International Business
by
Daniels and Radebaugh
Chapter 21
Human Resource
Management
© 2001 Prentice Hall
21-1
Objectives
To illustrate the importance of human resources in international
business relations
To explain the unique qualifications of international managers
To evaluate the issues that arise when companies transfer managers
abroad
To examine companies’ alternatives for recruitment, selection,
compensation, and development of international managers
To discuss how national labor markets can affect companies’ optimum
methods of production
To describe country differences in labor policies and practices
To highlight international pressures on MNEs’ relations with labor
worldwide
To examine the effect of international operations on collective
bargaining
© 2001 Prentice Hall
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Human Resources in International Business
OPERATIONS
EXTERNAL INFLUENCES
OBJECTIVES
PHYSICAL AND
SOCIETAL FACTORS
STRATEGY
MEANS
COMPETITIVE
ENVIRONMENT
Modes
© 2001 Prentice Hall
Overlaying
Alternatives
Functions
• Marketing
• Exporting and
importing
• Global manufacturing
• Supply chain
management
• Accounting
• Finance
• HUMAN RESOURCES
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Introduction
International Human Resource Management (HRM)
• MNEs agree on the importance of having qualified personnel
Several factors make international HRM different from domestic
management
• Different labor markets
• International worker mobility problems
• National management styles and practices
• National orientations
• Strategy and control
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Management Qualifications and Characteristics
Headquarters-subsidiary relationship
• International staffing is two-tiered
– subsidiaries need people who can manage well locally
– headquarters needs people who can effectively coordinate
and control worldwide and regional operations
• Headquarters-subsidiary relations affected by:
– company philosophy
– benefits of independence and interdependence
• Headquarters and subsidiary managers must communicate well
– rely on written communications
– language and cultural differences complicate
communications
» English becoming the international language of business
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Management Qualifications and Characteristics (cont.)
Matching style to operations
• Cross-border integration more likely with feeling-type than
thinking-type managers
• Corporate strategy influences HRM policy
– little need for transfer of HR competencies when MNE
pursues a multidomestic strategy
– global strategy requires transfer of headquarters’ HR policies
and practices
Qualifications specific to headquarters management
• Interact with high-level authorities abroad
• Must be away from home for extended periods
– face personal problems such as isolation
Qualifications of subsidiary management
• Responsible for a variety of business functions
– lack support of many staff functions
© 2001 Prentice Hall
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International Managerial Transfers
Reasons for staffing with locals
• Most managerial positions in both headquarters and foreign
subsidiaries are filled by locals
• Foreign managerial slots are difficult to fill with expatriates
because:
– many people are not inclined to move
» perception of a negative effect on family life and career
» managers view fixed-term and open-ended assignments
differently
– legal impediments to using expatriates
» licensing requirements
• Local managers more useful when operations require local
adaptations
• Hard to recruit locals if expatriates hired into most of the better
jobs
• Local managers cost less
© 2001 Prentice Hall
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International Managerial Transfers (cont.)
Reasons for using expatriates
• Shortage of competent local managers
– determined by country’s level of development
– determined by the need to transfer technology
• Managers learn foreign operations
– acquire understanding of overall corporate system
– people transferred to headquarters learn the headquarters
way
Home-country versus third-country nationals
• Third-country nationals sometimes might have more compatible
technical and personal adaptive qualifications than do homecountry expatriates
• Language
– operating adjustments
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Some Individual Considerations for Transfers
Technical competence—indicated by past domestic or foreign job
performance
• Most important determinant of success in foreign assignments
Adaptiveness
• Characteristics important for expatriate success include:
– those needed for self-maintenance
– those related to the development of satisfactory relationships
– cognitive skills that help one to perceive what is occurring
within the host society
• Hard to assess adaptiveness accurately
• Less than 10% of expatriates fail to complete their assignments
abroad
– failures attributed to family’s inability to adjust
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Some Individual Considerations for Transfers (cont.)
Local acceptance—expatriates may meet with local prejudice
• Locals may be perceived as being overpaid
• Expatriates may have to make unpopular decisions
• Negative stereotypes of expatriates
– MNEs seldom give women foreign assignments
Securing a successful foreign assignment
• Most expatriate assignments are successful
• Assignments generally given to experienced managers
• Foreign assignment may boost prospects of managers
– provide opportunity to demonstrate a knowledge of the
language and environment of a foreign assignment
© 2001 Prentice Hall
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Postexpatriate Situations
Problems with repatriation
• Loss of compensation premium for service abroad
• Readjustment to life at home
– loss of foreign lifestyle
• Readjustment to job
– changed relationships with coworkers
– less autonomy in the old work setting
• Overseas assignment has varied effects on managers’ careers
– positive effect in companies with substantial global operation
– foreign assignments carry high career risk in some firms
» few provisions for dealing with problems of repatriation
» “out of sight, out of mind”
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Expatriate Compensation
MNEs must pay enough to entice people to move, but must not overpay
• Difficult to provide appropriate pay levels, benefits, and perks for
international workforce
• Compensation required varies by company, person, and locale
Cost of living—difficult to duplicate accustomed way of life in a new
environment
• Habits difficult to change
• People don’t know how and where to buy
• Most companies provide a “goods-and-services differential”
– few firms reduce compensation when employee moves to an
area with lower cost of living
• Cost-of-living differential eliminated when manager is repatriated
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Typical First-Year Cost for a U.S. Expatriate
(Married, Two Children) in Tokyo, Japan
Direct compensation costs
Base salary
Foreign-service premium
Goods and services differential
Less: U.S. housing norm
(15,400)
U.S. hypothetical taxes
(17,200)
Company-paid costs
Schooling (two children)
Annual home leave
Housing
Japanese income taxes
Transfer/moving costs
Total company costs
© 2001 Prentice Hall
$100,000
15,000
73.600
15,000
4,800
150,000
84,000
38,000
$447,800
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Expatriate Compensation (cont.)
Foreign-service premiums and hardship allowances
• Employees may encounter living problems for which the company
provides extra compensation
• Expatriates receive foreign-service premiums for being posted in
foreign locations
– practice decreasing as hardships from foreign assignments
are decreasing
– living conditions still harsh in some locales
» political risks give rise to ransom insurance, safety
programs, and home alarm systems
Remote areas—often require additional benefits to recreate home
environment
Complications of nationality differences
• Salaries and methods of payment differ
• Nearly a consensus about maintaining expatriates on homecountry retirement system
© 2001 Prentice Hall
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Total attacks against U.S. citizens and U.S.
facilities abroad
Attacks on U.S. Citizens, 1999
140
132
123
120
111
100
80
73
60
40
20
Over the four-year period
where the attacks occurred
Latin America
318
Europe
50
Africa
15
Western Europe
13
Middle East
12
Near East/South Asia
8
Eurasia
7
Asia
7
East Asia and Pacific
5
North America
4
0
1995
1996
1997
199
8
© 2001 Prentice Hall
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Total Compensation of CEOs by Country
South Korea
Germany
Japan
Mexico
Canada
France
Britain
Hong Kong
Brazil
$150,711
$398,430
$420,855
$456,902
$498,118
$520,389
$645,540
$680,616
$701,219
$1,072,400
U.S.
Compensation
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Management Recruitment and Selection
Personnel record systems at headquarters
• Include technical and demographic data
• Include information on adaptive capabilities
– personality tests
– interviews with spouses and children
• May not encompass complete data on foreign personnel
Can secure staff for foreign operations by:
• Buying existing foreign companies
• Forming joint ventures
– foreign staff may be inefficient or hard to control
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International Development of Managers
Three developmental needs
• Top managers must have a global mind-set
• Managers must effect proper balance between corporate and
national operations
• Managers must understand the importance of international
competition for firm’s well being
Business schools are increasing international courses
• Convey specific knowledge about foreign environments and
international operations
• Develop interpersonal awareness and adaptability
Information briefing most common predeparture training
Managers on foreign assignment challenged to develop dual allegiance
• Four types of expatriate managers, only one of which is a “dual
Citizen”
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Allegiance of Expatriate Managers
Allegiance to parent company
Low
“Free agent”
“Going native”
“Heart at home”
“Dual citizen”
High
Low
High
Allegiance to local operation
© 2001 Prentice Hall
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Labor-Market Differences
HRM activities vary from country to country
MNEs may shift labor or capital intensities if costs differ in foreign labor
markets
• Labor-saving devices economically justified where wage rates are
high
• Labor-intensive methods ingratiate firm with governmental
officials
International Labor Mobility
Emigration from areas of high unemployment and low wages to areas
with labor shortages and high wages
• Companies hire immigrant labor because it accepts lower wages
than domestic workers
• Migrant laborers have work permits for limited periods of time
Hiring foreign laborers is risky because:
• Workers return home
• Turnover necessitates more training
© 2001 Prentice Hall
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Labor Compensation Differences
Reasons for country differences in compensation
• Both the amount and method of payment affected by a country’s
culture
• MNEs pay slightly better than local firms
– attract high-level local workers
Differing costs of benefits
• Customary types of benefits vary by country
• In some countries it is impossible or expensive to lay off workers
• Compensation costs on per-worker basis may bear little
relationship to total employment expenses
– relative costs change so MNEs must consider:
» productivity change
» labor-rate change
» conversion of labor rate to competitor’s currency
© 2001 Prentice Hall
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Comparative Labor Relations
Sociopolitical environment
• Affects attitudes of parties toward each other and how labor will
try to improve its lot
• Labor demands may be met by political action that affects labor
legislation
• Labor demands may be met by collective bargaining or collective
action
• Reliance on mediation by impartial third party differs by country
• Falling percent of union membership because:
– increased percentage of white-collar jobs
– increased percentage of service sector work
– rising portion of women in workforce
– rising portion of part-time/temporary workers
– trend toward smaller average plant size
– decline in belief in collectivism among young
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Trade Union Decline in Industrialized Countries
France
9.1%
14.5%
14.2%
18.0%
U.S.
1985
24.0%
28.8%
Japan
New
Zealand
1995
24.3%
54.1%
28.9%
35.0%
Germany
32.9%
U.K.
45.5%
35.2%
Australia
50.0%
91.1%
83.8%
Sweden
0
20
40
60
80
100
% of workforce in trade unions
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Comparative Labor Relations (cont.)
Union structure—one type of structure is most prevalent within most
countries
• Can be local
• Can be industry or company
• Can be one or several for same company
Protection from closures and redundancy
• Plant closing an important issue in some areas
– prior notification has been legislated in some countries
• Lifetime employment in Japan is a dual system
– helps institute certain efficiency measures
Codetermination—labor represented on the board of directors of some
companies
• Most existing examples mandated by legislation
• Has had little effect on companies’ international business
decisions
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Comparative Labor Relations (cont.)
Team efforts—firms in some countries emphasize work teams to foster
cohesiveness
• Involves workers in multiple tasks
– reduces boredom and develops replacements
– workers control quality and do repairs
• Teams are not successful everywhere
International Pressures on National Practices
International Labor Organization (ILO)—monitors labor conditions
worldwide
• Works in conjunction with International Confederation of Free
Trade Unions and international trade secretariats
• Makes harsh conditions known and pressures for change through
economic and political sanctions
Codes of conduct—ILO and OECD voluntary codes for industrial
relations practices of MNEs
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Multinational Ownership and Collective Bargaining
MNE advantages
• Product and resource flows—country bargaining unit is only a
small part of MNE’s activities
– MNE may continue serving customers with foreign production
or resources
» MNE must have excess capacity and produce identical
goods elsewhere
– MNE stockholders may balk at work stoppages
• Production switching—MNE may threaten to move production
abroad
– tactic to reduce labor costs by threatening job security
• Size and complexity of MNEs—disadvantage labor
– MNE decision making may be far away
– hard to get complete data on MNE’s global operations
© 2001 Prentice Hall
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Multinational Ownership and Collective Bargaining (cont.)
Labor initiatives—cross-national cooperation
• Information sharing—most common type of international
cooperation
• Assistance to foreign bargaining units—job actions and
financial support
• Simultaneous actions—least common to coordinate
negotiations and strikes
– union priorities and structure interfere with this type of
coordinated activity
» workers’ wages and preferences differ
• National approaches—most initiatives against MNEs
conducted at national level
– workers in different countries often perceive one
another as competitors
– national labor legislation provides context for labor
actions
© 2001 Prentice Hall
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