13 International human resource management

                Wendy Banfield

13.1 Importance of international HRM

Business is increasingly being transacted across national boundaries, within a highly competitive global context. Market place competitiveness — on price/cost/value/quality/innovation — is essential for business survival and, in the long term, most companies need to aim for growth, whether in domestic or foreign markets, to survive, otherwise stronger global competitors will take over their traditional domestic markets. In countries such as the UK, domestic markets for certain goods are saturated, so companies need to look overseas for growth opportunities.

The rate of ‘internationalisation’ of business will increase, not decrease, so an appreciation of aspects of business internationalisation will become ever more important for a manager. Business is carried out by and through people, whether customers, suppliers or employees, so those without some appreciation of managing people in an international context start with a career handicap. Even within national boundaries, the challenge of effectively managing a multicultural workforce is exercising many organisations.

What is international HRM?

International HRM is neither copying people management practices from other countries, as cultural differences inhibit effective transfer, nor learning about the cultures of every other country and modifying behaviour accordingly, as this is too time-consuming and more than slight behaviour adaptation is hard.¹ What characterises international HRM is the interaction between the human resource functions, countries and types of employees:² parent country nationals (PCNs), local or host country nationals (HCNs), and nationals from neither the parent nor host country but from a third country (TCNs).³ This creates greater complexity than is encountered when managing people within one country, plus the need for cross-cultural sensitivity.

What specifically comprises the human resource function will vary over time, between companies and countries, as will the identity of whoever — HRM specialist or line manager — executes these functions. International HRM is a fluid dynamic entity,⁴ changing whenever pressures in the organisation’s internal or external environment result in alterations to the business.⁵

As HRM is dynamic and context-specific, international HRM is not one theory, system or prescriptive approach to managing people, which can be applied globally. Each country and industry will have its own characteristics and thus its own HRM style. However, as some of the external environmental pressures, such as political systems, laws, economy, will influence all organisations within one country, there will be characteristics sufficiently in common to suggest national characteristics influencing HRM in that country, which can be used as guidelines by the non-national considering business there.

The areas of HRM practice which change significantly or require attention when undertaken internationally are, according to Torrington:⁶

Whatever else international HRM is or is not, it also has relevance for the manager of a multicultural workforce⁷ operating within one country, as it is essentially about ‘managing people’, not necessarily employees, from culturally divergent backgrounds and it includes developing the processes, mechanisms and links needed to do so effectively.

Variables influencing international HRM

Variables internal to the company: the organisation can choose its policies and practices, structure, and staffing approaches. Although influenced by the external environment at strategic and operational level, these are largely within organisational control.

Variables external to the company: the political, economic, sociological, technological context of the country in which the company is operating. Traditionally, these are seen from an organisational perspective as uncontrollable variables with a one-way influence on internal variables and business strategy, rather than vice versa. Over time, however, the aggregation effect of similar business strategies or HRM practices across several organisations operating in the same external environment can influence the external variables. For example, the HR practices of several companies can influence the attitude of people to what is perceived as a ‘good’ employer.

Competitive position: the business strategy, deriving from the organisation’s competitive position, governs the nature of international HRM initiatives to some extent. If competition is largely on price, HRM initiatives which increase cost without adding positive value will be inappropriate.

A multinational enterprise (MNE) has to consider specific socio-economic, political, technical, and competitive variables and internal organisational variables in each country in which it operates. This, plus managing the ‘links’ between each country and an ‘alien status’ make international HRM and the role of its specialist HR more difficult.

Managing many variables and complexity is easier, and change speedier, if HR activities are decentralised to the units in question. This raises the issue of what to devolve. The approach taken should, in theory, match the structure of the business, which should reflect the overall business strategy; but in practice decisions are not so clear-cut. What if the organisation has many different types of business units abroad — small sales office, large and small manufacturing units, R&D facility, regional marketing centre, perhaps a couple of joint venture companies? The same approach to what is devolved may not be appropriate for all parts of the business.

Devolving all selection and promotion endangers availability of sufficiently broad-based and relevantly experienced senior staff for the future, which is why management development at middle/senior management level is seen by many organisations as too important to be left to national units. Apart from a holding company structure, the greater the decentralisation, the greater the need for integrative mechanisms, and management development can be a crucial integrating mechanism for a MNE operating globally.⁸

Philips Sound and Vision HRM is highly devolved but they pay great attention to international management development and integrative mechanisms:

To avoid becoming inward-looking, Philips’ main board is not just staffed by Dutch nationals.

Convergence or divergence in international HRM practices?

The Price Waterhouse Cranfield Project⁹ studies, started in 1990, to assess the impact over time of the Single European Market on HRM and the degree to which a strategic coherent approach¹⁰ was being used (see Figure 13.1) found:

Figure 13.1 The integration/devolvement matrix: models of HRM in ten European countries

Source: Brewster, Larsen, Human resource management in Europe

The IBM/Towers Perrin Worldwide Study of HRM practices for achieving competitive advantage²¹ assessed the relative importance of various HR approaches and practices at the time of the survey and as perceived by the end of the century. The perceived future importance of the 38 HR practices surveyed, in achieving competitive advantage, was greater than at the time of the survey.²²

These studies indicate the emergence of five groupings of countries, in terms of their approach to managing their human resources:

13.2 Staffing the international organisation

Management and staffing approaches

Four broad approaches to managing and staffing foreign subsidiaries and senior HQ posts of an international organisation can be discerned:²³

The approach used must be consonant with overall business strategy and will depend on the nature of the business, its structure and resources, including the experience and skills of senior decision makers. The MNE may use different approaches in different parts of the world or in different product/service divisions.

Staff working outside their home country

An organisation needs to be clear conceptually about what it perceives to be the difference between the various categories of staff working internationally as this will impinge on the employment package offered. Torrington²⁴ (1994) sees staff who work outside their home country as falling into five general categories, each of which has distinctive HRM and acculturation needs:

It costs about three times as much to use an expatriate as to hire an HCN,²⁵ so the organisation should carefully consider if and why expatriation is needed. Expatriate failure — the premature return of the expatriate, or sub-optimal performance in the foreign posting — is expensive; the direct costs of return and replacement may be exceeded by indirect costs: business contacts who have lost confidence in the organisation,²⁶ lower morale amongst staff remaining in the subsidiary,²⁷ and the returner’s decreased confidence which may affect performance on return.²⁸ Particular attention should be paid to: selection and preparation for expatriation, support whilst away, and repatriation.

Selection for expatriation should be based upon: job factors, ability to relate to the other culture, motivation to expatriate, family situation and language skills.²⁹ Managerial or technical skill is not an indicator of cultural adaptation skill.³⁰ Lack of technical skill is rarely a cause of expatriate failure³¹ in USA and European MNEs, but inability to adapt to the new culture is, so emphasis should be placed in selection on identifying coping skills and a positive cross-cultural attitude, bearing in mind that a positive attitude is not necessarily reflected in behaviour.³²

Motivation of both the employee and the family to expatriate — or to sustain an unaccompanied posting – is crucial; spouse adaptation affects the employee’s adaptation and hence assignment success.³³ Inability of spouse³⁴ or the family³⁵ to adapt are the most common reasons for expatriate failure amongst USA and European MNEs, although amongst Japanese MNEs it is the employee’s failure to cope with larger foreign responsibilities.³⁶

To minimise ‘culture shock’, before final appointments are made, a ‘taster’ visit to the proposed location helps mould realistic expectations of what living there will entail. Preparation for expatriation should include the spouse and children and, bearing in mind the problems of adjusting to international assignments which European managers cited most frequently: relationships and value differences with locals, work overload, the way business was done locally, language, and HCNs lacking appropriate skills,³⁷ it should cover: cross-cultural issues specific to the new environment, advice, help and support on practical matters, and language training.

When in post, expatriates need time to adjust to the local environment; up to six months is suggested,³⁸ so performance evaluations should allow for this. Coordinated local support facilities, including monitoring and meeting training and development needs, and the facilitation of a new social network, for the family too, both help to reduce expatriate failure.³⁹

Constraints on potential expatriates are: disruption of children’s education, spouse unwillingness to give up career, fear of losing visibility at the corporate headquarters and difficulty in re-absorbing the returning managers.⁴⁰ Plans need to be made before departure to keep expatriates in touch with developments and headquarter’s ‘politics’ during their absence, to facilitate physical repatriation, cope with reverse ‘culture shock’ in work and social life and ensure repatriates will be able to return to suitable jobs.⁴¹

Headquarters managers need an awareness of the psychological impact, social and work life upheaval involved in expatriation and repatriation, so they can appreciate the difficulties facing returning expatriates who can take up to a year to readjust.⁴² High returner turnover means organisations are suffering a significant financial and human resource investment loss.⁴³ ‘Organisational capability’ cannot be increased unless structured debriefings take place which enable both management learning to be disseminated throughout the organisation, and recognition to be given to expatriates for their experiences and learning.⁴⁴

The ‘common denominators’⁴⁵ of successful expatriation among European and Japanese MNEs are:

Expatriation is not the only way to internationalise the organisation’s experience: cross-cultural seminars, extended business trips, international networks and project teams are also useful mechanisms, and they reduce loss of visibility and power in the corporate centre. Importing foreign nationals for an expatriate spell at head office may be the most significant trend for the future.⁴⁶

13.3 Structures of international organisations

Business decisions about the way an international organisation is structured can be enhanced if a manager has an appreciation of:

In the early stages of internationalisation, organisation structures tend to evolve in response to immediate market opportunities and constraints rather than in accordance with an articulated, comprehensive and rational plan. Later, significant environmental changes or business growth trigger consideration of the appropriateness of a structure. The pressures precipitating such changes in structure are shown in Figure 13.2.

Figure 13.2 The forces precipitating changes in organisation structure in Europe

Source: Sparrow, Hiltrop, European human resource management

Humes⁴⁷ suggests analysing organisation structures along three dimensions:

MNEs based in different cultures and geographic areas tend to develop different combinations of the three dimensions suggested by Humes.⁵¹

Regardless of the ‘Triad’ (i.e. North America, Japan, Western Europe) power groups from which the parent MNE originated, the structural approaches to dealing with international operations have some similarities, in so far as foreign subsidiaries tend to be run as separate entities to domestic product divisions in the early stages of internationalisation; subsequently, global product divisions develop. Over time, some convergence of structural approach, towards global product divisions, supported by continental organisations can be detected.⁵⁶ When managing people across national boundaries and markets, the fact that products in some markets may be ‘rising stars’ but ‘dogs’ or ‘cash cows’ in others militates against a common structural and staffing approach for the whole organisation.

In terms of management mechanisms for resolving conflict between two people, national approaches vary: the British approach is to develop interpersonal skills and networks to allow the protagonists to settle the issue themselves in the context of the specific situation — the ‘village market’; the French resort to hierarchy — the boss decides — the ‘pyramid’; the Germans prefer comprehensive pre-set rules to govern the matter — the ‘well oiled machine’.⁵⁷

There are several forms of MNE. Porter⁵⁸ differentiates the industry types in terms of the nature of the competition they face — and thus the degree of interdependence of the parts of the MNE — on a continuum from ‘multidomestic’ to ‘global’. Competition in one country will be independent of competition in other parts of the company elsewhere in the world in the case of ‘multidomestics’, so they can be structured and managed as a portfolio of several domestic industries. Retailing is an example. In ‘global’ industries, such as aviation, competitive status in one country will affect that in others; they need global integration in their activities to capture the intercountry linkages needed to achieve competitive advantage. Facilitating the multifarious, multi-way, multi-level links between constituent parts of the global MNE is a key HRM role.

The form and extent of business internationalisation vary widely between and within organisations, so the implications for HRM will range from administrative to strategic involvement. HRM responsibilities may be with the HRM department, line management or another department. Contextual contingent variables will be prime determinants of who does what, and what is done in an organisation. Bearing in mind the ‘domestic multicultural’ aspect of international HRM,⁵⁹ from an HRM perspective, organisations ‘internationalise’ before they establish overseas operations, as can be seen from the HRM model of internationalisation of an organisation. In practice, an organisation will not necessarily go through all the stages of the internationalisation model, and complex MNEs usually operate with a mix of several structural forms.

HRM model of internationalisation of an organisation

Conceptually, there are six stages in the full internationalisation of an organisation. At stages 1 and 2 the organisation has no foreign subsidiaries.

Stage 1 Multicultural management

Stage 2 Import/export

From Stage 3 onwards, the organisation has foreign subsidiaries. The following parts of the model delineate international organisations by their approach to control and the degree of globalisation of strategy, drawing on work by Bartlett and Ghoshal.⁶⁰

Stage 3 International

Stage 4 Multinational or multidomestic

Stage 5 Global

Stage 6 Transnational

‘Networks’⁶² and ‘heterarchies’⁶³ are elaborations on the transnational form rather than new models. They feature:

A transnational is not so much a specific physical structural form, but rather, a way of thinking. As well as dealing with the HRM issues arising in earlier stages of internationalisation, developing a transnational presents special challenges for the HRM function:

Joint ventures generate particular management demands:

The HRM role in international HRM

For support and primary activities in the value chain, and for the value chain as a whole, the HR function undertakes direct, indirect or quality assurance activities, each of which plays a different role in gaining competitive advantage.⁶⁸ Which activity is most critical for an HR department will depend on the industry in which it is operating and the structure of the organisation, and whether the HR department is the parent’s or a subsidiary’s.

The role of the ‘international’ HR manager varies considerably according to the development stage of the international operations. HR interventions must match the needs of the organisation at the time. The more complex the organisation structure, the more the HR role tends towards focus on ‘soft’ HRM issues: management development, cross-cultural awareness, reinforcing corporate culture.

Schuler and Dowling⁶⁹ identified from their 1988 survey that the major challenges for the international HRM function in strategic planning included:

The international HR manager needs:

The competencies needed by international HR practitioners to develop an effective career in international HRM have been identified by the IPD from a study of 500 companies in 14 countries, and produced in a guide (1995).⁷³

13.4 National cultures

National or ethnic culture is different from organisation culture. At national level cultural differences are mostly in values — absorbed during childhood from the family, rather than in practices; at organisation level, differences are mostly in practices — learnt at the workplace as an adult.⁷⁴

All managers operating internationally, even ‘occasional parachutists’, need guidance on observable behavioural variables: meeting, greeting, eating, negotiating, etc., even if they have limited time to consider the underlying values which drive the behaviour. Operating cross-culturally, managers need to predict reactions to their behaviour or actions and interpret those of others: ‘What will be the reactions if I manage this situation in a certain way or introduce that HR practice in our foreign subsidiaries?’ Unless the gap between the cultures is small, this is not possible unless the manager appreciates the foreign contacts’/employees’ underlying values, beliefs and assumptions which will govern their behaviour. In practice, understanding these requires an appreciation of how they differ from one’s own cultural influences; but to use one’s own ethnocentric cultural orientation as a basis for behavioural prediction or interpretation in other cultures leads to misunderstandings and business failures, as can be seen in the Lehman example. The manager needs to be able to switch from a ‘self’ to an ‘others’ orientation.

Characteristics of culture

Cultures are integrated, coherent, inter-related systems; if one aspect changes, it affects other aspects of the culture. Culture is not genetically inherited, but learnt. It can influence biological processes and reflexes.⁷⁶ None the less, there are certain ‘cultural universals’, i.e. human needs requiring satisfaction, which are common to all cultures, such as;⁷⁷

A greater empathy for, rather than criticism of, cultural differences, can be developed if a manager is aware of the similarities within societies; this makes criticism of the differences less likely as they are seen as environmentally determined solutions for human problems faced throughout the world.⁷⁸

In discussing features of national cultures the distinction must be made between characteristics of the individual (personality) and characteristics which are commonly found throughout that society (culture). Individuals in every culture vary enormously one from another, so should be approached as unique human beings, and without making stereotypical judgements about them in advance. Culture does not represent the ‘average citizen’ or a ‘model personality’; rather, it is a set of likely reactions, statistically found more frequently, in that society of people with common ‘software of the mind’.⁷⁹ These generalisations about likely reactions are heuristic (general guides which help discovery and understanding) and not invariable or precise reflections of reality.⁸⁰ The normative limits of ‘acceptable behaviour’ are in any case hard to define.

Cultures are characterised by continual change, albeit at different speeds at different times, in response to: internal pressures of discovery, and invention; and external pressures of selective diffusion and adaptation. The speed of adoption of a new cultural item, whether it is a material object, a technology, a behaviour, a practice or an attitude will be heavily affected by five variables⁸¹ (see Table 13.1).

Table 13.1 Factors influencing the adoption of innovations

Source: adapted from Rogers, 1971

Objects and technology are much more likely to be adopted than behaviour, social patterns and belief systems, because they can be seen to be useful by several people and do not necessarily threaten basic values. Imported management practices may call for changes in basic values or at least behavioural variations which are inconsistent with deeply held beliefs: they may be rejected or simply not work. For example, the introduction, into a culture with strong communitarian values, of pay related to individual performance, challenges the very fabric of the culture by introducing ‘competition’ between members of the ‘in group’, whose effective functioning has hitherto been by means of the group operating as a harmonious whole.

A practical approach to transplanting management practices across cultures requires assessing the impact of the practice on cultural values. If there is likely to be a clash, the ‘Concept, Brand and Contents’ approach can be used. The Concept of what the MNE wants to achieve is internationally transferable, for example, pro-active employee performance management. The Brand name or label for the practice can be varied to ensure acceptability locally, as can the ‘Contents’ of the employee performance package. The ‘what’ that needs to be achieved is common; the ‘Brand’ or the ‘label’, plus the specific ‘Contents’ — means to achieving the desired outcome — can be varied.

Culture: common problems, different solutions

Hofstede,⁸² analysing work-related values data, confirmed the existence across cultures of common problems but different habitual methods of problem resolution. The original four common problem areas or ‘dimensions’ related to:

Hofstede’s first and last dimensions affect thinking about organisations themselves. The second and third dimensions concern thinking about people within organisations.⁸⁶

The questions in Hofstede’s⁸⁷ original survey reflected the ‘Western’ cultural bias of the survey compilers: so Michael Bond compiled a survey with questions based on Eastern values, the Chinese Value Survey (CVS). From this, a new dimension emerged, which reflected at both poles aspects of traditional Confucian values, so was named ‘Confucian dynamism’.⁸⁸ Confucian dynamism has poles of long-term orientation (LTO) and short-term orientation (STO). The LTO pole reflected values seen as dynamic and future-orientated: persistence and perseverance, ordering relationships by status and observing order, thrift, having a sense of shame-and thus of obligation to carry out one’s duties (see Table 13.3). The STO pole values were seen as relatively more static and past and present-orientated: personal steadiness and stability, preservation of ‘face’ (yours and that of others within your group), respect for tradition, meeting social obligations, reciprocation of greetings, presents and favours.⁸⁹ The importance of Hofstede’s, Bond’s and Hampden-Turner and Trompenaar’s (1995)⁹⁰ work for HR managers is that in assessing, for example, the likely transferability of management practices and structures, rather than rely upon single country descriptions or dual country comparisons, data are available from the same base across several countries to provide the guiding heuristics a global MNE may need. Because a country scores high on one dimension, it does not mean that the characteristics of the other pole are unimportant in that culture, so can be ignored; merely that the one pole tends to be more important when forced choice questions are used. (What is involved in the relationship of a ‘good’ boss and a ‘good’ employee differs between cultures. Failure to appreciate these differences can be problematic for managers dealing with any HRM issues such as structuring, motivation, decision-making and remuneration in foreign subsidiaries, and for those managing a foreign workforce who expect loyalty systems and motivational approaches to be those they experienced back home).

Table 13.3 Long-term orientation (LTO) index values for 23 countries

Source: Hofstede, Culture and organizations

The Elashmawi and Harris⁹¹ book offers useful heuristics for three specific cultures: American, Japanese, Arab, including information about basic issues involved in dealing with people cross-culturally: meeting, greeting, letter writing styles, introduction approaches, exchanging cards, disciplining, negotiating, running training sessions, etc.

Nations vary in their view of the importance of, and the linkages between, the past, present and future. Americans view time sequentially: as having no links between the three time dimensions but with a focus on the future; Japanese and Germans tend towards a synchronous view of time with the three dimensions tending towards being condensed; the French place a greater importance on the past than the other two dimensions (see Figure 13.4). Circle size shows importance. Circles placed apart reveal sequential thinking. Circles overlapping reveal synchronous thinking, with a seminal future and remembered past, present, here and now. The characteristics of sequential and synchronising managers identified by Hampden-Turner and Trompenaars are given in Table 13.4.

Figure 13.4 How managers in 12 nations conceived of Past (left), Present (centre) and Future (right)

Source: Hampden-Turner, Trompenaars, Seven cultures

Table 13.4 Characteristics of managers with sequential or synchronizing perceptions of time

Source: Harnpden-Turner, Trornpenaars, Seven cultures

Charles Hampden-Turner and Fons Trompenaars (1995)⁹² identified seven valuing processes fundamental to wealth creation in organisations, and found national differences in how the dilemmas posed by these processes were resolved (see Table 13.5). Some cultures were ‘universalist’ – wanting things to be decided by universal, codified and ‘one rule for all’ principles – these were Anglo-Saxon and Northern European countries. ‘Particularists’ – France, Italy, Japan, Singapore and Belgium at the other end of the continuum – tended to value friendship and personal relationships above following rules, or rather the Japanese concept of what was the ‘rule’ or guiding principle for behaviour differed from the typical Western concept.⁹³

Table 13.5 Valuing processes fundamental t o wealth creation and the dilemmas they pose

Source: constructed from pp. 5-12, Harnpden-Turner, Trornpenaars, Seven cultures

The Japanese concept of organisation is a harmonious network of particular people; the American view is tasks, systems and functions. The United States is a highly analytical culture, valuing deconstruction, facts, ‘the bottom line’ above a holistic integrative approach which is favoured by Japan, Singapore and France. With such differences in national business values, the manager should not use norms for employee values, attitudes and satisfaction obtained in the parent country as yardsticks against which to measure foreign subsidiaries’ responses in employee attitude surveys. International survey organisations have developed country-specific norms.

However, Hampden-Turner and Trompenaars perceive value resolution to be a circular process with one country focusing on one aspect of a value as a means to achieve an end which another country sees as the means (not the end) to achieve their end, i.e. what the first country views as the means. This is illustrated in Figure 13.5.

Figure 13.5 The circular nature of value resolution

13.5 Business values and ethics

If business values are accepted as being largely culturally determined, whose business values should a MNE apply? This point is important, for while business values can be examined without making judgements about whether the values are right or wrong, good or bad, business values applied to real situations become business ethics, which are prescriptive and carry with them the implication of a prior judgement of ‘rightness’. The issue becomes, whose business values is it right to apply? The answer to this is far from straightforward; several options are possible.

MNE attitudes to supporting foreign posted staff with ethical dilemmas vary between organisations, according to their stage of internationalisation, the extent of their previous experience of operating internationally, the subject of the ethical dilemma, and the attitude of the boss back at the parent.

What constitutes appropriate ethical conduct may develop through unwritten norms evolving through group interactions; but in a MNE norms will differ between locations. Hence written codes of conduct, openly adopted, published and proactively communicated, have been developed by many companies to address ethical issues.

To be effective, they require the active involvement and support of senior managers. This means not just words for PR purposes but following through with action.

In 1987, Bob Haas, the Chairman and CEO of Levi Strauss & Co., had a top management retreat to consider the development of long-term business values and produced:

These reflect core corporate values which, as much as cost, competition and efficiency, influence business decisions. The company’s approach to difficult ethical issues is reflected in how they dealt with the issue of their Bangladesh sub-contractors employing female workers under 14. If the girls had no jobs they would be likely to become prostitutes to support their families. After discussions with the sub-contractors the issue was resolved by Levi Strauss paying for educational tuition fees, books, and school uniforms until the girls reached age 14; the sub-contractors paid the girls whilst they were attending school.⁹⁵

A MNE could take a two-tier approach of generic global values and locally specific ones,⁹⁶ with the former perhaps including ‘marketing, information policy, environmental protection, animal experiments, research policy’.⁹⁷ The two-level concept accommodates the ‘think global, act local’ principle but in practice may not make the issue of corruption, pervasive in many countries, any easier to deal with.

Mahoney (1995)⁹⁸ sees all commercial bribery as being bad for business, bad for the participants, bad for the society in which it occurs, but what constitutes corruption differs between societies. Managers operating abroad need some guidance on what is a ‘gift’, a ‘bribe’, an ‘extortion’ payment. The following distinction is helpful:

The former is hard to justify ethically. The latter is usually of more concern for people operating internationally. Some ‘officials’ with whom the business person has to deal may be poorly paid and see the only way to acquire more money as being to delay performing their job functions until given financial inducement. Paying such extortion, just to get normal business transacted is seen as less ethically reprehensible than paying a bribe, but Mahoney sees it as justifiable only if all the following four conditions prevail:

Snell (1995)¹⁰¹ identifies four types of ‘psychic imprisonment’ which can restrict a manager’s ability to solve ethical dilemmas.

The first two types of psychic imprisonment are restrictions internal to the manager, while the latter two are ‘moral mazes’, mainly external to the individual.

Moral dilemmas arise if the manager is pressured to enact a lower stage of ethical reasoning than her/his habitual mode. The manager’s role in ethical matters could usefully include:

Managers may also become involved with disciplinary action against ethical code breakers. They also may have to deal with ‘whistle blowers’ who, adhering to the organisation’s ethical code, embarrassingly publicise the unethical behaviour of others or who, personally operating at a higher level of ethical reasoning than the organisation, publicise what, from their perspective, is unethical behaviour.

Both situations pose difficult dilemmas for the manager. In an organisation operating domestically, business ethics (both personal and organisational), organisational politics, personal power/survival, and career, are not easy imperatives to balance. Managing in an international organisation, the considerations become more complex.

13.6 Culture: language and non-verbal communication

When business deals are conducted between people speaking different languages, it is vital that both parties have the same conception of what is agreed. This requires translators with up-to-date knowledge of the language, the type of vocabulary being used and its correct situational usage: speakers of ‘social’ Russian would have difficulty with business or engineering terms, and their misapprehensions could have disastrous consequences.

When simultaneous translation is required, the best approach is to have two translators: each to translate into their mother tongue from the foreign language. Legal documents present problems requiring specialist translators, not least because the legal concepts of one nation may not be those of another, yet the implications have to be understood by both parties.

A culture evolves words to reflect the needs of its environment so may not have the vocabulary to express a concept related to a different one. For example, in the early 1990s, the Chinese definition of ‘marketing’ – in a UK published Chinese/English dictionary — ill expressed the meaning of the Western concept, creating bewilderment for PRC students studying business in the UK. Before the PRC economic reforms ‘marketing’ was not a relevant concept to the PRC. A recommended approach, for those operating in a foreign language of which they have imperfect knowledge, and coming from a very different culture, is to look up the meaning of a word in the same language dictionary of the foreign language: the word will be explained in the context of that culture.

Just as connotations of a word vary between cultures, slang and euphemisms provide additional pitfalls. The business consequences of linguistic faux pas may be more serious than the wry amusement occasioned in a Moscow hotel by a notice stating: ‘If this is your first visit to the USSR you are welcome to it’.¹⁰²

‘He has no power’ is a typical Japanese insult about a boss, whereas ‘I don’t like him’ is typical in some Western cultures.¹⁰³ ‘I don’t like him’ might indicate antipathy based on objections to a boss’s non-job-related personal characteristics, but it is more likely to refer to antipathy based on shortfalls in job-related interpersonal or technical skills. To Japanese managers a boss is usually characterised by power rather than job skill; but Western managers see job skill as the predominant characteristic of a boss.¹⁰⁴ However, the connotations of the concept of a boss’s ‘power’ differ between nations. To the Japanese, the boss is powerful because he has harmoniously integrated the particular resources of which he has charge; this – to a UK mind – infers job skill. Hence, both phrases, while saying different things, mean the same: ‘the boss is no good at his job’. However, to the Westerner, power has connotations of ‘a subversive influence in which the moral order, by which the best performers rise to the top, is corrupted by the private agendas of empire builders and power seekers’.¹⁰⁵

Linguistic styles vary between nations. Concise and to the point is an American preference; Arab speakers use what, to an American, seems to be an over-elaborate rhetorical style. To an American, excessive politeness, thanking and apologising characterise Japanese communication. The international manager needs to be able to interpret linguistic styles in their contexts.

Japanese has several words for ‘no’. Other East Asian and Arab cultures have several ways of indicating a negative response without being as direct as saying a flat ‘no’. Such circumlocution, totally understandable within their cultural contexts, where saving the other’s face is a way of showing respect and maintaining harmony, can be frustrating to, or misunderstood by, many North American or UK managers. However, polite circumlocution — but different polite circumlocution — is also used in English: what does ‘I’m not too keen on this idea’ really mean? Elashmawi and Harris’s (1993)¹⁰⁶ table of cultural contrasts in written business communications in America, Japan and Arab countries, offers helpful heuristics to interpreting linguistic styles (see Table 13.6).

Table 13.6 Cultural contrasts in written business communications

Source: Elashmawi, Harris, Multicultural management

Implicit models of boss-subordinate communications vary between cultures:

Some 65 per cent of communication is non-verbal;¹⁰⁸ the meaning we attribute to nonverbal stimuli is defined by our culture, which leaves plenty of room for misunderstanding in cross-cultural exchanges.

Hall (1959, 1966, 1976)¹⁰⁹ classified cultures as:

High context cultures tend to be polychronic, compared to Western cultures.¹¹¹

 Non-verbal communication can include:

In considering non-verbal communications, Ferraro¹¹⁶ warns of the dangers of:

Divergence or convergence in national cultures?

Child (1981)¹¹⁷ found that those studies indicating convergence of national cultures mostly concerned organisation structures and technology used; divergence theories focused on behavioural differences. Hofstede (1994)¹¹⁸ believes the thesis ‘national cultures are becoming more alike’ is based on observation of the more superficial layers of culture like ‘practices’: the way people dress, what they buy, films they watch, sports and leisure activities they undertake; deeper values between nations continue to differ significantly.

For many years to come, cultural awareness training will thus remain an important issue for businesses operating internationally.

Training for cultural awareness

Organisations lacking resources and time to acculturate staff operating internationally ‘in house’ might use bodies such as the UK-based Centre for International Briefing, at Farnham, Surrey, who offer pre-departure acculturation programmes, tailored to specific needs, covering almost any country in the world.

Who should be trained, in what, to what depth and for how long are functions of the extent of interaction required in the new culture and the similarity between the employee’s own culture and the new one.¹²⁰ As for any training or development situation, there are a range of training methods which can be used. Figure 13.6 offers a framework to identify cross-cultural training needs.

Figure 13.6 The Mendenhall, Dunbar and Oddou cross-cultural training model

Source: Mendenhall et al., Expatriate selection

In-depth country-specific immersion programmes may be suitable for expatriates and those destined to have a long relationship with a specific country, but for ‘occasional parachutists’¹²¹ likely to visit a range of different countries for short periods, information-giving sessions or an understanding of cultural components, which can then be applied to a new situation, are more appropriate.

However, as Robinson (1983)¹²² points out:

13.7 Labour market issues

The labour market issues which need consideration when deciding upon the location of a new foreign unit are:

For example, social costs of employment are higher in some EU countries than in others; labour mobility is restricted within the PRC; in Russia some people are oriented to work with the lowest productivity possible and are uninterested in the work to be done.

Career patterns vary between countries. In Japan, unlike the UK and the USA, staff tend to join a company from university and stay with it throughout their career: ‘lifetime employment’ (shushinkoyo). An employee who leaves the company mid-career tends to be viewed as ‘disloyal’ to the corporate family and is regarded with suspicion by other Japanese employers.¹²³ It is not easy for foreign-owned businesses to establish themselves in Japan by acquiring appropriate high calibre male staff by poaching and offering a higher salary; instead, they tend to look to women — a marginalised category in Japanese business society – or expatriates who may not have the established network relationships important to doing business. Japanese attitudes towards work as a lifetime commitment to a company are slowly starting to change;¹²⁴ new young graduates or managers who have worked overseas are more predisposed to forgo employment security and join a foreign company with a known name and reputation,’¹²⁵ particularly if slowing growth within the Japanese company – where promotion is traditionally by seniority – limits career prospects.¹²⁶

Recruitment and selection

Recruitment through newspaper and journal advertisements is popular in many countries, as is ‘word of mouth’ recruitment – particularly in Greece and Ireland — which UK companies might regard askance for equal opportunities reasons. In Korea, there is a tendency for recruitment to favour people from the same geographic area (ji-yun) or university (hahkyun) as the manager;¹²⁷ because employee loyalty tends to be to the individual manager rather than the company, a Korean manager who changes jobs may bring staff with him.¹²⁸

In a UK or USA domestic context, gender is an irrelevant issue in selection. However, in some parts of Africa, Asia, Latin America and the Middle East women are not properly accepted — if at all — in senior roles in a business context. The organisation must take this into account in selection; whatever the domestic stance on gender, the societal values of other countries cannot be confronted head on if the objection to senior businesswomen is rooted in deeply held and widespread religious beliefs. However, some countries are merely unaccustomed to women in senior roles, rather than strongly against accepting them. In Japan, foreign highly skilled businesswomen, particularly if they speak the language, may be regarded as ‘honorary men’ and thus accepted.

France places great reliance on the handwritten application letter which can be analysed by a graphologist, whereas graphology, used by 97 per cent of French organisations,¹²⁹ is given scant regard because of poor validity by most UK businesses, only 3 per cent of whom admit to using it. Skills shortages, HR activities contracted out to agencies, and increasing pressure on budgets have encouraged French companies to use astrology and numerology, palmistry, phrenology and haemotology¹³⁰ to assess applicants’ characters. Some countries, such as Denmark, use CVs rather than application forms.¹³¹ The emphasis placed on aspects of the candidate’s career and life history differs between countries: in the UK evidence of social and leadership skills is highly regarded; in other countries, such as Germany and France, much more emphasis is placed upon qualifications and grades.

Interviews are widely used but the types of questions regarded as ‘fair’, ‘suitable’ and ‘relevant’ vary between countries. The USA and EU equal opportunities approaches preclude questions about marriage intentions and children, which would be perfectly acceptable, if not expected, elsewhere. In practice, in some EU countries, such as Greece¹³² and Italy: ‘more searching questions may be put and expected than is normal in the UK, equal opportunity legislation notwithstanding’.¹³³

Candidate behaviour at interview also varies and managers should interpret it in the light of the cultural norms of the applicant’s country. A US candidate is likely to broadcast and play up his/her personal achievements and promise miracles,¹³⁴ but in other cultures such behaviour may seem like boasting or ignoring the impact of a team’s effort.

Psychological tests and questionnaires, beloved selection tools in many American organisations, meet with limited acceptability elsewhere in the world. Parts of strongly Roman Catholic southern Europe, such as Spain, disapprove of them although trade unions prefer them as a means of limiting nepotism.¹³⁵ In France, psychometric questionnaires have lost credibility and are less used than hitherto.¹³⁶ Any psychological instrument to be used outside the country and category of people on which it was norm tested needs very careful examination as to cultural validity and culturally sensitive language translation. Psychological instrument compilers Saville and Holdsworth have produced an eleven language ‘International Testing System’ specifically to meet this need.

A global company, seeking the best talent regardless of national origin, could establish an international assessment centre to identify employees, from a range of countries, with potential senior managerial talent. From their experiences of running a European assessment centre, BP found that participants’ norm reactions vary according to nationality, and culturally determined appropriate behaviour needs careful consideration and interpretation.

Anglo-Saxon assessment centre approaches predicated on ‘everyone has equal rights’ would not work successfully in cultures in which this belief was not implicit.¹³⁷ The American, UK and northern European analytical, numerical and judgemental emphasis in assessment centres tends to be resisted in Latin countries and France which prefer a more ‘human’ and developmental emphasis.¹³⁸ Work situation observation exercises would not be acceptable in Arab countries where it is seen as an affront to dignity to be watched whilst working.¹³⁹

The qualities of an ‘effective manager’ need redefinition according to the culture in which the person will be operating. The implicit meanings behind words such as ‘leadership’ differ between countries, making problematic both the design of exercises to test such a quality and the interpretation of outcomes. While organisation leaders in all countries need to attend to both task achievement and relationship management:

Training and development

Recruitment sources for new managers and their education and training differ between countries. Evans, Lank and Farquhar (1989)¹⁴¹ identified four distinctive management development approaches, heuristics to national practices which none the less vary considerably within, as well as between, countries: the ‘Japanese’, the ‘Latin’, the ‘Germanic’, the ‘Anglo-Dutch’.

According to a 1992 survey of top managers across Europe,¹⁴² common characteristics of management in Europe, compared to Japan and the USA, are:

Managers running training sessions for people from different national origins need to be aware that parent company training programmes designed for PCNs, whether managers or other staff, may not transplant without adaptation. Local systems of qualifications, education and training may make them inappropriate; the style of session which worked back home may not be effective, as norms of participation, informality, and views about the status of the teachers and their pronouncements vary. Above, Elashmawi and Harris (1993)¹⁴⁴ have identified approaches and dynamics of some ‘typical’ training sessions for different cultures (see Table 13.7).

Table 13.7 Cultural contrasts in training

Source: Elashmawi, Harris, Multicultural management

Employment terms

The nature of the employment contract, the rights and obligations of the parties thereto, and employee and employer expectations of terms and conditions, hiring and firing and employment protections may vary considerably between countries, and may vary within a country for a range of reasons. Employment rights may be affected by whether the employer is a state or private company (PRC), the employee is a core or peripheral worker (Japan), the reasons for the termination (USA, EU countries) and length of service. Workers employed by foreign-invested enterprises (FIEs) in the PRC are said to have ‘clay rice bowls’, as they are not employed on the basis of lifetime employment – ‘iron rice bowl’ ¹⁴⁵ – still prevalent, although now rapidly decreasing, in state-controlled enterprises (SCEs).

In Japan, employment is seen as more of a relationship than a contract and there is a disinclination to register promises in a legalistic manner in a contract document¹⁴⁶ as this constitutes ‘alien behaviour which would meet with social disapproval (taningyogi)’.¹⁴⁷ Most ‘regular’ staff in Japanese companies never have a contract of employment,¹⁴⁸ nor are many of the obligations and expectations of employment explicitly given in the enterprise’s Works Rules.¹⁴⁹ It is acceptable to lay off part-time staff or older ‘retirees’ in Japan, but a good company will go to considerable lengths, including accepting underemployment in the enterprise, to avoid making ‘regular’ staff redundant.¹⁵⁰ In Korea, during business downturns, layoffs are accepted practice at all organisational levels.¹⁵¹

Performance and reward

Foreign subsidiaries’ financial results are to some extent an outcome of the MNE’s approach to financial management – transfer pricing, exchange rates, accounting conventions – and global competition. Host country import levies, restrictions on profit repatriation and fiscal stance can distort the value of the subsidiary’s performance to the parent.¹⁵² Subsidiary financial results should be used with care when appraising the chief executive of a foreign subsidiary; instead, performance could be measured using ‘parallel accounts’ adjusted for the effect of the distorting variables, or against long-range goals such as health and safety improvements, market share and effect on the environment.¹⁵³ Each main Cable and Wireless business unit reports on: customer and employee satisfaction, business performance, productivity and growth.¹⁵⁴ Expatriates who are not chief executives are most appropriately assessed against criteria for their specialism and cross-cultural skills.

The best approach for appraising HCNs in foreign subsidiaries is to use host country appraisal mechanisms, but if a global approach is required, it is preferable to specify what must be achieved, such as:

This does not specify how this should be done. This allows for local cultural variation.¹⁵⁵ Appraisal outcomes need to be evaluated in the light of cultural norms about praise and negative remarks. In Korea, where job attitude and special ability are appraised as well as performance, many managers are reluctant to give too negative an evaluation of their staff as this will undermine the much valued harmonious relationship between boss and staff; instead, staff are evaluated on a ‘that’s good enough’ (koenchanayo) basis which implies tolerance and sincere appreciation of another’s efforts.¹⁵⁶

Values on distributive justice norms vary between countries; the philosophy underpinning reward management might be: equity, equality or needs. Equity underpins most Western approaches to rewards. It implies pay for competencies — inputs, or outputs — performance outcomes. Job holders perceived to be doing work of analogous worth, are used as pay comparators. The implication is that as inputs or outputs increase, rewards should be increased for the situation to be ‘equitable’. Inequity is stressful, and an employee is motivated to reduce it by one means or another.

Equality approaches, where everyone gets the same – for example when a bonus of the same absolute amount is distributed to all staff – are emphasised more in some countries in Southeast Asia. The issue here can become delineating who is part of the ‘in group’ and thus who is deserving of the equal reward. In practice, even collectivist Chinese cultures tend towards an individualistic Western equity-based pay approach, the wealthier they become: individual performance and skill can dramatically affect pay in Hong Kong and Singapore.¹⁵⁷

Needs-based rewards are not just found in socialist states. Expatriates are usually housed and given return home flights in accord with their needs as single or family persons.

The perceived relative value of money and other benefits varies between countries, not just because of the local fiscal policy but also because of cultural values. In France, subsidised transport, company restaurant lunches or luncheon vouchers are common and the Philippine worker values a measure of rice with better quality rice being given to skilled workers.¹⁵⁸ In the PRC, staff are paid in cash whatever their level, as the banking system is underdeveloped.

In the USA senior executive pay could be 100 times that of the average worker; in European countries a multiple of 12 to 15 is more common and a large disparity is seen as socially reprehensible.¹⁵⁹ In Japan too, the gap between top managers’ pay and that of the average workers is small, relative to the USA, as a result of the Japanese emphasis on egalitarianism and togetherness.¹⁶⁰

Age and seniority as well as group and company performance determine pay in Japan, but there is little differential for individual performance or exceptional skills.¹⁶¹ Bonus payments, made during the two traditional gift giving seasons in Japan, can comprise as much as a third of total annual pay for an employee and large companies make them to all staff.¹⁶²

Gomez-Mejia and Welbourne (1991)¹⁶³ using Hofstede’s¹⁶⁴ national culture findings, derived a theoretical framework of appropriate reward strategies from the dominant values and organisational characteristics associated with the poles of each of Hofstede’s four dimensions (see Figure 13.7).

Figure 13.7 National cultures, organisational characteristics and compensation strategies

Source: Gomez-Mejià, Welbourne, in Sparrow and Miltrop, European HRM in transition

They point out that:

13.8 Expatriate rewards

The philosophy usually stated as underpinning expatriate rewards is to keep the expatriate ‘whole’, i.e. no worse or better off as a result of expatriation. However, expatriates often expect to be better off as a result, and companies may need to ensure that they are if they are to tempt an employee to work abroad.

Armstrong and Murlis (1994),¹⁶⁶ upon whose work much of this section is based, identify three approaches to expatriate rewards:

The budget system, decreasing in popularity but still used by large paternalistic companies, involves identifying the expatriate’s costs in the home country, adding the costs in the host and paying the resultant figure in host currency. Problems arise if the home or host countries have either high inflation or exchange rate volatility, as the pay needs constant adjustment. This approach can be time-consuming and thus expensive to administer, particularly when more than two countries are involved, and is rarely used for TCNs.¹⁶⁷

The balance sheet approach¹⁶⁸ is the most common as it is

It uses three elements:

The notional home salary, also used as a base for pension contributions, relates to the salary the expatriate would get at home after repatriation, without promotion on return. As home pay levels rise, the notional home income should be increased accordingly. The net disposable income is income after tax, pension contributions, social security payments; housing and savings commitments might also be deducted. Allowances can be made for many reasons, such as: hardship — if the working and living conditions for the expatriate will be particularly difficult or risky; clothing — where there are large climatic differences; tax equalisation; return home or rest and recreation trips; foreign service premium — usually a percentage of between 10 per cent and 15 per cent of notional home salary, paid as an incentive to move and to recompense for the disruption expatriation involves; servants allowances; provision of health care (such as for an expatriation from the UK to the USA); social security differences; standard of living (SL); cost of living (CL) (see Figure 13.8).

Figure 13.8 The balance sheet approach to expatriate pay

Source: Adapted from Reynolds, Compensation

Organisations usually determine the CL by using a CL index obtained from a specialist company that assesses the relative cost in the host country of goods and services the expatriate would use back home, so the expatriate can maintain the home country standard of living. The CL index is usually higher for the host country as many goods in the ‘basket’ may need to be imported. The CL index is applied to the net disposable income, to create the host country net disposable income figure which is translated into host country currency at the appropriate exchange rate.

‘Plussing up’ may be required to keep the employee whole in terms of tax or social security payments. Tax equalisation applies as follows: excess tax is reimbursed, usually in the home country or offshore, to expatriates in higher tax host countries; but in lower or zero-rated tax host countries the difference between home and host tax is deducted from their salary.

Standard of living (SL) is not the same as CL. For example, a manager in the host country might be paid at a level which enables her/him to afford servants or a yacht, yet a manager doing a comparable job in the expatriate’s home country would neither afford nor expect these. Applying a CL index to the home country goods and services would not take these SL differences into consideration. If servants are the norm for the job in the host country, is it ‘fair’ to the expatriate to pay a CL equalised net disposable income, which precludes having servants? Additionally, in some countries, the visible status of the expatriate reflects strongly the way the organisation is regarded by those with whom the organisation does business in the host country, so it would not help the company’s standing to be perceived as ‘poor’ and the expatriate as of ‘low status’.

An employee moving to a higher standard of living country (HSL) paid on the CL balance sheet approach, might receive considerably less than subordinates in the host country: is this appropriate? If the employee moves to a country with a considerably lower standard of living (LSL) is it appropriate to pay the expatriate more than the host country boss? In such a case, the expatriate, whilst having rewards assessed on a balance sheet basis, might receive some pay in the host country and the rest in an offshore account.

The market rate approach to expatriate rewards can be applied where there is a large disparity between SLs in the host and home country. It is usually applied where there is a considerably HSL in the host country, and is thus a more expensive payment method for the MNE. When contemplating a market rate approach, the organisation needs to consider two aspects of SL:

In practice the two are intertwined, and a factor of perceptions. The approach the employer takes to coping with large disparities between home and host country SLs will depend on:

For example, if the expatriate has no right to work in the host country outside of the subsidiary and labour demand at home is low relative to supply, the posting is ‘desirable’ and substitutes are available, pay rates can be lower than the host country norm, if not completely market rate. However, obtaining a work permit might be problematic as the host government is likely to object to importing cheap labour which takes work away from host country nationals.

Market rate as a basis for expatriate rewards is typically used where the expatriate has scarce skills, cannot easily be substituted, the host is HSL, host subordinates would otherwise receive more pay, or the image of the expatriate and the company are important to business effectiveness in the host.

Organisations might split expatriate payments between host country and offshore or expatriate’s home country, whichever approach to calculation of expatriate pay is used. This can be particularly helpful where host country tax laws could drastically affect the intended outcome of a bonus scheme, where repatriation of funds out of the host is difficult, where there is currency volatility, or the expatriate has commitments such as school fees or mortgage payments in the home country.

Dealing with TCN expatriates presents the difficulty of deciding which country is the ‘home’ country for rewards purposes: that of the parent employer, or the employee. The TCN might be considerably better or worse off, according to which is chosen; just as the employer might be paying more than necessary. Using the TCN’s home country as a base is administratively complex for a global company employing several nationalities and using a balance sheet approach, and it could result in two expatriates from different countries working together in one office on the same work being paid very different amounts. Market rate might thus be a better choice than a balance sheet approach.¹⁷⁰ ‘Unfortunately, there is no perfect TCN strategy but there are companies which have applied the balance sheet or market rate successfully — and will continue to do so since the number of TCNs employed around the world is increasing all the time.’¹⁷¹

13.9 Employee relations

Employee relations need to be integrated into a global MNE’s corporate strategy formulation as trade union influences can affect or delay the rationalisation of manufacturing or global integration of an MNE, or influence wage costs to the extent that competitiveness is undermined. Additionally, national legislation or trade union power can restrict the ease with which staff numbers can be varied or increase the cost of doing this.¹⁷²

Trade unions are concerned about the power of MNEs and have pushed international organisations like the International Labour Organisation to adopt an MNE code of conduct,¹⁷³ and the Organisation for Economic Cooperation and Development (OECD) to issue guidelines¹⁷⁴ in 1976 regulating MNE behaviour in areas including information disclosure, employment and industrial relations and competition. Adherence to the guidelines is voluntary.

Trade unions’ major concerns about MNEs’ power are:

Delocalisation, i.e. moving to lower labour cost countries, has to be part of the survival strategy of European companies, and is predicted to result in the loss of between 3 and 5 million jobs in Europe;¹⁷⁶ Muet¹⁷⁷ (1994) sees the European Union, with its interdependent national economic systems, gradually becoming a zone of mass unemployment.

As there are large national differences in the role of trade unions, the extent of their independence from the employer, trade union origins and coverage (craft, general, industry, company, professional, religious, white or blue collar), and what is — in practice — meant and covered by ‘collective bargaining’ and at what level (government, corporate or plant) negotiations occur, MNE employee relations policies need to be flexible enough to adapt to local needs. In practice, employee relations are usually delegated to subsidiaries by the parent, but with a global strategy of transnational sourcing and production a coordinated approach to employee relations is crucial to organisational success.¹⁷⁸

Management and employee attitudes to trade unions also vary between countries. The USA has a low density of union membership, so American managers tend to have less experience of dealing with unions than managers elsewhere, hence tend to avoid unionisation or control union matters centrally.¹⁷⁹ Within Europe, decentralisation of collective bargaining is a trend, particularly noticeable in the UK and Italy, although parent companies tend to agree basic terms and conditions centrally, but leave scope for local flexibility.¹⁸⁰

In countries such as Japan, the USA and the UK there is a downward trend in trade union membership, but trade union density at about 85 per cent is high in Sweden and only about 35 per cent in Germany although there is legislative support for co-determination there, via plant level Works Councils (mandatory for workplaces of five or more staff) and the corporate level supervisory board.

Japanese unions, established after the Second World War, are ‘enterprise wide’ and include all staff other than management. There is a less adversarial management/union approach than found in many Western unions, indeed, the union is regarded as a training ground for future managers.¹⁸¹ Japanese enterprise unionists appreciate, perhaps because of the lifelong employment tradition, that damage to the company as a result of a work stoppage would affect them economically as well, so demonstrations may be held during lunch breaks or after working hours.¹⁸² In Korea, worker loyalty is to the boss rather than to the enterprise, so there is mobility between companies; since 1987 when unions were allowed to organise on an industry-wide basis, Korean unions have been growing and taking an active part in negotiations for better pay and conditions.¹⁸³

Top-down communication is a way of reinforcing corporate identity and encouraging pride in the company. Lateral communications are also required in MNEs, and are easier to establish between units which are linked through sequential workflows, than multidomestics operating as discrete local entities. The following objectives for international employee communications are suggested:

Participation

Employee participation at work can be: financial, through profit-sharing schemes or share options; indirect, through trade unions involved in collective bargaining or corporate level Joint Consultative Councils; direct, through management/staff discussion and involvement mechanisms, which do not use union or other representatives as intermediaries. The nature and extent of employee participation vary between countries and within countries.

The Price Waterhouse Cranfield Surveys¹⁸⁵ have shown an increase in both direct and indirect participation efforts on the part of managements across Europe, apart from in the UK, where there was a decrease in indirect participation. In Japan, direct involvement via quality circles and teamworking is common, but decision-making is limited to local operational matters, rather than strategic involvement, and consultation is more information-giving and downward in direction; staff feel under pressure to agree with their managers.¹⁸⁶ Direct participative mechanisms, wherever they are used, introduced with an aim of enhancing employees’ involvement and motivation and empowering them, can, as a result of internal and external pressures, be distorted into unworkable shapes which: ‘from the employee point of view, [are seen as] a sinister attempt to gain more commitment, work and productivity, without the concomitant reward, control or empowerment’.¹⁸⁷

The European Union and other trading blocs

The European Union (EU), more correctly still called European Community (EC) in the context of law, and sometimes still known as the European Economic Community (EEC), developed from the need perceived after the Second World War to pool Western European coal and steel resources under one authority, as these had caused conflicts, particularly between France and Germany; and to exercise control over West German industrial power which, fuelled by coal and steel strength, was seen as a factor in stimulating German nationalism and aggression in the first two world wars. The EEC aimed to develop a common market for goods and services by eliminating internal trade barriers, developing external trade policies, improving the mobility of labour, technology and capital within its boundaries. The EU aims to develop economic, monetary and political union amongst its member states.

Within the EU there is concern that unless common labour standards are adopted, jobs will move to lower labour cost countries within the EC; this is seen by some as unfair ‘social dumping’, preventable if member states start from a ‘level playing field’.

While the EEC has always had a social policy dimension, the 1974 EC Action Programme on Social Policy aimed for:

The European Foundation for the Improvement of Living and Working Conditions, established in 1976 aimed to encourage ‘social dialogue’ between the ‘social partners’, i.e. management, labour, trade unions and public enterprises.¹⁸⁸

The more recent Community Charter on the Fundamental Social Rights of Workers, 1989, usually known as ‘The Social Charter’, is a broad guiding framework supporting EU social policy and covering:

The Social Charter was not law but a statement of what the EU intended to achieve. Only a few measures have been adopted; these include:

The 1992 Maastricht Treaty aimed to develop the existing Social Policy Chapter within the EC Treaty to put social policy-making on firmer ground than the Social Charter. The UK former Conservative government disliked the expansion of EC social policy powers and opted out of this part of the Treaty. The 1997 Labour government has now reversed this policy and will be implementing measures already in force in other member states, on European Works Councils and Parental Leave.

Within the EU, member states are not of one mind on social policy issues. Consensus is extraordinarily difficult to achieve, not least because of the different histories of member states on the following issues:

Other agreed or proposed EU-inspired provisions concerning employment include matters relating to: collective redundancies; acquired rights of employees in transfers and mergers; employee protection in the event of employer insolvency; equal pay; pensions; the elimination of avoidable risks to worker health and safety at the workplace and reducing the danger of unavoidable ones; atypical work; works councils; gender equality and gender discrimination burden of proof; cross-border sub-contracting; young people at work, temporary workers and extending data protection to paper-based records.

Directives need implementation in each country’s national law, in a form which suits that law yet still offers the protection or right conferred by the Directive. Failure to implement, or fully implement, a Directive results in an action being brought against the member state in the ECJ. The UK has been called to answer non-implementation charges on several occasions, the best known being when it was obliged to introduce the ‘equal value’ amendment to its equal pay law.

The international manager operating within the EU needs to be aware of:

The existence of a free trade association in a region needs to be considered by a manager when making decisions about the location of a foreign unit, sourcing policy, and sales potential. While the EU is currently the most integrated and well-known large supranational economic entity, other such associations are developing around the world, such as:

13.10 Intercultural negotiations

Cultural values permeate behaviour and behavioural interpretations during negotiations, and affect:

Mead¹⁹¹ identifies five aspects to a negotiation process, which do not necessarily occur sequentially:

Graham and Herberger (1983),¹⁹² with a different view of the stages in negotiation: non-task relationship creating, task-related exchange of information, persuasion, and concession and agreement, explain that different cultures vary in their view of the importance of each stage.

While traditional Western negotiating theory advocates separating the issue from the person, and concentrating on the issue, this is an inappropriate approach for negotiations with many Arab, East Asian and Latin cultures, where establishing a relationship of trust with the other party is an essential precursor of making a deal.

Mead¹⁹³ points out that cultures which do not have a history of intra-organisational trust need to develop a relationship with the individual; the Japanese are more concerned with establishing a long-term relationship than achieving a ‘quick fix’ deal.

The ritual greeting, flattering effusions and religious invocations (Arab)¹⁹⁵ or benign generalities (Japanese)¹⁹⁶ which precede meetings might seem superfluous to a Western negotiator but they are all part of relationship establishment and are the cultural norms. As Hampden-Turner and Trompenaars put it: ‘A person who cannot wait to horse trade may not be worth trading horses with, caring more for gain than for the partnership. Such people may depart as abruptly as they arrived, thus wasting all the effort invested by their partners.’¹⁹⁷ (See also Table 3.8).

The Japanese tend to have more negotiating team members, who might rotate roles, than Western teams; they tend to be formally dressed and aim to develop a harmonious relationship before considering making a deal with a company. Sun Tzu, the famous Chinese military strategist whose writings have been applied to management,¹⁹⁸ stressed ‘Know your enemy, know yourself and your victory will not be threatened. Know the terrain, know the weather, and your victory will be complete’.¹⁹⁹ Both the Chinese and the Japanese go to considerable lengths to understand all about the other party with whom they are negotiating, and will require copious company information to be drip-fed to them on their request; during the course of this they are also assessing the relative position of the other party.

Japanese negotiators tend to take much more trouble in preparing for negotiations than Western firms take preparing to do business with the Japanese. Typically, a younger Japanese employee will accompany an older mentor on a foreign business trip to acquire background knowledge. In negotiations:

Latin and Oriental cultures tend to start out with what an American or German might see as an ‘unreasonably’ high initial demand, although they expect to have to make considerable concessions during the negotiations.²⁰¹

The Japanese ringi system of decision-making, requires all relevant people to be party to a decision; this can take what might seem to a Western negotiator an intolerable time; but impatience or a heated exchange would not be appreciated as it indicates bad manners and loss of control leading to loss of face for both parties.²⁰² Chinese negotiators, however, might pretend anger to force an issue.²⁰³ (See Table 13.8).

Table 13.8 Contrasts in intercultural negotiations

Source: Elashrnawi, Harris, Multicultural management

13.11 References

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3. Morgan, Fact or fiction.

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6. Torrington D. International human resource management: 6–7.

7. Tayeb MH. The management of a multicultural workforce. Chichester: John Wiley and Sons Ltd, 1996.

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9. Price Waterhouse Cranfield Project (henceforth PWCP). Report on international strategic human resource management. Cranfield: Cranfield School of Management, 1991.

10. Brewster C, Hegewisch A, Lockhart JT. Researching human resource management: methodology of the PWCP on European trends. Personnel Review 1991; 20(6): 36–40.

11. Brewster C, Hegewisch A. Personnel management in Europe: a continent of diversity. Personnel Management 1993; 25(1): 36–40.

12. Hofstede G. Culture’s consequences: international differences in work-related values. Beverly Hills, CA: Sage Publications, 1980.

13. Filella J. Is there a Latin model in the management of human resources?. Personnel Review 1991; 23(6): 14–23.

14. Tyson S, Brewster C. Conclusions: comparative studies and the development of human resource management. In: Brewster C, Tyson S eds. International comparisons in human resource management. London: Sage, 1991.

15. Brewster C, Bournois F. Human resource management: a European perspective. Personnel Review 1991; 20(6): 4–13.

16. PWCP. Report.

17. Brewster C, Larsen HH. Human resource management in Europe: evidence from 10 countries. International Journal of Human Resource Management 1993; 3(3): 409–434.

18. Sparrow P, Hiltrop J. European human resource management in transition. Hemel Hempstead: Prentice Hall, 1994.

19. Brewster, Hegewisch, Personnel management in Europe: 36–40.

20. PWCP. Report; Brewster, Bournois, European perspective: 4–13.

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