


 To balance the need for standardization
(consistency) and the need for adaptation
1.
Factors that influence standardization and adaptation of work practices and the role of HR, including
 Host-country culture and workplace environment
 Mode of operation
 Firm size, maturity and international experience, and
 Subsidiary mandate.
2.
Retaining, developing, and retrenching local staff
3.
HR implications of language standardization: HCN selection, training and promotion on the basis of language skills.
4.
Monitoring HR practices used by foreign subcontractors.

 The nature of the relationship between the units and
‘parent’, e.g.
 Long- or short-term
 The role of the subsidiary in the broader context


Mode of Entry
The level of equity involved, e.g.
 Mode of operation
 Factors within host-country environments, e.g.
 Government regulations
 Social norms

 National culture of the parent company
 National culture of the subsidiary unit
 Corporate culture as a potential unifier
 Standardization can be achieved through
 Staffing procedure and standards
 Training and development programs
 Staff rotation
 Rewards and promotion
 Corporate code of conduct

 Host-country culture and workplace environment
 Mode of operation involved
 Size and maturity of the firm
 Motorola in China
 Subsidiary mandate
 Relative importance of the subsidiary

GE’s Center of Excellence in Hungary

 Work behavior is culturally determined
 Contained in role definition and expectations
 Often, what is meant by corporate culture translates into universal work practices – standardization of work practices
 Common practices rather than common values

 Mode of operation impacts standardization of work practices
 Ownership and control are important factors:


Acquisition may constrain ability to transfer technical knowledge, management know-how, systems, and HR practices
Wholly owned subsidiaries provide greater opportunities for transferring work practices than in IJV

 Management contracts provide skills, expertise and training to
HCNs, without carrying equity or risks associated with FDI, and may have HC government support.
Mode of entry influences the number of expatriates needed.

 The size of the firm, maturity, and international experience are important firm level factors.
 Motorola in China is a case in point:
 Large size
 Wealth of international experience
 Centralized IHR programs
 Management could draw on these aspects when entering China



 Not a case of “either-or”, but more of a constraint for both
Global convergence versus divergence
The best IHRM practices ought to be the ones adapted to cultural and national differences.
best



More western HR practices being introduced to China
Japanese firms such as Nissan and Honda train HCNs in
US, UK and other European subsidiaries.
Movements in France against capitalist cultural invasion.

 The paradox – “the expense of cheap labor”
 The amount and quality of training is an important consideration
 Technical
 Language
 Decision-making
 Management

 Investing in human capital
 Providing training and career development can assist in retaining good local staff
 Improved benefits, work and living conditions, and fair management practices are important factors:
 A fair environment and good management practices play an important role in countries such as China
 Job-hopping behavior in Singapore, Russia, and
China



The reverse of the employment ‘coin’
May affect domestic jobs – e.g., transferring call centres from UK and US to India
 Labor law may allow corporate freedom or constrain retrenchment, e.g.
 U.S.
 India
 Germany

 Adopting a common corporate language puts pressure on employees to become competent in the corporate language
 Assists informal communication and network building
 May affect career opportunities and differentiate power and influence
 Promotion
 Ability to attend corporate programs and meetings
 Availability for international assignments



World total – 10% of the world population
Surveyed employees in Europe:





The Netherlands – 80%
Germany – 55%
France – 40%
Italy – 39%
Spain – 36%
 Impact of language competence:
 Higher level positions
 Higher salaries

 Outsourcing activities to host-country subcontracting firms requires some monitoring of HR practices


Further contracting is likely to occur.
Vocal groups have accused multinationals of condoning work practices that would not be permitted in their home countries, regarding:





Child labor
Minimum pay
Work hours
Work conditions and safety
Environmental issues
 Similar issues in different countries, but more complex



Drawing up and reviewing code of conduct
Conducting a cost-benefit analysis to justify an expatriate as a monitor
Championing local operators as monitors 
 Being a member of the team who conducts periodic
“checking” visits
Overseeing external monitors and auditors where used 


Checking that rewards and performance systems take into consideration compliance to code of conduct
Being knowledgeable about and sensitive to local law and regulations

 Cross-cultural difference in industrial relations
(IR) and collective bargaining
 The concept
 Level of negotiations
 Objectives
 Ideology
 Structures
 Rules and regulations
 Trends and developments
 Global
 Regional

 Degree of inter-subsidiary production integration
 Nationality of ownership of the subsidiary
 IHR management approachs
 MNE prior experience in industrial relations
 Subsidiary characteristics
 Characteristics of the home product market
 Management attitudes towards unions




High degree of integration was found to be the most important factor leading to the centralization of the IR function within the firms studied.
Industrial relations throughout a system become of direct importance to corporate headquarters when transnational sourcing patterns have been developed, that is, when a subsidiary in one country relies on another foreign subsidiary as a source of components or as a user of its output.
In this context, a coordinated industrial relations policy is one of the key factors in a successful global production strategy.

 Foreign-owned multinationals in Britain prefer single-employer bargaining (rather than involving an employer association), and are more likely than
British firms to assert managerial prerogative on matters of labor utilization.
 US-owned subsidiaries are much more centralized in labor relations decision making than the Britishowned or other European firms , attributed to:



More integrated nature of US firms
Greater divergence between British and US labor relations systems than between British and other European systems,
More ethnocentric managerial style of US firms

 An ethnocentric predisposition is more likely to be associated with various forms of industrial relations conflict.
 Conversely, more geocentric firms will bear more influence on host-country industrial relations systems, owing to their greater propensity to participate in local events.

 European firms tend to deal with industrial unions at industry level (frequently via employer associations) rather than at the firm level.
 The opposite is more typical for U.S. firms
 In the U.S., employer associations have not played a key role in the industrial relations system, and firm-based industrial relations policies are the norm.

 Lack of a large home market is a strong incentive to adapt to host-country institutions and norms.




If domestic sales are large relative to overseas operations (as is the case with many US firms), it is more likely that overseas operations will be regarded as an extension of domestic operations.
For European firms, international operations are more like to represent the major part of their business.
Since the implementation of the Single European Market, there has been growth in large European-scale companies (formed via acquisition or joint ventures) that centralize management organization and strategic decision-making.
However, processes of operational decentralization with regard to industrial relations are also evident.

 Management attitudes or ideology concerning unions and industrial relations
 Competitive/confrontational
 Cooperative
 Codetermination
 Works council
 Union density in western industrial societies
 Denmark has the highest level of union membership
 U.S. has the second lowest
 France has the lowest in the western world.





Hamill examined strike-proneness of multinational subsidiaries and indigenous firms in Britain across three industries.
Strike proneness was measured via three variables:



Strike frequency
Strike size
Strike duration
There was no difference across the two groups of firms with regard to strike frequency.
But multinational subsidiaries experienced larger and longer strikes than local firms.
 Foreign-owned firms may be under less financial pressure to settle a strike quickly than local firms – possibly because they can switch production out of the country.



By influencing wage levels


By constraining the ability of multinationals to vary employment levels at will; and
By hindering or preventing global integration of the operations of multinationals.



Many multinationals make a conscious decision not to integrate and rationalize their operations to the most efficient degree, because to do so could cause industrial and political problems.
General Motors as an example of “sub-optimization of integration’.
 GM was alleged in the early 1980s to have undertaken substantial investments in Germany at the demand of the
German metalworkers’ union (one of the largest industrial unions in the Western world) in order to foster good industrial relations in Germany.
 Cost of ignorance, e.g., recent wild cat strike in Germany

 The growth of multinationals as a threat to the bargaining power of labor
 Multinationals are not uniformly anti-union
 But their potential lobbying power and flexibility across national borders creates difficulties for employees and trade unions to develop countervailing power.








Formidable financial resources
Alternative sources of supply
The ability to move production facilities to other countries
A remote locus of authority
Production facilities in many industries
Superior knowledge and expertise in industrial relations
The capacity to stage an ‘investment strike,’ whereby the multinational refuses to invest any additional funds in a plant, thus ensuring that the plant will become obsolete and economically non-competitive.



The response of labor unions to multinationals has been threefold:



Form international trade secretariats (ITSs)
Lobby for restrictive national legislation, and
Try to achieve regulation of multinationals by international organizations.
International trade secretariats (ITSs).


There are 15 ITSs, which function as loose confederations to provide worldwide links for the national unions in a particular trade or industry (e.g. metals, transport and chemicals).
The secretariats have mainly operated to facilitate the exchange of information.

 The long-term goal of ITSs is to achieve transnational bargaining through a similar program, involving:
 Research and information
 Calling company conferences


Establishing company councils
Company-wide union –management discussions
 Coordinated bargaining

 Overall, the ITSs have limited success, due to several reasons:
 Generally good wages and working conditions offered by multinationals
 Strong resistance from multinational firm management
 Conflicts within the labor movement, and
 Differing laws and customs in the industrial relations field

 On a political level, trade unions have for many years lobbied for restrictive national legislation in the U.S. and Europe.
 The motivation for trade unions to pursue restrictive national legislation is based on a desire to prevent the export of jobs via multinational investment policies.

 Attempts by trade unions to exert influence over multinationals via international organizations
 The International Labor Organization ILO has identified a number of workplace-related principles that should be respected by all nations:
 Freedom of association
 The right to organize and collectively bargain
 Abolition of forced labor, and
 Non-discrimination in employment





Regional integration such as the development of the EU has brought significant implications for industrial relations.
In the Treaty of Rome (1957), some consideration was given to social policy issues related to the creation of the
European Community.
The terms ‘social policy’ or ‘social dimension’ are used to cover a number of issues, such as:


 labor law and working conditions,
Aspects of employment and vocational training
Social security and pensions.
The social dimension aims to achieve a large labor market by eliminating the barriers that restrict the freedom of movement and the right of domicile within the SEM.

 The EU has introduced a range of Directives related to the social dimension.
 The most contentious Directive is the Seventh, which requirement of disclosure of company information to unions .
 The European Works Councils (EWC)
Directive was approved on 22 September 1994 and implemented 2 years later.



Taxation differences among Member States

Many Member countries’ tax laws do not recognize contributions to foreign pension plans.
 This creates unfavourable tax circumstances for employees working outside their home countries and contributing to pension plans in their host countries.
The issue of “social dumping”
 The impact of SEM on jobs – Member States that have relatively low social security costs would have a competitive edge and that firms would locate in those Member States that have lower labor costs.
 The counter-alarm was that states with low-cost labor would have to increase their labor costs, to the detriment of their competitiveness.
 There are two industrial relations issues here: the movement of work from one region to another, and its effect on employment levels; and the need for trade union solidarity to prevent workers in one region from accepting pay cuts to attract investment, at the expense of workers in another region.

 Knowledge acquisition used by MNEs are an emerging issue in the U.S., where newly trained professionals from overseas replace their trainers (expatriates or domestic workers), e.g.
 U.S. non-immigrant visa programme
– particularly the L-1 classification allows companies to transfer workers from overseas offices to the U.S. for as long as 7 years.
 Importantly, this visa classification allows companies to pay these workers their home-country wage.





“The digital divide exists not only between societies but within societies.”
Only 15 per cent of the world’s population (living mostly in industrialized countries) has access to information and communication technologies.
A majority of the world’s population is technologically disconnected.
Internet usage is stratified and is much more common among
 Younger rather than older people



Men rather than women
Urban rather than rural dwellers, and
People with higher levels of education and income.






Multinational performance management at the global and local level: Considering aspects such as non-comparable data, the volatility of the global environment, the effect of distance and level of subsidiary maturity
Factors associated with expatriate performance, including compensation package, task and role, headquarters’ support, host environment factors and cultural adjustment
Performance management of expatriates and non-expatriates, and for those on non-standard assignments such as commuter and virtual
Issues related to the performance appraisal of international employees.
The contextual model

 A process that enables the multinational to evaluate and continuously improve individual, subsidiary unit, and corporate performance, against clearly defined, pre-set goals and targets


 Whole versus part
 Non-comparable data
 Volatility of the global environment
 Separation by time and distance
 Variable levels of maturity

 Performance management is part of the multinational’s control system.
 Performance targets are part of formal control.
 Performance management contributes to shaping corporate culture, e.g.
 Who conducts performance appraisal
 Tangible versus intangible criteria
 Individual versus team based appraisal
 How results linked to HR decisions, e.g., compensation and promotion

Expatriate
Performance
Cultural adjustment – self and family
Host environment
Headquarters’ support
Task
Compensation package

 The task:
 Chief executive officer
 Structure reproducer
 Troubleshooter
 Operative
 Task variables are generally considered more under the control of the multinational than environmental factors.

 A role is the organized set of behaviors assigned to a particular position.
 Effective role behavior is an interaction between the concept of the role, the interpretation of expectations, the person’s ambitions, and the norms inherent in the role.
 The difficulty for the expatriate manager is that the role may be defined in one country, but performed in another.

 The support of headquarters is important
– both to the individual expatriate and accompanying family members – as a performance variable

 The external context can be a major determinant of expatriate performance
 Differing demands in terms of the context:
 Societal
 Legal
 Economic
 Technical
 Physical
 Type of operation involved (e.g. IJV versus whollyowned subsidiary)

 Effects of factors associated with constant air travel, e.g.
 Depression, anxiety, sleep disturbance, health
 Stress associated with frequent absences and effect on family relationships
 Non-standard assignments share these aspects, e.g.
 Commuter arrangements
 Virtual assignments

 Performance criteria
 Hard goals: objective, quantifiable and can be directly measured
 Soft goals: relationship or trait-based
 Contextual goals: factors that result from the situation in which performance occurs
 An appraisal system that uses hard, soft and contextual criteria is advocated

 Who conducts the performance appraisal
 Use of standardized or customized appraisal form
 Frequency of appraisal
 Performance feedback
 Timely
 Geographical distance affects
 Corporate global strategies

 The practice itself confronts the issue of cultural applicability.
 May be necessary to use local staff and a customized form.
 Level of position involved is an important consideration.

In this final chapter, we identify and comment on observed trends and future directions regarding:
 International business ethics and HRM.
 Mode of operation and IHRM.
 Ownership issues relating to IHRM requirements of organizations other than large multinationals, such as:
 Small and medium-sized firms (SMEs)
 Family-owned firms
 Non-government organizations (NGOs).
 Theoretical developments and research issues in IHRM.

 When business is conducted across borders, the ethics program takes on added layers of complexity.
 Especially problematic when multinationals operate in host countries that have:
 Different standards of business practice




Economically impoverished
Inadequate legal infrastructure
Governments are corrupt, and
Human rights are habitually violated
 The question arises not only in the context of different home- and host-country employment practices but also in the central operations and policies of the multinationals.

 Three main responses to the question:



The ethical relativism believes that there are no universal or international rights and wrongs, it all depends on a particular culture’s values and beliefs when in Rome, do as the Romans do.
The ethical absolutism believes that when in Rome, one should do what one would do at home, regardless of what the Romans do. This view of ethics gives primacy to one’s own cultural values.
In contrast, the ethical universalism believes that there are fundamental principles of right and wrong which transcend cultural boundaries and multinationals must adhere to these fundamental principles or global values.

 Universal ethical principles can be seen in the agreements among nations who are signatories to:
 The United Nations Declaration of Human Rights
 The OECD Guidelines for Multinational Enterprises ( adopted by the Organization of Economic Cooperation and Development)
 The Caux Roundtable Principles of Business
 They indicate the emergence of a trans-cultural corporate ethic and provide guidelines that have direct applicability to a number of the central operations and policies of multinationals including the HRM activities of staffing, compensation, employee training and occupational health and safety.
 However, there are a wide range of situations where variations in business practice are permissible.

 The need for international accords and corporate codes of conduct has grown commensurately with the spread of international business.
 Translating ethical principles and values into practice in the international business domain, even allowing for some consensus within the international community, is an enormous task in the absence of a supranational legislative authority.
 A number of mechanisms to facilitate the incorporation of ethical values into international business behavior have been suggested.

 The first international ethics code for business
 Developed in 1994 by Japanese, European and
North American business leaders meeting in Caux,
Switzerland
 Aimed to set a global benchmark against which individual firms could write their own codes and measure the behavior of their executives.
 The Caux Principles are grounded in two basic
ethical ideals: kyosei and human dignity.

(cont.)


The Japanese concept of kyosei means living and working together for the common good – enabling cooperation and mutual prosperity to co-exist with healthy and fair competition.
Human dignity relates to the sacredness or value of each person as an end, not simply as the means to the fulfillment of others’ purposes or even majority prescription.
 The Caux Principles aim to operationalize the twin values of living and working together and human dignity by promoting free trade, environmental and cultural integrity and the prevention of bribery and corruption.

 The attitudes of senior management play a crucial role in developing, implementing and sustaining high ethical standards.
 HR professionals can help multinationals to institutionalize adherence to ethics codes through a range of HR activities including training and the performance –reward system, e.g.

Johnson and Johnson’s Credo meets the standards of the Caux
Principles , the UN’s Declaration of Human Rights and the
OECD Guidelines for Multinational Enterprises .
 Addressing the core human values of good citizenship, respect for human dignity, respect for basic rights and justice, and using them to define ethical behavior.

 New global developments on the criminalization of bribery
 Bribery and corruption top the list of the most frequent ethical problems encountered by international managers.
 The World Bank estimates that about $80 billion annually goes to corrupt government officials.
(cont.)




It is now generally agreed that bribery undermines equity, efficiency and integrity in the public service, undercuts public confidence in markets and aid programs, adds to the cost of products and may affect the safety and economic well-being of the general public.
Bribery can be distinguished from so-called gifts and
‘facilitating’ or ‘grease’ payments. The latter are payments to motivate agents to complete a task they would routinely do in the normal course of their duties.
Bribery involves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage.

 The US Foreign Corrupt Practices Act , enacted in 1977
 Prohibits US-based firms and US nationals from making bribery payments to foreign government officials.


Payments to agents violate the Act if it is known that the agent will use those payments to bribe a government official.
Amended in 1988, to permit ‘facilitating’ payments but mandates record-keeping provisions to help ensure that illegal payments are not disguised as entertainment or business expenses.
 The US lobbied other nation states for almost two decades to enact uniform domestic government regulations

 The United Nations adopted the UN Declaration
Against Corruption and Bribery in International
Commercial Transactions, in December 1996.
 Committed UN members to criminalize bribery and deny tax deductibility for bribes.

Top 10 most corrupt countries
Corruption perceptions index score
Top 10 least corrupt countries
Corruption perceptions index score
Bangladesh
Nigeria
Paraguay
Madagascar
Angola
Kenya
Indonesia
Azerbaijan
Uganda
Moldova
1.2
1.6
1.7
1.7
1.7
1.9
1.9
2.0
2.1
2.1
Finland
Denmark
New Zealand
Iceland
Singapore
Sweden
Canada
The Netherlands
Luxembourg
U.K.
Source: Adapted from the transparency International Corruption Perception Index 2002, Ranging from 10
(highly clean) and 1 (highly corrupt), www.transparency.or
9.3
9.3
9.0
9.0
9.7
9.5
9.5
9.4
9.0
8.7

Members Denying Tax
Deductibility
Canada
Czech Republic
Finland
Greece
Hungary
Ireland
Italy
Japan
South Korea
Mexico
Poland
Turkey
U.K.
U.S
Source: OECD
Members Allowing Tax
Deductibility
Australia
Luxembourg
New Zealand
Sweden
Switzerland
Members Repealed Tax
Deductibility
Austria, 1998
Belgium, 1999
Denmark, 1998
France, 1997
Germany, 1997
Iceland, 1998
Netherlands, 1997
Norway, 1996
Portugal, 1997



HR has a special role to play in the formulation, communication, monitoring, and enforcing an enterprise’s ethics program.
The US-based business ethics literature generally presents the view that the HR function along with finance and law is the appropriate locus of responsibility for an enterprise’s ethics program.


The 2003 SHRM/ERC survey found that 71% of HR professionals are involved in formulating ethics policies for their enterprises
69% are a primary resource for their enterprise’s ethics initiative.
 However, the SHRM respondents did not regard ethics as the sole responsibility of HR.
(cont.)

(cont)



The findings suggest that responsibility for ethical leadership should cut across all functions and managerial levels, including line and senior managers.
At the same time, HR is well positioned to make an important contribution to creating, implementing and sustaining ethical organizational behavior within a strategic HR paradigm.
HR professionals have specialized expertise in the areas of organizational culture, communication, training, performance management, leadership, motivation, group dynamics, organizational structure and change management – all of which are key factors for integrating responsibility for ethics into all aspects of organizational life.

(cont.)


People involved in international business activities face many of the same ethical issues as those in domestic business,
The issues are more complex for IHRM because of the different social, economic, political, cultural and legal environments in which multinationals operate.


Consequently, multinationals will need to develop self-regulatory practices via codes of ethics and behavioral guidelines for expatriate,
TCN and local HCN staff.
Firms which opt consciously or by default to leave ethical considerations up to the individual not only contribute to the pressures of operating in a foreign environment (e.g., poor performance or early recall of the expatriate), but also allow internal inconsistencies that affect total global performance.
(cont.)

(cont.)
 When recruiting and selecting expatriates, ability to manage with integrity could be a job-relevant criterion.
 The pre-departure training of expatriates and the orientation program should include an ethics component. This might include formal studies in ethical theory and decision making as well as interactive discussion and role playing around dilemmas which expatriates are likely to encounter.
 In an effort to sensitize managers to cultural diversity and to accept the point that home practices are not necessarily the best or only practices, there has been an emphasis in international business training on adapting to the way in which other cultures do business.
 In designing training programs to meet the challenges of multinational business, HR professionals must raise not only the issue of cultural relativities but also the extent to which moral imperatives transcend national and cultural boundaries. Insufficient attention may result in unacceptable ethical compromises.
(cont.)

(cont.)


It is also important for the HR department to monitor the social, ethical performance of the expatriate managers to ensure that as managers become familiar with the customs and practices of competition in the host country, they do not backslide into the rationalization that ‘everybody else does it’.
There is not yet agreement about what should constitute a global ethic to resolve the conflicts which arise in such a community. However, there is an emerging consensus about core human values which underlie cultural and national differences and the content of guidelines and codes which help to operationalize the ethical responsibilities of multinationals.

 Emphasis on IJVs
 Contractual modes such as licensing and management contracts present challenges for IHRM that have yet to be fully identified and explored
 International projects often involve hostgovernment agencies and present specific
HR challenges

 Small and medium-sized firms (SMEs)
 International activities place stress on limited resources especially staff

Key individuals often represent the SME’s stock of international competence

Retaining key staff is critical

Converting tacit knowledge into organizational knowledge and procedures is a challenge



Not just a sub-set of SMEs
 The globalization of family-owned firms has been a remote topic in international business studies

Management succession presents special HR planning concerns.
But is becoming increasingly important and receiving increased recognition; e.g., Asian family business and family conglomerates competing powerfully in the global marketplace.

 As active internationally as for-profit firms, yet receive less attention, e.g.
 Red Cross
 Greenpeace groups
 These organizations share similar management and HR concerns
 Often operate in high risk areas of the globe
 Anti-globalization rallies and protest
 Global terrorism
 Broadening our focus of IHRM is important.

 The field of IHRM has been slow to develop a rigorous body of theory
 Regarded as a marginal area
 International studies are more expensive to fund
 Major methodological problems
Defining culture and the emic-etic distinction
Static group comparisons
Translation and stimulus equivalence

 Possible to identify two streams of inquiry
 The micro-level
 The macro level
 Low response to surveys may be a factor of
 Culture
 Language used
 Lack of use of teams of researchers