International Business by Daniels and Radebaugh

1. International Business by Daniels and Radebaugh Chapter21 Human Resource Management ©2001 Prentice Hall

2. Objectives • To illustrate the importance of human resources in international business relations • To explain the unique qualifications of international managers • To evaluate the issues that arise when companies transfer managers abroad • To examine companies’ alternatives for recruitment, selection, compensation, and development of international managers • To discuss how national labor markets can affect companies’ optimum methods of production • To describe country differences in labor policies and practices • To highlight international pressures on MNEs’ relations with labor worldwide • To examine the effect of international operations on collective bargaining ©2001 Prentice Hall

3. EXTERNAL INFLUENCES OBJECTIVES PHYSICAL AND SOCIETAL FACTORS STRATEGY COMPETITIVE ENVIRONMENT Human Resources in International Business OPERATIONS MEANS Overlaying Alternatives • Functions • Marketing • Exporting and • importing • Global manufacturing • Supply chain • management • Accounting • Finance • HUMAN RESOURCES Modes ©2001 Prentice Hall

4. Introduction • International Human Resource Management (HRM) • MNEs agree on the importance of having qualified personnel • Several factors make international HRM different from domestic management • Different labor markets • International worker mobility problems • National management styles and practices • National orientations • Strategy and control ©2001 Prentice Hall

5. Management Qualifications and Characteristics • Headquarters-subsidiary relationship • International staffing is two-tiered • subsidiaries need people who can manage well locally • headquarters needs people who can effectively coordinate and control worldwide and regional operations • Headquarters-subsidiary relations affected by: • company philosophy • benefits of independence and interdependence • Headquarters and subsidiary managers must communicate well • rely on written communications • language and cultural differences complicate communications • English becoming the international language of business ©2001 Prentice Hall

6. Management Qualifications and Characteristics (cont.) • Matching style to operations • Cross-border integration more likely with feeling-type than thinking-type managers • Corporate strategy influences HRM policy • little need for transfer of HR competencies when MNE pursues a multidomestic strategy • global strategy requires transfer of headquarters’ HR policies and practices • Qualifications specific to headquarters management • Interact with high-level authorities abroad • Must be away from home for extended periods • face personal problems such as isolation • Qualifications of subsidiary management • Responsible for a variety of business functions • lack support of many staff functions ©2001 Prentice Hall

7. International Managerial Transfers • Reasons for staffing with locals • Most managerial positions in both headquarters and foreign subsidiaries are filled by locals • Foreign managerial slots are difficult to fill with expatriates because: • many people are not inclined to move • perception of a negative effect on family life and career • managers view fixed-term and open-ended assignments differently • legal impediments to using expatriates • licensing requirements • Local managers more useful when operations require local adaptations • Hard to recruit locals if expatriates hired into most of the better jobs • Local managers cost less ©2001 Prentice Hall

8. International Managerial Transfers (cont.) • Reasons for using expatriates • Shortage of competent local managers • determined by country’s level of development • determined by the need to transfer technology • Managers learn foreign operations • acquire understanding of overall corporate system • people transferred to headquarters learn the headquarters way • Home-country versus third-country nationals • Third-country nationals sometimes might have more compatible technical and personal adaptive qualifications than do home-country expatriates • Language • operating adjustments ©2001 Prentice Hall

9. Some Individual Considerations for Transfers • Technical competence—indicated by past domestic or foreign job performance • Most important determinant of success in foreign assignments • Adaptiveness • Characteristics important for expatriate success include: • those needed for self-maintenance • those related to the development of satisfactory relationships • cognitive skills that help one to perceive what is occurring within the host society • Hard to assess adaptiveness accurately • Less than 10% of expatriates fail to complete their assignments abroad • failures attributed to family’s inability to adjust ©2001 Prentice Hall

10. Some Individual Considerations for Transfers (cont.) • Local acceptance—expatriates may meet with local prejudice • Locals may be perceived as being overpaid • Expatriates may have to make unpopular decisions • Negative stereotypes of expatriates • MNEs seldom give women foreign assignments • Securing a successful foreign assignment • Most expatriate assignments are successful • Assignments generally given to experienced managers • Foreign assignment may boost prospects of managers • provide opportunity to demonstrate a knowledge of the language and environment of a foreign assignment ©2001 Prentice Hall

11. Postexpatriate Situations • Problems with repatriation • Loss of compensation premium for service abroad • Readjustment to life at home • loss of foreign lifestyle • Readjustment to job • changed relationships with coworkers • less autonomy in the old work setting • Overseas assignment has varied effects on managers’ careers • positive effect in companies with substantial global operation • foreign assignments carry high career risk in some firms • few provisions for dealing with problems of repatriation • “out of sight, out of mind” ©2001 Prentice Hall

12. Expatriate Compensation • MNEs must pay enough to entice people to move, but must not overpay • Difficult to provide appropriate pay levels, benefits, and perks for international workforce • Compensation required varies by company, person, and locale • Cost of living—difficult to duplicate accustomed way of life in a new environment • Habits difficult to change • People don’t know how and where to buy • Most companies provide a “goods-and-services differential” • few firms reduce compensation when employee moves to an area with lower cost of living • Cost-of-living differential eliminated when manager is repatriated ©2001 Prentice Hall

13. Typical First-Year Cost for a U.S. Expatriate (Married, Two Children) in Tokyo, Japan Direct compensation costs Base salary $100,000 Foreign-service premium 15,000 Goods and services differential 73.600 Less: U.S. housing norm (15,400) U.S. hypothetical taxes (17,200) Company-paid costs Schooling (two children) 15,000 Annual home leave 4,800 Housing 150,000 Japanese income taxes 84,000 Transfer/moving costs 38,000 Total company costs $447,800 ©2001 Prentice Hall

14. Expatriate Compensation (cont.) • Foreign-service premiums and hardship allowances • Employees may encounter living problems for which the company provides extra compensation • Expatriates receive foreign-service premiums for being posted in foreign locations • practice decreasing as hardships from foreign assignments are decreasing • living conditions still harsh in some locales • political risks give rise to ransom insurance, safety programs, and home alarm systems • Remote areas—often require additional benefits to recreate home environment • Complications of nationality differences • Salaries and methods of payment differ • Nearly a consensus about maintaining expatriates on home-country retirement system ©2001 Prentice Hall

15. 140 132 123 Over the four-year period where the attacks occurred Latin America 318 Europe 50 Africa 15 Western Europe 13 Middle East 12 Near East/South Asia 8 Eurasia 7 Asia 7 East Asia and Pacific 5 North America 4 120 111 100 80 73 Total attacks against U.S. citizens and U.S. facilities abroad 60 40 20 0 1998 1995 1996 1997 Attacks on U.S. Citizens, 1999 ©2001 Prentice Hall

16. South Korea $150,711 Germany $398,430 Japan $420,855 Mexico $456,902 Canada $498,118 France $520,389 Britain $645,540 Hong Kong $680,616 Brazil $701,219 U.S. $1,072,400 Compensation Total Compensation of CEOs by Country ©2001 Prentice Hall

17. Management Recruitment and Selection • Personnel record systems at headquarters • Include technical and demographic data • Include information on adaptive capabilities • personality tests • interviews with spouses and children • May not encompass complete data on foreign personnel • Can secure staff for foreign operations by: • Buying existing foreign companies • Forming joint ventures • foreign staff may be inefficient or hard to control ©2001 Prentice Hall

18. International Development of Managers • Three developmental needs • Top managers must have a global mind-set • Managers must effect proper balance between corporate and national operations • Managers must understand the importance of international competition for firm’s well being • Business schools are increasing international courses • Convey specific knowledge about foreign environments and international operations • Develop interpersonal awareness and adaptability • Information briefing most common predeparture training • Managers on foreign assignment challenged to develop dual allegiance • Four types of expatriate managers, only one of which is a “dual Citizen” ©2001 Prentice Hall

19. Low Allegiance to parent company High Allegiance of Expatriate Managers “Free agent” “Going native” “Heart at home” “Dual citizen” Low High Allegiance to local operation ©2001 Prentice Hall

20. Labor-Market Differences • HRM activities vary from country to country • MNEs may shift labor or capital intensities if costs differ in foreign labor markets • Labor-saving devices economically justified where wage rates are high • Labor-intensive methods ingratiate firm with governmental officials • International Labor Mobility • Emigration from areas of high unemployment and low wages to areas with labor shortages and high wages • Companies hire immigrant labor because it accepts lower wages than domestic workers • Migrant laborers have work permits for limited periods of time • Hiring foreign laborers is risky because: • Workers return home • Turnover necessitates more training ©2001 Prentice Hall

21. Labor Compensation Differences • Reasons for country differences in compensation • Both the amount and method of payment affected by a country’s culture • MNEs pay slightly better than local firms • attract high-level local workers • Differing costs of benefits • Customary types of benefits vary by country • In some countries it is impossible or expensive to lay off workers • Compensation costs on per-worker basis may bear little relationship to total employment expenses • relative costs change so MNEs must consider: • productivity change • labor-rate change • conversion of labor rate to competitor’s currency ©2001 Prentice Hall

22. Comparative Labor Relations • Sociopolitical environment • Affects attitudes of parties toward each other and how labor will try to improve its lot • Labor demands may be met by political action that affects labor legislation • Labor demands may be met by collective bargaining or collective action • Reliance on mediation by impartial third party differs by country • Falling percent of union membership because: • increased percentage of white-collar jobs • increased percentage of service sector work • rising portion of women in workforce • rising portion of part-time/temporary workers • trend toward smaller average plant size • decline in belief in collectivism among young ©2001 Prentice Hall

23. 9.1% France 14.5% 14.2% 1985 U.S. 18.0% Japan 24.0% 1995 28.8% New Zealand 24.3% 54.1% 28.9% Germany 35.0% 32.9% U.K. 45.5% 35.2% Australia 50.0% 91.1% Sweden 83.8% 0 20 40 60 80 100 % of workforce in trade unions Trade Union Decline in Industrialized Countries ©2001 Prentice Hall

24. Comparative Labor Relations (cont.) • Union structure—one type of structure is most prevalent within most countries • Can be local • Can be industry or company • Can be one or several for same company • Protection from closures and redundancy • Plant closing an important issue in some areas • prior notification has been legislated in some countries • Lifetime employment in Japan is a dual system • helps institute certain efficiency measures • Codetermination—labor represented on the board of directors of some companies • Most existing examples mandated by legislation • Has had little effect on companies’ international business decisions ©2001 Prentice Hall

25. Comparative Labor Relations (cont.) • Team efforts—firms in some countries emphasize work teams to foster cohesiveness • Involves workers in multiple tasks • reduces boredom and develops replacements • workers control quality and do repairs • Teams are not successful everywhere • International Pressures on National Practices • International Labor Organization (ILO)—monitors labor conditions worldwide • Works in conjunction with International Confederation of Free Trade Unions and international trade secretariats • Makes harsh conditions known and pressures for change through economic and political sanctions • Codes of conduct—ILO and OECD voluntary codes for industrial relations practices of MNEs ©2001 Prentice Hall

26. Multinational Ownership and Collective Bargaining • MNE advantages • Product and resource flows—country bargaining unit is only a small part of MNE’s activities • MNE may continue serving customers with foreign production or resources • MNE must have excess capacity and produce identical goods elsewhere • MNE stockholders may balk at work stoppages • Production switching—MNE may threaten to move production abroad • tactic to reduce labor costs by threatening job security • Size and complexity of MNEs—disadvantage labor • MNE decision making may be far away • hard to get complete data on MNE’s global operations ©2001 Prentice Hall

27. Multinational Ownership and Collective Bargaining (cont.) • Labor initiatives—cross-national cooperation • Information sharing—most common type of international cooperation • Assistance to foreign bargaining units—job actions and financial support • Simultaneous actions—least common to coordinate negotiations and strikes • union priorities and structure interfere with this type of coordinated activity • workers’ wages and preferences differ • National approaches—most initiatives against MNEs conducted at national level • workers in different countries often perceive one another as competitors • national labor legislation provides context for labor actions ©2001 Prentice Hall