into action and get on with whatever needs to be done to achieve the international vision and targeted objectives.
The following IHRM in Action is a story of a Japanese pharma company, Takeda, tracing the decision to become more global and how that impacted all parts of the organization.8 In order to effectively implement this decision, Takeda needed to change its internal culture, starting at the top, which included—among other things—many HR decisions and programs, from hiring key non-Japanese executives with outside experience, changing the core language to English, first at the top and increasingly throughout the organization, and recruiting Japanese employees who had studied abroad.
IHRM in Action 2.1: Implementing a Global Strategy at a Japanese Pharmaceutical
Takeda is one of Japan’s oldest and largest pharmaceutical groups, a family business founded by the Takeda family seven generations ago. The last member of the Takeda family to chair the firm, Kunio Takeda, began the process of turning the strategic focus of the firm to the outside. The basic challenge that Mr. Takeda had to address was: How does a company change its corporate culture to adapt to a focus on new and different markets outside the home country?
The first major decision was to appoint someone as president from outside the Takeda family. Yasuchika Hasegawa was appointed as Takeda’s president in 2003. He not only was not a member of the Takeda family, but he had also spent long periods working outside of the country, a major shift in traditional Japanese organizational practice.
As Mr. Hasegawa indicated: “The Japanese market has very slow growth. We were left behind. We had no choice but globalization,” he says in excellent English, the legacy of more than a decade working for the company in Germany and then the US as Takeda began to sell off its non-medicine divisions and to diversify into foreign markets. For his first six years overseas, Kunio Takeda (chairman of Takeda Enterprises) was his direct boss and mentor. He undertook a drastic reorganization by refocusing on a much more diversified group. When Mr. Hasegawa was asked to take the presidency (the first non-Takeda to be so asked), he felt that Mr. Takeda had finished his role with the restructuring and the next phase was to globalize. And thus began many steps to implement this new strategy to “go international.”
Mr. Hasegawa accelerated an ambitious program of overseas acquisitions, such as Nycomed of Switzerland, as well as the recruitment of high-level outsiders to the very top of the business at home. He created an international advisory board, bringing in Karen Katen of Pfizer and Sidney Taurel from Eli Lilly, as well as Tachi Yamada, a Japanese-born executive who had spent his adult life based in the US. He left non-Japanese leaders to run the group’s international divisions, and recruited others to the headquarters in Tokyo and Osaka, including Paul Chapman, an American who now co-ordinates research and development.
Two years after Mr. Takeda stepped down, Mr. Hasegawa put Mr. Yamada on the main board. And a year later he added two other heads to Takeda divisions who have even fewer cultural connections to the country. In conjunction with these personnel decisions, he also switched the working language at senior levels to English, both for board meetings and his larger global leadership committee, aided by simultaneous translation. At more junior levels, he introduced a requirement for high levels of English proficiency among recruits, and aggressively recruited non-Japanese staff, who he encourages to work for extended periods in Japan. The reforms were not easy—resisted by members of the Takeda family as well as by other senior executives. But Mr. Hasegawa explained the needs to expand internationally: “There was strong resistance. There is a big cultural difference, but Japan is now only 35 percent of our business. Our challenge is to globalize more rapidly. To make changes, you need a core group of support.” He has also taken a pragmatic approach, for example by boosting his English-speaking recruitment drive by hiring 300 Japanese who had been studying abroad.
His reforms are far from finished, and critics suggest the linguistic challenges are nothing compared with the efforts he must make to boost innovation and co-ordinate with Nycomed, whose main business is focused on emerging markets and has a heavy generic drug component. Takeda’s international expansion began conservatively with a joint venture with Abbott of the US before expanding through acquisitions. And now with the efforts of Mr. Hasegawa—and his many global recruits, both Japanese and non-Japanese—this historic Japanese firm is now one of the truly global pharmaceutical giants.
It has all been made possible through the close involvement of the HR department in the strategic implementation of this new global strategy.
Evolution of the Multinational Enterprise
In order to place IHRM in the strategic context of the MNE, it is necessary to have an appreciation for the development of the international firm. As a firm internationalizes, it moves through stages and in each stage it must make a choice of methods for market entry (see Figure 2.2).
Figure 2.2 Evolution of the Multinational Enterprise
These market entry choices will partially be dictated by the firm’s own internationalization approach, the options it has in particular countries (due to legal requirements and opportunities), the timing of its entry into the market (early versus late entrant), and the risks it wants to bear. All of these forms of international involvement create major coordination and integration challenges, and thus are aspects of international business that IHRM professionals must thoroughly understand in order to provide senior managers with the advice they need for designing effective global businesses. An important point here is that as firms pass through the various stages, they increase their degree of international activity, and as firms increase their levels of international activity, their IHRM responsibilities become increasingly complex.
Often, IHRM is expected to provide expertise in helping the executive team make the market entry choices and to evaluate which choices work best and under which circumstances, including assessing the particular strengths and weaknesses of the firm and its managers and evaluating labor force issues in various international options. The story of Takeda described above provides one example of how IHRM can help make the kinds of decisions required to make these
Stage 1 of the Internationalization Process
At the simplest level of involvement, a firm may just decide to make financial investments in foreign firms, buying shares of stock, much as it could do within its own domestic equities markets. In general, HR is not likely to be very involved in this form of international business activity.
Historically, this has been the initial step of internationalization for most firms and usually occurs while the firm is relatively small. Due to a foreign inquiry (often unsolicited) as to the possibility of buying or selling the firm’s product(s) or the desire by the firm to expand beyond its domestic markets, many firms begin to export their products or services to foreign markets through the use of direct sales to foreign customers (via direct mail or Internet sales, for example), or they sell through import/export firms or through foreign distributors.
At this stage, there is relatively little impact on the organization and IHRM, other than possible training opportunities to ensure that employees have the knowledge necessary to carry on cross-border commerce (or staffing to recruit the few employees whose responsibilities under this scenario are international).
Stage 2 of the Internationalization Process
Sales Subsidiary/Local Sales Office
If foreign sales or purchasing increase in importance, the firm will assign a sales manager or purchasing agent responsibility for international sales. This individual may travel to foreign countries in which the firm has sales but is likely to be chosen purely for reasons of sales or purchasing experience or product or service knowledge. If direct export sales or imports are successful enough, the firm is likely to next establish its own sales or purchasing offices in those countries where sales or imports are large enough to warrant such efforts.
The next three stages in the evolution involve establishing operations abroad, that is, producing the products or services directly in foreign countries.
Stage 3 of the Internationalization Process
Operations through Licensing
Licensing the rights to manufacture or market one’s product(s) or service(s) is an option for “going international” that does not involve the setting up of directly owned subsidiaries. In this stage, the firm usually locates foreign firms that have the experience to manufacture (and sometimes market) their products—with minimal technology transfer—in order to bypass import duties and to provide the simplest avenue to local sales.
Operations through Franchising
Franchising is another form of licensing. Here the organization puts together a package of the “successful” ingredients that made them a success in their home market and then franchises this package to overseas investors. The franchisor may help out by providing training and marketing the services or product. McDonald’s is a popular example of a franchising option for expanding in international markets.
Because franchise businesses, such as McDonald’s, are usually owned locally, the impact on IHRM, other than a role in training local franchisees in staffing and other HR practices and skill training of new employees, is pretty minimal.
Operations through Contracting/Sub-Contracting
A similar strategy for entrance into foreign markets is to contract the manufacture or assembly of a firm’s products to an existing local firm. Increasingly, as firms manage their supply chains on a global basis, they sub-contract all or most of their manufacturing to firms abroad, in order to take advantage of lower labor and operating costs. Typically the firm will only have a few individuals who will travel to the foreign locales in order to transfer whatever technology is necessary and to monitor the quality of the manufacturing and final products.
The next two stages in the evolution process involve the assembly and then manufacture of products directly in the foreign country.
Stage 4 of the Internationalization Process
Wholly Owned Subsidiaries
Until quite recently, the most common way to enter international markets (beyond sub-contracting and exporting) was to conduct business through wholly owned foreign subsidiaries. Still, this is a popular form of entry into other countries. Subsidiaries can be developed in a number of ways, including through greenfield or brownfield projects or through acquisition of existing foreign-owned businesses. The development of a subsidiary through a greenfield project involves acquiring an open (green) “field” in order to build the subsidiary facilities from scratch. A brownfield project involves the purchase of existing facilities (buildings) and developing the subsidiary inside those facilities (sometimes referred to as a turnkey operation). The third alternative is often seen as providing the easiest access to new (foreign) markets and involves the acquisition of an existing enterprise that is already established in the target country.
From an IHRM standpoint, a start-up project (greenfield or brownfield) requires staffing (usually with a combination of personnel from headquarters and local nationals) and creating all IHRM policies and practices for a totally new workforce (there is a choice of transferring all policies and practices from the parent’s headquarters or basically adopting the policies and practices that are common in the new country—or, possibly, a combination of these two options).9 An acquisition, however, poses different challenges—either accepting the IHRM practices of the acquired firm or partially or totally changing them to those of the new parent firm. In both choices, however, the major challenge for the firm and for IHRM is to integrate the acquired firm’s practices (and its workforce) with those of the parent. In all cases, the knowledge base and competencies required of the parent firm’s IHRM department are clearly more complex and complicated than is the case prior to investment in any foreign subsidiaries. The effectiveness with which IHRM and the firm manages these issues goes a long way toward determining the success or failure of the venture.
Stage 5 of the Internationalization Process
Operations through International Joint Ventures (IJVs)
In recent years, the structure of choice for many businesses, including firms such as Kellogg10 and Jaguar Land Rover,11 as they go international, is the international
joint venture, in which two or more firms (at least one from each of at least two countries) create a new business entity (the joint venture) with shared ownership and managerial responsibilities. IJVs have become extremely common and are covered in more detail in Chapter 4.
Operations through International Mergers and Acquisitions (IM&As)
For many MNEs and industries, IM&A is the preferred market entry method in both developed and emerging markets in order to most easily consolidate the scope of activities and the parent firms’ positions in the global marketplace. Even so, foreign acquisitions often face national (local) economic protectionism sentiments and anti-trust laws. Similar to IJVs, IM&As are discussed in detail in Chapter 4.
Operations through International Alliances, Partnerships, and Consortia
These are defined as informal or formal partnerships or agreements that do not result in an independent legal entity. Firms using these methods do not necessarily replace their wholly owned subsidiaries. But rather they develop less formal structures, such as alliances, partnerships (e.g., in research and development projects), and other forms of linkages to operate internationally. Alliances are discussed more fully in Chapter 4.
Auxiliary Methods of Internationalization
In addition to the above methods, organizations can also use a variety of auxiliary methods to internationalize their operations. Auxiliary methods refer to approaches firms can use to further internationalize their operations at any stage. Figure 2.3 illustrates two of the most popular methods, outsourcing12 and off- shoring.13
Figure 2.3 Auxiliary Methods of Internationalization
Regus Professional Services and SBC International in Hong Kong are two examples of firms that provide service centers for international firms located or headquartered in Hong Kong, offering suites of services ranging from financial administration duties, such as accounting and payroll, to office space, photocopying, human resources, and trusted in-house advice on issues such as local employment law, company registration services, trademark registration, taxation, etc.14 By helping foreign firms in Asia to outsource these types of services, firms like Regus and SBC help these firms make the transition to becoming culturally effective organizations.
The Born-global Firm
Although many existing firms internationalize through stages, some new enterprises, especially but not exclusively in the IT industry, are born global and almost immediately operate across the globe. The reasons they operate in key global markets from their inceptions essentially stem from the nature of their products (Internet products, IT applications, and other highly specialized products with global niches), the global networking and possible partnering on projects of the engineers and scientists involved, and the marketing by these firms through the Internet. In addition, the lowering of market entry barriers as a result of the democratization of the sources of competitive advantage (venture capital, IT resources, intellectual capital, etc.) in a flat world also provides global access. The IHRM activities of these firms are focused primarily on frequent international business travel of key individuals and legal protection of intellectual property rights (patents and trademarks) in the various countries in which they operate, the hiring of key local staff, and the management of international project teams for local client service. As mentioned in the first chapter, when any firm creates a website (announcing either a product or service)—it is global. Anyone, anywhere, can (and will) access that site and some will want to buy the site’s products or services. A “classic” example of this involves the experiences of Amazon.com when they initially went “live” with their website. On the first day of operation, Amazon
received inquiries and orders from dozens of countries, a situation they had not anticipated. In addition, as suggested earlier, many “born global” enterprises are created by people from multiple countries who have met each other online or at global professional or trade conferences who decide to work together in a new enterprise to use their joint skills and ideas.
IHRM and the Evolution of Internationalization
The point of the above discussion is to demonstrate that businesses typically pass through a number of stages as they increase their degree of internationalization, although this pattern is changing with the increase of service businesses and the development of internet-based and dot.com businesses that can follow different patterns and because of the increased use of cross-border partnerships and alliances. Not all businesses pass through all of these stages as they progress from being purely domestic firms to global ones. In general, though, most companies experience most of these stages. These stages are important to the discussion of IHRM because each stage makes unique demands on the HR department. The HRM function in a firm just beginning to internationalize faces very different responsibilities and challenges than does the IHRM department in a multinational firm with several worldwide subsidiaries.
As firms increase their levels of international activity, their organizational structures (discussed in the next chapter) and IHRM responsibilities become increasingly complex. Many older, large multinational (particularly manufacturing) firms that now have numerous subsidiaries all over the world began their foreign activities by exporting. As this stage became successful for them, they typically proceeded to establish sales offices overseas to market their exports. Where and when the sales offices were able to develop sufficiently large markets, plants to assemble imported parts were established, and, finally, the complete product was manufactured locally, sometimes for local sales and sometimes for export. These overseas operations typically mimicked the firm’s domestic operations. Eventually, then, these firms have moved toward stages 4 and 5 of the evolution process.
In some ways this is a simplistic view of the development of international firms. In recent years, new patterns have developed. Some firms have used complete assembly or manufacturing plants as their means of initial entry to certain countries, normally to take advantage of cheap labor or sources of material, manufacturing products for export, such as is often the case for American and Asian firms in the maquiladora sector of the Mexican economy. Others have internationalized through sub-contracting or licensing their manufacturing. Still others have used franchising or joint ventures or partnerships to internationalize. And still others acquire their foreign operations directly. Of course, as soon as firms
put up websites to offer (or even just to describe) their products or services, they become international immediately as they receive foreign inquiries and orders online. Many firms, of course, end up relying on some combination of these entry strategies.
The pattern of development experienced in different industries also varies widely. Businesses in extraction industries, such as oil and mining, set up foreign subsidiaries to manage their extraction (and sometimes processing) operations. Banks, such as Citibank, or insurance companies, such as Lloyd’s, may initially locate in a foreign country in order to provide services to home-country clients who are active in the foreign country. Firms such as McDonald’s typically sell franchises to local individuals, but often have to first prepare an infrastructure in foreign locations in order to provide their foreign businesses with the quality and types of inputs needed before they establish their local outlets. And department store or grocery store chains, such as Walmart, CarreFour, Toys “R” Us, Ikea, or Safeway, may acquire existing similar businesses or enter foreign markets by building new stores similar to those in their home countries.
MNE Business Strategy
As shown in Figure 2.2, firms in stage 4 and beyond become a complex system of linked units that includes at least a headquarters and several geographically dispersed subsidiaries. An MNE’s business strategy provides a direction for managing the various subsidiaries. The nature of an MNE’s business strategy is primarily guided by the extent of integration and/or local responsiveness required by the firm to manage its worldwide operations.15 Integration versus local responsiveness refers to the varying degree of required interconnectedness of the MNE’s various subsidiaries with each other and with headquarters. Integration is defined as the extent to which the subsidiaries and the headquarters develop a unified whole and can thus provide the MNE with a variety of competitive advantages such as economies of scale (being able to utilize all of the firm’s global resources), improved quality, and standardization.16 In contrast, local responsiveness is defined as the extent to which subsidiaries respond to local differences, which involves the modification of products or services in order to fully meet local customer needs, respond to local competition and culture, remain compliant with various government regulations, more readily attract local employees, and penetrate local business networks.17
Integration and local responsiveness form a framework (see Figure 2.4) that can be used to describe an MNE’s business strategy.18 The horizontal axis shows the degree of local responsiveness (from low to high). The vertical axis shows the degree of integration (from low to high). This framework highlights the conflicting demands on MNEs in terms of these two countervailing forces (integration versus local responsiveness) and can be used to categorize the strategy of an MNE into four types:19 1) International; 2) Multi-domestic; 3) Global; and 4) Transnational. The following provides a brief overview of these types of MNE business strategies:
Figure 2.4 MNE Business Strategy Adapted from: Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.
International Business Strategy
This is the simplest business strategy, requiring quite limited local responsiveness as well as quite limited integration. An organization with this strategy markets and sells the same product or service locally and internationally. This is the type of strategy that begins with export or import and may be limited to licensing or sub- contracting. It typically involves no overseas offices or operations, other than possibly small sales offices.
Multi-domestic Business Strategy
MNEs with this strategy use an approach that responds to the high needs, values, and demands of the local market. This strategy is mostly used by MNEs with a multi-domestic organizational structure (see Chapter 3). With subsidiaries in multiple countries, these subsidiaries typically operate independently within each country, independently of operations in other countries, and often fairly independently, even, of the parent company headquarters. In this strategy, MNEs generally view each national market as a specialized market for its particular subsidiaries’ products and services. Examples of organizations using this type of strategy include Nestlé and Bridgestone.20
As independent as subsidiaries in this approach often become, the organization’s operations in a number of countries may reach such size and importance that the firm begins to see a need for an increased level of integration with headquarters— on at least a regional basis. At this point, the MNE may coordinate its major country subsidiaries with regional headquarters in order to more effectively manage its international operations. The regional operations are normally created through an assumption that countries within a region share some common characteristics such as cultures, geographic proximity, or stage of economic development. See Case Study 2.1 (end of the chapter) which tells the internationalization story of one well-known automotive firm—Ford Motor Company. It built auto manufacturing plants in many countries early in its history and early in the history of the automobile industry, illustrating how many firms have developed into global firms over the last 100 years and how these firms created—largely through trial and error and response to ever-changing economic circumstances—the many approaches to the conduct of international business.
Global Business Strategy
MNEs with this strategy take a unified approach that is implemented for all countries regardless of their cultural and national differences. Thus there is a high degree of centralization or integration. Products and services will be increasingly designed for and marketed to customers all over the world. This strategy is mostly implemented by MNEs through a global organizational structure (see Chapter 3). The subsidiaries are tightly connected to the headquarters, and are heavily dependent on resources, brand identities, ideas, policies, and know-how from the headquarters. Examples of organizations using type of stragey include Lenova and Infosys.21
The experiences of global MNEs suggest that running a global company is an order of magnitude more complicated than managing a multinational or international firm. The global corporation looks at the whole world as one market. It manufactures, conducts research, raises capital, and buys supplies wherever it can do the job best. It keeps in touch with technology and market trends all around the world. National boundaries and regulations tend to be irrelevant, or at least a mere hindrance. Corporate headquarters might be anywhere.
Transnational Business Strategy
MNEs with this strategy use an approach that attempts to maximize both responsiveness and integration. They are both global and multi-domestic at the
same time. In the sense that the transnational firm has a global focus, it is similar to the global firm, described in the previous section. But it differs from the global firm in that, rather than developing global products and services, the transnational works hard to localize, to be seen not as a global firm but as a local firm, albeit one that draws upon global expertise, technology, and resources. The transnational firm operates as a global network, with each subsidiary given responsibility related to its capabilities and strategic mission. This strategy is mostly implemented by firms through a transnational organizational structure (see Chapter 3). Examples of companies using this type of strategy include Procter & Gamble, and Bertelsmann.22
Headquarters’ International Orientation and MNE Business Strategy
One aspect of MNE’s business strategy that has been relatively well discussed and studied involves the orientation of senior executives, usually referred to with terms such as ethnocentrism, regio-centrism, poly-centrism, and geocentrism.23 The key strategic issue in these orientations (or mindsets) is the degree of domination of the MNE headquarters over subsidiary management and HR practices as compared to the degree of localization of subsidiary practices. Normally these orientations are explained in the context of progressive development over time from one mindset to another, as a firm develops greater international experience and sophistication. There are three different types of orientations, as illustrated in Figure 2.5: Ethnocentrism,24 poly-centrism or regio-centrism, and geocentrism.
Figure 2.5 Headquarters’ International Orientation (Senior Executives)
Overall, it would be expected that IHRM policies and practices would be as centralized (similar to integration) or decentralized (similar to local responsiveness) as the overall strategic mindset of the firm. In firms with an ethnocentric orientation, IHRM practices for international operations tend to copy parent company practices and are very centralized. In firms with a poly-centric mindset, IHRM practices tend to be decentralized and local subsidiaries tend to be much more likely to be left alone to follow local HRM practice. As shown in Case 2.1 at the end of the chapter, Henry Ford had a very poly-centric mindset, although initially he merely reproduced his original operations from the US in his foreign operations. And in firms with a geocentric orientation, IHRM practices tend to be more eclectic, borrowing best practices from around the world, rather than giving preference necessarily to either headquarters or local practices.
As IHRM becomes more involved with helping organizations be successful in their international endeavors, it hopefully will develop a strategic focus itself. That is, it will develop its own strategies to hire, manage, and retain the best employees (employees who will help achieve the organization’s global strategies) throughout the organization’s international business activities, and it will thus contribute to the firm’s overall international strategic planning.
IHRM strategy is defined as the creation and implementation of IHR practices that help achieve an MNE’s international vision and objectives, i.e., its business strategy. It also involves the strategic management of the HR function and department itself. Similar to the MNE’s business strategy, a firm’s IHRM strategy serves as a guiding principle that helps to shape and govern the firm’s international activities, particularly as they relate to the firm’s HR, worldwide. IHRM strategies are implemented through IHRM policies and practices—which are the subjects of the chapters of Section 3.
IHRM Strategy Formulation
Historically, basic trade-offs have come into play when managers have considered where in the organization certain decisions should be made. For IHRM, the central trade-off pits pressures for centralization against the need for decentralization. Centralization is very similar to the notion of integration and refers to the concentration of authority and decision making toward the top (HQs) of an organization. Decentralization is very similar to the notion of local responsiveness and is defined as the dispersion of authority and decision making to operating units throughout the organization. In the international context, this involves the degree of centralization or decentralization of corporate authority and decision making throughout a firm’s global operations.
This tension between integration (centralization) and differentiation (localization) is becoming a major dilemma for IHRM and large global firms. As mentioned previously firms must become simultaneously more highly differentiated and more integrated or coordinated. Local nationals may feel that they can run operations in their own countries, even though their firms now require a global perspective and global qualifications. Local laws and practices may dictate certain HR practices and yet an international perspective may require different approaches to routine HR responsibilities.
MNEs are frequently both praised and criticized for being tools of global integration. There are many forces for convergence, or the use of parent-company
policies and procedures throughout a firm’s global operations. MNEs face strong incentives to maximize economies of scale in research and development, purchasing, production, and markets, and encounter relatively low barriers to the dissemination of technologies and best practices. These incentives and low barriers encourage the continued use in foreign locales of practices and procedures found to work well “at home.” Of course, all of this is supported by overall firm strategies to internationalize and country cultures that encourage the view that our (company and country) way is best.
On the other hand, many firms in the past evolved in such a way in their international operations that their local and regional offices became, in many ways, independent organizations (again, refer to the Ford Motor Company story in Case 2.1). Even in markets where adaptation to local circumstances is mandatory, MNEs work hard to bridge the gap between global and local and to identify ways of reconciling global integration, e.g., in production, with the required extent of local responsiveness, e.g., in marketing and product design and in management and HR practices. Thus MNEs function as motors of a process of international convergence that may ultimately make national differences rooted in institutional and cultural characteristics less relevant or even disappear.
In addition to convergence due to company-wide policies, though, there are also enduring sources of divergence, such as attempts by local subsidiaries to become centers of excellence. Furthermore, there is considerable evidence demonstrating that cultural and institutional differences play a role in the manner in which seemingly universal techniques and procedures (globally applied) are implemented (in varying ways) within differing countries. In the end, however, the critical strategic decision for the IHRM department (as well as for the business as a whole) is the resolution of the dilemma created by the conflict between centralization for control and international (internal) control of policies and practices and decentralization to meet local requirements (localization). As was expressed in the first chapter, there is no easy answer to this choice: should the MNE superimpose practices (e.g., HRM practices) on its international subsidiaries and other forms of operations (with the local HR office run by an HR manager from the parent firm), or should it allow subsidiaries to follow local customs, laws, and practices as much as possible (with the local HR office usually run by a local national HR manager)?
The experiences of long-term multinational firms suggest that the trend is to move toward more local control and management over time, which is consistent with the pattern described in the first part of this chapter. And yet, as is discussed in greater detail later in the book, successful multinational firms have found ways (such as cross-national management training, cross-national assignments for management development and promotions, and cross-national project teams) to develop a common set of values and culture to ensure worldwide pursuit of a common corporate vision and objectives. Indeed, some firms are seeking ways to
develop globally consistent HR practices throughout all of their operations as a way to reinforce a common corporate culture.
IHRM Strategies and MNE Business Strategies
The overall effectiveness of an IHRM strategy is contingent on the context in which it is used. An IHRM strategy’s effect on organizational effectiveness is always dependent on how well the IHRM strategy fits with and supports an MNE’s business strategy.
Figure 2.6 MNE IHRM Strategy Adapted from Hannon, J., Huang, I., and Jaw, B. (1995). International human resource strategy and its determinants: The case of subsidiaries in Taiwan. Journal of International Business Studies, 26, 531–554.
Similar to an MNE’s business strategy, IHRM strategy has to deal with the issue of whether to standardize IHRM policies and practices from headquarters, or to localize them to meet local conditions, or do both (e.g., combination of core policies established by HQs with localized practices to accommodate local culture and practices).
There are three types of IHRM strategies25 that can be aligned with MNE business strategy and headquarters’ international orientation (see Figure 2.6).
Autonomous IHRM Strategy26
As shown in Figure 2.6, this type of IHRM strategy has a low degree of global
integration and a high degree of local responsiveness. Each subsidiary has the freedom to develop and implement its own IHRM policies and practices that support local rules and conditions. An MNE with this type of IHRM strategy most likely has a decentralized HR function with a small HR department at headquarters and the majority of key HR decisions made at the subsidiary level.27 This IHRM strategy is most suitable when an MNE has a multi-domestic business strategy and a poly-centric or regio-centric IHR orientation.
Receptive IHRM Strategy28
As illustrated in Figure 2.6, this form of IHRM strategy has a high degree of global integration and a low degree of local responsiveness. Each subsidiary is tightly connected with headquarters with very little freedom to adapt to the local conditions. An MNE with this type of IHRM strategy is more likely to have a centralized HR function with a large HR department that exercises considerable control over key HR decisions.29 This IHRM strategy is most suitable when an MNE has a global business strategy and an ethnocentric IHR orientation.
Active IHRM Strategy30
As Figure 2.6 shows, this type of IHRM strategy has a high degree of global integration and a high degree of local responsiveness. This strategy balances both, global integration and local responsiveness. An MNE with this type of IHRM strategy is more likely have a transition HR function with considerably more control over HR decision making than autonomous IHRM strategy but less than in a receptive IHRM strategy.31 HR at corporate headquarters and HR at the subsidiary try to balance the control over HR decision making. This strategy is most suitable when an MNE has a transnational business strategy and a geocentric HR orientation.
Research on Strategic IHRM
Research on SIHRM has been growing in recent years.32 This research has extended our understanding of SIHRM, yet there is still much that is not known about the factors that influence it. The existing research on SIHRM has found, as would be expected, that local culture and national managerial orientation influence the nature of HR practice; that the degree of global mindset influences the nature of an MNE’s global strategy; and that global strategy influences the degree of global focus in the HR strategy.33 In addition, it has been found that following appropriate global HR practices—rather than only using the parent firm’s HR practices—was associated with the later stages of an organization’s life cycle (as the MNE matures) and with better organizational performance.34 Large global Japanese and European MNEs were found to be more likely to pursue global HR practices than was the case for similar American firms. Or, stated the other way around, American firms are more likely to pursue localization of IHR than are their Japanese or European counterparts.35
In general, this research has dealt with some form of linkage between headquarters’ (corporate) international focus (for example, their degree of ethnocentrism or geocentrism) and HR policy and practice in foreign subsidiaries. If HR strategy must implement corporate strategy, then the extent to which HR practice in foreign subsidiaries reflects corporate international business strategy is an important consideration.36 But as is typically observed by researchers, the examination of IHR strategy is in its infancy. Even though a number of models have been put forward to speculate on the possible linkages (with limited supporting data), there is still much more to examine to understand the complexities of SIHRM. Both the responses and the choices are more numerous and complex in practice than these models have yet demonstrated.
Models/Frameworks for Understanding SIHRM
In an effort to understand the role of IHRM in MNEs, scholars and researchers have suggested several SIHRM models or frameworks. Each of these has some very useful and interesting contributions to IHRM. Here we present one of the earliest models37 for describing how IHRM is connected to the different strategic requirements of the MNE.
Figure 2.7 illustrates a model with five parts:
1 strategic MNE components; 2 exogenous factors;
3 endogenous factors; 4 IHRM issues, functions, and policies and practices; and 5 MNE concerns and goals.
Taken as a whole, the model enables researchers and consultants to discuss various components of SIHRM and their relationships.
Strategic MNE Components
Figure 2.7 Integrative Framework of Strategic International Human Resources Management in MNEs Source: Adapted from Schuler, R., Dowling, P., and DeCieri, H. (1993). An integrative framework of strategic international human resource management. International Journal of Human Resource Management, 4, 722–776
This part of the model includes two components: the inter-unit linkages and internal operations. Inter-unit linkages focus on how MNEs manage the different geographically dispersed operating units and describe how they balance the competing pressures for differentiation and integration. Internal operations, in contrast, describe how each unit operates within its local environment, laws, politics, culture, economy, and society. Section 1 of this book discusses issues related to this part of the model.
These factors describe forces that are external to the firm that are largely beyond an MNE’s control but can create challenges that affect an organization’s IHRM
issues, functions, policies and practices. These exogenous factors can include national culture, economic conditions, political system, legal environment, and workforce characteristics.
Section 2 of this book discusses issues related to this part of the model.
These factors describe the issues and concerns that are internal to the firm and include structure of the organization, stage of internationalization, business strategy, and headquarters’ international orientation.
The above three parts of the model affect IHRM function and associated issues, policies and practices. Indeed, the key strategic MNE objective is to balance the needs of variety (diversity), coordination, and control for purposes of global competitiveness, flexibility, and organizational learning while controlling and coordinating that variety. However, the nature of this balance is expected to vary depending on the exogenous and endogenous factors.
IHRM issues are HR issues that result from the inter-unit and intra-unit needs and challenges. As mentioned earlier the MNE has components spread across several nations, but it still remains a single enterprise and therefore must consider how to balance competing pressures for integration and local responsiveness. These issues of integration and local responsiveness are often facilitated by human resource management policies and practices, and therefore are important components in IHRM.
IHRM functions include the resources (time, energy, money) allocated to the human resource department or unit, and the location of those resources and HR decision making. The resources devoted to and the location of IHRM operations can be expected to vary considerably across MNEs and the IHRM function can take a variety of structural forms, including centralized, decentralized, and transition.
IHRM Policies and Practices
IHRM policies and practices involve the development of general guidelines on how individuals will be managed and specific HR initiatives or activities. This includes both formal policies of the organization and the actual daily practices that employees experience and include those related to planning, staffing, appraising, compensating, training and developing, and labor relations. Section 3 of this book focuses on this part of the model, discussing the core policies and practices of IHRM.
MNE Concerns and Goals
This part of the model can be defined in terms of utilizing and integrating appropriate IHRM practices and policies that enhance overall performance of the MNE on several criteria, both short term and long term. The five criteria include:
■ Global competitiveness (How can IHRM policies and practices help provide competitive advantage?)
■ Efficiency (How much can IHRM help make the MNE more efficient by delivering the most effective human resources that will deliver world-class products and services worldwide?)
■ Local responsiveness (How much can IHRM help the MNE be locally responsive and globally competitive at the same time?)
■ Flexibility (How much can IHRM help the MNE be more flexible in adapting to changing conditions—internal and external?)
■ Organizational and transfer of learning (How much can IHRM facilitate learning and transfer of this learning across geographically dispersed units?)
The chapters of Section 3 focus on the answers to these questions, on how IHRM policies and practices help the firm achieve these critical outcomes.
This chapter presented the concept of strategic international human resource management. The chapter described the evolution of the MNE in terms of various stages of internationalization and the methods firms use to enter international markets. The integration-local responsiveness framework was used to describe how MNEs form business strategies and how the business strategies impact and are impacted by IHRM. The chapter then explained how IHRM strategy is formed and described the three types of IHRM strategies that are normally found in organizations. Finally, the chapter closed with a discussion of advanced topics in SIHRM.
1 How has the multinational enterprise evolved? How have the changes in MNEs affected IHRM?
2 What are the various choices that MNEs have for entry into international business? How do the functions of HR vary with these various choices?
3 What is the link between SIHRM and IHRM? Why is it important for IHRM to be strategic?
4 How does IHRM strategy vary with an MNE’s business strategy? 5 What are some of the IHRM challenges faced by an MNE with a
transnational business strategy? 6 What are the pros and cons of centralization and decentralization of the
Case Study 2.1: The Early Evolution of Manufacturing Firms: Ford Motor Company Goes International (USA)
Ford Motor Company has been in business for over 100 years and when it comes to a global mindset, Ford is ahead of most of its competitors, although this was not always the case.
Early in its history, Ford was like many large firms, which often sent people off to other major countries to set up companies just like the one back home. The first Henry Ford, the founder of the Ford Motor Company, was in many ways an internationalist, because within a few years of establishing his company in the US he was opening manufacturing and assembly plants all over the world—the first of which was a Model T assembly plant in Trafford Park, England, in 1911—that were essentially smaller versions of the original plant in Detroit. Over the years Ford evolved into a collection of local country and regional fiefdoms.
But by the mid-1920s (even earlier in some countries), a sense of local pride had developed in the Ford plants in many countries around the world. These countries all began to develop their own automotive companies. Suddenly there were local automotive companies in the UK, in France, Germany, Australia, all making their own vehicles. Nations wanted to assert their independence and saw the automotive industry as a means of investing in their own economies. Indeed, some early automotive pioneers in other countries even began to export their own cars to other countries as well as develop their own plants elsewhere. The Europeans exported, the Americans exported, the Japanese exported—that was the way the competitive game was being played. This was the beginnings of the “multi- domestic” structure for large multinational corporations, as described in this chapter.
In the 1960s, though, regionalism began to develop with the emergence of the European Common Market, NAFTA, ASEAN, and other regional trading groups. Countries kept their own political systems and social values but formed economic trading blocs. So … big companies established regional headquarters within the various major trading blocs. Ford Europe, Ford Asia-Pacific, and Ford South America were established in this period. This was when most of the regional and functional fiefdoms (with each region becoming very independent) became firmly entrenched at Ford. (This is what is referred to in the text as the “regional” corporate structure, an extension of the “multi-domestic” structure.) The fiefdoms were excellent at what they did: they squeezed every last ounce of efficiency out of the regional model. For example, back in the period of nationalism, Ford had multiple accounting activities around the world—there were 15 in Europe alone. The regional model got it down to four: one in Europe, one in the US, one in Asia- Pacific, and one in South America. But even with that efficiency, Ford felt that the
model didn’t work anymore. Today Ford is moving to a fourth stage of economic evolution with the
globalization of all aspects of its international operations: accounting, capital, communications, economic policy, trade policy, human resources, marketing, advertising, brands, etc. The auto industry around the world has become globalized. Germany and Japan produce cars in the US, Korea produces cars in Eastern Europe, the US produces cars in Mexico and China, and India, Malaysia, China, and Mexico export cars and parts throughout the world. And there is ongoing consolidation of auto companies throughout the world as firms such as Renault (France) acquired Nissan ( Japan), Ford (US) acquired Volvo (Sweden), Tata (India) acquired Jaguar (UK/US), and Ford has just announced that Geely (China) is acquiring Volvo (Sweden). Ford now manufactures and distributes automobiles in at least 120 markets (some articles suggest 200 markets!) on six continents, with 176,000 employees (a major downsizing from over 350,000 in the last decade) in more than 80 plants worldwide (a downsizing from about 110 plants less than a decade ago). In addition, the automotive industry has become an electronics-driven industry. It is increasingly a business that requires huge investments in technology and intellectual capital, not only for constant innovations in development and manufacturing, but in automobiles themselves. And now it is technology and human capital that have globalized.
Sources: www.Ford.com (2014); www.NYTimes.com/FordMotorCompany (2014); Lapid, K. (2006). Outsourcing and offshoring under the general agreement on trade in services. Journal of World Trade, 40(2), 341–364; Neff, J. (2006). Ford announces corporate realignment. Autoblog, December 14; Wetlaufer, S. (1999). Driving change: An interview with Ford Motor Company’s Jacques Nasser. Harvard Business Review, March–April, 77–80; and Whitney, K. (2006). Ford: Driving learning and developing the “Way Forward.” Chief Learning Officer, 5(5), 44–47.
1 Source: “10 Quotes on leadership from Mark Zuckerberg,” see http://www.ceo.com/technology_and_innovation/10-quotes-on-leadership-from-mark- zuckerberg/. Accessed Nov. 2, 2014.
2 Sheehan, M., and Sparrow, P. (2012). Introduction: Global human resource management and economic change: A multiple level of analysis research agenda. The International Journal of Human Resource Management, 23(12), 2393–2403; Björkman, I., Stahl, G., and Morris, S. (2012). Handbook of Research in IHRM. Edward Elgar Publishing, Cheltenham, UK; Edwards, P. K., Sánchez, R., Tregaskis, O., Levesque, C., McDonnell, A., and Quintanilla, J. (2013). Human resource management practices in the multinational company: A test of system, societal, and dominance effects. Industry and Labour Relations Review, 66, 588–696; Zheng, C. (2013). Critiques and extension of strategic international human resource management framework for dragon multinationals. Asia Pacific Business Review, 19(1), 1–15.
3 Evans, P., Pucik, V., and Bjorkman, I. (2010). The Global Challenge: Frameworks for International Human Resource Management, New York: McGraw-Hill/Irwin; Brockbank, W. (1997). HR’s future on the way to a presence, Human Resource Management, Spring, 36(1), 65–69.
4 Ibid.; Vance, C. M., and Paik, Y. (2011). Managing a Global Workforce: Challenges and Opportunities in International Human Resource Management, 2nd ed., London and New York: M.E. Sharpe; Albrecht, M. H. (ed.) (2001). International HRM: Managing Diversity in the Workplace, Oxford, UK: Blackwell Publishers; Marquardt, M. J. (1999). The Global Advantage: How World-Class Organizations Improve Performance Through Globalization, Houston: Gulf Publishing; Harttig, M. A., Strozik, M., and Mukherjee, A. (2010). Global workforce planning. Benefits & Compensation International, 40(1), 19; Lertxundi, A., and Landeta, J. (2012). The dilemma facing multinational enterprises: Transfer or adaptation of their human resource management systems. The International Journal of Human Resource Management, 23(9), 1788.
5 Thompson, A. A., Jr., and Strickland, A. J., III (1998). Strategic Management: Concepts and Cases, 10th ed., New York: McGraw-Hill.
7 Björkman, I., Stahl, G., and Morris, S. (2012). Handbook of Research in IHRM. Cheltenham, UK: Edward Elgar Publishing; Bremmer, I. (2014). The new rules of globalization. Harvard Business Review, 92(1/2), 103–107; Walker, J. W. (2001). Are we global yet? in Albrecht, M. H. (ed.), International HRM: Managing Diversity in Workplace, Oxford, UK: Blackwell Publishers, pp. 71–75; Bartlett, C. (1983). How multinational organizations evolve, Journal of Business Strategy, Summer, 1, 10–32; Dowling, P. J., Welch, D. E., and Schuler, R. S. (1999). International Human Resource Management, 3rd ed., Cincinnati, OH: South-Western College Publishing; Fadel, J. J., and Petti, M. (2001). International HR policy basics, in Albrecht, M. H. (ed.),
International HRM, Oxford, UK: Blackwell Publishers, pp. 76–78; Harzing, A.-H. (1995). Strategic planning in multinational corporations, in Harzing, A.-H., and Ruysseveldt, J. V. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33–64.
8 Adapted from, A new corporate focus, Financial Times, Feb. 5, 2013, p. 14 (Business Life Section).
9 Lertxundi, A., and Landeta, J. (2012). The dilemma facing multinational enterprises: Transfer or adaptation of their human resource management systems. The International Journal of Human Resource Management, 23(9), 1788; Ando, N. (2011). Isomorphism and foreign subsidiary staffing policies. Cross Cultural Management, 18(2), 131–143; Colakoglu, S., Tarique, I., and Caligiuri, P. (2009). Towards a conceptual framework for the relationship between subsidiary staffing strategy and subsidiary performance. The International Journal of Human Resource Management, 20(6), 129; Collings, D. G., Scullion, H., and Morley, M. J. (2007). Changing patterns of global staffing in the multinational enterprise: Challenges to the conventional expatriate assignment and emerging alternatives. Journal of World Business, 42(2), 198; Peng, G. Z., and Beamish, P. W. (2014). MNC subsidiary size and expatriate control: Resource-dependence and learning perspectives. Journal of World Business, 49(1), 51–62.
10 Source: http://newsroom.kelloggcompany.com/2012–09–24-Kellogg-Company-And- Wilmar-InternationalLimited-Announce-China-Joint-Venture .
11 Monaghan, A. (28 November 2014). Jaguar Land Rover seals Chinese joint venture, The Telegraph, UK. Retrieved from www.telegraph.co.uk.
12 See for example Ghauri, P. N., and Santangelo, G. D. (2012). Multinationals and the changing rules of competition: New challenges for IB research. Management International Review, (2), 145; Lapid, K. (2006). Outsourcing and offshoring under the General Agreement on Trade in Services, Journal of World Trade, 40(2), 431–364; Contractor, F. J. (2011). Global Outsourcing and Offshoring: An Integrated Approach to Theory and Corporate Strategy. Cambridge: Cambridge University Press; Robinson, M. and Kalakota, R. (2005). Offshore Outsourcing: Business Models, ROI and Best Practices, 2nd ed., Alpharetta, GA: Mivar Press; and Robinson, M., Kalakota, R. and Sharma, S. (2006). Global Outsourcing: Executing an Onshore, Nearshore or Offshore Strategy, Alpharetta, GA: Mivar Press.
13 See, for example, Linares-Navarro, E., Pedersen, T., and Pla-Barber, J. (2014). Fine slicing of the value chain and offshoring of essential activities: Empirical evidence from European multinationals. Journal of Business Economics & Management, 15(1), 111–134; Schwörer, T. (2013). Offshoring, domestic outsourcing and productivity: Evidence for a number of European countries. Review of World Economics, 149(1), 131– 149; definition retrieved from http://en.wikipedia.org and www.investordictionary.com. See also, Blinder, A. E. (2006). Offshoring: The next industrial revolution?, Foreign Affairs, 85(2), 113–128; Erber, G., and Sayed-Ahmed, A. (2005). Offshore outsourcing— A global shift in the present IT industry, Intereconomics, 40(2), 100–112; and Friedman, T. L. (2007). The World Is Flat: A Brief History of the Twenty-First Century, New York:
Farrar, Straus and Giroux.
14 Setting a trend for world to follow (2011), South China Morning Post, Feb. 7, downloaded from ProQuest at http://search.proquest.com/docview/849412056? accountid=13044.
15 See Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.
16 Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press.
18 Harzing, A-W. (2000). An empirical analysis and extension of the Bartlett and Ghoshal typology of multinational companies, Journal of International Business Studies, 31(1), 101–120; Harzing, A-H (2004). Strategy and structure of multinational companies, in Harzing, A-H, and Ruysseveldt, J. V. (eds.), International Human Resource Management, London, UK: Sage Publications, pp. 33–64; Bartlet, C., and Ghoshal, S. (2010). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press. Also see Drahokoupil, J. (2014). Decision-making in multinational corporations: Key issues in international business strategy. Transfer: European Review of Labour & Research, 20(2), 199–215.
19 Bartlet, C., and Ghoshal, S. (2002). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press; Harzing, A-W. (2000). An empirical analysis and extension of the Bartlett and Ghoshal typology of multinational companies, Journal of International Business Studies, 31(1), 101–120; Harzing, A-H (2004). Strategy and structure of multinational companies, in Harzing, A-H and Ruysseveldt, J. V. (eds.), International Human Resource Management, London: Sage.
20 Rothaermel, F. (2013). Strategic Management: Concepts and Cases, New York: Irwin McGraw Hill.
22 Rothaermel, F. (2013).
23 Chakravarthy, B., and Perlmutter, H. V. (1985). Strategic planning for a global economy. Columbia Journal of World Business, Summer, 3–10; Kobrin, S. J. (1994). Is there a relationship between a geocentric mind-set and multinational strategy? Journal of International Business Studies, 25(3), 493–511; Perlmutter, H. V. (1969). The torturous evolution of the multinational corporation, Columbia Journal of World Business, January–February, 9–18.
24 See Story, J. P., Barbuto, J. E., Luthans, F., and Bovaird, J. A. (2014). Meeting the challenges of effective international HRM: Analysis of the antecedents of global mindset. Human Resource Management, 1, 31; Gupta, A.K., and Govindarajan, V. (2002). Cultivating a global mindset, Academy of Management Executive, 16, 116–125; Kedia,
B. L., and Mukherji, A. (1999). Global managers: Developing a mindset for global competitiveness. Journal of World Business, 34, 230–251.
25 Hannon, J., Huang, I., and Jaw, B. (1995). International human resource strategy and its determinants: The case of subsidiaries in Tawian, Journal of International Business Studies, 26, 531–554.
27 See Scullion, H., and Paauwe, J. (2004). International human resource management: Recent developments in theory and empirical research, in Harzing, A. W. and Ruysseveldt, J. V., International Human Resource Management, London: Sage Publications, pp. 65–88.
29 Scullion, H., and Paauwe, J. (2004).
32 See, for example, Jackson, S. E., Schuler, R. S., and Jiang, K. (2014). An aspirational framework for strategic human resource management. The Academy of Management Annals, 8(1), 1–56; Caligiuri, P. (2014). Many moving parts: Factors influencing the effectiveness of HRM practices designed to improve knowledge transfer within MNCs. Journal of International Business Studies, 45(1), 63–72; Zheng, C. (2013). Critiques and extension of strategic international human resource management framework for dragon multinationals. Asia Pacific Business Review, 19(1), 1–15; Fan, D., Zhang, M., and Zhu, C. (2013). International human resource management strategies of Chinese multinationals operating abroad. Asia Pacific Business Review, 19(4), 526–541; Ananthram, S., and Chan, C. (2013). Challenges and strategies for global human resource executives: Perspectives from Canada and the United States. European Management Journal, 31(3), 22; Andersen, T. J., and Minbaeva, D. (2013). The role of human resource management in strategy making. Human Resource Management, 52(5), 809; An, D., Zhang, M. M., and Zhu, C. J. (2013). International human resource management strategies of Chinese multinationals operating abroad. Asia Pacific Business Review, 19(4), 526; Festing, M. (2012). Strategic human resource management in Germany: Evidence of convergence to the U.S. model, the European model, or a distinctive national model? The Academy of Management Perspectives, 26(2), 37; Kramar, R., and Parry, E. (2014). Strategic human resource management in the Asia Pacific region: Similarities and differences? Asia Pacific Journal of Human Resources, 52(4), 400; Liang, X., Marler, J. H., and Cui, Z. (2012). Strategic human resource management in China: East meets West. The Academy of Management Perspectives, 26(2), 55; Sparrow, P. (2012). Globalising the international mobility function: The role of emerging markets, flexibility and strategic delivery models. The International Journal of Human Resource Management, 23(12), 2404; Clark, K., and Lengnick-Hall, M. L. (2012). MNC practice transfer: Institutional theory, strategic opportunities and subsidiary HR configuration. International Journal of Human Resource Management,
23(18), 3813–3837; De Cieri, H., and Dowling, P. J. (2012). Strategic human resource management in multinational enterprises: Developments and directions, in Stahl, G. K., Björkman, I., and Morris, S. S. (eds.), Handbook of Research in International Human Resource Management, 2nd ed., Northampton, MA: Edward Elgar Publishing, pp. 13– 35; Chung, C., Bozkurt, Ö., and Sparrow, P. (2012). Managing the duality of IHRM: Unravelling the strategy and perceptions of key actors in South Korean MNCs. International Journal of Human Resource Management, 23(11), 2333–2353; Harvey, M., Fisher, R., McPhail, R., and Moeller, M. (2013). Aligning global organizations’ human capital needs and global supply-chain strategies. Asia Pacific Journal of Human Resources, 51(1), 4; Perkins, S. J., and Shortland, S. M. (2006). Strategic International Human Resource Management: Choices and Consequences in Multinational People Management, 2nd ed., London: Kogan Page; Schuler, R. S., Budhwar, P. S., and Florkowski, G. W. (2002). International human resource management: Review and critique, International Journal of Management Reviews, 4 (1), 41–70; Schuler, R. S., Dowling, P. J., and De Cieri, H. (1993). An integrative framework of strategic international human resource management, Journal of Management 19(2), 419–459; Schuler, R. S., and Tarique, I. (2007). International HRM: A North American perspective, a thematic update and suggestions for future research, International Journal of Human Resource Management, 18(5), 717–744.
33 Beechler, S., Bird, A., and Raghuram, S. (1993). Linking business strategy and human resource management practices in multinational corporations: A theoretical framework, Advances in International Comparative Management, 8, 199–215; Hannon, J. M., Huang, I.-C., and Jaw, B.-S. (1995). International human resource strategy and its determinants: The case of subsidiaries in Taiwan, Journal of International Business Studies, third quarter, 531–554; Harris, H., and Holden, L. (2001). Between autonomy and control: Expatriate managers and strategic international human resource management in SMEs, Thunderbird, International Business Review, 43(1), 77–100; Kobrin, S. J. (1994). Is there a relationship between geocentric mindset and multinational strategy? Journal of International Business Studies, 25(3), 493–511; Lei, D., Slocum, J. W., Jr., and Slater, R. W. (1990). Global strategy and reward systems: The key roles of management development and corporate culture, Organizational Dynamics, 18, 63–77; Rosenzweig, P.M., and Nohria, N. (1994). Influences on human resource management practices in multinational corporations, Journal of International Business Studies, second quarter, 229–251; Sheridan, W. R. and Hansen, P. T. (1996). Linking international business and expatriate compensation strategies, ACA Journal, 5(2), 66–79.
34 Caliguiri, P.M., and Stroh, L. K. (1995). Multinational corporation management strategies and international human resource practices: Bringing international HR to the bottom line, International Journal of Human Resource Management, 6(3), 494–507; Milliman, J., Von Glinow, M. A., and Nathan, M. (1991). Organizational life cycles and strategic international human resource management in multinational companies. Academy of Management Review, 16, 318–339; Pucik, V., and Evans, P. (2004). People Strategies for MNEs, London: Routledge; Caligiuri, P.M., and Stroh, L. K. (1995). Multinational corporation management strategies and international human resources practices:
Bringing HR to the bottom line. International Journal of Human Resource Management, 6, 494–507.
35 Yip, G. S., Johansson, J. K., and Ross, J. (1997). Effects of nationality on global strategy, Management International Review, 37 (4), 365–385.
36 See, e.g., Perkins and Shortland (2006).
37 Schuler, R. S., Dowling, P. J., and De Cieri, H. (1993). An integrative framework of strategic international human resource management. Journal of Management, 19(2), 419.
Chapter 3 Design and Structure of the Multinational Enterprise
The world has been going global for centuries, but that will mean very different things in the 21st century than it meant in the 19th or 20th. To be a leader in the future will mean thinking globally, and not only about geography.
Samuel J. Palmisano
Former CEO, IBM1
This chapter will enable the reader to:
■ Explain the fundamentals of organizational design and structure and explain the process of designing an MNE.
■ Describe the basic characteristics associated with different organizational structures.
■ Explain the implications for IHRM from the different structures. ■ Describe the importance of teams, networking, and the need for
learning in MNEs.
One of the challenges for HR in international firms is to become an organizational architect. International organizations need appropriate structure in order to effectively conduct business in the chaotic and interconnected global economy. An important source of sustainable global competitive advantage is designing your organization for knowledge creation and sharing across borders and, thus, supporting learning and innovation on a global basis. The traditional needs for control and integration when applied across national borders in the highly complex global economy make the problems of organizational design especially difficult.
Accordingly, this chapter is about organizational design and structure for the successful conduct of international business. The development and complexity of international business is forcing firms to create new forms of organization and new applications of old forms, and these efforts are creating new challenges for management in general and IHRM in particular. Firms are having to cope with a greater number of countries (and their politics, governments, and cultures), protect
a greater level of foreign investment, deal with greater overall political uncertainties, develop new mental mindsets, and manage an increasing number of sites and partnerships in order to learn faster and better than their competitors and, thus, to grapple effectively with today’s global economy.2
This chapter starts with an introduction to organizational design and structure by focusing on the complexities involved in designing and structuring international organizations. Then the chapter describes how the pressures of integration and local responsiveness (introduced in Chapter 2) influence the design and structure of the organizations that international firms use to carry out their international activities. Then the chapter provides an overview of the various structures that international firms use as they evolve in their conduct of international business. Next the chapter describes the implications for IHRM from the different structures. And finally the chapter discusses the role of networks, global teams, and global learning organizations in maintaining complex organizational structures.
International Organizational Design and Structure: An Introduction
Organizational design refers to the process or style used by management to arrange these various components. In contrast, organizational structure refers to the formalized arrangement of organizational components such as the headquarters, subsidiaries, business units/divisions within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and reporting relationships in an organization. Organizational design is the process whereas organizational structure is the outcome.
Organizational design is the process used by management to determine the formal arrangement of components such as the headquarters, subsidiaries, business units/divisions within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and reporting relationships in the organization.
The design process and the organizational structure that results from the process —from an internationalization perspective—is essentially based on four factors:3
1 the firm’s forms and stages of international development (see Chapter 2, Figure 2.1);
2 the amount of cross-border coordination required by the firm’s strategy (that is, the degree of desired integration versus the degree of acceptable and/or necessary localization) (Chapter 2);
3 the nature and extent of host governments’ activities in the economic process; and
4 the diversity and complexity of the MNE’s business operations.
To a large degree, this concerns the form of development and inter-connectedness of an MNE’s various subsidiaries and alliances. Such subsidiaries and international alliances can range in structure from simple sales offices to complete, stand-alone operations (wholly or partially owned), formal joint ventures, and less formal partnerships of various kinds, as introduced in Chapters 2 and 4. More specifically they can take on one or more of the following three forms:4
1 The subsidiary or partnership can be a start-up (initially, probably a sales office), that can be used to establish the firm’s international business; in such a case it usually will take the structural form of reporting directly to
an executive in the domestic structure or to the head of an international and/or geographic division.
2 Once the firm has a well-established international business, it will extensively use its subsidiaries and alliances to support its business strategy. In such a case the firm is likely to develop a structure using a multidimensional network of business centers.
3 When the firm reaches the level of having a high proportion of assets/sales/employees outside of its home country, the subsidiaries become leaders in creating new market share and competitive advantages which are then transferred to the global network, and even back into the home country. In this case, the structure will be an even more complex network of multiple business centers with a strong focus on the integration of these many centers.
In all circumstances, the structure necessary to conduct international business is more complex than is the case for a purely domestic firm.
Convergence vs. Divergence
In the past, MNEs have dealt with the complexity of international business by trying to simplify their operations and organizations. This has often led to development of common policy and practice throughout their global operations and to simple forms of organization, typically copying their domestic organizational structures. This has minimized the problem of management and control in the global context, since the assumption was that if managers could handle domestic organizations, then they could also manage effectively the structures and systems duplicated to handle international commerce, transferring parent-company products, technology, and management style to foreign operations.
Major MNEs (ones with longer-term experience and with greater foreign investment and number of employees) have discovered that this doesn’t work very well. The global economy is too complex and unpredictable. Other countries and cultures don’t always accommodate the parent company products, styles, and culture. MNEs have often needed to develop more complex structures to deal with this complexity and to develop new managerial skills to deal with multiple cultures, languages, and ways of conducting business.
Designing the Multinational Enterprise
The basic problem that underlies the ability of firms to organize globally is the challenge of figuring out how to coordinate and balance the opposing forces of integrating their foreign operations with each other and with the parent firm while at the same time allowing the necessary autonomy and local control needed to meet unique national and cultural interests.5 This is what has been referred to in earlier chapters as the integration-local responsiveness problem.
MNEs need integration and sharing of learning and experience, and they typically seek common policies in a number of areas related to overall performance, such as financial objectives, yet they need to allow localized adaptation to cultural differences. The emphasis on increased layers and size of formal structure and more sophisticated systems has in fact slowed down communication, learning, and decision making, and limited international firms’ abilities to adapt effectively to local differences. Thus MNEs are turning increasingly to reduced size of business units, increased numbers of smaller business centers, and informal networks for improved communication, control, and coordination, as described later in the chapter.6 As Jay Galbraith, one of the foremost researchers on issues related to the design of the global corporation, says, “Organizing a company to do business on a global scale remains one of the most complex organizational responsibilities.”7 And coping with the challenge of combining centralized control and integration with localized product and managerial adaptation creates one of the most significant of those complexities.
It should be obvious that no one type of international organization structure embodies the right system for all firms. Rather, the MNE needs to be a multidimensional network of businesses, countries, and functions. Global customers are demanding single points of business contact and global strategies seek simplified reporting structures. In response, firms are being forced into four- and five-dimensional networks, as discussed through the rest of this chapter. Thus global managers need to be trained and developed to operate effectively with multidimensional structures as well as multiple types of structures.
International Organizational Structure Choices
Organizational structure refers to the formalized arrangement of organizational components such as the headquarters, subsidiaries, business units/divisions, and functional units within the headquarters and subsidiaries, product lines, jobs, positions, tasks, and reporting relationships in an organization. Two frameworks can be used to describe an MNE’s organizational structure.
Framework 1: Organizational Structure in Terms of Integration and Local Responsiveness
The first framework is based on the above discussion. Accordingly, the basic organizational challenge to MNEs has always been the integration of activities that take place in different countries and coordination of foreign subsidiaries with headquarters. The basic global structure, then, of every MNE can be described in terms of an integration and local responsiveness framework (see Figure 3.1). This framework highlights the conflicting demands on MNEs in terms of these two countervailing forces (integration versus local responsiveness) and can be used to describe an MNE’s structure and strategy (basic strategy was described in Chapter 2).8 The horizontal axis shows the extent of local responsiveness (high versus low). The vertical axis shows the degree of integration (high versus low).9
This approach (the integration-responsiveness grid) categorizes the internationalized structure of the firm—in terms of the HQ-subsidiaries relationship —into four types: 1) international; 2) multinational; 3) global; and 4) transnational.10
Figure 3.1 MNE Organizational Structure Adapted from: Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management:
Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (1998). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press; Harzing, A. (2004) Strategy and Structure of Multinational Companies, in Harzing, A. W. K., and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33– 64.
These various structures are inter-related. Just as firms differ in their stages of internationalization, so too do they differ in terms of the structures they adopt in their international operations. The specific international structure chosen or developed influences the type of IHRM policies and practices necessary for effective international operation. Coping with the complexities of the structure turns out to be one of the most difficult areas in which IHRM can make a strategic contribution to a firm’s international business strategy.
International Organizational Structure11
Organizations with an international structure face weak pressures for local responsiveness or differentiation and weak pressures for worldwide integration. As shown in Figure 3.1, this type of structure resembles a coordinated federation. Foreign subsidiaries may be dependent on headquarters for resources and limited direction but will still have major freedom to adapt to local conditions. Coordination and control by headquarters is likely to be even less important than in the multi-domestic structure and certainly less important than the global structure (we discuss this next). Since foreign operations in this condition are fairly limited, HRM decisions, policies, and practices will be of limited significance in the subsidiaries.
Multi-domestic Organizational Structure
Organizations with a multi-domestic structure face strong pressures for local responsiveness or differentiation and weak pressures for worldwide integration. As illustrated in Figure 3.1, a multi-domestic firm has subsidiaries in multiple countries, with these subsidiaries typically operating independently within each country, independently of operations in other countries, and often fairly independent, even, of the parent company headquarters. The MNE will have significant operations (assembly, manufacturing, service centers, R&D, branch offices) in many countries and may well reach the condition where half or more of its sales and employment is in foreign countries. Often these multi-domestic
subsidiaries become almost independent fiefdoms, as described in the Ford Motor Company case at the end of Chapter 2.
Key personnel in the multi-domestic subsidiary offices—at least initially—are often from the company’s home office with key decisions initially made at corporate headquarters. Thus, although the subsidiaries are largely staffed by people from the countries in which they are located, managers from the home office may retain authority in key areas (such as profitability and compensation bonuses), yet the subsidiary management increasingly focuses inward. The MNE at this level of development generally views each national market as a specialized market for its particular subsidiary’s products. Each subsidiary concentrates its efforts on the nation in which it is located.
The HR department’s role at this stage becomes more complex and difficult. Now HQ’s HRM may initially provide a number of services—such as relocation, compensation, and benefits for employees (international assignees) working in these foreign (to them) locations—but they must also coordinate the HRM activities and practices of the many subsidiaries, seeking both consistency with the culture and policies of the parent company and accommodation of local values and practices. But, over time, these subsidiaries are likely to become increasingly independent of HQ. In addition, training for international assignees (from the parent company or from foreign locales), local nationals, and parent-company employees to handle foreign assignments and interaction with foreign counterparts will also increase from that experience under the international structure.
As independent as subsidiaries often become, in this structure the organization’s operations in a number of countries may reach such size and importance that there is increased need for integration with corporate headquarters. The MNE may organize country subsidiaries from a close geographic region into a regional division with regional headquarters in order to coordinate operations on a regional basis, again as described in the Ford Motor Company case in Chapter 2. This will probably involve first organizing to conduct business in only one or two regions, such as Europe or Latin America (for an American firm) or maybe North America (for a European or Asian firm) or Asia (for an Asian or European firm). The HRM impacts in this regional structure are similar to those in the multi-domestic structure, although they will be managed from a regional headquarters. An assumption made is that countries within a region share some common characteristics such as country culture, geographical proximity, or stage of economic development.
Global Organizational Structure
Organizations with a global organizational structure face strong pressures for
worldwide integration but face weak pressures for differentiation or local responsiveness. As illustrated in Figure 3.1, this type of structure resembles a centralized hub. These organizations structure their foreign subsidiaries into worldwide lines of business that are heavily managed and controlled by headquarters. Assets and resources are centralized. Foreign subsidiaries are heavily dependent on these assets and resources from the headquarters. Relative to subsidiaries in multi-domestic and international structures, “global” subsidiaries have much less freedom.
In recent years, many MNEs with this type of organizational structure have worked to develop a corporate culture or mindset with the intention to become blind to the importance of national borders. That is, the desire is to operate in such a way as to not have to be concerned with national cultural and legal differences. Even though most businesses still organize on a regional basis and adaptation to local customer preferences may still be necessary, products and services are increasingly designed for and marketed to customers all over the world. This is particularly true for industrial products, that is, for products sold from business to business, such as computer chips or machine tools or construction equipment. The best technology and innovative ideas are sought everywhere and applied to markets throughout the world. Products and services are created where costs are the lowest, quality is the highest, and time to delivery is the shortest, and delivered wherever demand is sufficient. And resources (money, material and parts, insurance, even people) are sought from wherever the best quality for cost can be found. Reaching this organizational structure is not merely a matter of company size or experience in internationalization. Sometimes it is a reflection of the nature of the pressures of the particular industry; often, it reflects a purposeful, strategic decision to “go global.”
At this structural level, the role of the HR department must again shift. Key HR decisions are made at the headquarters and implemented worldwide. Employees are hired everywhere in the world, wherever the necessary skills, training, and experience can be found. Worldwide policies are developed and implemented for many aspects of HR responsibility, possibly based on practices followed in numerous places around the world. Management promotions will require international experience and managers and executives will be developed from all major countries or regions of operation. At the same time, increased sophistication in locating certain HRM practices will become even more important, as the firm tries to become a global enterprise.
This usually means fewer expatriates in local subsidiaries, an increased use of third-country nationals, and broader-based multinational composition of corporate boards and top-management and technical teams. And in most firms this means trying to develop or maintain an international corporate culture that transcends national boundaries and national cultures. Key employees need to be multilingual,
experienced in a number of countries, and culturally sensitive, and their countries of origin make little difference.
Transnational Organizational Structure
Organizations with a transnational organizational structure face strong pressures for worldwide integration and for differentiation or local responsiveness. As shown in Figure 3.1, these organizations resemble an integrated and interdependent global network of subsidiaries that have the ability to manage across national boundaries, retaining local flexibility while achieving global integration. This form of organization has a truly global focus, making resource decisions without reference to national origins, sharing its ideas and technology with all of its units on a global scale, while cultivating a local character in all of its individual businesses. It is characterized by an interdependence of resources and responsibilities across all business units regardless of national boundaries. Subsidiaries are integral parts of a complete transnational system with both global and local objectives. IHRM policies and practices are based on a collaborative process between headquarters and subsidiaries.
Bartlett and Ghoshal suggested that many firms were evolving into this new form of international business that they termed “transnational.”12 In the sense that the transnational firm has a global focus, it is similar to the global firm, described in the previous section. But it differs from the global firm in that, rather than developing global products, services, brands, and standardized processes and policies and procedures, the transnational organization works hard to localize, to be seen not only as a global firm, but as a local firm as well, albeit one that draws upon global expertise, technology, and resources.13 In a transnational firm, the focus is simultaneously on global integration, local responsiveness, and knowledge sharing among the different parts of the organization.
The transnational firm is often put forth as the direction in which all international firms are headed. The salient management and HR question may be how to manage the complex, national (cultural) diversity that this level of global business activity experiences. When integration is needed (as in joint ventures and in the development of global workforces), cultural diversity needs to be valued and utilized while minimizing its negative impacts; but when cultural diversity is needed to differentiate products and services to meet the needs of local markets, new corporate practices and organizational designs are required.
The Globally Integrated Structure
In addition to the four structural types just discussed (multi-domestic, international, global, and transnational), a popular model is a globally integrated enterprise that is very different in structure and operations.14 Samuel Palmisano, the former chairman and CEO of IBM, described the difference between a 20th-century multinational and a 21st-century globally integrated enterprise as follows. In a multinational model, companies build local production capacity within key markets, while performing other tasks on a global basis. In contrast, in the globally integrated enterprise, strategy, management, and operations—which take place in many different locations—are integrated into production of goods and services to deliver value to clients worldwide. This integrated model is made possible because of shared technologies, global IT systems, and global communications infrastructure. In a globally integrated structure, different operations, expertise, and capabilities (especially as is the case for service organizations, as IBM now describes itself)—again, located around the world—allow the enterprise to connect with its customers, using all the resources of the firm, and engage in collaborative innovation to solve the customers’ problems and challenges. HR activities in the globally integrated firm internally reflect the same laws of global integration as those provided to the external clients. Talent and expertise within the MNE flow to where they create the most value.
However, the differences between multi-domestic, global/transnational, and globally integrated firms are significant. In the traditional multi-domestic enterprise, freestanding subsidiaries or stand-alone foreign operations may be so loosely affiliated that valuable opportunities for economies of scale, joint marketing efforts, or shared technology and innovations may be lost. Country or regional operations and functional experts can develop attitudes of strong independence that can result in the loss of benefits that arise from sharing product ideas and technologies across national boundaries (refer to the Ford Motor Company case in the previous chapter). The transnational firm creates a structure and management system that takes advantage of global capabilities while allowing local subsidiaries to operate as independent businesses. The globally integrated enterprise tends to be more network-based. Whichever structure is developed, the global HR roles and activities must shift to meet the needs of the organization.
IHRM in Action 3.1: Moving HR from International to Global
The Ferro Corporation, a $1 billion manufacturer of coatings, plastics, specialty chemicals, and ceramics, has been a successful international enterprise for almost three quarters of a century and is now becoming a
model for being a global company. Several of its foreign operations, particularly those in Europe and Latin America, have existed for as much as 70 years. About two thirds of its employees are non-US nationals, and over 60 percent of its revenues and profits are derived from foreign operations.
Despite its impressive international record, only recently has Ferro begun to see itself as a global company. According to David B. Woodburg Ferro’s vice-president of human resources at that time, “There was quite a bit of sharing of information and technology among our operations in various countries, but each foreign division or subsidiary operated highly independently, formulating much of its own strategy for manufacturing, marketing, finance, and human resources.”
Since then Ferro has reorganized its corporate structure to focus on products and business lines across international borders. “Each business thinks of the world as its marketplace now,” says Woodbury. “We’re developing broad-based global strategies, with increased communications and a greater sharing of assets throughout the world.”
High on that list of “shared assets” is human resources. “We realize there is a strong need for global managers,” says Woodburg. “We have to identify, train and develop people with an international outlook, skills, and experience. Like all other facets of the corporation, human resources has to evolve into a global operation.”
Reaching this stage of development is not merely a matter of company size or experience in internationalization. Sometimes it is a reflection of the nature of the pressures of the particular industry, but often it reflects a purposeful, strategic decision to “go global.” IHRM in Action 3.1 describes a moderately sized firm, the Ferro Corporation, which made a powerful shift to being a global MNE.15
Framework 2: Organizational Structure in Terms of Business Units/Divisions
The second framework16 for describing organizational structure is relatively more detailed and describes the organizational structure in terms of the business units/divisions within the headquarters and subsidiaries (refer to Figure 3.2). The traditional choices include 1) functional division structure; 2) product division structure; 3) geographic division structure; and 4) global matrix division structure.
Functional Division Structure17
Departments in a functional structure are organized according to functions, e.g., operations, marketing, finance, accounting (see Figure 3.2). Subsidiaries either report directly to the CEO or the VP of operations or to marketing or manufacturing. Organizations that are in the early stages of internationalization usually have this divisional structure. In addition, this divisional structure is most likely found in firms with an international organizational structure.
Product Division Structure18
Figure 3.2 Functional Structure
Figure 3.3 Product Structure
Departments in this structure are organized according to their product divisions (see Figure 3.3). Each of the product lines contains all of the business functions such as finance, marketing, and accounting. That is, all functional activities are controlled by a product group. This divisional structure is most likely to be found in firms with a global organizational structure. Managers at the headquarters make most of the product decisions and input from subsidiaries is very limited.
Geographic Division Structure19
In this structure, the product division typically gives way to a geographic divisional structure with each region becoming an independent division reporting directly to the CEO. Each region has its own set of specialized functions (see Figure 3.4). Country or regional managers in each area are provided with substantial autonomy to adapt the strategies of the parent country product divisions to fit the specificity of the local conditions. Firms with a multi-domestic organizational structure are more likely to use this type of divisional structure.
As the need for more business centers increases, for example to accommodate additional countries and for additional research and development centers to adapt products to local customers, the simple hierarchical functional, product, and geographic divisional structures turn out to be inadequate to handle the complexities of the needs of today’s MNEs, which often have multiple organizational forms and networks. The organizational needs of the modern MNE must be a mix of functional, product, and geographic divisional structures.
Global Matrix Structure20
Figure 3.4 Geographic Structure
As concerns for cost control compete with concerns for integration and cross- fertilization across national borders, firms tend to look for ways to coordinate all the many critical components of the firm: country subsidiaries, product lines, local and global customers, business functions, research and development, regional and central headquarters, etc. Thus, other combinations of the critical variables are developed to include structures to integrate the traditional business functions with country and product (see Figure 3.5). Often these organizational designs have evolved as the firm has increased its global presence and tried to cope more effectively with the complexities it encounters.
These matrix structures involve two or more lines of reporting. Typically there will be a country “leg” to the matrix with managers reporting to a local national boss plus reporting to a product group or regional or headquarters functional office, as well. Sometimes there are three or more legs and they may be given equal importance (solid-line reporting) or may have different levels of priority, with a solid line for direct reporting and dotted line for more indirect reporting relationships.
Figure 3.5 Matrix Structure
These structures cause a new set of dilemmas and require a new set of skills. The many diverse demands of global business require the global firm to give management focus to both the local and the corporate levels. The matrix doesn’t resolve this dilemma, it just makes it a permanent part of the management environment. At best, the matrix structure allows local and global realities to be reconciled; at its worst, it allows individual managers to pursue narrow objectives without regard to their impact on the other legs of the matrix, that is, on the other parts of the organization. Problems with divided loyalties and multiple bosses have to be resolved. Ultimately, managers working in a global matrix organization must learn to think more broadly and, as stated earlier, to develop network skills to negotiate resources, resolve trade-offs, and to manage through influence and persuasion, not necessarily through direct authority.
At the level of the individual, the central dilemma that many managers face in this organizational need for integration is that of divided loyalties. Loyalty is local, that is, people are more loyal to the colleagues they socialize with, see daily, and spend time with. If the formal organizational structure requires interaction with strangers (particularly strangers in another country—even if that other country is headquarters), it is only to be expected that priority attention will flow to the local colleagues, unless significant effort is put into developing the relationships across borders. Interestingly, attitudes about loyalty vary according to country culture and to functional specialty. For example, managers in Spain and France prefer loyalty to the remote (normally central) part of the organization while managers in the
UK, Ireland, and China prefer loyalty to local colleagues. HRM was one of the functions that most preferred loyalty to local colleagues. But, clearly, HR must get involved with training managers in the need to foster both local and central relationships and must foster such relationships themselves.
IHRM and International Organizational Design and Structure
As mentioned earlier organizational design refers to the process or style used by leaders and managers to arrange the various components of organizational structure. This process is increasingly complex and to a large degree presents mostly new and complex organizational and people issues, such as cross-border negotiations, cultural sensitivities, coordination and control across national boundaries and time zones, cross-border and cross-cultural teamwork, and global learning and integration. As the number of countries and cultures and variety of international business activities, as well as the use of cross-border teams and task forces, continue to increase, the more important IHRM has become in helping firms make sure that their globalization works. When designing organizations, IHRM is guided by the extent of desired integration versus the degree of acceptable and/or necessary differentiation.
IHRM needs to not only be able to support the organizational structure of the MNE and deliver the glue technology that these different groupings need to integrate, but it must also organize itself to effectively deliver HR transactional services for all locations of the MNE. The traditional IHRM view of how to best organize itself, in the early stages of internationalization, was focused on either servicing the subsidiary’s HR needs (with outsourced help) at arms-length from the HQ, or hiring local HR country managers to deliver these services on location. However, both options had major drawbacks. HQ HR managers are often simply incapable (and dangerously unknowledgeable) in managing HR practices outside of their own countries (due to both their lack of international exposure and to the legal and cultural complexity of host countries) and locals, although knowledgeable to deliver transactional HR services in their local countries, may not be cost-effective and often lack the strategic HR components in their jobs that are used by HQs to implement corporate programs in the local environment.
To remedy some of these shortcomings and as a result of the capabilities provided through modern IT and communication technologies, a new organizational form has been emerging to deliver HR transactional services in the MNE. This new structure for the delivery of HR services throughout an MNE’s global operations is referred to as “shared services” and “centers of excellence.” In a shared service model, individual country operations can specialize in varying aspects of international HR services and then, given the power of intranets, countries can access these centers of excellence without having to develop them all themselves. In this way, all of the MNE’s foreign operations can have available world-class IHRM capabilities.
Formal Structure and Beyond
The challenge for the management of MNEs and their IHR departments is to learn how to manage all of these networks and linkages. Here is a short introduction to networks, one of the most important forms of linkage.
One of the most important competencies that holds together these complex global businesses are the informal networks that individual managers develop throughout the many centers of the firm. These networks work only if the managers who interact with each other to get their planning and implementation done know and trust each other well enough to work out their different purposes. It requires constant attention to the skills of integration and to management development programs that have as one of their major foci the building of such networks and the competencies of integration.
Firms have tried a number of strategies to hold these complex global businesses together with increasingly complex formal structures—including multiple dimension matrixes, with formal reporting structures that include product lines, functional responsibilities, country business units, regional and parent-country headquarters, multiple specialty centers such as R&D and product development and global training and development, and cross-border acquisitions, IJVs, partnerships, and virtual teams, described in the next chapter.
Because of these multiple and complex layers, informal networks of relationships develop in order to handle the practical components of day-to-day business activity, such as business planning. Such informal networks only work if the people that need to interact and coordinate have a shared super-ordinate vision of the direction of the overall firm and their parts in it, high capacity for self- control and willingness to collaborate, and capacity to negotiate their differences. This requires constant attention to the application of what Evans calls “glue technology,” or the management development technology of integration, that is, management development practices that have as a primary purpose the integration of the management and executive workforce of the firm and the building of the necessary competencies to use the resulting networks in an effective way.21 Such global management development programs are discussed more fully in Chapter 10 on International Training and Management Development.
Use and Management of Cross-border Teams
Given the increasing complexity of organizations, much of the work that needs to get done in a global enterprise requires a high degree of interaction and interdependence between globally dispersed organizations and between people in various, globally dispersed sections of those organizations. This interaction is often relegated to a work group, or team.22 And, increasingly, these teams are made up of people from multiple and varying organizations (or parts of the same organization), geographic locations, countries, cultures, languages, ways of thinking and working, and time zones. Often they have the characteristics of “virtual” teams, that is, they don’t meet face-to-face and are not co-located; they are widely geographically dispersed.
Types of Cross-border Teams
These cross-border teams come with many different names: global teams, multinational, multicultural, transnational, transcultural, geographically distributed or geographically dispersed, non-co-located or out-of-sight teams. All of these terms refer to the phenomenon of people working together in teams, with common goals, but who are not physically located in the same place and often do not meet but rather conduct their “business” via electronic means. In this book, such teams will generally be referred to by the term cross-border teams, since this is the primary structure of interest in this chapter and the phrasing that seems to be most commonly used.
Challenges of Cross-border Teams
These cross-border teams represent a dramatic change in the ways managers function and they present two major new challenges.23 Both of these challenges stem from issues related to the physical separation of workers and managers made necessary by globalization24 and made possible by modern technology.25
The first challenge has to do with managing people you can’t see. Managers must make the transition from managing activities to managing projects and their results. The second managerial challenge is to redefine the role of management itself, since the “virtual” nature of cross-border teams creates much uncertainty as to whether managers still have a role to play in managing employees who are no longer present in the same locale. As a consequence, these teams tend to be largely self-managing, with the members working very interdependently and coordinating via the internet.
Popularity of Virtual Teams
The goal in this discussion of cross-border teams is to provide enough understanding of the problems and their solutions so that IHRM managers can provide the necessary advice, training, and facilitation to ensure their global firms can gain the intended and possible benefits. (More detail is available in the Schuler, Jackson, and Luo book, Managing Human Resources in Cross-Border Alliances, in this series.26) Learning to manage these teams will become increasingly more important as such virtual teams become more prevalent for several reasons:
■ The complexity of global business requires the interaction and networking of people with multiple competencies from many different locations.
■ Virtual teams save firms the money involved in travel for teams to meet or to relocate team members so they can be together.
■ Technology such as the internet, video teleconferencing, and Skype makes it much easier for cross-border teams to meet in a virtual fashion. These teams can function in one or both of two different modes:27
1 They can do everything (or most things) face-to-face, which requires extensive travel to get team members together (and which eliminates one of the reasons for using such teams in the first place, that is, their ability to meet electronically); or
2 They can do most of their work in virtual mode, relying on electronic technology to facilitate their interaction.
Best Practices in the Management of Virtual Teams
Many problems arise with over-reliance on virtual teams and on teams meeting in virtual mode, although one unanswered question is whether younger people who “grow up” using the computer and are much more used to interaction with others via a computer monitor or cell phone might be better able to interact effectively without the need for face-to-face time and be able to trust out-of-sight team members well enough to overcome these problems. The use of e-mail may increase the quantity of interaction, but some studies suggest the quality decreases.28
Most studies, in fact, suggest that the critical variable in the successful functioning of virtual teams is the level of trust between team members. This seems to be a function of the amount of time the team has spent in “face-to-face” time, particularly at the beginnings of the life of the team.29 Some experience with virtual teams also suggests that the “half-life” of trust in virtual teams, i.e., the time
it takes before the level of trust falls below some dangerous threshold, is less than three months.30 What this indicates is that virtual teams, in order to maintain healthy working relationships, probably need to meet face-to-face every three months or so.
Exhibit 3.1: Best Practices for the Effective Management of Cross-border and Virtual Teams31
■ Develop an e-mail protocol, to include appropriate topics, frequency and time of use, definition of urgency, who should participate and when, the importance of respect in use of titles, definition and use of deadlines, etc.
■ Select the appropriate people for virtual team membership, including people who are self-starters, have strong communication skills, and have good virtual-team skills (can use e-mail well, etc.).
■ Identify from the beginning the team member who will have the team leadership role.
■ Keep virtual team projects focused on the task, with clear goals, targets, and deadlines.
■ Provide adequate face-to-face social time to build the trust necessary to work well in a virtual format.
■ Celebrate the reaching of targets and completion of projects. ■ Identify the barriers to collaboration that you want to overcome and
work together to resolve them. ■ Provide cultural mentors to the team to deal with cross-cultural
problems and misunderstandings and IT technicians to help with technology problems.
■ Identify what people should do when a crisis occurs, including whom to contact and the decision-making hierarchy within the group.
■ Identify the ground rules for virtual teamwork, including establishing regular times for group interaction, setting up firm rules for communication, using visual forms of communication whenever possible, establishing rules for sharing project information outside the team, etc.
Managers supervising the physically remote legs of the global firm now have the additional challenge of managing these “virtual” teams. As already indicated, these teams operate across barriers of distance, and differing cultures, time zones,
and technologies. Most management training still assumes that management skills are applied face-to-face and in the manager’s own culture, which is no longer the reality for many of these managers. Using the old skills to manage these new remote operations results in too much travel, inappropriate attempts to micro- manage (since trust and relationships have not been developed), and concerns about personal visibility with remote staffs. Managers in these new organizations need to gain the skills of relationship building and teamwork from long distance. Exhibit 3.1 illustrates some of the lessons learned about the effective management of cross-border and virtual teams.
The Global Learning Organization
Ultimately, the “tie” that binds the global firm together is the intellectual and social capital it has in the experience, knowledge, and skills held by its employees around the world and its abilities to share, and use that knowledge on a global basis. In today’s world, where the only sustainable competitive advantage any firm has is its ability to learn and innovate faster than its competitors and react more quickly to continual volatility and change, creating a culture of learning and nurturing, and facilitating that learning across borders may be the only avenue to success.32 In today’s global economy, “change is complex and messy, [so] many stick with the known for fear of the unknown…. It is much more reassuring to stay as you are … than to try to make a fundamental change when you cannot be certain that the effort will succeed.”33 Yet a firm has to do it, in order to survive and thrive in today’s environment. It has to take the risk to find ways to facilitate learning so that change is possible. As John Browne, former CEO of BP Amoco, put it, “learning is at the heart of a company’s ability to adapt to a rapidly changing environment.”34 From a global perspective, this means a firm must facilitate learning on a global basis—across borders, across parts of the organization in different country locales, within global and virtual teams, with people on foreign assignments and after they return from those assignments, and in international joint ventures and cross-border partnerships and alliances.
As Peter Senge says, “perhaps for the first time in history, humankind has the capacity to create far more information than anyone can absorb, to foster far greater interdependency than anyone can manage, and to accelerate change far faster than anyone’s ability to keep pace.”35 Thus the challenge to firms is that learning on a global basis must become a central managerial focus. Technology alone (such as creating IT databases and repositories of knowledge and experience) will not solve the challenge. Nor will merely stating principles and values of collaboration. People must want to use such knowledge sources and must be willing to contribute their own “learnings” to them. In the end, people must be
1 the importance of learning; 2 the need to share and use information.
In turn, the MNE (and IHRM) needs to create the organizational culture and structure and the HR policies and practices that encourage and facilitate such attitudes and behaviors. This is the essence of learning in organizations and knowledge management.36
In terms of the conduct of international business, the global firm must use its people who have international experience and knowledge and who have been posted to international assignments, spreading them throughout the organization. It must ensure that individuals coming back from overseas assignments are provided new jobs that use the knowledge and skills learned overseas and are given opportunities to share that learning. In order for a firm to reap the benefits of global learning, it is imperative that its valuable expatriate employees remain with the organization long enough to share their experiences—and presumably even longer, to contribute to the firm’s ongoing globalization. Since learning is so important, and learning across borders (taking advantage of the global experiences and multinational learning of a global firm’s global workforce) is so necessary, then carefully managing employees on foreign assignments to ensure successful expatriation and repatriation would seem essential. (These issues are discussed in detail in Section 3, Global Talent Management.)
Special efforts also need to be made to expose employees and managers “at home” to the products and processes of foreign subsidiaries and foreign acquisitions and partners, and vice versa, including visits to each other’s operations to observe and learn through direct interaction. The firm must spread employees and managers from the countries of its operations throughout its organization, including at the very highest levels of the executive team and the board of directors itself. Only in these ways can the global firm make effective use of any processes or technologies that have been adopted to facilitate learning on a global scale, such as talent directories, intranets for sharing information, etc.
This chapter has focused on the difficult task of designing organizational structure for the complexities of the modern international enterprise. First, it described how the conflicting demands on MNEs in terms of two countervailing forces (integration versus local responsiveness) influences the design and structure of the organizations that international firms use to carry out their international activities. Then the chapter provided an overview of the various structures that international firms have utilized as they have evolved in their conduct of international business. Next the chapter described the implications for IHRM of the different structures. And finally the chapter discussed the role of networks, global teams, and global learning organizations in maintaining complex organizational structures.
1 Using materials from Chapter 3, explain how market entry methods are related to organizational structure.
2 What are the various choices that MNEs have for designing organizational structure? How do they differ from an HR point of view?
3 How can IHRM help to ensure the success of firms with a global organizational structure and a transnational organizational structure?
4 How do networks and learning organizations help to ensure an MNE’s competitive advantage?
Case Study 3.1: Capgemini: A Transnational Organization (France)
Capgemini, founded in 1967 and headquartered in Paris, France, is Europe’s largest IT software and services group. The firm has taken all available means (organic growth, acquisitions, and alliances) to become Europe’s number 1 in computer services and consulting and, as of 2014, among the top five of the world’s IT management and services consultancies. Its almost 140,000 people work in over 40 countries. For example, in 2000 Capgemini acquired Ernst & Young Consulting and in 2002 they spun off their Sogeti Group as a wholly owned subsidiary specializing in IT consulting and outsourcing, which now has over 20,000 employees working in 7 countries.
The original merger of Cap, a computer services group, and Sogeti, a business management and information processing company, brought together operations in the UK, the Netherlands, Switzerland, and Germany, with a head office in France. Further acquisitions brought in a large number of small groups throughout Europe and the US. This expanded its coverage to IT consulting, customized software, outsourcing services, and education and training. In recent years, this strategy has expanded Capgemini’s work to countries such as India, the Czech Republic, and Sweden, with major partnerships with major software firms such as SAP and Microsoft. Moreover, they now have operations in Asia-Pacific (including Australia and China) and Latin America. In 2013, sales increased by 12 percent in Asia- Pacific and Latin America. Similarly, revenue increased by 16 percent in Australia. Global expansion is important to Capgemini.
Capgemini has always been highly decentralized, but its internal strategy has been that when any of its branches reached 150 personnel, the branch is split in two. This gives the firm greater flexibility in responding to variations in local demand. Decision making and direct customer service are facilitated with smaller teams.
Capgemini has developed information pooling systems to ensure that innovative solutions developed in one country or business will be rapidly disseminated to other countries and businesses. These include electronic bulletin boards and extensive electronic and voicemail facilities, plus the organizational culture of informal networks of professionals who work frequently together in project teams.
The challenges for this fast-growing transnational have major HR components, e.g., integrating its wide variety of organizations into a group with a common culture capable of working within a complex web of ownership relationships, while benefiting from the strengths of the relationships that exist among its “family” of committed, semi-autonomous professionals. Internally, Capgemini and its IHR team work to clarify and coordinate roles, objectives, systems, and
resources, particularly its skilled professional staff, across countries and markets. For example, its Genesis project took two years to achieve this integration, but now Capgemini sees itself as coming much closer to achieving its aim to be a modern transnational enterprise.
Sources: Capgemini website (2014), http://www.capgemini.com; also http://en.wikipedia.org/wiki/Capgemini; Segal-Horn, S., and Faulkner, D. (1999). The Dynamics of International Strategy, London: International Thomson; and Segal-Horn, S., and Faulkner, D. (2010). Understanding Global Strategy, Andover, Hampshire, UK: South-Western Cengage Learning EMEA.
1 What makes a firm a “transnational enterprise”? 2 Does Capgemini meet the criteria for being a transnational? Why or why
not? 3 What are the HR implications of being a transnational? What makes HRM
in a transnational different from HRM in, for instance, a multi-domestic firm?
4 What kinds of problems do you see in Capgemini’s strategy for structuring its business?
1 Source: Change is the only constant, The Business Times, Feb. 14, 2014. Also mentioned in IBM Centennial Lecture, March 31, 2011 (www. http://www.ibm.com/ibm/files/Y856416N01277W70/centennial_lecture_erich_clementi_austria_preparedremarks.pdf
2 Galbraith, J. A. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit and Enterprise Levels, 3rd ed., San Francisco: Jossey-Bass Evans; Pucik, V., and Bjorkman, I. (2010). The Global Challenge: Frameworks for International Human Resource Management, New York: McGraw-Hill; Bartlett, C. A., and Ghoshal, S. (1989). Managing Across Borders: The Transnational Solution, Boston: Harvard Business School Press; Galbraith, J. R. (1998). Structuring Global Organizations, in Mohaman, S. A., Galbraith, J. A., and Lawler, E. E., III (eds.), Tomorrow’s Organization: Crafting Winning Capabilities in a Dynamic World, San Francisco: Jossey-Bass, pp. 103–129.
3 Galbraith, J. R. (1998), Structuring global organizations, in Mohrman, S. A., Galbraith, J. R., and Lawler, E. E., III, (eds.), Tomorrow’s Organizations: Crafting Winning Capabilities in a Dynamic World, San Francisco: Jossey-Bass, pp.103–129. Also see Galbraith, J. R. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit and Enterprise Levels, San Francisco: Jossey-Bass & Pfeiffer Imprints, Wiley; Galbraith, J. R. (2010). The multi-dimensional and reconfigurable organization. Organizational Dynamics, 39(2), 115–125.
4 Based on ibid.
5 Evans, P. A. L. (1992). Human resource management and globalization. Keynote address delivered to the 2nd International Conference of the Western Academy of Management, June 24–26, Leuven, Belgium; Evans, P., Pucik, V., and Barsoux, J.-L. (2002). The Global Challenge: Frameworks for International Human Resource Management, Boston: McGraw-Hill Irwin; and Galbraith, J. R. (2000). Designing the Global Corporation, San Francisco: Jossey-Bass.
6 Evans, P. A. L. (1992).
7 Galbraith, J. R. (2000), p. 1.
8 Based on Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill; Bartlet, C., and Ghoshal, S. (1998). Managing Across Borders. The Transnational Solution, Boston, MA: Harvard Business School Press; Harzing, A. (2004) Strategy and Structure of Multinational Companies, in Harzing, A. W. K., and Van Ruysseveldt, J. (eds.), International Human Resource Management, 2nd ed., London: Sage Publications, pp. 33–64.
9 Based on Bartlet, C., Ghoshal, S., and Beamish, P. (2010). Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston: Irwin McGraw Hill.
12 Pucik, V., and Evans, P. (2004). The human factor in mergers and acquisitions, chapter 8, in Morosini, P. and Steger, U. (eds.), Managing Complex Mergers, Real World Lessons in Implementing Successful Cross-cultural Mergers and Acquisitions, London: Prentice Hall, pp.161–187; Bartlett and Ghoshal (2010).
13 Segal-Horn, S., and Faulkner, D. (1999). The Dynamics of International Strategy, London: International Thomson Business Press.
14 Palmisano, S. J. (2006). Multinationals have to be superseded, Financial Times, June 12: 19.
15 Source: http://www.ferro.com/About/History/ (2014). Adapted from E. Brandt, Global HR. Personnel Journal, March 1991. Also see Bartlett, C. A., and Ghoshal, S. (2010). Managing Across Borders: The Transnational Solution, Boston: Harvard Business School Press; Segal-Horn and Faulkner (1999).
16 This has been the traditional perspective to describe organizational structure. For early work on this topic see Rumelt, R. (1986). Strategy, Structure, and Economic Performance (Rev. ed.), Boston, MA: Harvard Business School Press; Chandler, A.D., Jr. (1962). Strategy and Structure: Chapters in the History of the American Industrial Enterprise. Cambridge, MA: MIT Press; Miles, R., and Charles S. (2003). Organizational, Strategy, Structure and Process, Stanford: Stanford University Press. For more current work see Galbraith, J. A. (2014). Designing Organizations: Strategy, Structure, and Process at the Business Unit and Enterprise Levels, 3rd ed., San Francisco: Jossey-Bass Evans.
17 Palmisano (2006).
20 For more information on the Global Matrix Structure see Galbraith, J. R. (2013). Matrix management: structure is the easy part. People & Strategy, (1), 6; Galbraith (2014).
21 Evans, P. A. L. (1992), op. cit., p. 4.
22 See Rabotin, M. (2014). Connecting virtual teams: global, virtual teams must learn how to align behaviors and collaborate across cultures and around the world. T+D, (4), 32; Magnusson, P., Schuster, A., and Taras, V. (2014). A process-based explanation of the psychic distance paradox: Evidence from global virtual teams. Management International Review, (3), 283; Zander, L., Zettinig, P., and Makela, K. (2013). Leading global virtual teams to success. Organizational Dynamics, (3)., 228; Hoch, J. E., and Kozlowski, S. J. (2014). Leading virtual teams: Hierarchical leadership, structural supports, and shared team leadership. Journal of Applied Psychology, (3), 390; Erez, M., Lisak, A., Harush, R., Glikson, E., Nouri, R., and Shokef, E. (2013). Going global: Developing management students’ cultural intelligence and global identity in culturally diverse virtual teams. Academy of Management Learning & Education, 12(3), 330–355; Klitmøller, A., and Lauring, J. (2013). When global virtual teams share knowledge:
Media richness, cultural difference and language commonality. Journal of World Business, 48(3), 398–406; Armstrong, D. J., and Cole, P. (1995). Managing distances and differences in geographically distributed work groups, in Jackson, S. E., and Ruderman, M. N. (eds.), Diversity in Work Teams, Washington, DC: American Psychological Association, pp. 187–215; Cascio, W. F. (2000). Managing a virtual workplace, Academy of Management Executive, 14(3), 81–90.
23 This section borrows heavily from Cascio, W. F. (2000). Managing a virtual workplace, Academy of Management Executive, 14(3), 81–90.
24 Marquardt, M. J., and Horvath, L. (2001). Global Teams: How Top Multinationals Span Boundaries and Cultures with High-Speed Teamwork, Palo Alto, CA: Davies-Black; Moran, R. T., Harris, P. R., and Stripp, W. G. (1993). Developing the Global Organization, Houston, TX: Gulf Publishing; Odenwald, S. B. (1996). op cit.; and O’Hara-Devereaux, M., and Johansen, R. (1994). Globalwork: Bridging Distance, Culture, and Time, San Francisco: Jossey-Bass. Also see Cramton, C. D., and Hinds, P. J. (2014). An embedded model of cultural adaptation in global teams. Organization Science, 25(4), 1056–1108; Zander, L., Mockaitis, A. I., and Butler, C. L. (2012). Leading global teams. Journal of World Business, 47(4), 592; Sullivan, B. (2013, Jul 04), International teams must also be local. Financial Times.
25 Duarte, D. L., and Snyder, N. T. (2006). Mastering Virtual Teams, San Francisco: Jossey- Bass; and O’Hara-Devereaux and Johansen (1994).
26 Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross- border Alliances, London: Routledge.
27 Duarte and Snyder (2006).
28 Evans, Pucik, and Barsoux (2002).
29 Ibid., 314–315.
30 Armstrong, D. J., and Cole, P. (1995). Managing distances and differences in geographically distributed work groups, in Jackson, S. E., and Ruderman, M. N. (eds.), Diversity in Work Teams, Washington, DC: American Psychological Association, pp. 187–215; Cramton, C. D. (2002). Finding common ground in dispersed collaboration. Organizational Dynamics, 30(4), 356–367; De Meyer, A. (1991). Tech talk: How managers are stimulating global R&D communication, Sloan Management Review, 32(3), 49–66.
31 This list is adapted from Solomon, C. M. (1998). Building teams across borders. Workforce, 3(6), 12–17; Solomon, C. M. (2001). Managing virtual teams. Workforce, 80, 60–64; and Johnson, C. (2002). Managing virtual teams. HR Magazine, 47(6), 68–73. Also see Goodman, N., and Bray, S. M. (2014). Preparing global virtual teams for success. Training, 51(5), 64–65; Klitmøller, A., and Lauring, J. (2013). When global virtual teams share knowledge: Media richness, cultural difference and language commonality. Journal of World Business, 48(3), 398; Purvanova, R. K. (2014). Face-to- face versus virtual teams: What have we really learned? The Psychologist Manager
Journal, 17(1), 2.
32 See, for example, Berry, H. (2014). Global integration and innovation: Multicountry knowledge generation within MNCs. Strategic Management Journal, 35(6), 869–890; Shieh, C., Wang, I., and Wang, F. (2009). The relationships among cross-cultural management, learning organization, and organizational performance in multinationals. Social Behavior and Personality, 37(1), 15–30.; Blomkvist, K. (2012). Knowledge management in MNCs: The importance of subsidiary transfer performance. Journal of Knowledge Management, 16(6), 904–918; Najafi-Tavani, Z., Giroud, A., and Andersson, U. (2014). The interplay of networking activities and internal knowledge actions for subsidiary influence within MNCs. Journal of World Business, 49(1), 122–131; Hocking, J., Brown, M., and Harzing, A. (2007), Balancing global and local strategic contexts: Expatriate knowledge transfer, applications, and learning within a transnational organization, Human Resource Management, 46(4), 513; Klitmøller, A., and Lauring, J. (2013). When global virtual teams share knowledge: Media richness, cultural difference, and language commonality. Journal of World Business, 48(3), 398–406; McGuinness, M., Demirbag, M., and Bandara, S. (2013). Towards a multi-perspective model of reverse knowledge transfer in multinational enterprises: A case study of Coats plc. European Management Journal, 31(2), 179–195.; Fang, Y., Wade, M., Delios, A., and Beamish, P. W. (2013), An exploration of multinational enterprise knowledge resources and foreign subsidiary performance. Journal of World Business, 48(1), 30–38.; Kotter, J. (2012), Accelerate! Harvard Business Review, November, 2–13.
33 Daft, R. (2002). The Leadership Experience, 2nd ed., Orlando, FL: Harcourt College, 582.
34 Prokesch, S. E. (1997). Unleashing the power of learning: An interview with British Petroleum’s John Browne. Harvard Business Review. Sept.–Oct., 148.
35 Senge, P. (2006). The Fifth Discipline (updated and revised). New York: Doubleday/Currency, 69.
36 Jackson, S.E., and Schuler, R.S. (2001). Turning Knowledge into Business Advantage, Financial Times, January 15: Special Section, Part 14.
Chapter 4 International Mergers and Acquisitions, International Joint Ventures, and Alliances
We form partnerships to help us make our products and services more sustainable and help us improve the communities in which we operate…. Together we can help solve the world’s greatest challenges.
This chapter will enable the reader to:
■ Describe the basic nature of international mergers and acquisitions, international joint ventures, and international alliances.
■ Explain the major IHRM implications from international mergers and acquisitions, international joint ventures, and international alliances.
■ Define the IHRM professional’s role in implementing effective international mergers and acquisitions, international joint ventures, and international alliances.
This chapter examines the most common approaches to “going international,” in addition to the options of starting a foreign operation “from scratch” as described in the previous chapters. These approaches involve forming one or more types of international combination. In this chapter we discuss the three most common types of combination.
International mergers and acquisitions (e.g., one firm from one country acquires a firm in another country), international joint ventures (e.g., two or more firms from two or more countries create a new and separate—legal—business entity), and international alliances (e.g., two or more firms enter into formal or informal partnerships that do not involve the creation of a new and separate legal entity). The chapter starts with a general discussion of some basic concepts in international combinations. Then the chapter discusses IHRM issues in international mergers and acquisitions and international joint ventures. And finally the chapter closes with a
general discussion of IHRM issues in international alliances.
International Combinations: An Introduction
All of these forms of international combination can be viewed as forms of partnership and thus create major coordination and integration challenges, as is true of all forms of partnership.2 All of these involve areas of international business that IHRM professionals must thoroughly understand in order to provide senior managers with the advice they need for designing effective global businesses.
International mergers and acquisitions, joint ventures, and alliances of various types are increasingly used by firms to gain access to new global markets and global resources, such as technology and skilled people.3 The number and value of such cross-border deals continues to increase dramatically. Recent examples of significant cross-border mergers and acquisitions include:4
■ Microsoft (USA) and Nokia (Finland); ■ Pfizer (USA) and Polocard (Poland); ■ Google (USA) and Schaft (Japan); ■ Samsung (South Korea) and Nanoradio (Sweden); ■ Takeda Pharmaceutical (Japan) and Nycomed (Norway).
Older cross-border deals include:
■ British Petroleum (BP) (United Kingdom) and Amoco (USA); ■ Daimler Benz (Germany) and Chrysler (USA); ■ BMW (Germany) and The Rover Group (United Kingdom).
Firms of every size and type from many different countries are using mergers or acquisitions to access or expand their global businesses.5
There are a number of pressures causing this wave of international acquisitions, including both a felt need to constantly grow the business—by acquiring a foreign competitor—to compete more successfully with other global firms and to achieve world-class market entry and industry leadership or to acquire assets and resources (usually technological and knowledge-based) needed to compete and that would otherwise be too expensive, take too long, or would just be impossible to develop internally.6 When acquisition is the choice for entry into a new market, it is usually seen as a quicker and more effective way to develop a presence in a local market than to build such capability from scratch.
Other Types of International Combinations
There are a number of other forms of international combinations.7 In some cultures
or countries, partnerships are, if not the only way to enter the marketplace, at least the “smartest” way, either because foreigners can, for practical purposes, only do business in the country through local partnerships—joint ventures or other forms of combinations—either because relationships (established through the partnerships) are of primary importance to doing business in that culture or because the government requires such local partnering. International combinations, in general, refer to partnerships between firms that have their headquarters in different countries.
Two broad categories of international combinations include equity combinations and those that involve no shared equity investment.8Equity-based international combinations involve long-term relationships—with one partner buying all or most of the equity in the other partner—and that requires active day-to-day management by the controlling partner of a wide variety of business issues in the combined firm. International mergers and acquisition (IM&A) and international joint ventures (IJV) are two major types of equity-based international combinations. IJVs are defined as legally and economically new and separate organizational entities created by two or more parent firms that collectively invest financial as well as other resources in the new entity in order to pursue certain objectives. In an international joint venture, the new entity will have a new headquarters that will include participation from both partners and will likely be located in the country of the joint venture. In an international M&A, one firm buys controlling or full interest in another firm with the understanding that the buyer will determine how the combined operations will be managed.
Non-equity international combinations share profits, responsibilities, and resources according to specific contractual relationships—but do not involve one party buying equity in the other party. Each company cooperates as a separate legal entity, bears its own liabilities, and has the freedom to organize its own resources, production processes, and operations. Non-equity international combinations include joint exploration projects (e.g., in the energy sector), research and development consortia (e.g., in the pharmaceutical sector), co-production agreements (e.g., in the manufacturing sector), co-marketing arrangements (e.g., in consumer durable sectors), and long-term supply agreements (e.g., the retail sector).
Record of Success and Failure
Some surveys suggest that a large percentage (often reported to be over 50 percent) of international acquisitions, joint ventures, and partnerships fall short of their objectives and at least one-third are dissolved within a few months or years.9
“Most organizations do not have the knowledge, experience, or capability to
manage alliances to maximize returns on all sides.”10 As with mergers and acquisitions, international alliances can also be set up for the long-term and need to be governed throughout as relationships. Indeed, many top executives of multinational firms have not changed their “mental models” from the command- and-control approach often used in the past for mergers or acquisitions to the necessarily participatory, relation-building nature of a successful international acquisition, joint venture, or alliance.
Typically the reasons for pursuing an acquisition or international alliance are financial or strategic in nature due to perceived compatibility of or synergism in operations, products, services, markets, or technologies. Firms usually decide that an international merger or acquisition or joint venture (or, for that matter, a divestiture—creating an acquisition opportunity for someone else) will yield increased value and profits or improved market position for any one of five different reasons:11
1 It enhances industry consolidation (thus helping to eliminate expensive overcapacity), which is typically the situation when the overall market is mature and where market opportunities are flat or shrinking.
2 It enables geographic expansion into neighboring regions for a newly internationalizing, heretofore local, firm.
3 It enhances expansion into new markets for revenue growth, in which the opportunities will not wait for internal development.
4 It involves acquisition of new technology or products or knowledge when the firm doesn’t have the resources to develop the product or technology internally.
5 It involves combining with one or more other firms in order to realize a synergy that will form a preeminent firm with superior market advantages or economies of scale, often when new industry configurations are being created by new technologies.
In order to achieve these objectives (which, as pointed out above, happens all too rarely) firms need to conduct thorough preliminary due diligence to assess carefully the “real” values to be gained by acquisition of or partnering with potential target firms. However, in the typical situation,
People often just jump into the deal and then [later] come the realization that you have to work at it…. There are no easy mergers or acquisitions. Mergers [and acquisitions] need to be more thoughtful, more precise with regard to their objectives, more deliberate with regard to their people and processes and yet be done in a rapid time.12
Effective due diligence prior to the eventual “marriage of the firms” tends to be highly underrated. Many global ventures fall prey to failure or reduced levels of success because this crucial research effort doesn’t reveal the weaknesses or incompatibilities of a prospective foreign business partner.
Often the only due diligence that is performed involves a detailed audit of financial and legal issues and possibly product and market compatibilities or synergies. This normally includes a review of things like annual reports, financial statements, product brochures, corporate legal documents, and other documents relating to the prospective partner’s business practices. General information consisting of credentials and certifications (such as ISO certifications) concerning principals, activities, and other requirements significant to the potential venture is also usually audited.
As a result, the typical due diligence review of the target firm during the pre- combination phase of partnering rarely considers the critical people, organizational, and HR issues that may well provide the eventual reasons for the success or failure of the combination. The HR complications often include issues such as overestimation of the abilities of the partner firm; an exaggerated assumption of the synergies available from the combination; inadequate attention to the incompatibilities of the firms’ programs, ways of conducting business, and cultures; and unwillingness to prepare for the frequently experienced loss of productivity and staff after the merger or acquisition is completed. Add to these problems the typical differences experienced between legal and cultural systems in different countries, and it becomes easier to understand the necessity of HR due diligence (in addition to the normal financial and operations due diligence) prior to any international acquisition or international alliance and of paying attention to the necessary post-merger people integration issues. And yet, “globalization mandates alliances [and cross-border acquisitions], makes them absolutely essential to strategy…. Like it or not, the simultaneous developments that go under the name of globalization make alliances—entente—necessary.”13
International Mergers and Acquisitions and the Role of IHRM
This section outlines the typical process followed by firms as they proceed through acquisition planning and implementation. In the best of circumstances, HR plays a significant role in the successful planning for and implementation of IM&As.
Process of Combination
The actual process of combination usually proceeds through three stages, as illustrated in Figure 4.1.14 Every stage has its special problems and considerations. These stages are pretty much the same for the establishment of IM&As as for IJVs and international alliances, although there are enough unique characteristics for both IJVs and international alliances that those differences will be addressed in separate sections of the chapter.
The stages of combination include the following:
Figure 4.1 International Mergers and Acquisitions Process of Combination
Phase 1: Pre-combination
This first phase involves the initial target screening and pre-bid courtship of the potential target firm, the “due diligence” review of the target company, the price- setting and negotiation of the approach the partners will take to the combination, and the agreement on the contract wording of the deal. HR should be closely involved with each of these steps, particularly the due diligence process, since
many aspects of the integration will involve issues of primary concern to HR and the workforce. This process of due diligence is discussed in more detail in the next section.
Phase 2: Combination Planning and Signing of the Agreement
Once the deal has been negotiated, this second phase involves deciding how to implement the deal, discovering and working through differences and different ideas about the deal, and actually signing the agreement. Here, too, HR should play a major role in providing advice on how to implement the deal and anticipating problems that will occur during the implementation.
Phase 3: Post-combination and Implementation of the Deal
Once the deal has been consummated, the hard work of implementation must be executed. In this third phase, HR has a key role in helping to facilitate the integration with the merged firm. One critical aspect of HR’s role will be in creating and providing employee communication about the nature of the merger and about the vision for the business that will result after the merger has been consummated. In addition, HR will perform a critical role in training employees to accept and to fit into the new situation, in developing new assignments and staffing, in designing the new compensation and benefits systems, etc.
Problems that will be encountered in Phase 3 implementation should be addressed during the thorough due diligence in Phase 1 and implementation planning in Phase 2. Since this is often not done, it is little wonder that many combinations across national boundaries come unwound in a relatively short period of time.
Figure 4.2 summarizes the HR issues in the three stages of IM&As.
Due Diligence and the Role of HRM
One of the primary reasons for the high failure rate in cross-border acquisitions and joint ventures involves the lack of attention prior to “signing the agreement” as well as during the implementation phase to issues related to HRM. Increasingly, the lack of people and organization fit is coming to be seen as the main factor explaining why businesses fail to reap the benefits.15
Figure 4.2 HR Issues in the Three Stages of IM&As
Regrettably, many aspects of the potential partner that often determine success or failure are ignored or minimized during the due diligence process. Many of these relate to HRM, such as the compatibilities or differences in the corporate cultures and likely employee losses and the effect on later executive succession. The reasons for failure usually have more to do with the incompatibility of people, cultures, and/or HR systems than with problems with the originally perceived financial or strategic benefits. These issues are discussed in the next section, showing their importance to the likelihood of success. The actual due diligence process as it involves HRM can be quite complex. Thus the following describes both the process itself and suggested content for any IHRM-related due diligence.
■ The primary point of due diligence from an HRM perspective is that HRM professionals should be involved. The development of a checklist of critical issues and the identification of task force membership should be prepared ahead of time. HRM professionals should take the initiative to ensure that critical HRM issues are considered before the combination becomes a “done deal.”16
■ Pre-determine an action plan and checklist of HR items to evaluate.
■ Create a SWAT team of the key people that would be called into action as soon as executives begin to consider a foreign combination. Characteristics of such a team should include personal traits such as being inquisitive, having non-directive interviewing skills, the ability to “read” people, and the ability to recognize when they are not getting the full story, as well as, of course, the necessary cross-cultural, language, and HR business expertise. Planning should include when and how the SWAT team would operate.
■ These individuals should have the technical and professional ability to know what to look for and how to find it, familiarity with HR issues such as compensation and benefits financial data, differing accounting systems, differing employment law requirements, sensitivity to cultural and language differences, awareness of possible union and labor differences, and objectivity.
■ Forming and communicating the new organizational culture to all employees.
Content (Specific Issues to Assess During HR’s Due Diligence)
■ General “people” issues. These are issues that impact the whole organization and all employees.
■ The national and corporate cultures of both the acquiring and the acquired firms.17
■ ■ Comparison of key executive approaches to strategy, management, and decision making.
■ Hidden “skeletons in the closet,” such as pending lawsuits, executive scandals, secret executive compensation promises, labor problems, etc.
■ ■ Managerial succession plans and identification of key people in both firms.
■ Management capabilities. ■ ■ Quality and depth of employee skills.
■ Language skills/concerns. ■ Specific IHR issues, particularly incompatibilities between acquiring and
■ Adequate funding of obligations, such as pension and health care plans.
■ ■ Foreign employment regulations, both legal requirements and
enforcement practices. ■ HR department status, practices, policies, and organization. ■ ■ Merger of corporate cultures.
Once these issues are assessed, the HR team must focus on the many specific areas of HR policy and practice that typically vary significantly from country to country, as described below.
Staffing practices—such as recruiting, hiring decisions, legal requirements, work contracts, job placement, job descriptions, etc.—can vary in significant ways between firms, particularly when the firms come from different countries and cultures.
Compensation practices—such as pay levels, pay comparisons, valuation of differing jobs, form and delivery of pay, extra month’s pay, bonuses—can vary dramatically and can cause major problems when integrated across firms.
Government mandated and/or provided benefits, voluntary benefits, benefits considered as part of income or not, cost of benefits—such as health care, holidays, vacations, medical and family leave, pensions—can all cause major problems when merged across borders.
Training and Management/Career Development Programs
The importance and frequency and methods of delivery of training, and the presence of management development and career development programs are likely to vary from total absence to extensive inclusion. Making such diversity compatible can be quite complex and can lead to major differences of satisfaction between firms.
HR Information Systems
Merging HR information systems (workforce and employee data) will be difficult because of technical incompatibilities, legal differences between countries, and varying values related to maintenance of such information.
Unionization/Nature of Labor Relations/Labor Contracts
Parties to cross-border acquisitions and joint ventures cannot ignore consideration of country union and labor relations regulations and practices. Every country has its own legalities and traditions and most firms also have their own histories and practices.
Employee Involvement/Works Councils
Many countries require formal employee involvement in the management of their firms. Such works councils and co-determination practices need to be assessed and integrated into any cross-border planning.
Process of Integration
Once the due diligence has been completed, and the formal merger/acquisition process of combination has been completed, the firms must plan and implement the integration of the firms. Yet, organizational integration in the aftermath of mergers or acquisitions is often reported as being problematic.18
One frequently mentioned cause of integration problems is a general resistance to change. It is assumed that people seek stability and that any major change to one’s employer such as an acquisition is anxiety provoking. Employees in both the acquired and the acquiring firms feel frustration, shock and apathy, and insecurity. This can hamper the day-to-day operations of both firms, among other things because teamwork can break down and people may start behaving destructively. Stress can become a common feature. Often employees lose faith in their organization’s willingness to live up to expectations, promises, and legitimate demands. A lack of commitment, loyalty, and loss of enthusiasm can often result. Employees may lose their sense of identity and membership while the acquiring firm is viewed as being obsessed with controlling the acquired firm. Indeed, the most mobile of employees (in both firms, but for sure in the acquired firm) are likely to leave, making later recovery and integration even more difficult.
One of the sources of this resistance to change involves employees’ sense of (or worry about) loss of their corporate (and, in this international context, national) culture and values. The process of acculturation (individuals and organizations adapting and reacting to each other’s cultures) can take place in a number of different ways, not all of them healthy.19 As much as both parties typically state the merger or acquisition is a combination of equals, in practice one group always dominates in the acculturation process. Thus, the process of acculturation can result in any of the following (see Figure 4.3):
■ Portfolio: Maintain separate cultures; ■ Blending: Choose the best element from each culture; ■ New Creation: Develop a new culture that fits the new organization; ■ Assimilation: Assign legitimacy to one culture and expect assimilation by
members of the other culture.
The point is that assimilation is not always the result of the merger or acquisition of one firm by another. When there is a lack of agreement on the preferred adaptation process by the acquired and acquiring firms (due to things like the attractiveness of the acquirer to the acquired or the degree of similarity of the firms or the degree of existing multiculturalism of the acquiring firm, or whether or not the acquisition was hostile), problems will occur and integration may not happen.
Figure 4.3 Four Approaches to Integration in International Mergers and Acquisitions Source: Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-Border Alliances, London/New York: Routledge, p. 90.
How organizational combinations are handled affects the bottom line. Specifically, profits and revenues are impacted by the sharing of synergies and best practices from both companies. If the combination is not handled properly, the costs can be high such as lower productivity, loss of key talent, and an emergence of organizational cynicism and negative cultural effects. In some notable cases, such as the merger between Renault and Volvo and the merger between Chrysler and Mercedes-Benz, the resulting combinations suffered from cultural difficulties. Perhaps the most difficult aspect to manage is cultural integration.20
Since cultural integration is often so problematic, how can it be managed effectively? In general, in order to assess the possibilities, HRM professionals might want to ask the following questions:
■ Have cultural gaps and differences been identified and addressed? ■ Is there an executive leadership group, including participants from the
acquired partner’s senior leadership team, visibly leading the change process?
■ Has the shared vision of the new organization been created and communicated to all employees with clearly defined goals, roles, and responsibilities? (See the BCE case at the end of this chapter.)
■ Has a link been made between the business strategy and the quality, skills, and number of people to achieve the business plan?
■ Has a decision to consolidate the processes and procedures around compensation, incentives, and recognition programs been made?
■ Is there a plan to consolidate or maintain existing retirement benefits and health and welfare benefits?
■ Are measures and rewards established, communicated, and aligned with the organization’s desired state?
An example (see the IHRM in Action) of the “lessons learned” from many acquisitions in the integration process in a major MNE can be seen in the experiences of GE Capital (one of the world’s largest providers of credit).21
IHRM in Action 4.1: Lessons Learned by GE in Cross-Border Acquisitions
Over the years and as the result of experience with many, many acquisitions, GE Capital Services’ acquisition-integration process has been discussed, debated, tested, changed, and refined. It is now well established and codified. The following are some of the lessons they have learned about how to ensure the success of an acquisition.
Lesson 1: Acquisition integration is not a discrete phase of a deal and does not begin when the documents are signed. Rather, it is a process that begins with the early due diligence and runs through the ongoing management of the new enterprise.
Lesson 2: Integration management is a full-time job and needs to be recognized as a distinct business function, just like operations, marketing, or finance.
Lesson 3: Decisions about management structure, key roles, reporting relationships, layoffs, restructuring, and other career-affecting aspects of the integration should be made, announced, and implemented as soon as possible after the deal is signed—within days, if possible. Creeping changes, uncertainty, and anxiety that last for months are debilitating and immediately start to drain value from an acquisition.
Lesson 4: A successful integration melds not only various technical aspects of the businesses involved but also the different cultures. The best way to integrate cultures is to get people working together quickly to solve business problems and accomplish results that could not have been achieved before.
Even with the 10 and more years spent on refining the acquisition integration process and making “best practices” available via the intranet, including things like communication plans, 100-day plans, functional integration checklists, workshop agendas, consulting resources, and human resource department support, the process remains an ongoing challenge. Every acquisition is unique, with its own business strategy, personality, and culture. Thus, GE Capital continues to strive to make every new acquisition integration better than the last. Maybe the most important lesson that GE Capital has learned is that the competence to make the integration process work must always be worked on—it is never fully attained.
The Separation Process
Interestingly, the separation process (divestiture) is very similar to the acquisition process. Most of the issues of concern to IHR during a divestiture can be viewed as being similar to those examined during the acquisition process, except they are from the other side of the transaction, whenever the firm being purchased is a part of another, larger firm. The parent of the firm being sold needs to also be careful to do thorough due diligence to assess issues such as the impact on union contracts and pension liabilities (as well as other promises and liabilities) and the impact on the parent firm, which is trying to improve its own financial and operational situation. Dissolution, or divestiture, or de-merging, or spinning off, or selling off
parts of an existing enterprise is often the result of a merger or acquisition that didn’t work out well because the original planning was inadequate.22
In the process of international M&A, IHR professionals, in order to ensure they provide the critical business advice expected of them, need to make sure they are prepared to provide procedural and content advice to their executives in all three phases of planning, signing, and implementing, especially for issues related to due diligence, impact of culture, and specific IHR post-merger, program-integration issues. The degree to which all of these items need to be assessed and addressed and the nature of the solutions that will be required will depend on:23
■ the firm’s strategic purpose and desired results; ■ the degree of planned operational integration of the resulting firm; ■ management’s orientation and intention for the resulting firm; and ■ cultural environment factors.
Ultimately, the success of the acquisition may well depend on the abilities that the IHR team bring to the discussion, preparation, and implementation.
IHRM and International Joint Ventures
The above discussion of IHR in IM&A was based on relatively extensive experience and literature. Similar literature is not as extensive, however, for the last subjects in this chapter: IJVs and international alliances. Nevertheless, as indicated early in the chapter, these forms of international combination are increasingly important and need to be understood by IHRM students and practitioners. The Schuler, Jackson, Luo book, Managing Human Resources in Cross-Border Alliances, in this series, was written in part to help address this very reality.24
When a firm acquires an existing entity in another country, the central problem is to integrate an existing firm and its culture and practices into the parent firm. In an international joint venture (IJV), a new legal entity is created. Although there are a number of definitions of an IJV, a typical definition is:
A separate legal organizational entity representing the partial holdings of two or more parent firms, in which the headquarters of at least one is located outside the country of operation of the joint venture. This entity is subject to the joint control of its parent firms, each of which is economically and legally independent of the other.25
Examples of international joint ventures include:
■ Verizon Wireless: Parent firms include Vodafone Group (United Kingdom) and Verizon Communications (USA);
■ Transatlantic Joint Venture: Parent firms include Air France (France), KLM (Netherlands), Alitalia (Italy), and Delta (USA);
■ Starbuck Coffee Japan, Ltd: Parent firms include Sazaby League (Japan) and Starbucks Coffee International (USA).
Thus the central challenge in an IJV is to create a new firm, with all its dimensions, culture, and practices. This new entity can emulate one or more of the partners; that is, it can be some form of integrated entity, drawing on the culture and practices of the partners. Or it can be designed to be an entirely new organization, separate from the cultures or practices of the partners.26 One of the keys to success of an IJV is for the partners to be clear about and to agree on which one of these choices is being pursued. Lack of clarity on this issue can lead to conflicting expectations for the performance of the resulting organization and will typically lead to unmet expectations and eventual dissolution of the venture.
This section describes HR responsibilities related to international joint ventures. The aim is to describe the HR practices and policies that influence the success of IJVs, drawing on the studies that have focused on HR and IJVs.27 As far back as the
mid-1970s, IJVs replaced wholly owned subsidiaries as the most widespread form of US multinational investment28 and has also become a favored form of foreign entry for firms from many other countries, as well. In general, IJVs have become a major (if not, the major) form of entry into most new global markets.29
Figure 4.4 Four-stage Model of HR Issues in International Joint Ventures
Schuler et al. (2004) developed a model to help understand the complexities in the process of creation and implementation of IJVs (refer to Figure 4.4). The four stages of the IJV process include:
1 Formation: the partnership stage; 2 Development: the IJV itself; 3 Implementation: the IJV itself; and 4 Advancement: the IJV and beyond.
The rest of this section on IJVs will expand on and explain these stages.
Stages 1 and 2: Formation and Development of the IJV
Reasons for IJVs
Reasons for entering into IJV agreements (not so different from the reasons for international acquisitions, except for the reduced risk, since it is shared in a new, separate entity) include the following:30
■ to gain knowledge about local markets, culture, and local ways of doing business in order to transfer that knowledge back to the parent firm, i.e., to learn from the joint venture partner;
■ to gain access to the partner’s product technology, product knowledge, or methods of manufacturing;
■ to satisfy host government requirements and insistence; ■ to gain increased economies of scale without more direct investment; ■ to gain local market image and channel access; ■ to obtain vital raw materials or technology; ■ to spread the risks with the foreign partners; ■ to improve competitive advantage in the face of increasing global
competition; and ■ to become more cost-effective and efficient in the face of increased
globalization of markets.
The overriding motive in most joint ventures seems to be the desire by one or all parties to gain knowledge and learn from their partner(s). Obviously for a firm to learn from a partner, the partner must have some level of willingness to share what they know. If all partners wish to learn from the others, then to be successful, all the partners must be willing to share. This is often a source of conflict, in itself, particularly where there is not a sufficient level of trust among the partners. In this case, sharing will tend to be minimized and the original objective will be stymied. Often, the central strategy for learning from the IJV has to do with the choices for staffing. “Transfer of staff between the JV and the parent firms can provide a mechanism for sharing information, for learning from each other’s abilities and expertise, and for the creation of synergies related to product development.”31 But if the wrong people are chosen to staff the IJV, that is people with poor interpersonal or cross-cultural skills or limited technical ability, this objective of the partners may be difficult to achieve.
The prior section of this chapter spent considerable space on the importance of HRM due diligence to the eventual success of IM&As. Everything said there also applies to the development of international joint ventures. The compatibilities of the partners’ cultures (both corporate and country), styles of management and
decision making, HR practices, etc., are critical to the development of a successful IJV, as well.32
As with M&As, the high failure rate and managerial complexity of IJVs also suggests that particular examination of the human resource issues is required here, as well.33 As far back as 1987, Shenkar and Zeira pointed out that even though IJVs had become the “most widespread form of … multi-national involvement, the substantial failure rate and managerial complexity suggest that a closer examination of human resource issues is required.”34 The reasons for failure are many and complex, but for any particular situation will include one or more of the following, many of which are directly or indirectly within the responsibility of HR:35
■ There is a poor selection of partner(s). ■ Partners don’t clarify each others’ goals and objectives or have differing
goals. ■ The negotiating teams lack JV experience. ■ The parties do not conduct adequate or realistic feasibility studies. ■ The parties lack clarity about the real capabilities of their partners. ■ The partners fail to do adequate due diligence and thus don’t learn enough
about each other, which can be particularly true for cultural issues. ■ The parties fail to judge realistically the impact of the venture on the parent
organizations, particularly the loss of control and possibly profits, at least in the short run.
■ There is too little thought during the design phase of the new venture to organizational and managerial issues.
■ The partners fail to adequately integrate their activities. ■ There is unequal commitment to the partnership or unequal contribution
(real or perceived) to the joint venture. ■ The partners do not trust each other. ■ The parties to the venture make a poor selection of personnel to staff the JV. ■ The managers from the parent firms do not get along. ■ The established local partner does not assign its best people to the JV. ■ One of the partners is a government, so that there is a built-in variance in
objectives (profit versus possible political goals, for example). ■ There are divergent national interests. ■ There is “bad faith” on the part of one or more of the partners, that is, one
or more of the partners has always planned on only extracting something of value from the partnership without giving anything in return, even though they claim otherwise during negotiations.
■ The loyalty and commitment of the assigned managers is unclear (or is only to their assigning firm).
■ The local employees resent the privileged position of assigned expatriate managers, particularly if they are only assigned to the JV on a temporary basis.
■ The new entity cannot decide which parents’ rules to follow (or which ones to establish, if there are to be new rules).
■ There is a failure to adapt the business practices of the new venture to the local culture.
If the partners to an IJV can’t cope with the demands of managing a joint venture (that is, dealing effectively with a partner), then it may be better for the partners to use non-equity forms of cooperation, such as partnerships or international alliances (as addressed in the next section), which can take the form of agreements for cross- marketing, cross-production, licensing, or research-and-development consortia and can be terminated with relative ease if insurmountable problems arise.36
Those who have studied IJVs find that some of the keys to creating a successful joint venture require the partners to seek complementary strategies and technical skills and resources among prospective partners, accept their mutual dependency, resolve issues related to differences in size of the partners, ensure the compatibility of the partners’ operating policies and practices, work to eliminate communication barriers between the partners and between the new IJV management team and the IJV employees, and take strong steps to develop trust and commitment among the partners.37
Stage 3: Implementation of the IJV
Role of HRM in IJVs
From a human resource management point-of-view, the lessons learned from successful joint ventures include:38
■ When national and corporate cultures are blended, the partners need to spend time building trust; understanding and accommodating each others’ interests.39
■ Job design can be enhanced when the partners are willing to learn from one another.
■ Recruitment and staffing policies should be well-defined in the early stages of the venture.40
■ Orientation and training of employees should focus on preparing employees to deal with the social context of their jobs, as well as the development of
technical skills, for the new organization.41
■ Performance appraisals need clear objectives and clearly assigned accountabilities, liberal time frames in which to achieve results, and built-in flexibility related to changing market and environmental demands of the new venture.42
■ Compensation and benefit policies should be uniform to avoid employee feelings of inequity.
■ Career opportunities must be ensured for local managers relative to managers assigned to the JV from the parents.
■ In the early stages of the venture, the partners must agree on suitable terms for relations with any unions.
■ The partners must establish the specific role of HR within the new venture (since the partners’ HR policies and practices are likely to differ).
■ HR managers in the JV must become process experts, managing issues like communication with employees about the new organization, expected nature of the integration of the partners in the JV.
■ HR must implement the necessary training (e.g., cultural—both corporate and national, and technical), integrated and consistent compensation and benefit systems, and performance management systems that will give the IJV its own identity.
Stage 4: Advancement of the IJV
Since one of the main reasons for creating IJVs involves the desire of the partners to learn from each other, this becomes one of the central foci for determining the success or failure of an IJV. And if learning is taking place, the partners must ensure the transfer of the new knowledge to the partners, both within the IJV itself as well to the parent firms outside the IJV.
IHRM and International Alliances
As mentioned previously, international alliances are defined as informal or formal partnerships or agreements that do not result in an independent legal entity. These have become much more common and popular in recent years.43 They provide ways to increase capabilities and to enter new markets in relatively low-risk and low-cost ways. As important as international acquisitions have become, the use of international alliances and partnerships may have become even more important.44
They take many forms, for example, outsourcing, information sharing, web consortia, joint marketing, and research projects. The most radical take the form of corporate partnerships like Coca Cola’s and Proctor and Gamble’s alliance to market their non-fizzy beverages and snacks. Technology companies like IBM, pharmaceutical firms like Pfizer, and diversified manufacturers like Siemens and General Electric have partnering built into their operating plans, both for joint research partnerships and for joint marketing efforts.45
In most modern partnerships, the three most important reasons their members form international alliances are growth, access to competencies like technology and research capability, and expansion into new markets. E-mail, file-sharing, and web-based conferencing and collaboration tools make international alliances across corporate and national boundaries workable. In the past, the route to growth was paved with mergers and acquisitions. What firms lacked they could acquire. This is still a popular approach. But as indicated in the previous section, trying to create a competency your firm lacks is costly, time consuming, and often fails.46 Too often, the best of the acquired assets (the acquired firm’s people) leave for other firms (often the competition). M&As are often ruinously expensive (with the inflated stock market) in terms of debt accrued, cash depleted, equity diluted, and key employees lost through subsequent downsizings and voluntary turnover. International alliances have become the solution to the problem. International alliances, relative to IJVs and IM&As are the cheapest and least-risky way to grow and build—or acquire—technology and resources: no dilution of stock, no dangerous leveraging of the balance sheet, and if managed well, no loss of talent. If the deal doesn’t work, it can be dissolved.47
Options for Managing International Alliances
As with IM&As and IJVs, there are a number of choices for the design of an international alliance. These include the following:48
■ the operator model, where there is one dominant partner;
■ the shared model, where the organization draws on culture and practices from both partners; and
■ the autonomous model, where a new organizational culture and management structure is purposely developed.
The partners need to discuss and agree on which model for the international alliance they wish to pursue in order to forestall subsequent misunderstandings and conflict.
General HR Issues
There are a number of concerns that might be referred to as simply “people and general management issues” in international alliances for which HR might be expected to be the source of expertise and advice. If they are not addressed by HR, they are likely to not be addressed at all.49 Most of these issues are similar to those faced by IM&As and IJVs, as well:
■ Organizational structure and reporting relationships: a clear managerial structure is often non-existent in a partnership, and staff members—including HR professionals—tend to report to many people.50
Partnerships tend to not have the traditional pyramidal management structure of the partner firms. They are usually established as projects, with typical project structure and with project members assigned temporarily from other areas of the partner firms, with employees having multiple responsibilities, some in the partnership and some in the parent firms.
■ Culture: as with all other forms of international organization, both national and corporate cultures need to be assessed for incompatibilities. This is important for all interactions within the partnership and between the partnership and the parent firms.
■ Pre-alliance due diligence: This requires that the parties be aware of any “skeletons in the closet” of their potential partners, e.g., scandals involving senior executives, recent negative media stories, nepotism (employment of family members), etc.
■ Global workforce: Since the international alliance will involve employees and managers from more than one culture, the cross-cultural skills of involved executives also need to be assessed, both of those executives that will be assigned to the international alliance and those who must work with the international alliance.
■ Management capabilities: Will the international alliance get high priority for assignment of top talent by all partners? If the latter is the case,
assessing the quality of the talent to be assigned becomes particularly important, if the partners are truly committed to the success of the partnership.
Role of IHRM in International Alliances
Depending on the size of the international alliance itself, there may well be IHR professionals assigned to it.51 Typically, the IHR professional assigned to an international partnership or international alliance has not only to deal with many more decision makers (from all of the partners), thus having to exercise much greater negotiation skills, but also tends to have to take on more extensive responsibilities, combining those of a local nature and those of an international nature.
Different Rules Often Apply
For example, people who work in partnerships are still employees of the separate partners, thus may not only be difficult to “supervise” but in terms of legal status may also not fall under employment protection statutes of the locale of the alliance. This may give the partnership greater flexibility with respect to compensation and job assignments, but may also create significant liability when “employees” are covered by the laws of their parent employer, such as under sexual harassment claims. Under tax laws, employees—from various partner parents—assigned to a partnership may not be entitled to the same benefit plans, thus causing problems of perceived unfairness and inequity.
International combinations or some forms of partnerships have become very popular in recent years. Yet a high percentage of these combinations fail to achieve financial or strategic objectives. This is often due to inadequate attention to issues of concern to the human resource function. This chapter examined the process of combination and provided a framework and content for performing a thorough due-diligence review of the IHRM policies and practices of firms being considered for cross-border alliances. Such a review is explained as critical to the success of such international combinations. These combinations include IM&As, IJVs, and international alliances. Much of the chapter describes the role of IHRM and the IHR professional in designing, facilitating, and implementing these three specific types of international combinations. All three types of these combinations are increasingly used and IHRM can and should play a major role in helping ensure the success of their design and implementation.
1 Some managers argue that IJVs are fraught with problems and all but doomed to failure. Do you agree with this statement? Why or why not?
2 Name three well-known MNEs that have formed international mergers or acquisitions during the last few years. Are they successful? What role does HRM play in facilitating success in international mergers or acquisitions?
3 What are the advantages and disadvantages of working for an IJV? An international alliance?
4 What are some of the reasons that an MNE would choose international expansion through an acquisition? An IJV? An alliance? What are the variables that would influence the decision? Which choice do you think is best for the likely benefit of the firm?
Case Study 4.1: BCE’s Acquisition of Teleglobe International (Canada)
Lance Richards, former international director of HR at Teleglobe, has been through a number of major cross-border acquisitions and alliances. These included British Telecom with MCI and GTE with Bell Atlantic and then with Teleglobe and BCE. These experiences have taught Lance that in any cross-border acquisition or alliance, making sure that employees know what is going on, who is in charge, and where the combined organization is heading needs to be in the very front of any HR initiatives. Some of the specific lessons for guaranteeing success in an acquisition that Lance has learned include:
■ The CEOs (of both the acquiring and the acquired firms) must be visible to the employees and must continuously interact with them.
■ Both companies must communicate—clearly, constantly, and quickly. ■ The dialogue with employees must be two-way. Employees must have a
way to feed questions and concerns back to the business and people in charge, and then to get answers.
As Lance puts it, in many acquisitions and alliances the corporate heads roll out a well-crafted vision of the new entity, how it will lead the market, and how it will now be able to leap ahead of its competitors. But for the average employee, all they want to hear is what is going to happen to their particular jobs. In M&A activity, where the intellectual capital that resides in the employees is often (or should be) the overriding concern, it is important, at the end of the day, to remember that employees are concerned about things like making their next car payments or paying the next term’s tuition for their child.
The BCE acquisition of Teleglobe (completed in November 1, 2000) provided a great example of how to handle employee expectations and concerns with professionalism and candor. BCE Inc., is the largest communications company in Canada and provides a variety of services such as broadband communications and content services to private and public customers. Simultaneously with the after- market-hours announcement to the public, all employees received an e-mail with a link to a pre-recorded streaming video, with messages from the chairmen of both firms. They clearly outlined the reasons for the acquisition, as well as the benefits, and then committed to maintain clear communications throughout the process of merging the two firms.
A Q&A board was established on the companies’ intranets, accessible in all 43 countries where the firms had employees, with a promise to answer most questions within five business days. Within a month, BCE had appointed a new
CEO. Within a week of his arrival he held the first of several meetings with employees. Initially, he made presentations in person in all of the firms’ primary employment cities, then changed to a live, multi-country broadcast format, followed by conference calls for outlying countries. Simultaneously, he launched a series of breakfast and lunch meetings with 15 to 20 employees, which continued for months, wherever his travels took him. In consequence, the new CEO won much favor with employees for his candor and style. The key was that Teleglobe International (and BCE) immediately opened a variety of one- and two-way communications venues for all employees, and ensured that there was a steady flow of information to everyone. Even though major financial problems with the acquisition led to divestiture of Teleglobe after about two years, the strong employee communications did result in quite limited voluntary employee turnover and led to strong engagement from employees, leading to a continuing healthy BCE.
Sources: www.bce.ca (2014); Richards, L. J. (2001). Joining forces. Global HR, April, 31–33.
1 Why were these various forms of communication so successful? Which do you think were most important? Why? Which barriers stand in the way of using these forms of communication?
2 What content is necessary for this form of communication? What do employees need (want) to hear? What difference does it make?
3 Does this sort of communication need to come from the top? Can someone else, such as the head of HR, provide the information with equal success?
1 Source: Dupont Corporate Website (2014), Dupont Collaborations http://www.dupont.com/corporate-functions/our- approach/sustainability/collaboration.html. Accessed Dec. 10, 2014.
2 See, for example, World Investment Report 2014, United Nations Conference on Trade and Development, UNCTAD; Schuler, R. S., Jackson, S. E., and Luo, Y. (2004). Managing Human Resources in Cross-Border Alliances, London: Routledge; Reuer, J., and Ragozzino, R. (2014). Signals and international alliance formation: The roles of affiliations and international activities. Journal of International Business Studies, 45(3), 321–337; World Investment Report 2000: Cross-Border Mergers and Acquisitions and Development, New York and Geneva: United Nations Conference on Trade and Development.
4 We used a variety of sources to identify recent and old mergers and acquisitions. Sources include: World Investment Report 2014, United Nations Conference on Trade and Development, UNCTAD; Mergent online database; Bloomberg Businessweek; Fortune magazine.
5 See Summers, N. (2104). The 2014 M&A boom: Almost $ trillion and growing, Bloomberg Businessweek, April 24, 2014; Baigorri, M., Campbell, M., and Kirchfeld, A. (2014). Mergers are back in fashion—for now. Bloomberg Businessweek, (4373), 50–51; Mergers and Acquisitions review, Financial Advisors, 2013. Thomson Reuters; Brakman, S., Garretsen, H., Charles Van, M., and Arjen Van, W. (2013). Cross-border merger and acquisition activity and revealed comparative advantage in manufacturing industries. Journal of Economics and Management Strategy, (1), 28; Wyss, S. (2012). Growth strategy: Mergers and acquisitions. Chain Store Age, 88(2), 30–32; Lester T. (2001). Merger most torrid, Global HR, June, 10–12, 15–16.
6 Based on an interview with Heinrich von Pierer, CEO of Siemens, by Javidan, M. (2002), reported in, Siemens CEO Heinrich von Pierer on cross-border acquisitions, Academy of Management Executive, 126 (1), 13–15; and Karnitschnig, M. (2003). For Siemens, move into U.S. causes waves back home, The Wall Street Journal, Sept. 8, pp. A1, A8.
7 Schuler, Jackson, and Luo (2004).
9 See McLetchie, J., and West, A. (2010). Beyond Risk Avoidance: A McKinsey Perspective on Creating Transformational Value from Mergers. McKinsey & Company; McKinsey & Company, Coopers & Lybrand, and American Management Association, reported in Marks, M. L. (1997), From Turmoil to Triumph: New Life After Mergers, Acquisitions, and Alliances, New York: Lexington Books.
10 Reported in Bates, S. (2002). Few business alliances succeed, report reveals, in Executive Briefing, HR Magazine, May, 12.
11 Bower, J. L. (2001). Not all M&As are alike—and that matters, Harvard Business Review, March, 93–101. Also see Kullman, E. (2012). DuPont’s CEO on executing a complex cross-border acquisition. Harvard Business Review, 90(7/8), 43–46.
12 Beard, M. (1996). quoted in Bourrie, S. R., Merger misery, Colorado Business, October, 82.
13 Ohmae, K. (1989). The global logic of strategic alliances, Harvard Business Review, March–April, 143.
14 In the last few years a number of references have been published dealing with the management of mergers and acquisitions. These include: Krug, J., Wright, O., and Kroll, M. (2014). Top management turnover following mergers and acquisitions: Solid research to date but still much to be learned. Academy of Management Perspectives, 28(2), 143–163; Adomako, S., Gasor, G., and Danso, A. (2013). Examining human resource managers’ involvement in mergers and acquisitions (M&As) process in Ghana. Journal of Management Policy & Practice, 14(6), 25–36.; Buiter, J. M., and Harris, C. M. (2013). Post-merger influences of human resource practices and organizational leadership on employee perceptions and extra-role behaviors. SAM Advanced Management Journal, (4), 14; Castro-Casal, C., Neira-Fontela, E., and Alvarez-Perez, M. (2013). Human resources retention and knowledge transfer in mergers and acquisitions. Journal of Management and Organization, (2), 188; Lee, D., Kim, K., Kim, T., Kwon, S., and Cho, B. (2013). How and when organizational integration efforts matter in South Korea: A psychological process perspective on the post-merger integration. International Journal of Human Resource Management, 24(5), 944–965; Lupina- Wegener, A. A. (2013). Human resource integration in subsidiary mergers and acquisitions: Evidence from Poland. Journal of Organizational Change Management, 26(2), 286–304; Gill, C. (2012). The role of leadership in successful international mergers and acquisitions: Why Renault-Nissan succeeded and DaimlerChrysler-Mitsubishi failed. Human Resource Management, 51(3), 433–456; Marks, M., and Mirvis, P. H. (2011). A framework for the human resources role in managing culture in mergers and acquisitions. Human Resource Management, 50(6), 859–877.
15 Coffey, J., Garrow, V., and Holbeche, L. (2002). Reaping the Benefits of Mergers and Acquisitions: In Search of the Golden Fleece, Oxford, UK: Butterworth-Heinemann, 9. All of the major references in this chapter that involve mergers and acquisitions, joint ventures, and alliances expand on this point. In addition, some of this section is adapted from McClintock, F. W. (1996). Due diligence and global expansion, World Trade Center San Diego Newsletter, p. 6; and Greengard, S. (1999). Due diligence: The devil in the details. Workforce, October: 68–72.
16 Adapted from Richard, L. J. (2001). Joining forces, Global HR, June, 20.
17 Reported in Hopkins, M. (2002). HR going global …, Global HR, April, 31–33.
18 Adapted from Kleppestø, S. (1998). A quest for social identity—The pragmatics of communication in mergers and acquisitions, in Gertsen, M. C., et al. (eds.), op cit., pp. 147–166.
19 Berry, J. W. (1980). Acculturation as varieties of adaptation, in Padilla, A.M. (ed.), Acculturation Theory, Models and Some New Findings, Boulder, CO: Westview Press, pp. 9–25; Gertsen, M. C., Sıderberg, A-M, and Torp, J. E. (1998), Different Approaches to the Understanding of Culture in Mergers and Acquisitions, in Gertsen, M. C., et al. (eds.), op cit., pp. 17–38.
21 See website http://www.ge.com/news/company-information/ge-capital (2014). Adapted from Ashkenas, R. N., DeMonaco, L. J., and Francis, S. C. (1998). Making the deal real: How GE Capital integrates acquisitions, Harvard Business Review, January–February, 165–178.
22 See, for example, Owen, G., and Harrison, T. (1995). Why ICI chose to demerge, Harvard Business Review, March–April, 133–142.
23 M&A cultural considerations (2001). Reported in International Mobility Management Newsletter, 2nd quarter, 7.
24 Schuler, Jackson, and Luo (2004); Schuler, R., Tarique, I., and Jackson, S. (2004). Managing Human Resources in Cross-Border Alliances, in Cooper, C., and Finkelstein, S. (eds.), Advances in Mergers and Acquisitions, Volume 4. New York: JAI Press, pp. 103–129.
25 Schenkar, O., and Zeira, Y. (1987). Human resources management in international joint ventures: Directions for research, Academy of Management Review, 12(3), 547.
26 Schuler, Jackson, and Luo (2004); Cyr, D. J. (1995). The Human Resource Challenge of International Joint Ventures, Westport, CN: Quorum Books.
27 See, for example, Schuler, R., and Tarique, I. (2012). International joint venture system complexity and human resource management, in Björkman, I., and Stahl, G. (eds.), Handbook of Research in IHRM, Cheltenham: Edward Elgar Publishing, pp. 393–414; Baughn, C., Neupert, K. E., Phan Thi Thuc, A., and Ngo Thi Minh, H. (2011). Social capital and human resource management in international joint ventures in Vietnam: A perspective from a transitional economy. International Journal of Human Resource Management, (5), 1017; Goodman, N. (2012). T&D for global JVs and M&As: Training and development can play a significant role in making international joint ventures and mergers and acquisitions more rewarding and less risky. Training, (1), 126; Wong, Y. (2012). Job security and justice: Predicting employees’ trust in Chinese international joint ventures. International Journal of Human Resource Management, 23(19), 4129– 4144; Choi, C., and Beamish, P. W. (2013). Resource complementarity and international joint venture performance in Korea. Asia Pacific Journal of Management, 30(2), 561– 576; Huang, M., and Chiu, Y. (2014). The antecedents and outcome of control in IJVs: A control gap framework. Asia Pacific Journal of Management, 31(1), 245–269; Welei, S., Sunny Li, S., Pinkham, B.C., and Peng, M. W. (2014). Domestic alliance network to attract foreign partners: Evidence from international joint ventures in China. Journal of International Business Studies, (3), 338; Cyr, D. J. (1995); Frayne, C A. and Geringer, J. M. (2000). Challenges facing general managers of international joint ventures, in
Mendenhall, M., and Oddou, G. (eds.), Readings and Cases in International Human Resource Management, 3rd ed., Cincinnati: South-Western College Publishing; Schuler, R. S. (2001). Human resource issues and activities in international joint ventures, The International Journal of Human Resource Management, 12, 1–5; Schuler, R., Dowling, P., and De Cieri, H. (1992), The formation of an international joint venture: Marley Automotive Components, European Management Journal, 10(3), 304–309; Schuler, R. S., Jackson, S. E., Dowling, P. J. and Welch, D. E. and DeCieri, H. (1991). Formation of an international joint venture: Davidson Instrument Panel. Human Resource Planning, 14, 51–60; Schuler, Jackson, and Luo (2004); and Shenkar and Zeira (1987), 546–557.
28 Hladik, K. J. (1985). International Joint Ventures: An Economic Analysis of U.S.-Foreign Business Partnerships, Lexington, MA: Heath; and Liebman, H. M. (1975). U.S. and Foreign Taxation of Joint Ventures, Washington, DC: Office of Tax Analysis, US Treasury Department.
29 Barkema, H. G., Shenkar, O., Vermeulen, F., and Bell, J. H. J. (1997). Working abroad, working with others: How firms learn to operate international joint ventures, Academy of Management Journal, 40(2), 426–442.
30 This list draws heavily on Schuler (2001). See also: Vaidya, S. (2012). Trust and commitment: Indicators of successful learning in international joint ventures (IJVs). Journal of Comparative International Management, 15(1), 29–49; Ghauri, P. N., Cave, A. H., and Park, B. (2013). The impact of foreign parent control mechanisms upon measurements of performance in IJVs in South Korea. Critical Perspectives on International Business, 9(3), 251; Tjemkes, B. V., Furrer, O., Adolfs, K., and Aydinlik, A. (2012). Response strategies in an international strategic alliance experimental context: Cross-country differences. Journal of International Management, (1), 66; Zoogah, D. B., Vora, D., Richard, O., and Peng, M. W. (2011). Strategic alliance team diversity, coordination, and effectiveness. International Journal of Human Resource Management, (3), 510; Estrada, I., Martín-Cruz, N., and Pérez-Santana, P. (2013). Multi- partner alliance teams for product innovation: The role of human resource management fit. Innovation: Management, Policy & Practice, 15(2), 161–169; Pangarkar, N., and Wu, J. (2013). Alliance formation, partner diversity, and performance of Singapore startups. Asia Pacific Journal of Management, 30(3), 791–807; Gudergan, S. P., Devinney, T., Richter, N., and Ellis, R. (2012). Strategic implications for (non-equity) alliance performance. Long range planning. International Journal of Strategic Management, 45(5–6), 451–476; Child, J., and Faulkner, D. (1998). Strategies of Cooperation, Oxford: Oxford University Press; Pucik, V. (1988). Strategic alliances, organizational learning and competitive advantage: The HRM agenda, Human Resource Management, 27(1): 77–93; Shenkar, O. and Zeira, Y. (1987). Human resource management in international joint ventures: Direction for research, Academy of Management Review, 12(3): 546–557.
31 Cyr, D. J., op. cit., p. 116.
32 Petrovic, J., and Kakabadse, N. K. (2003). Strategic staffing of international joint ventures (IJVS): An intergrative perspective for future research. Management Decision, 41, 4; Cyr, D. J., op. cit.; Geringer, J. M., op. cit.; Geringer, J. M. (1988). Partner selection
criteria for developed country joint ventures, Business Quarterly, 53, 1; Schuler, Jackson, and Luo (2004).
33 Beamish, P. W. (1985). The characteristics of joint ventures in developed and developing countries, Columbia Journal of World Business, 20(3), 13–19; Harbison, J. R. (1996). Strategic Alliances: Gaining a Competitive Advantage, New York: The Conference Board; Harrigan, K. R. (1986). Managing for Joint Venture Success, Boston: Lexington; Schenkar, O., and Zeira, Y., op. cit.; Sparks, D. (1999). Partners, Business Week, October 5, 106.
34 Shenkar, O., and Zeira, Y., op. cit., 546.
35 Adapted from Barkema, H., and Vermeulan, F. (1997). What differences in the cultural backgrounds of partners are detrimental for international joint ventures? Journal of International Business Studies, 28(4), 845–864; Harrigan, K. R. (1988). Strategic alliances and partner asymmetries, in Contractor, F. and Lorange, P. (eds.), Cooperative Strategies in International Business, Lexington, MA: Lexington Books; Park, S. H., and Russo, M. V. (1996). When competition eclipses cooperation: An event history analysis of joint venture failure, Management Science, 42(6), 875–890; Schuler, R. S. (2001), op. cit.; and Goodman, N. R. (2001). International joint ventures and overseas subsidiaries, presented at the Society for Human Resource Management Global Forum Audio Conference, December; and Cyr, D. (1995), op. cit.; and Yan, A., and Zeng, M. (1999), International joint venture instability: A critique of previous research, a reconceptualization, and directions for future research, Journal of International Business Studies, 30(2), 397–414. Also see Ertug, G., Cuypers, I., Noorderhaven, N., and Bensaou, B. (2013). Trust between international joint venture partners: Effects of home countries. Journal of International Business Studies, 44(3), 263–282.
36 Harrigan (1986).
37 Cyr (1995); Geringer, J. M. (1988), Joint Venture Partner Selection: Strategies for Developed Countries, Westport, CT: Quorum Books; Schuler, Jackson, and Luo (2004).
38 Cascio, W. F., and Serapio, M. G. (1991). Human resource systems in an international alliance: The undoing of a done deal? Organizational Dynamics, Winter, 63–74; Cyr (1995); Schuler, Jackson, and Luo (2004).
39 Bruton, G. D., and Samiee, S. (1998). Anatomy of a failed high technology strategic alliance, Organizational Dynamics, Summer, 51–63; Cascio, W. F., and Serapio, M. G., Jr. (1991), Organizational Dynamics, Winter, 63–74; Culpan, R. (2002). Global Business Alliances: Theory and Practice, Westport, CT: Quorum Books; Evans, P., Pucik, V., and Barsoux, J-L. (2002). The Global Challenges: Frameworks for international Human Resource Management. New York: McGraw-Hill Irwin; Fedor, K. J., and Werther, W. B., Jr. (1996). The fourth dimension: Creating culturally responsive international alliances, Organizational Dynamics, Autumn, 39–53; Inkpen, A. C. (1998). Learning and knowledge acquisition through international strategic alliances, Academy of Management Executive, 12(4), 69–80; Isabella, L. A. (2002). Managing an alliance is nothing like business as usual, Organizational Dynamics, 31(1), 47–59.
40 Schifrin, M. (2001). Best of the web: Partner or perish, Forbes, May 21, 26–28.
42 Schifrin, M. (2001).
43 Reported in You are not alone, Fortune, special advertising section, May, 2001, S2–S3.
44 Schifrin, M. (2001).
45 Fang, E., and Zou, S. (2009), Antecedents and consequences of marketing dynamic capabilities in international joint ventures, Journal of International Business Studies, 40, 742–761.
46 Michaels, J. W. (2001), Best of the web: Don’t buy, bond instead, Forbes, May 21, 20.
47 Adapted from Applegate, J. (1996), Alliances quick way to grow: Links to Bombay firm open doors for architect, The Denver Business Journal, October 4–10, 3B.
48 Galbraith, J. R. (1995), Designing Organizations: An Executive Briefing on Strategy, Structure and Process, San Francisco: Jossey-Bass.
49 See, e.g., Schuler, R., and Tarique, I. (2012). International joint venture system complexity and human resource management, in I. Björkman and G. Stahl (eds.), Handbook of Research in IHRM, Cheltenham: Edward Elgar Publishing, pp. 393–414; Cascio and Serapio (1991); Fedor, K. J., and Werther, W. B., Jr. (1996). The fourth dimension: Creating culturally responsive international alliances, Organizational Dynamics, Autumn, 39–53; Isabella, L. A. (2002). Managing an alliance is nothing like business as usual, Organizational Dynamics, August, 47–59; Schuler et al. (2000); and Sunoo (1995): 28–30, 32–34.
50 Demby, E. R. (2002). Keeping partnerships on course, HR Magazine, December, 49–53.
51 Quoted in Demby (2002).
Section 2 National and Cultural Context
The second section of the book, “National and Cultural Context,” has three chapters:
■ Chapter 5: Country and Company Culture and International Human Resource Management
■ Chapter 6: International Employment Law, Labor Standards, and Ethics
■ Chapter 7: International Employee Relations
The chapters in this section expand the theme that is revisited frequently throughout the text: the importance of external factors that influence the MNE and IHRM in a variety of ways. Together these factors represent the national and cultural context. Chapter 5 introduces the concepts of country and corporate culture and how these impact everything that is done in IHRM. The chapter also discusses the importance of culture in both the conduct and the interpretation of IHRM research, explaining how culture affects both our understanding of IHRM and its impact. Chapter 6 describes international aspects of the legal, regulatory environments, ethical behavior, and labor standards in the international arena. Finally, Chapter 7 examines the nature of employee relations and how each country’s own, unique, union and employee representation institutions make the environment for employee relations quite complex for MNEs. All of these factors of the national and cultural context constitute the environment within which IHRM policies and practices are designed and implemented.
Chapter 5 Country and Company Culture and International Human Resource Management
At United Airlines: The word “foreign” is losing its meaning.
United Airlines Corporation1
This chapter will enable the reader to:
■ Define and explain the concept of culture. ■ Explain the importance of culture in international business (IB). ■ Describe the basic research findings of G. Hofstede and F.
Trompenaars. ■ Explain the importance of culture to IHRM. ■ Describe the importance of culture and the difficulties encountered in
This chapter provides a look at one of the most important aspects of the external context for IHRM.2 Many of the most important and difficult challenges to the conduct of international human resource management stem from the differences encountered in various countries’ and MNEs’ cultures. Often these differences clash when firms conduct business in more than one country and with enterprises located in many countries. This can become a particularly salient challenge when businesspeople lack knowledge of or sensitivity to these differences, resulting in their making mistakes in both their business policies and practices and their personal interactions. Even when they know the differences, they can mistakenly assume that their own country’s or company’s ways of doing things provide the best way to conduct business. Thus they can make decisions and behave in ways that alienate their foreign counterparts, the people with whom they interact from other countries or companies, such as foreign customers, suppliers, and employees, or they make mistakes that lead to business and/or personal problems. Giving preference to one’s own country and company culture can also result in the
overlooking or dismissing of better ways of doing things that can be found in other countries and their enterprises.
As two long-time participants in the IB environment put it:
More than any other aspect of the business experience, our knowledge and understanding of culture affects the outcome of business ventures. Without insight into the ways of others, we can’t expect to develop credibility, nurture goodwill, inspire a workforce, or develop marketable products. And that directly translates to bottom-line results. Culture affects the way we develop and maintain relationships. It plays a significant role in determining success with colleagues and partners, and helps us grasp how to evolve into respected leaders around the world. Understanding culture fundamentally affects how we run our business, what characteristics to look for in selecting people, how to develop global talent, how to conduct meetings, and how to manage employees and work with teams.3
Knowledge about and competency in working with varying countries and organizational cultures is one of the most important issues impacting the success of IB activity and of IHRM. Therefore, this chapter provides a definition and an overview of the nature and importance of national and company cultures and their impacts on IHRM as well as providing guidance as to how IHRM can perform its role within MNEs as the advisor and trainer on how to learn from cultural differences and how to use those differences in ways to help build global competitive advantage. This chapter examines the results of major research on culture as well as the findings of major research in IHRM (since it is so closely impacted by culture) and its role in understanding the impact of culture on the global organization and on IHRM.