18

International Human Resource Management

LEARNING OBJECTIVES

After going through this chapter, you should be able to:

  • Define international human resource management and discuss human resource strategies in overseas operations

  • Illustrate the importance of human resources in international business

  • Examine different policies of companies for recruitment, selection, compensation, development, and retention of international managers

  • Discuss how companies differ in terms of labour policies

  • Understand the selection and screening criteria used in choosing people for overseas assignments

Investing in the Workforce

Kimberly-Clark Corporation, one of the largest makers of paper and personal-care products in the world, is becoming increasingly aware of the value that lies in fostering overseas talent, particularly workers in high-growth developing markets. Headquartered in Texas, United States, the TNC anticipates explosive growth in disposable diapers and Kleenex tissues, its key products in developing markets, and has steadily increased its resource deployment for this. Local hires have a great deal to offer at a fraction of the cost of an expatriate. And they usually have a far better grasp of the market and an intimate understanding of the language and culture of their homeland.

The company has steadily increased its talent development and training programmes for its 60,000 employees, especially for those in the developing markets. In Latin America, the average employee has gone from receiving practically no training time to about 38 hours each year. Workers in Europe now receive 40 hours per year—eight hours more than they did in 1996. One of the company's most ambitious global projects is its performance management programme, which has trained about 28,500 employees across 63 countries and in 16 languages. The programme is geared to inform workers about the new salary structure, which makes a stronger link between performance and compensation. Although the majority of the employees being trained are top-tier executives and managers, the company also has programmes designed to reach blue-collar employees. It believes that workers can lead from any position and gives them tools to enable that.

In Peru, the company offers its workers a training programme in partnership with Senati, a technical institute to help blue-collar workers hone their manufacturing skills. It plans to expand the initiative as the programme has been almost a self-financing exercise on account of the cost-saving tips that students have passed on to management. It has a similar manufacturing certification programme in Malaysia, in collaboration with the University College of Tun Hussein Onn.

The firm is also fostering social and interpersonal development. Yuhan-Kimberly, the company's joint venture in South Korea, has launched a programme that teaches its employees Stephen Covey's “The 7 Habits of Highly Effective People”, self-leadership and team-building exercises. Employees are also encouraged to take a variety of courses of personal interest, including piano lessons and painting. It is felt that creating self-awareness will help workers develop problem-solving and analytical abilities. Its training programmes and investment in the workforce have earned Yuhan-Kimberly the distinction of being among the “30 Most Respected Companies in Korea”, according to IBM, Business Consulting Services, Korea, and daily newspaper Dong-A Ilbo.

 

Source: Information from “Kimberly-Clark: Developing Talent in Developing World Markets”, available at www.workforce.com/tools/reports/SpecialReportGlobalWorkforce.pdf, last accessed on 28 January 2011.

INTRODUCTION

A successful international company needs an appropriate structure and controls to put its strategy into effect. You have seen in Chapter 1 that firms move through an evolutionary path in their internationalization process, and successively become multi-domestic, international, global and transnational. The word “congruent” is used to indicate the degree of matching of strategy, structure and controls. Accordingly, International Human Resource Management (IHRM) is the process of selecting, training, developing and compensating personnel in accordance with the firm's overall strategy. The aim of the HRM policies of a firm is to match people with the firm's strategy, structure and controls. We may find, for example, that the CEO and staff required to effectively manage a multi-domestic company are quite different from the team required to effectively manage a transnational company. In the following sections, we will discuss the role of various HRM activities in matching people to strategy, structure and control systems.

A TNC has three basic sources of human resources.1 The first is its home country nationals, who may be residents abroad but are citizens of the home country. They are known as expatriates. An example would be an Indian manager who works at the Infosys office in New Jersey. The second category consists of host-country nationals, consisting of domestic staff hired by the TNC. An example of this is a British national working for BMW in London. The third category consists of third-country nationals, who are citizens of other countries and work for the TNC in a foreign location. An example is a German manager working for Panasonic in Japan.

The advantages of using home-country staff for foreign assignments is that it ensures that senior management has full knowledge of the capabilities, experience, attitude and perspectives of those in charge of foreign operations. Since expatriate managers are fully conversant with company policies and procedures, communication is fast and efficient. The interests of the parent company are also looked after as the expatriate manager depends upon the parent organization for career advancement.

On the other hand, the disadvantages of using expatriates include their lack of familiarity with the local language, culture and business practices, a long settling-in period during which time productivity is low, dealing with racial and other biases, and blocking promotion opportunities of locally recruited staff.

The major steps in the process of IHRM are as follows:

  1. Human resource planning (This is part of the organization's strategic plan.)
  2. Recruitment
  3. Selection
  4. Induction and orientation
  5. Training (to improve job skills)
  6. Development (to educate people beyond the requirements of their present position)
  7. Remuneration and rewards
  8. Transfers
RECRUITMENT AND SELECTION

There are four choices in recruitment and selection policy: the ethnocentric approach, the polycentric approach, the geocentric approach and the regiocentric approach. The IHRM policy of the TNC, a feature of its long-term strategy, depends on its business orientation and its age as a TNC. There are four choices in policy: the ethnocentric approach, the polycentric approach, the geocentric approach and the regiocentric approach.

Ethnocentric Orientation

In the initial stages of global venturing, a business firm prefers to use home-country managers for its overseas units. This is characteristic of the firm's ethnocentric orientation, based on the belief of the superiority of one's own ethnic group. It has been observed, for example, that most Japanese TNCs prefer to use home-country managers for their senior staff positions.2 Similarly, European TNCs assign home-country managers for their entire careers. US TNCs, however, view overseas assignments as temporary, and are often found working under host-country managers. Large TNCs, such as Procter & Gamble and the Samsung Group, often have had their important overseas subsidiaries manned by home-country nationals as they place a high value on corporate culture.

 

Ethnocentric orientation is based on the belief of the superiority of one's own ethnic group, and refers to the preference for home-country managers in overseas units.

A firm generally believes that parent-country nationals are better qualified and more trustworthy than host-country nationals. For firms that are transferring core competencies through a foreign operation, it is best done with the help of staff familiar with organizational processes and routines that are associated with these competencies. It also considers the ethnocentric approach more suited for maintaining a unified corporate culture. The basic merit in this approach is the benefit of the experience curve effects derived from the standardisation of production. The firm produces in the home country initially and transfers its core competency to the host country under the guidance of expatriate managers. However, host country nationals are denied the opportunity of decision-making and advancement, leading to resentment among them. Expatriate managers are also expensive to maintain, and may often become insular in their attitudes and prone to cultural myopia. This often results in the management overlooking niche market opportunities.

Polycentricity

Polycentricity or polycentrism is a belief that local people know the local environment better than outsiders. Under this orientation, a firm recruits host-country nationals to manage their subsidiaries and parent-country nationals occupy key positions at the corporate headquarters. The basic advantages of this approach is quick and flexible responsiveness, as local managers react to market needs in the areas of pricing, production, product life cycle, and political activity. There is greater sensitivity to cultural issues and continuity in the management of foreign subsidiaries.

 

Polycentricity or polycentrism is the belief that local people know the local environment better than outsiders. Thus, a firm recruits host-country nationals to manage their subsidiaries while parent-country nationals occupy key positions at the corporate headquarters. A geocentric staffing policy is based on the notion that the best people should be employed, regardless of their nationality.

A major drawback of this approach is that host-country nationals remain limited in their experience, and opportunities for professional growth are consequently limited. This leads to resentment and high turnover among the staff. There also exists a barrier between home- and host-country managers regarding language, national loyalties and a host of other cultural differences. This, in turn, may lead to the isolation of the corporate headquarters from national units and lead to lack of integration and corporate inertia.

Geocentric Approach

A geocentric staffing policy is based on the notion that the best people should be employed, regardless of their nationality. It ensures optimum utilization of the firm's human resources, and helps it to develop a global workforce that can work anywhere in the world and under any cultural constraints. It also allows the firm to reap the advantages of scale economies and experience curve effects, as well as local responsiveness and cultural adaptation. It is, however, an expensive policy as it entails huge cross-cultural training and orientation, costs of relocation and immigration. The adoption of a geocentric policy may be limited by local laws and policies that require foreign subsidiaries to employ local staff.

 

A geocentric staffing policy is based on the notion that the best people should be employed, regardless of their nationality.

REGION FOCUS  |  Talent Management at the Tatas

There are no limits in the war for organizational talent, which finds large TNCs in the quest for the best across geographical boundaries. It is a challenge for leaders to attract and develop the best talent available, and then to nurture and develop the talent and keep them happily productive as an organizational resource for as long as possible.

The Tata Group, which is now India's largest and most diversified conglomerate, started life as a cotton trader. Its present business interests cover a multitude of industries, including information technology services, engineering, power, property development, hotels, travel, and consumer products, thus providing a plethora of products and services to the vast and growing number of Indian consumers.

The Tata Group's recent acquisitions of foreign rivals in strategic industries such as chemicals and steel—including the Anglo-Dutch steel-making company Corus Group, the American company General Chemical and Singapore's NatSteel—as well as its acquisition of iconic brands like Jaguar and Land Rover in automobile have guaranteed its position on the global map.

It has more than 360,000 employees worldwide, of which more than 70 per cent are white-collar professionals, and more than half of them are engineers. Human resource management is therefore a colossal task, with hundreds of thousands of talented people to develop, manage and retain, whilst attracting and bringing aboard new blood to keep the organization alive and growing.

The Indian population of over a billion has more than 2.5 million graduates joining the workforce every year, including some 300,000 engineers. They are the products of the country's 380 universities, 11,200 colleges and 1,500 research institutes. Indians constitute the world's largest English-speaking workforce, and the second-largest pool of scientists and engineers. The low cost of their employment relative to Western markets is one of their greatest attributes.

During Tata's induction of new employees, there is a process of acculturization that begins 6–12 weeks before they join, unlike the “sink or swim” approach of on-the-job-training favoured by many others. It also pays extra attention to talent retention by identifying key pull-factors for each employee based on age, seniority, job function and location.

It understands the need to revisit and revise their policies to address the diverse and changing needs of its workforce. A younger person may crave global experiences and welcome an overseas stint in a fast-moving setup; an experienced worker may prefer the stability of a home-based position, where his depth of knowledge can be better leveraged. Policies are also aligned to the needs of the young workforce who seek instant gratification. Quick learners with scant respect for seniority, they are the repository of new perspectives and demonstrate lateral talent and creativity for things that align with their interest.

The global leader's mantra for success:

  • Adapt to new work ethics and environments

  • Adopt the best practices that are tailored to fit the needs of the employer and the employee

  • Develop a fit between company goals and employee aspirations

  • Make work a labour of love to keep employees gainfully engaged

  • Identify and distinguish between a local person with local knowledge for a local operation (“local–local”) and a foreign talent with local knowledge (“global–local”)

Source: Information from “Tata's HR Strategy: Think Far, Wide and Smart”, Knowledge@SMU, 31 January 2011, available at http://knowledge.smu.edu.sg/article.cfm?articleid=1337, last accessed on 28 January 2011.

Regiocentricity

Regiocentricity is the variation of staffing policy to suit particular geographic areas. It is particularly suited in geographical regions that are culturally proximate and similar. For instance, firms operating in the MENA region find it useful to employ Muslim staff as it creates a sense of cultural affinity and eases the working atmosphere in the region. The policy shows sensitivity to local conditions and provides a stepping stone for a firm wishing to move from an ethnocentric or polycentric approach to a geocentric approach.

 

Regiocentricity is the variation of staffing policy to suit particular geographic areas. It is particularly suited in geographical regions that are culturally proximate and similar.

TRAINING AND DEVELOPMENT

Training and development refers to the acquisition of knowledge, skills and behaviour pertaining to the job. For an international business, training and development procedures and methods vary depending on whether the individual is from the home country, host country or a third country.

 

Training and development refers to the acquisition of knowledge, skills and behaviour pertaining to the job.

Training and development are two different but related issues. Training is concerned primarily with the acquisition of skills (for example, learning a language), but may also refer to the acquisition of awareness (for example, cultural training). Development is the term used to describe a process of change through the acquisition of knowledge via some form of education programme, which may include some training.

Training programmes designed for individuals who are going overseas provide information related to local customs, cultures and work habits to help them interact and work effectively with the local workforce. Training should include at least two phases. Pre-departure training should focus on language, history and culture for the whole family and include job-specific training for the manager. On arrival in the new country, the expat should be allowed some time away from too much job-related activity to allow him to adapt to the new culture. Transition training should continue with language and culture training as well as meetings at which the new expatriates have the chance to mix with local residents and other foreign nationals.

The home office must remain alert to the need to provide psychological support in a variety of ways and to convince expatriates that they will not be at a disadvantage for promotion by service in a foreign country. In this context, the expatriate should get out of the host culture on a regular basis once or twice a year. The ability to “touch base” with the home culture gives reassurance to expatriates that they are valued servants of the organisation. It also helps in avoiding “culture shock” when they finally return to the home country. People need to be prepared for re-entry to the home culture, and the organization needs to provide the support facilities for this.

Training, in the context of the expat employee, takes the following forms of cross-cultural training, language training and specific skills training. Let us discuss them in detail.

Cross-cultural Training

Cross-cultural training entails learning about the host country's culture, history, politics, economy, religion and social and business practices. There are two aspects of this. The first aspect consists of giving the expat information on living conditions, cultural awareness, and the country's macro conditions. The second aspect consists of adopting cognitive and behavioural techniques to acquire skills such as transition-stress management, relationship-building, cross-cultural communication and negotiation.

Effective cross-cultural training is based on five basic guidelines3:

  1. Become aware of the skills required to function well in the target culture.
  2. Learn the appropriate use of certain behaviours.
  3. Keep this understanding contextual and appropriate to the target culture.
  4. Acquire proficiency through practice.
  5. Anticipate emotional changes and deal with them appropriately.

Language Training

Proficiency in a foreign language is a critical factor in the effective adjustment of expatriates in the host country. For the longest time, this has meant being fluent in English, but with the emergence of business opportunities in Latin America and China, there is an increased emphasis on learning Spanish and Mandarin.4 Knowledge of the local language enhances communication and makes the process of settling in easier and more comfortable for the expat.

Specific Skills Training

The expat as a manager needs specific skills of communication, negotiation skills and survival that are contextual and help in adjustment. This also includes training in performance appraisal and total quality management.

Management development includes a range of activities such as skills training, in-house programmes on company-related topics, external seminars and conferences, university courses and job rotation. It may also include transfers within the company, including overseas postings, exchange visits to other departments and organizations, and networking with other managers within the company, government officials, suppliers and customers.

INDUSTRY FOCUS  |  Developing a Global Mindset

At Procter & Gamble Co., the global consumer goods TNC, developing the global mindset and attitude is a vital ingredient for success. As the global marketplace shrinks and becomes integrated, employees are encouraged to go on international assignments to learn business practices in other countries that can be applied at home or in other regions. As an example, the integration of Poland, Hungary and Czechoslovakia into the integrated European Union has meant a convergence of business practices with England and Germany, compelling Procter & Gamble employees to gain work experience in Western Europe that can also be used in Eastern Europe.

A major part of Procter & Gamble's 140,000-strong workforce is employed outside the United States. This may lead to a manager groomed for a top finance position in Russia being put through work experience in the more structured and complex market of a country like the UK. Most of Procter & Gamble's assignments are structured in a point to point manner across the globe, with only about 25 per cent of relocations originating from the home country.

An important part of the job of a Procter & Gamble employee on an international assignment is the development of local talent. This exposure of employees to new markets and cultures has led to the development of a large pool of managerial talent, which heightens Procter & Gamble's potential to be a long term global player.

The company's top brass leads by example. The former CEO of and president of Procter & Gamble, Alan G. Lafley, was the executive responsible for increasing its business in China from less than USD 90 million to nearly USD 1 billion during the mid-1990s. Werner Geissler, currently the vice chairman of global operations, is German, with diverse experience in both general management and management of leading brands across various geographical regions.

 

Source: Information from Mark Schoeff Jr, “P&G Places a Premium on International Experience”, Workforce Management, 24 April 2006, available at www.workforce.com/tools/reports/SpecialReportGlobalWorkforce.pdf, last accessed on 28 January 2011.

Performance appraisal is an important aspect of training and development. Managers at all levels use appraisal to communicate expectations and to help subordinates improve personal deficiencies. However, in international business, performance appraisal has problems not usually encountered in the domestic company. These problems usually pertain to bias arising out of the expatriate manager's location. Expatriate managers are assessed by their superiors in both the host country and the home country.

  • Host-country assessors may be biased by their cultural frame of reference and set of expectations.
  • Home-country assessors may be negatively influenced by their distance from the home country and by their own lack of experience in the host country. Their cultural frame of reference may be the same as that of the person being assessed, but their expectations of that person may or may not be realistic. Home-country assessors rely on facts and figures in making their assessment: facts and figures do not take account of the “soft” variables associated with working in another culture.

It is usually very difficult for an expatriate manager to counter an adverse performance appraisal arising from these biases. This often becomes the cause of frustration in overseas postings. Companies that are aware of this focus their performance evaluation on factors that are within the scope of control of the person being evaluated. This in itself presents difficulties because there are many types of decisions over which expatriate managers have little control.

COMPENSATION

The compensation programme of a TNC focuses on attracting and retaining qualified employees, facilitation of transfers between the head office and its affiliates, creation of consistency and equity in compensation, and maintaining competitiveness.5 From the previous section on selection and recruitment, you will recall that international firms may adopt an ethnocentric, polycentric, regiocentric or geocentric approach. The firm's strategic approach, combined with host-country laws, regulations and cultural traditions, determines the compensation policy. You will also recall that one aspect of the geocentric approach is the creation of a pool or cadre of international managers who are, at least theoretically, capable of being employed anywhere in the world. The geocentric approach, therefore, leads to more compensation problems than the other approaches.

 

The compensation programme of a TNC focuses on attracting and retaining qualified employees, facilitation of transfers between the head office and its affiliates, creation of consistency and equity in compensation, and maintaining competitiveness.

The various approaches to staffing relate to compensation by being concerned primarily with:

  • Parent-country nationals (PCNs): ethnocentric and geocentric
  • Host-country nationals (HCNs): polycentric
  • Third-country nationals (TCNs): geocentric and regiocentric

The cost of employing an expatriate is almost three to five times the cost of a domestic hire. Expatriate compensation usually consists of the following elements:

  • Salary: This is the basic pay, including incentives such as profit sharing and bonus plans, and may be cash-based or a deferred payment.
  • Housing allowance: The expat may be given an allowance, company accommodation or the facility to rent a house. All these are provided at a level equivalent to the expat's living standard in his home country.
  • Service allowances and premiums: These allowances are meant to cover the differences in expenditure and cost of living between home and host country. These include the cost of relocation, children's education and home country visits. The allowance is based on the expected level of hardship and the job type.
  • Tax equalization: The allowance is meant to provide an adjustment to the expat based on tax rates in the home country. Depending on tax treaties between the home and host country and duration of stay, the expat may be taxed on income tax rules of both home and host country. This allowance helps to smooth out the tax liability for the expat.

There are three basic approaches or policies in international compensation. These policies are:

  1. Home-based policy: This policy links the base salary for PCNs and TCNs to the salary structure of the relevant home country. For example, a US executive transferred to France would have a compensation package based on the US base salary rather than that applicable to France. All PCNs and TCNs are treated equitably in relation to their home countries, but they may be paid different amounts for doing the same work. For example, in the London branch of an American bank, a US expatriate and an Australian (TCN) may perform the same banking duties, but the American will receive a higher salary than the Australian because of differences in their respective home-country base salary levels.

    This policy is usually applicable in temporary assignments where the number of people from a single nationality is usually low and there is a predominance of international staff at top-level positions in the host country. It facilitates mobility of personnel and makes repatriation to the home country easy. However, it creates discontent within the organization as staff in the same organizational position but from different parts of the world are paid differently.

  2. Host-based policy: The base salary is linked to the salary structure of the host country but supplementary allowances for cost of living, housing, schooling, and so on, are linked to the home-country salary structure. This policy is attractive to TCNs where host-country salaries are greater than those in their home countries, but unattractive to expatriates whose home-country salary levels are greater than those of the host country.

    This policy is used when international assignments are of an indefinite duration in a location where the compensation is high and host-country local staff occupy a large number of top positions. It is an easy system to administer as all employees get equivalent compensation, and leads to a happier workplace.

    The system is at risk when there are huge fluctuations in exchange rates. It is also an expensive policy, as host country salaries improve as a result of improvements in living standards.

  3. Hybrid compensation policy: This policy is something of a compromise between the home-based and host-based policies, whereby expatriates working in their home regions (for example, an Italian in Germany) are compensated at lower levels than those working in regions far from home (for example, an American working in Saudi Arabia).

    This policy is equitable and enables the transfer and development of an international management cadre. But it is complicated to administer and difficult to communicate.

INTERNATIONAL BUSINESS IN ACTION  |  Gearing up to Meet China's Talent Shortage

The greatest challenge facing TNCs and locally owned businesses alike in China is the dearth of talented managers. The strong economic growth propelling the Chinese economy has also created a demand for corporate human resources. However, there is a clear demand–supply mismatch between the kind of graduates being produced in most Chinese universities and the requirement at the corporate level, both domestic and transnational.

Given the limited common pool of high potential graduates and experienced managers with the desired functional ability, leadership potential and language skills, very few corporate enterprises have been able to meet the challenge. The successful ones have a clear strategic view of their talent needs for the next four or five years, which enables them to identify organizational gaps at all levels and use localized techniques that have been successful in other parts of the world. This includes developing and operating a sophisticated external-recruitment process, internal development, and a training programme adapted to the local Chinese environment.

Youth in the neighbourhood are gearing up to meet the challenge as Mandarin classes have become all the rage. Udit Gupta, a student at an MBA programme in the capital's Delhi University, is also learning Mandarin, which he anticipates will hold him in good stead in the years to come.

“My motivation in learning,” he says, “stems from a desire to know one of the largest and oldest civilizations on earth, and to make full use of the opportunity arising out of the growing importance of China as a potential superpower. Knowing the language and the culture of the country is very important to do business there, because they are an extremely xenophobic people: very wary of any outsider who they perceive as trying to take advantage of their competence. In order to survive, one has to become a part of the social fabric, or else be classified as a “laowai”, a derogatory expression for a foreigner.” Unlike his other classmates, who chose well known TNCs for their summer internship programme, Udit chose to do his summer internship at the Dalian University of Technology teaching students basic English and environmental issues. His basic intention was to have the experience of being in a country he had so far only heard of. Being a vegetarian was difficult, and so was lack of fluency in the language, but Udit is determined to go back next year.

Anshul Khanna, who runs a power cable company that imports equipment from China, similarly found that the road to doing more business with China is paved with Mandarin. Anshul believed that although Shanghai may be known as “the New York of Asia”, basic communication in the city was a huge problem. He had to flash business cards with Chinese characters to get to his destination in Chinese taxis. The situation was much worse in cities like Nantong, which boasted of a KFC restaurant—but with a menu in Chinese.

Khanna and Gupta are part of a burgeoning number of Indians eager to do business in China, a fact confirmed by the Chinese embassy, which receives over 500 visa applications every day. India's central board of education recently announced that “in view of China emerging as one of the major global economies”, it plans to add Mandarin to its state-school syllabus. This was planned to give schools across the country the option of teaching Mandarin to their 11-year-old students. India is gearing up to meet China's talent shortage.

 

Source: Information from “India Talks Business, Now in Mandarin”, India Realtime, available at http://blogs.wsj.com/indiarealtime/2010/12/15/india-talks-business-now-in-mandarin/, last accessed on 5 September 2010, and direct interview by author.

INTERNATIONAL LABOUR RELATIONS

International labour relations is a vast topic of considerable complexity and is variously called industrial relations, employer–employee relations and workplace relations—different terms that are indicative of different perspectives. Labour relations, by any name, is commonly the domain of the HRM function, but some organizations manage their labour relations through a department that is separate. A TNC needs to manage its relations with labour in its own country and in other countries where its subsidiaries are located, and they will all be different.

You will probably know from your reading of newspapers and magazines and from your own experience that labour relations is a subject with political, sociological and emotional overtones. It is sometimes felt that labour unions are the enemy of TNCs. This may be so in some cases, but it need not always be true.

Unions, or organized labour, are usually thought to be concerned about pay, job security and working conditions. In fact, unions are concerned about many other issues, including quality of life, equal opportunity and superannuation. In the international context, unions are concerned about the power of TNCs to move production facilities from one country to another (or even from one part of one country to another part) with the consequent loss of jobs. TNCs typically make such decisions through negotiation with governments, and unions are thus potentially at a great disadvantage unless they have influence with the government in power. The power of unions ultimately lies in the strike, but there are also about 20 forms of non-strike activity, such as go-slow, work-to-rule and overtime bans.

Another concern of unions is the ability of TNCs to move some production facilities so that low-skill jobs are “exported” from the home country to countries where labour costs are lower. There is also the desire of some TNCs to transpose work practices from one country to another country. In Australia, for example, Mitsubishi and Toyota have been fairly successful in implementing some Japanese employment practices in their Australian factories. However, this was done in consultation with unions. In the United States, Japanese auto companies have been able to establish non-union plants—a practice that is feasible in the United States because of the low level of unionization of the private sector workplace (about 9 per cent), but not feasible in Australia where unions are much stronger, even though membership is declining (now about 25 per cent of the total workforce).

There are two broad approaches to international labour relations: centralized and decentralized. Both approaches are necessary and one must dovetail into the other.

  1. Centralization is desirable when decisions are concerned with labour and transportation costs, skill levels, availability of natural resources and the political climate in countries in which the TNC operates.
  2. Decentralization is desirable when decisions are concerned with labour laws, union power, the nature of collective bargaining and the work culture. Increasingly, the way work is organized in particular countries is seen as a source of competitive advantage. Employee participation has a long history and comes in many forms.
INTERNATIONAL LABOUR STANDARDS

It has been the effort of developed nations to establish internationally agreed upon norms and standards of behaviour for the conduct of employee relations. The main objective of this is to prevent unfair competition among countries by reducing labour conditions to unacceptably low levels. The International Labour Organization (ILO), founded in 1919, is the most important body concerned with the setting up of labour standards. It is the only tripartite UN agency with government, employer and worker representatives. This tripartite structure makes the ILO a unique forum in which the governments and the social partners of the economy of its 183 member states can freely and openly debate and elaborate on labour standards and policies. Since its inception, the ILO has maintained and developed a system of international labour standards aimed at promoting opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and dignity. In today's globalized economy, international labour standards are an essential component in the international framework for ensuring that the growth of the global economy provides benefits to all.

The constitution of the ILO requires it to:6

  • Encourage the improvement of workers’ conditions
  • Discourage particular countries from failing to adopt humane conditions of labour
  • Promote the principle that labour should not be regarded as a mere “commodity or article of commerce”
  • Support the view that the price of labour should be determined by human need and that workers are entitled to a reasonable standard of living.

Standards refer to minimum levels of work condition for the employed and to levels of social security for the unemployed. Standards are usually formally incorporated into the laws of member countries based on the recommendations of bodies that set international standards.

Achieving the goal of decent work in a globalized economy requires action at the international level. Over a period of time, international legal instruments on trade, finance, environment, human rights and labour have emerged. The ILO contributes to this legal framework by elaborating on and promoting international labour standards aimed at making sure that economic growth and development go along with the creation of decent work. The ILO's unique tripartite structure ensures that these standards are backed by governments, employers and workers alike. International labour standards, therefore, lay down the basic minimum social standards agreed upon by all players in the global economy

An international legal framework on social standards ensures a level playing field in the global economy. It helps governments and employers to avoid the temptation of lowering labour standards in the belief that this could give them a greater comparative advantage in international trade. In the long run, such practices do not benefit anyone. Lowering labour standards can encourage the spread of low-wage, low-skill and high-turnover industries, and prevent a country from developing more stable high-skilled employment, at the same time making it more difficult for trading partners to develop their economies upwards.

International labour standards are sometimes perceived as entailing significant costs and thus hindering economic development. A growing body of research indicates, however, that compliance with international labour standards often accompanies improvements in productivity and economic performance.

  • Higher wage and working time standards and respect for equality can translate into better and more satisfied workers and lower turnover of staff.
  • Investment in vocational training can result in a better-trained workforce and higher employment levels.
  • Safety standards can reduce costly accidents and health-care fees.
  • Employment protection can encourage workers to take risks and to innovate.
  • Social protection such as unemployment schemes and active labour market policies can facilitate labour market flexibility; they make economic liberalization and privatization sustainable and more acceptable to the public.
  • Freedom of association and collective bargaining can lead to better labour-management consultation and cooperation, thereby reducing the number of costly labour conflicts and enhancing social stability.

CLOSING CASE  |  The Expat Experience of Working in China

The emergence of Chinese companies with global ambitions, such as the Sinopec Group, China National Petroleum Corporation, and State Grid Corporation of China from the public sector, and Chery Automobile Co., Ltd, Huawei Technologies Co., Ltd and Lenovo from the private sector, is an opportunity for globe-trotting foreigners looking for a China stint. For Chinese companies that are developing more culturally diverse management teams, the resumes of foreign candidates are looking highly attractive as they have leading-edge management know-how to share.

The transition from working for a multinational to being a Chinese employee is not always easy for the expat, and it is increasingly common to hear about expat resignations being handed in less than a year after getting employment. In contrast to TNCs in China, most Chinese companies are young organizations still under development and need flexible managers open to working amid more ambiguity and less transparency than they have been used to. This includes the CEO, who has to don a jack-of-all-trades kind of role and manage everything from sales and production to R&D.

Amid all this ambiguity of work, the organizational structure is rigidly hierarchical with a centralized power structure where the CEO is the boss. Chinese executives are more inclined to give orders, which the rank and file is expected to follow. They also have a more “affiliative” management style, putting people first and tasks second, compared to Western leaders who lean more towards a coaching style of management with an aim to inspire, guide and engage staff around a shared vision. The affiliative and coercive style of management is in accordance with the Chinese culture, where the work place is equivalent to the family, and leaders are like parents who love you and want you to be disciplined and hard-working. Getting a clear understanding of such power structures is one of the most important aspects of acculturization in corporate China. There is, however, an increased appreciation of collective wisdom and decision-making as Chinese CEOs admit to not having all answers. “Let's brainstorm, let's think together, and let's be open for new ideas from each other” is becoming a common refrain.

For the expat who arrived in China over 20 years ago, it is important to come to grips with the culture of the place. American and other Western expats very often fail to grasp the importance of personal relationships and informal networks. Being extremely task-oriented and focused on work, the importance of banquets and socializing as a vital part of work is an alien concept for many.

Disparity between the compensation packages of a Chinese employee and an expatriate employee in a TNC is another bone of contention. Foreign expat packages often include bountiful overseas allowances and benefits, making a big difference in the proportion of cash and bonuses that make up the pay packages at foreign multinational firms in China and home-grown companies. According to the survey results, the breakdown for the packages of senior expat executives at multinationals is nearly 60 per cent fixed, compared with 40 per cent fixed of their Chinese counterparts. Multinational executives’ short- and long-term incentives are 21 per cent and 22 per cent, respectively, compared with 26 per cent and 34 per cent at Chinese firms. What's most striking at Chinese companies, however, is the enormous inconsistency of pay packages, not just from one company to another but also even within one company. In some cases, pay and bonus packages are designed on a case-by-case basis, leaving companies open to staff grumblings about favouritism.

The prescription for success in China varies, but generally contains the following suggestions:

  • It is important for newcomers to make sure that reporting lines are well-defined and clear, and to report to the most senior person possible.

  • A large dose of flexibility holds the expat in good stead. This may sometimes mean having to revise corporate strategies on a daily basis, rather than on a quarterly or annual basis, as they might be accustomed to.

  • The ability to learn is very important. Creativity in figuring out the difference in the Chinese market and achieving some milestones in the short term before you plan for longer-term achievement are the keys to success. It is important to be able to identify some low-hanging fruit to be able to stand out.

  • To make a good impression, expats should focus on the first 100 days, which are crucial for learning and relationship-building. For a successful induction, being a listener and a learner with all your antennae out is important.

In return, expats are likely to get a dose of fresh air as Chinese companies open up to change. If China is going to move up the value chain to develop its domestic market, executives will need to get out of traditional coercive leadership styles towards greater motivation, engagement and inspiration.

Questions

  1. What are the basic difficulties faced by expats working for Chinese companies?

  2. Enumerate some basic steps to improve the expat's working experience in China.

Source: Information from “The Pitfalls, Perils…and Rewards of Expat Executives Working for Chinese Bosses”, Knowledge@Warton, available at http://www.knowledgeatwharton.com.cn/index.cfm?fa=viewfeature&languageid=1&articleid=2219, last accessed 29 January 2011.

SUMMARY
  • A firm's IHRM policies should be congruent with the firm's international strategy, its structure and its control systems.
  • There are four approaches to staffing, namely, an ethnocentric approach, a polycentric approach, a geocentric approach and a regiocentric approach.
  • An ethnocentric approach emphasizes the importance of parent-country nationals (PCNs) in key positions. It is congruent with an international strategy, but may breed cultural myopia.
  • A polycentric approach uses host-country nationals (HCNs) to manage subsidiaries and PCNs to manage corporate headquarters. This approach avoids cultural myopia but may produce tensions between home- and host-country operations. This approach suits a multi-domestic strategy.
  • A geocentric approach employs PCNs, HCNs and third-country nationals (TCNs) to get the best people for the job regardless of nationality. This approach builds a strong organization culture and is suited to both global and transnational strategies.
  • In a regiocentric approach, PCNs, HCNs and TCNs are used to employ the best person within a region rather than worldwide as in the geocentric approach. The regiocentric approach might be viewed as a scaled-down version of the geocentric approach or a transitional stage between an ethnocentric and a polycentric approach.
  • Training is directed at the acquisition of skills and the development of the acquisition of knowledge and wisdom.
  • Management development is used as a strategic tool to build a strong organizational culture and to promote informal networking, both of which support global and transnational strategies.
  • During a performance appraisal, one may observe the existence of bias in the host country because of cultural factors, and in the home country because of distance and lack of familiarity with the local scene on the part of home-country assessors.
  • There are three approaches to compensation: the home-country approach, the host-country approach and the regional approach. The most common form of expatriate compensation is based on the home country approach and usually contains four elements: the home-country base salary, housing allowance, service allowances and premiums, and tax equalization.
  • There is considerable disparity in the conduct of labour relations across countries, and for this reason a decentralized management approach is logical. However, the need to conduct operations globally or on a transnational basis makes it desirable to centralize some management decisions.
  • Unions are concerned about pay, job security and working conditions and especially about the power of TNCs to switch operations from one country to another. Unions have been generally unsuccessful in countering the bargaining power of TNCs, but there is potential for gaining a competitive edge if employees are allowed to participate in decision-making through quality circles, semi-autonomous work groups and the like.
KEY TERMS

Compensation programmes

Ethnocentric orientation

Geocentric staffing policy

Polycentricity

Regiocentricity

Training and development

DISCUSSION QUESTIONS
  1. What do you understand by international HRM? Discuss the salient features of international HRM policy in terms of a firm's strategic orientation.
  2. Distinguish between the training and development of an expatriate manager and a host-country manager.
  3. What are the basic approaches to compensation for an expatriate manager?
  4. “International HRM includes the important issues of labour unions and their intervention”. Comment.
MINI PROJECTS
  1. You have been offered a position in a company's subsidiary in Mexico. Using the information on the Web site http://www.mexperience.com/business/mexico-business-etiquette.php, prepare a report on issues of concern for you and your family.
  2. You are an expat moving to Chennai to take over the top position in a German company. To assist in relocation, you are using the services of a relocation company, Global Adjustments (http://www.globaladjustments.com/relocation.html). Using information on their Website, write an e-mail to them asking for assistance in your move.
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