INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Transcription

1 SIXTH EDITION INTERNATIONAL HUMAN RESOURCE MANAGEMENT PETER. J. DOWLING, MARION FESTING AND ALLEN D. ENGLE, SR.

2 INTERNATIONAL HUMAN RESOURCE MANAGEMENT SIXTH EDITION PETER J. DOWLING MARION FESTING ALLEN D. ENGLE, SR.

3 Internationa Human Resource Management, 6th Edition Peter J. Dowing, Marion Festing and Aen D. Enge, Sr. Pubishing Director: Linden Harris Pubisher: Andrew Ashwin Deveopment Editor: Charotte Green Production Editor: Aison Cooke Production Controer: Eyvett Davis Marketing Manager: Amanda Cheung Typesetter: Cenveo Pubisher Services Cover design: Adam Renvoize 2013, Cengage Learning EMEA ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced, transmitted, stored or used in any form or by any means graphic, eectronic, or mechanica, incuding but not imited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieva systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, or appicabe copyright aw of another jurisdiction, without the prior written permission of the pubisher. Whie the pubisher has taken a reasonabe care in the preparation of this book, the pubisher makes no representation, express or impied, with regard to the accuracy of the information contained in this book and cannot accept any ega responsibiity or iabiity for any errors or omissions from the book or the consequences thereof. Products and services that are referred to in this book may be either trademarks and/or registered trademarks of their respective owners. The pubishers and author/s make no caim to these trademarks. The pubisher does not endorse, and accepts no responsibiity or iabiity for, incorrect or defamatory content contained in hyperinked materia. For product information and technoogy assistance, contact emea.info@cengage.com. For permission to use materia from this text or product, and for permission queries, emai emea.permissions@cengage.com. British Library Cataoguing-in-Pubication Data A cataogue record for this book is avaiabe from the British Library. ISBN: Cengage Learning EMEA Cheriton House, North Way, Andover, Hampshire, SP10 5BE United Kingdom Cengage Learning products are represented in Canada by Neson Education Ltd. For your ifeong earning soutions, visit Purchase your next print book, e-book or e-chapter at Printed in China by RR Donneey

4 BRIEF CONTENTS Preface Acknowedgements About the Authors Wak-Through Tour viii x xii xiv Chapter 1 Introduction 1 Chapter 2 The Cutura Context of IHRM 22 Chapter 3 The Organizationa Context 46 Chapter 4 IHRM in Cross-Border Mergers & Acquisitions, Internationa Aiances and SMEs 82 Chapter 5 Sourcing Human Resources for Goba Markets Staffing, Recruitment and Seection 109 Chapter 6 Internationa Performance Management 150 Chapter 7 Internationa Training, Deveopment and Careers 174 Chapter 8 Internationa Compensation 215 Chapter 9 Internationa Industria Reations and The Goba Institutiona Context 241 Chapter 10 IHRM Trends and Future Chaenges 268 Case 1 Spanning the Gobe 282 Case 2 Quaity Compiance at the Hawthorn Arms 287 Case 3 Wofgang s Baancing Act: Rewarding Heathcare Executives in a Dispersed Yet Integrated Firm 289 Case 4 Strategic Forecasts and Staffing Formuation: Executive and Manageria Panning for Bosch-Kazakhstan 298 Case 5 Loca and Internationa? Managing Compex Empoyment Expectations 305 Case 6 Expatriate Compensation at Robert Bosch GmbH: Coping With Modern Mobiity Chaenges 312 Case 7 Baancing Vaues An Indian Perspective on Corporate Vaues from Scandinavia 319 Case 8 Just Another Move to China? The Impact of Internationa Assignments on Expatriate Famiies 328 Gossary 334 Index 342 iii

5 CONTENTS Preface Acknowedgements About the Authors Wak-Through Tour viii x xii xiv Chapter 1 Introduction 1 Chapter Objectives 1 Scope of the Book 2 Defining Internationa HRM 2 Differences between Domestic and Internationa HRM 4 Variabes that Moderate Differences between Domestic and Internationa HRM 8 The Cutura Environment 9 Industry Type 11 Extent of Reiance of the Mutinationa on its Home-Country Domestic Market 12 Attitudes of Senior Management to Internationa Operations 14 Appying a Strategic View of IHRM 15 The Changing Context of IHRM 17 Summary 17 Discussion Questions 19 Further Reading 19 Notes and References 19 Chapter 2 The Cutura Context of IHRM 22 Chapter Objectives 22 Introduction 23 The Deveopment of Cutures 38 Summary 39 Discussion Questions 40 Further Reading 40 Notes and References 40 iv

6 CONTENTS v Chapter 3 The Organizationa Context 46 Chapter Objectives 46 Introduction 47 Standardization and Locaization of HRM Practices 48 Factors Driving Standardization 49 Factors Driving Locaization 50 The Path to Goba Status 56 Contro Mechanisms 69 Summary 73 Discussion Questions 75 Further Reading 75 Notes and References 75 Chapter 4 Chapter 5 IHRM in Cross-Border Mergers & Acquisitions, Internationa Aiances and SMEs 82 Chapter Objectives 82 Cross-Border Aiances 83 Cross-Border Mergers and Acquisitions 84 Internationa Equity Joint Ventures 91 Internationa SMEs 95 Summary 100 Discussion Questions 101 Further Reading 101 Notes and References 101 Sourcing Human Resources for Goba Markets Staffing, Recruitment and Seection 109 Chapter Objectives 109 Introduction 110 Approaches to Staffing 110 Transferring Staff for Internationa Business Activities 116 The Roes of an Expatriate 119 The Roes of Non-Expatriates 122 The Roes of Inpatriates 123 Recruitment and Seection of Internationa Managers 124 Expatriate Faiure and Success 126 Seection Criteria 129 Expatriate Seection Processes in Practice 134 Dua Career Coupes 137 Summary 140 Discussion Questions 142 Further Reading 142 Notes and References 142 Chapter 6 Internationa Performance Management 150 Chapter Objectives 150

7 vi CONTENTS Introduction 151 Mutinationa Performance Management 152 Contro and Performance Management 154 Performance Management of Internationa Empoyees 155 Performance Appraisa of Internationa Empoyees 162 Summary 168 Discussion Questions 170 Further Reading 170 Notes and References 170 Chapter 7 Internationa Training, Deveopment and Careers 174 Chapter Objectives 174 Introduction 175 Components of Effective Pre-Departure Training Programs 177 The Effectiveness of Pre-Departure Training 185 Deveoping Staff Through Internationa Assignments 186 Trends in Internationa Training and Deveopment 189 Re-Entry and Career Issues 189 The Repatriation Process 191 Individua Reactions to Re-Entry 194 Responses by the MNE 199 Designing a Repatriation Program 205 Summary 207 Discussion Questions 209 Further Reading 209 Notes and References 209 Chapter 8 Internationa Compensation 215 Chapter Objectives 215 Introduction 216 Key Components of an Internationa Compensation Program for Expatriates 217 Approaches to Internationa Compensation of Expatriates 221 Tentative Concusions: Patterns in Compexity, Chaenges and Choices 232 Summary 235 Discussion Questions 236 Further Reading 236 Notes and References 236 Chapter 9 Internationa Industria Reations and the Goba Institutiona Context 241 Chapter Objectives 241 Introduction 242 Key Issues in Internationa Industria Reations 243 Trade Unions and Internationa Industria Reations 246 The Response of Trade Unions to MNEs 248 Regiona Integration: The European Union (EU) 251 Codes of Conduct Monitoring HRM Practices Around the Word 252

8 CONTENTS vii Managing Human Resources in Offshoring Countries 253 Summary 259 Discussion Questions 261 Further Reading 261 Notes and References 261 Chapter 10 IHRM Trends and Future Chaenges 268 Chapter Objectives 268 Introduction 269 Summary and Concuding Remarks 277 Discussion Questions 279 Further Reading 279 Notes and References 279 Case 1 Spanning the Gobe 282 Case 2 Quaity Compiance at the Hawthorn Arms 287 Case 3 Case 4 Wofgang s Baancing Act: Rewarding Heathcare Executives in a Dispersed Yet Integrated Firm 289 Strategic Forecasts and Staffing Formuation: Executive and Manageria Panning for Bosch-Kazakhstan 298 Case 5 Loca and Internationa? Managing Compex Empoyment Expectations 305 Case 6 Case 7 Case 8 Expatriate Compensation at Robert Bosch GmbH: Coping With Modern Mobiity Chaenges 312 Baancing Vaues An Indian Perspective on Corporate Vaues from Scandinavia 319 Just Another Move to China? The Impact of Internationa Assignments on Expatriate Famiies 328 Gossary 334 Index 342

9 PREFACE According to the 2012 Word Investment Report issued by the United Nations the foreign affiiates of MNEs empoyed an estimated 69 miion workers, who generated $28 triion in saes and $7 triion in vaue-added, some 9% up from In 1990, when the first edition of this textbook was pubished, a tota of 24 miion workers were empoyed. This is merey one of many metrics that demonstrate the extent of the gobaization of business. With this increase in scae, the roe of human resource management in sustaining this increase in internationa business activity is a centra theme of this Sixth Edition of our textbook. In writing this new edition we have responded to feedback from users of previous editions and reorganized the format for the Sixth Edition into 10 chapters instead of 12 chapters. In carefuy revising and updating the chapter Endnotes for this new edition we have been very carefu to avoid the common trap of mutipe editions simpy piing on more and more endnotes and eaving the reader to wade through the growing ists. By carefuy cuing Endnotes and the Further Reading sections at the end of each chapter our intention is to provide a reader just being introduced to the fascinating topic of HRM in a mutinationa context with a reasonabe set of critica references as a starting point for their studies. At the same time, our more advanced readers wi be abe to evauate our assessment of the most recent significant citations aong with what we consider cassic empirica or conceptua artices and books. The more significant changes to the Sixth Edition incude the foowing: In response to feedback from teaching and professiona coeagues, we have incuded a new chapter (Chapter 2) on The Cutura Context of IHRM. We decided to pace this new chapter eary in the book so that we now cover Cuture in Chapter 2 and the Organizationa Context in Chapter 3. Chapter 4 is now tited IHRM in Cross-Border Mergers & Acquisitions, Internationa Aiances and SMEs to provide specific contextua information on these important deveopments in internationa management. Chapter 6 Internationa Performance Management has been moved from ater in the book to earier to better refect the importance of Performance Management in the IHRM process. Chapter 7 Internationa Training, Deveopment and Careers has been moved from ater in the book to earier to better fit with Chapter 6. The important issue of career panning has aso been moved to this chapter to better fit with contemporary IHR practice to ink career deveopment more systematicay with training and deveopment. Chapter 9 Internationa Industria Reations and the Goba Institutiona Context has been extensivey revised and updated and repaces two (Chapters 9 and 10) in the previous edition. Severa of the IHRM in Action cases embedded throughout the chapters have been repaced or significanty updated. These changes wi hep students grasp the principes and modes in the chapter and better appy these ideas to a range of settings or contexts. The eight in-depth cases at the end of the text have been written by the co-authors or soicited from goba experts to provide a range of in-depth appications for a of the major functiona areas of IHRM. Extensive teaching notes are provided for adopters of the text. Long time users of the text wi find a more systematic and extensive set of cases, but hopefuy our oya adopters wi sti find some of their favorite cases remain as we. Our feedback on these end-of-text cases was outstandingy positive in the fifth Edition and we fee this new edition buids on that strength. viii

10 PREFACE ix As in previous editions, the chaenge of this Sixth Edition has been to organize the compexities particuar to HRM activities in MNEs in such a way that provides teachers (of both undergraduate and graduate students) rea choice as to how they wi present the materia. We have tried to find a baance that is meaningfu and appropriate to the varying cutures represented by potentia adopters and readers, and across educationa traditions, institutions and forms, whie accuratey capturing the compeing reaities facing HRM professionas in MNEs. As aways, we wecome your comments and suggestions for improvement in this task. The author team remains an exceent exampe of coaborative work (across a significant number of time zones) in the 21st century with tri-continenta representation from the Asia Pacific, Europe and North America.

11 ACKNOWLEDGEMENTS First we woud ike to thank the scores of academics and practitioners who have come up to us at conferences and workshops, as we as communications by emais sent over the ast four years, sharing with us their comments and suggestions. Many of the improvements to this new edition of the book outined above are the direct resut of these conversations. The tricky task of baancing the need for continuity and meeting expectations for an enduring and highy successfu tite with the need to update and revise materias in what is sti a very young and dynamic academic area of study is made easier by the support of our peers and coeagues around the word. We thank you for your patience, ongoing interest in and commitment to our book. As with previous editions, we have received a great dea of assistance from numerous coeagues in various educationa institutions and organizations across the gobe. Particuar thanks go to the foowing coeagues for their assistance with this edition of the book: Ruth Aas; Estonian Business Schoo John Boudreau; University of Southern Caifornia Heen De Cieri; Monash University Barry Gerhart; University of Wisconsin-Madison Wofgang Mayrhofer; Vienna University of Economics and Business Mark Mendenha; University of Tennessee-Chattanooga Moy Pepper; Gonzaga University József Poór; Szent István University Gödöö, Hungary Susanne Royer; University of Fensburg Hugh Scuion; Nationa University of Ireand, Gaway Günter Stah; Vienna University of Economics and Business Shuming Zhao; Nanjing University Cherrie Zhu; Monash University Particuar thanks go to Maike Andresen, Manfred Froehecke, Martine Carde Gertsen, Yvonne McNuty, Ihar Sahakiants and Mette Zøner for their case contributions. x

12 ACKNOWLEDGEMENTS xi We aso gratefuy acknowedge the support of the foowing institutions: LA TROBE UNIVERSITY Peter Dowing thanks Leigh Drake, Executive Dean of the Facuty of Business, Economics and Law at La Trobe University, Tim Majoribanks, Head of the Department of Management and his coeagues in the HRM and Internationa Business group for providing a supportive environment for writing and research. ESCP EUROPE, BERLIN CAMPUS Marion Festing thanks the Dean of ESCP-Europe, Professor Pasca Morand and her coeagues for providing a supportive environment for writing and research. Specia thanks go to the team of the Chair of Human Resource Management and Intercutura Leadership for outstanding support. EASTERN KENTUCKY UNIVERSITY Aen Enge thanks the EKU Foundation Board as we as Robert Rogow, Dean of the Coege of Business and Technoogy for their ongoing financia support of research and trave. He woud aso ike to acknowedge the ongstanding technica and creative hep of Ron Yoder and Forencia Tosiani. The assistance from staff at Cengage Learning UK has been greaty appreciated. In particuar, we thank our Pubishing Editor, Andrew Ashwin, for his ongoing assistance and advice with this edition and Charotte Green for her work on the production of the book. The Pubisher woud ike to thank the foowing academics who suppied feedback on the origina proposa and during the writing process: Eaine Farndae; Tiburg University Rosmini Omar; University Teknoogi Maaysia Nancy Long; San Jose State University Peter Mcean; University of Woongong NSW Jay Leighton; Curtin University of Technoogy Anne-Marie Francesco; Hong Kong Baptist University Aan Burton-Jones; Bond University Finay, our persona thanks to the foowing individuas for their understanding, support and encouragement throughout the process of competing this Sixth Edition: Fiona Dowing Christian Daubenspeck, Janik and Annika Fred and Mary Enge, and Eizabeth Hoffman Enge Peter J. Dowing, Mebourne Marion Festing, Berin Aen D. Enge, Sr, Richmond, Kentucky

13 ABOUT THE AUTHORS PETER J. DOWLING (PhD, The Finders University of South Austraia) is Professor of Internationa Management & Strategy at La Trobe University, Mebourne, Austraia. Previous academic appointments incude The University of Mebourne, Monash University, the University of Tasmania and Victoria University of Weington. He has aso hed visiting appointments in the United States at Corne University and Michigan State University and in Germany at the University of Paderborn and the University of Bayreuth. He has co-authored a number of books incuding Strategic Management: Competitiveness and Gobaization (Pacific Rim 3rd Ed.) and Human Resource Management in Austraia (2nd Ed) and written or co-authored over 70 journa artices and book chapters. He serves on the editoria boards of Internationa Journa of Human Resource Management, Journa of Word Business, Management Internationa Review, Journa of Internationa Management, Thunderbird Internationa Business Review, Asia Pacific Journa of Human Resources and ZfP-German Journa of Research in Human Resource Management Research. Peter is currenty President of the Austraia & New Zeaand Internationa Business Academy, a Life Feow of the Austraian Human Resources Institute and a Feow of the Austraian & New Zeaand Academy of Management. Former roes incude past President of the Austraian & New Zeaand Academy of Management, past President of the Internationa Federation of Schoary Associations of Management and Founding Editor of Asia Pacific Journa of Human Resources. MARION FESTING (PhD, University of Paderborn) is Professor of Human Resource Management and Intercutura Leadership at ESCP Europe and Rector of the Berin Campus of this business schoo. Previous appointments incude the University of Paderborn, Germany. Marion has gained educationa, research and work experience in France, Austraia, Tunisia, Taiwan and the USA. She has co-authored and edited a number of books incuding a monograph on Strategic Internationa Human Resource Management (Strategisches Internationaes Personamanagement Second Edition) and a co-authored text on Internationa Human Resource Management (Internationaes Personamanagement Third Edition). Marion has aso written or co-authored over 90 book chapters and journa artices and pubished in internationa journas such as Academy of Management Perspectives, Human Resource Management Review, Thunderbird Internationa Business Review, Economic and Industria Demography, European Management Journa, European Journa of Internationa Management, Journa for East European Management Studies and Internationa Journa of Gobaization and Sma Business. xii

14 ABOUT THE AUTHORS xiii Marion is the Co-Editor of ZfP-German Journa of Research in Human Resource Management and serves on the editoria boards of Internationa Journa of Human Resource Management, Career Deveopment Internationa, Internationa Journa of Gobaization and Sma Business and Zeitschrift für Management. She was co-organizer of the sixth conference on Internationa Human Resource Management in Paderborn in 1998, and co-chair of the various IHRM tracks at the Internationa Federation of Schoary Associations of Management (IFSAM) conferences incuding in Limerick in Her current research interests focus on transnationa HRM strategies, goba performance management, goba careers and goba compensation. ALLEN D. ENGLE, SR. (DBA, University of Kentucky) is a Professor of Management in the Coege of Business and Technoogy at Eastern Kentucky University. He is a nationa and regiona professiona member of Word at Work (formery the American Compensation Association) and of the Society for Human Resource Management and a ong time member of the US Academy of Management. Whie at Eastern, he has taught courses in management (undergraduate and graduate), a number of areas within human resource administration, organizationa behavior, organizationa theory and internationa management (undergraduate and graduate). Aen hods a three-year appointment as Visiting Professor at ESCP- Europe in Berin. He has been Visiting Lecturer at the FHS Hochschue Für Technik, Wirtschaft und Soziae Arbeit, St Gaen in Switzerand and Visiting Professor of Internationa Management at the University of Pécs in Hungary. His research interests are in the topic areas of compensation theory and practices, goba performance management, eadership and organizationa change, job anaysis, manageria competencies and organizationa design, particuary as they impact on mutinationa firms. He has pubished in regiona, nationa and internationa academic journas, presenting academic papers on many of the topic areas presented above at conferences in the USA, Austraia, Canada, Estonia, France, Germany, Hungary, Ireand, Itay, Sovenia, Spain and the United Kingdom. Aen has consuted for regiona firms and presented professiona seminars in the areas of performance appraisa systems, executive team buiding, strategicay responsive compensation systems, intercutura management issues and organizationa change.

15 WALK THROUGH TOUR CHAPTER1 INTRODUCTION 9 FIGURE 1.3 A mode of the variabes that moderate differences between domestic and internationa HRM The cutura environment The industry (or industries) within which the mutinationa is primariy invoved CHAPTER 1 INTRODUCTION Domestic and internationa Compexity invoved in Extent of reiance of activities of the operating in different the mutinationa on HRM function countries and empoying its home-country different nationa domestic market categories of empoyees Attitudes of senior management Source: P. J. Dowing, Competing the Puzze: Issues in the Deveopment of the Fied of Internationa Human Resource Management, (mir) Management Internationa Review, Specia Issue No. 3/99 (1999), p. 31. Reproduced with kind permission from VS Verag Für Soziawissenschaften. THE CULTURAL ENVIRONMENT Chapter Objectives In this introductory chapter, we estabish the scope of the book. We: Define key terms in internationa human resource management (IHRM) and consider severa definitions of IHRM. Introduce the historicay significant issue of expatriate assignment management and review the evoution of these assignments to refect the increasing diversity with regard to what constitutes internationa work and the type and ength of internationa assignments. Outine the differences between domestic and internationa human resource management, and detai a mode that summarizes the variabes that moderate these differences. Present the compexity of IHRM, the increasing potentia for chaenges to existing IHRM practices and current modes, and an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and faster and more detaied diffusion of these practices across organizationa units and firms. In Chapter 2, The Cutura Context of IHRM, we cover the concept of cuture in considerabe detai, so our comments in this introductory chapter are necessariy brief. There are many definitions of cuture, but the term is usuay used to describe a shaping process over time. This process generates reative stabiity, refecting a shared knowedge structure that attenuates (i.e. reduces) variabiity in vaues, behaviora norms and patterns of behaviour. 18 An important characteristic of cuture is that it is so subte a process that one is not aways conscious of its reationship to vaues, attitudes and behaviours. One usuay has to be confronted with a different cuture in order to fuy appreciate this effect. Anyone traveing abroad, either as a tourist or on business, experiences situations that demonstrate cutura differences in anguage, food, dress, hygiene and attitude to time. Whie the traveer can perceive these differences as nove, even enjoyabe, for peope required to ive and work in a new country, such differences can prove difficut. They may experience cuture shock a phenomenon experienced by peope who move across cutures. The new environment requires many adjustments in a reativey short period of time, chaenging peope s frames of reference to such an extent that their sense of sef, especiay in terms of nationaity, comes into question. Peope, in effect, experience a shock reaction to new cutura experiences that cause psychoogica disorientation because they misunderstand or do not recognize important cues. Cuture shock can ead to negative feeings about the host country and its peope and a onging to return home. 19 Because internationa business invoves the interaction and movement of peope across nationa boundaries, an appreciation of cutura differences and when these differences are important is essentia. Research into these aspects has assisted in furthering our understanding of the cutura environment as an important variabe that moderates differences between domestic and internationa HRM. However, whie cross-cutura and comparative research attempts to expore and expain simiarities and differences, there are probems associated with such research. A major probem is that there is itte agreement on either an exact definition of cuture or on the operationaization of this concept. For many researchers, cuture has become an 1 Chapter Objectives appear at the start of every chapter and hep you monitor your understanding and progress through the chapter. Figures give a visua representation of key concepts or data. 54 CHAPTER 3 THE ORGANIZATIONAL CONTEXT TABLE 3.1 Exampes of the impact of the cutura and institutiona context on HRM practices HRM practices Impact of the institutiona context Recruitment and seection Education system The reputation of educationa institutions such as pubic and private universities varies in different countries. This is refected in the recruiting processes (i.e., HR marketing) and seection criteria of the firms in those countries. Training and deveopment Education system Education systems differ between different countries (existence of a dua vocationa training system, quaity and reputation of higher education institutions). This has an effect on the training needs perceived and fufied by MNEs. Compensation Legisation and industria reations Legisation such as the reguation of minimum wages or respective union agreements with respect to compensation have an impact on the firm s compensation choices with Respect to pay mix and pay eve. Task distribution Legisation and norms Legisations and respective norms Support gender-based division of abor to a differing extent in different countries. Whie in some countries the percentage of femae managers is reativey high, in other countries it is not common that women work at a. Mode of operation abroad When addressing the mode of operation, it is hepfu to examine this from the eve of the oca affiiate. Thus, we turn to firm-endogenous factors to determine the baance between goba standardization and ocaization. Later in the chapter we wi discuss the various modes of foreign operations and their associated HRM practices. A study by Buckey et a. 36 provides two exampes of how the mode of operation either inhibits or faciitates work standardization. In ate 1978, the Chinese government announced an open-door poicy and commenced economic reforms aimed at moving the country from a centray panned to a market economy. Western firms that entered China eary were more or ess forced to enter into joint ventures with stateowned enterprises (SOEs), whereas those entering ater have been abe to estabish whoy owned subsidiaries (WOSs). One case in the Buckey et a. study is Shanghai Be a joint venture formed in 1983 between a Begian teecommunications firm (now Acate Be), the Begian government and the Chinese Posta and Teecommunications Industries Corporation (PTIC). There was a gradua transfer of reevant technoogy by the Begian firm, with a ong-term reiance on Begian expatriates. The Begian firm had imited contro over the Chinese empoyees in the joint venture and was constrained by its partner s expectations and differing goas. The second case researched was much different. The US teecommunications firm, Motoroa, estabished a whoy owned operation in Tianjin, China, in Changing conditions in China meant that Motoroa coud effectivey buid a transpant factory : importing production equipment, organizationa processes and practices from either the parent or other subsidiaries in its goba network. This enabed Motoroa to integrate the Chinese operation into the broader corporate network and to ocaize management. These have been supported by HRM initiatives such as a specia management training program (China Acceerated Management Program CAMP) 37, Engish anguage training and transfer of Chinese empoyees into the US operations. 170 CHAPTER6 INTERNATIONALPERFORMANCEMANAGEMENT IHRM in Action Case 6.1 A rainy expatriate performance appraisa Richard Hoffman, a Québécois Chemica Engineer working for a Canadian-based energy firm, was given a three-year expatriate assignment in Venezuea as a technica iaison and environmenta protection project manager. His oca project supervisor was Jean, a French engineer who had ived in French Guiana and then Venezuea for over 20 years. Richard thought that as a Francophone from Quebec, he and Jean woud be abe to buid a quick working reationship. Rich sent Jean an eary emai (in French, and not the usua corporate Engish) containing what he thought of as the five most significant goas associated with his assignment simiar to the management by objectives section of the more or ess standard performance appraisa forms he had fied out for years during earier assignments in Edmonton, Toronto and at corporate headquarters in Montrea. After severa months with no response from Jean, Richard caught Jean in the haway between meetings and asked him about the emai and his progress to date. Don t worry about that, Jean responded bandy, Just keep working to the deadines and I wi check with your co-workers and the other project managers on your work. Where did you go to engineering schoo by the way? Richard waited another six months and was becoming increasingy anxious as the firm s annua review week approached. He finay caught up with Jean on a rainy Friday in the obby of the office buiding as they both waited for their drivers to arrive. When asked about the upcoming performance review, Jean snorted and said. C est tout fini, it s a been taken care of. Make an appointment with my assistant Louisa next week and we can go over the report we have sent to Montrea. As Jean stepped gingery into the rainy Caracas parking ot, Richard thought back to the ast few weeks with his team, the sometimes oud disagreements with his feow project managers, and wondered if it was too ate in the day to ca his od supervisor in Toronto. Source: Based on the synthesis of a series of expatriate experiences In principe, performance appraisa systems are designed carefuy and often presumed to be static. Vaid reasons exist for maintaining standard, traditionay used appraisas (e.g., when the system has been tested, has identified baseines, and reduces future deveopment costs). These reasons are vaid as ong as the context of the performance does not change. In the expatriate setting, however, the performance context does change, and sometimes it changes dramaticay. Given a goba context, previous testing and estabished baseines grounded in domestic situations can become meaningess. Tabes hep to order significant data and trends. IHRM in Action cases provide rea-ife exampes of the concepts and issues covered in the chapter. xiv

16 managing internationa operations. 50 These eements are we-estabished as important factors CHAPTER1 INTRODUCTION 17 CHAPTER6 INTERNATIONAL PERFORMANCEMANAGEMENT 175 for HRM in MNEs, as is the factor Organizationa cuture which is defined by Kidger as the sense of common identify and purpose across the whoe organization, 51 (page 81) and is the fina organizationa factor incuded in the framework. For MNEs seeking a high eve of goba integration, this factor may faciitate the deveopment of a goba mindset and enhance firm performance. 52 Overa, the mode offered by De Cieri and Dowing aims to assist in the crossfertiization of ideas to further deveop theory and empirica research in strategic HRM in mutinationa firms. THE CHANGING CONTEXT OF IHRM As Figures 1.3 and 1.4 show, internationa firms compete in an increasingy compex environment where the eve of chaenge of doing business can be highy variabe. Internationaizing firms rey on having the right peope to manage and operate their businesses and good IHRM practices that are appropriate to the context in which they occur. This combination of appropriate peope and HR practices has been a constant critica success factor in internationa business ventures. For exampe, the foowing quotation is taken from a detaied case study of a arge US mutinationa, where the authors, Desatnick and Bennett 53 concuded: The primary causes of faiure in mutinationa ventures stem from a ack of understanding of the essentia differences in managing human resources, at a eves, in foreign environments. Certain management phiosophies and techniques have proved successfu in the domestic environment: their appication in a foreign environment too often eads to frustration, faiure and underachievement. These human considerations are as important as the financia and marketing criteria upon which so many decisions to undertake mutinationa ventures depend. This study was reported in 1978 but many internationa managers today woud concur with the sentiments expressed in this quote. In this book we attempt to demonstrate some ways in which an appreciation of the internationa dimensions of HRM can assist in this process. SUMMARY The purpose of this chapter has been to provide an overview of the emerging fied of internationa HRM. We did this by: Defining key terms in IHRM and considering severa definitions of IHRM. Introducing the historicay significant issue of expatriate assignment management and reviewing the evoution of these assignments to refect the increasing diversity with regard to what constitutes internationa work and the type and ength of internationa assignments. Outining the differences between domestic and internationa human resource management by ooking at six factors which differentiate internationa and domestic HR (more HR activities; the need for a broader perspective; more invovement in empoyees persona ives; changes in emphasis as the workforce mix of expatriates and ocas varies; risk exposure; and more externa infuences) and detaiing a mode which summarizes the variabes that moderate these differences. Presenting the compexity of IHRM, the increasing potentia for chaenges to existing IHRM practices and current modes, and an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and faster and more detaied diffusion of these practices across organizationa units and firms. DISCUSSION QUESTIONS 1 In the section on the voatiity of the goba environment, severa word events were isted that have had profound impications for the goba and oca strategies of MNEs. Seect a recent word event, identify the specific HR impications that may arise from this, and devise poicies as to how these may be handed. 2 Discuss the major factors associated with appraisa of expatriate manageria performance. 3 One of the dangers of performance appraisa is that, because the focus is so much on a particuar FURTHER READING Fey, C., Morguis, Y., Park. S., Hyeon, J. and Bjorkman, I. (2009) Opening the back box of the reationship between HRM practices and firm performance: A comparison of MNE subsidiaries in the USA, Finand and Russia. Journa of Internationa Business Studies 40: Cascio, W. (2006) Goba Performance Management Systems, in G. Stah and I. Björkman (eds), Handbook of Research in Internationa Human Resource Management, Chetenham: Edward Egar, pp Enge, A., Dowing, P. and Festing, M. (2008) State of Origin: Research in Goba Performance Management, a Proposed Research Domain and Emerging Impications, European Journa of Internationa Management, 2 (2): NOTES AND REFERENCES 1. Exceent overviews of research in this area are provided by P. Caigiuri, Performance Measurement in a Cross cutura Context, in W. Bennett, C. Launce and J. Woehr (eds), Performance Management: Current Perspectives and Future Chaenges (Mahwah, NJ: Lawrence Erbaum Associates, 2006), pp ; and W. Cascio, Goba Performance Management Systems, in G. Stah and I. Björkman (eds), individua, the teamwork aspect gets ost. In an internationa ocation, it is perhaps desirabe to focus more on how the PCN has setted in and is operating as part of a team rather than as an individua. 4 Why is it important to incude hard, soft and contextua goas when assessing manageria performance? 5 In what ways woud the roe of a manager working in a non-standard internationa assignment arrangement differ from that of a typica expatriate manager? Miiman, J., Nason, S., Zhu, C. and De Cieri, H. (2002) An Exporatory Assessment of the Purposes of Performance Appraisas in North and Centra America and the Pacific Rim, Asia Pacific Journa of Human Resources, 40(1): Shay, J. P. and Baack, S. A. (2004) Expatriate Assignment, Adjustment and Effectiveness: An Empirica Examination of the Big Picture, Journa of Internationa Business Studies, 35: Shih, H., Chiang, Y. and Kim, I. (2005) Expatriate Performance Management from MNEs of Different Nationa Origins, Internationa Journa of Manpower, 26(2): Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp Cascio, Goba Performance Management Systems, p C.A. Bartett and S. Ghosha, Managing Across Borders: New Strategic Requirements, Soan Management Review (Summer, 1987), pp Summary boxes at the end of each chapter provide a thorough re-cap of key issues and hep you assess your understanding of key content. Discussion Questions are provided at the end of each chapter and are designed to give a patform for cassroom discussion. 290 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES CASE 2 QUALITY COMPLIANCE AT THE HAWTHORN ARMS By Aen D. Enge, Sr. DISCUSSION QUESTIONS 1 What is your view of internationa initiatives to criminaize foreign bribery? 2 Identify a number of HRM probems that typicay arise with expatriate assignments. In what ways might the core ethica vaues and guideines identified in this chapter appy to them? FURTHER READING Burke, R. and Coopers, C. (eds.) (2008) Internationa Terrorism and Threats to Security: Manageria and Organizationa Chaenges. Chetenham, U.K.: Edward Egar Pubishing. Cross Cutura Management: An Internationa Journa Specia Issue (2011) Theme: Expatriation Od Issues, New Insights. Voume 18, (2). Guest Editors: Jan Semer and Vesa Suutari. Fortanier, F., Kok, A. and Pinkse, J. (2011) Harmonization in CSR Reporting: MNEs and Goba CSR Standards. Management Internationa Review, 51 (5): Lundby, K. and Joton, J. (2010) (Eds), Going Goba: Practica Appications and Recommendations for HR and OD NOTES AND REFERENCES 1. See T. Jackson, Internationa HRM: A Cross-cutura Approach, Chapter 5, The Motivating Organization: The Japanese Mode (London: Sage Pubications, 2002), pp ; E. Ikegami, The Taming of the Samurai: Honorific Individuaism and the Making of Modern Japan (Cambridge, MA: Harvard University Press, 1995); and J. Abeggen and G. Stak, Kaisha: The Japanese Corporation (New York: Basic Books, 1985). 2. See 0,3355,en_2649_34855_1_1_1_1_1,00.htm for a comprehensive ist of resources offered by the OECD on bribery in internationa business. 3. L. Carson, Bribery Extortion, and the Foreign Corrupt Practices Act, Phiosophy and Pubic Affairs (1984) 3 Beyond checkists and systemic anaysis, what actions can MNEs take to reduce risks reated to terrorism? What roes can HRM take in these processes? 4 What IHRM activities woud be pertinent to the sending, by Médecins Sans Frontieres, of a medica team into a country such as Bangadesh? Professionas in the Goba Workspace (San Francisco, USA: Jossey-Bass, 2010). Morris, S.S., Wright, P.M., Trevor, J., Sties, P., Stah, G.K., Sne, S., Paauwe, J., and Farndae, E. (2009) Goba Chaenges to Repicating HR: The Roe of Peope, Processes, and Systems. Human Resource Management, 48(6), Wernick, D. and Von Ginow, M. (forthcoming). Refections on the Evoving Terrorist Threat to Luxury Hotes: A Case Study on Marriott Internationa. Thunderbird Internationa Business Review. pp See aso fcpa/ for up-to-date information on the FCPA. For a recent review of ethics programs as a training topic and the potentia responsibiities of IHRM staff in creating and maintaining such programs, see A. Vadera and R. Aguiera, The Roe of IHRM in the Formuation and Impementation of Ethics Programs in Mutinationa Enterprises in P. Sparrow (ed.) Handbook of Internationa Human Resource Management (Chichester, U.K.: John Wiey and Sons, 2009) pp W. Bottigieri, M. Marder and E. Paderon, The Foreign Corrupt Practices Act: Discosure Requirements and Management Integrity, SAM Advanced Journa, Winter (1991), pp Sitting in his room at the Hawthorn Arms Hote in Shannon, Ireand, waiting for a morning fight to London and then on to Marseies, Aistair Mackay refects on how uninspiring hote rooms are. He had just competed a series of meetings with Irish officias in Limerick, concuding with a debriefing session over a Guinness with his Irish coeagues to pan their next move. Negotiations over a potentia contract were proceeding we but there woud be abour impications that woud require a forma response. Consequenty, Aistair had missed the ast evening fight out to London. Another night away from the famiy. Thank goodness I am not missing our wedding anniversary tomorrow. I must remember to find something reay specia in the duty-free shop. Six months ago, Aistair was appointed Director of Personne Deveopment, European Division, for Trianon, an Ango-French avionics firm. Trianon had begun as a subcontractor for the Concorde, and graduay had gained a reputation in the 1970s and 1980s as a high quaity, if sometimes undependabe subcontractor for major French and British aerospace defence contractors. Attempts to expand into civiian markets by gaining contracts for the origina European Airbus were unsuccessfu, though today neary 30 per cent of Trianon s saes are through civiian contracts. Now, under new executive management, Trianon is focused on major navigationa dispay contracts for the next generation of Airbus production. Prior to joining Trianon, Aistair had worked in the ega department of a Scottish bank. European Union empoyment requirements had become his speciaity, and provided a springboard into his current position. His ce phone rings, and he receives an unexpected ca from his coeague Henri Genadry, Genera Director of Joint Ventures, Mergers and Acquisitions, Dispay Division. Henri informs him that the expected outright purchase of a scanner-cathode ray tube production faciity in Veceses, outside of Budapest, Hungary was not going ahead. Instead, the decision had been made at corporate headquarters in Marseies for a ten-year joint venture with a Hungarian government backed firm. Henri goes on to expain that the Hungarian contro and equity interests in this project are expected to make ministry officias in Budapest happy. Henri was hopefu the decision wi make executives and administrators at Maev, the state supported airine, friendy to Trianon in the ong term. We wi now need a Quaity Compiance Manager for a three year assignment in Hungary. It is an important position as we wi need to keep tight contro on this joint venture operation. There wi be some trave to France and Germany at east in the first year unti we see how things are working out with these new partners. Aistair asks, When do you expect this Quaity Compiance manager to be avaiabe? There is a pause on the other end of the ine after which Henri bandy responds, Five or six weeks if we are to meet corporate timetabes. We expect the person to be in on the ground so to speak. We wi need a reaistic assessment of current processes for a start. The person wi need to be famiiar with the joint venture s objectives and targets. We have some detais through the due diigence process but skis audits were somewhat rushed. Aistair then asks that detais, incuding a job description, be emaied to his intranet address. We Henry admits, this is out first joint venture the firm has been invoved in outside of the UK, Germany or France. The job description wi be very precise on the technica- quaity side, but vague on the administrative compiance side. You may need to fi in the missing pieces as you see fit. After a few more minutes of genera chatting, Henri finishes the phone ca. Aistair pugs his aptop into the teephone port on his room s desk, and after a few fase starts, ogs on to the secure corporate web site and accesses three personne fies from a foder he had prepared some weeks ago in expectation that he woud be asked for a decision. Of course, he had expected the position to be that of Project Engineer in an operation that the firm woud have 100 per cent Further Reading and Notes and References aow you to expore the subject further and act as a starting point for projects and assignments. Longer Cases provide a detaied exampe of rea-ife Human Resource situations. Some cases are accompanied by figures, tabes and notes. xv

17 DIGITAL SUPPORT RESOURCES Dedicated Instructor Resources To discover the dedicated instructor onine support resources accompanying this textbook, instructors shoud register here for access: Resources incude: Instructor s Manua ExamView Testbank PowerPoint sides Onine Student Resources Instructor access Instructors can access the onine student resources by registering at cengage.com or by speaking to their oca Cengage Learning EMEA representative. Instructor resources Instructors can use the integrated Engagement Tracker to track students preparation and engagement. The tracking too can be used to monitor progress of the cass as a whoe, or for individua students. Student access Students can access the onine patform using the unique persona access card incuded in the front of the book. Student resources A range of interactive earning toos taiored to the sixth edition of Internationa Human Resource Management are avaiabe on the onine patform, incuding: Quizzes and sef-test questions Interactive ebook Games Videos Gossary Fashcards Links to usefu websites. xvi

18 CHAPTER 1 INTRODUCTION Chapter Objectives In this introductory chapter, we estabish the scope of the book. We: Define key terms in internationa human resource management (IHRM) and consider severa definitions of IHRM. Introduce the historicay significant issue of expatriate assignment management and review the evoution of these assignments to refect the increasing diversity with regard to what constitutes internationa work and the type and ength of internationa assignments. Outine the differences between domestic and internationa human resource management (HRM), and detai a mode that summarizes the variabes that moderate these differences. Present the compexity of IHRM, the increasing potentia for chaenges to existing IHRM practices and current modes, and an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and faster and more detaied diffusion of these practices across organizationa units and firms. 1

19 2 CHAPTER 1 INTRODUCTION SCOPE OF THE BOOK The fied of internationa HRM has been characterized by three broad approaches. 1 The first 2 emphasizes cross-cutura management: examining human behavior within organizations from an internationa perspective. A second approach deveoped from the comparative industria reations and HRM iterature 3 and seeks to describe, compare and anayze HRM systems in various countries. A third approach seeks to focus on aspects of HRM in mutinationa firms. 4 These approaches are depicted in Figure 1.1. In this book, we take the third approach. Our objective is to expore the impications that the process of internationaization has for the activities and poicies of HRM. In particuar, we are interested in how HRM is practiced in mutinationa enterprises (MNEs). FIGURE 1.1 Inter-reationships between approaches to the fied Cross-cutura management a IHRM in the mutinationa context b Comparative HR and IR systems As Figure 1.1 demonstrates, there is an inevitabe overap between the three approaches when one is attempting to provide an accurate view of the goba reaities of operating in the internationa business environment. Obviousy, cross-cutura management issues are important when deaing with the cutura aspects of foreign operations. Some of these aspects wi be taken up in Chapter 2 where we dea with the cutura context of HRM in the host country context indicated by (a) in Figure 1.1. Chapter 9 deas with internationa industria reations and the goba institutiona context and draws on iterature from the comparative IR fied (b) in the above figure. Whie the focus of much of this book is on the estabished MNE a firm which owns or contros business activities in more than one foreign country we recognize that sma, internationaizing firms which are yet to reach mutinationa firm status, and famiy-owned firms, aso face internationa HRM issues and many of these issues are addressed in Chapter 4. DEFINING INTERNATIONAL HRM Before we can offer a definition of internationa HRM, we shoud first define the genera fied of HRM. Typicay, HRM refers to those activities undertaken by an organization to effectivey utiize its human resources. These activities woud incude at east the foowing: 1 Human resource panning. 2 Staffing (recruitment, seection, pacement). 3 Performance management. 4 Training and deveopment. 5 Compensation (remuneration) and benefits. 6 Industria reations.

20 CHAPTER 1 INTRODUCTION 3 The question is of course which activities change when HRM goes internationa? A mode deveoped by Morgan 5 is hepfu in terms of answering this question. He presents IHRM on three dimensions: 1 The broad human resource activities of procurement, aocation and utiization. (These three broad activities can be easiy expanded into the six HR activities isted above.) 2 The nationa or country categories invoved in internationa HRM activities: the host-country where a subsidiary may be ocated; the parent-country where the firm is headquartered; and other countries that may be the source of abor, finance and other inputs. 3 The three categories of empoyees of an internationa firm: host-country nationas (HCNs); parent-country nationas (PCNs); and third-country nationas (TCNs). Thus, for exampe, the US mutinationa IBM empoys British citizens in its British operations (HCNs), often sends US citizens (PCNs) to Asia-Pacific countries on assignment, and may send some of its Singaporean empoyees on an assignment to its Chinese operations (as TCNs). The nationaity of the empoyee is a major factor in determining the person s category, which in turn is frequenty a major driver of the empoyee s compensation and empoyment contract. Morgan defines internationa HRM as the interpay among the three dimensions of human resource activities, type of empoyees and countries of operation. We can see that in broad terms IHRM invoves the same activities as domestic HRM (e.g. procurement refers to HR panning and staffing). However, domestic HRM is invoved with empoyees within ony one nationa boundary. Increasingy, domestic HRM is taking on some of the favor of IHRM as it deas more and more with a muticutura workforce. Thus, some of the current focus of domestic HRM on issues of managing workforce diversity may prove to be beneficia to the practice of IHRM. However, it must be remembered that the way in which diversity is managed within a singe nationa, ega and cutura context may not necessariy transfer to a mutinationa context without some modification. What is an expatriate? One obvious difference between domestic and internationa HRM is that staff are moved across nationa boundaries into various roes within the internationa firm s foreign operations these empoyees have traditionay been caed expatriates. An expatriate is an empoyee who is working and temporariy residing in a foreign country. Many firms prefer to ca such empoyees internationa assignees. Whie it is cear in the iterature that PCNs are aways expatriates, it is often overooked that TCNs are aso expatriates, as are HCNs who are transferred into parent country operations outside their own home country. 6 Figure 1.2 iustrates how a three categories may become expatriates. The term inpatriate has come into vogue to signify the transfer of subsidiary staff into the parent country (headquarters) operations. 7 For many managers this term has added a eve of confusion surrounding the definition of an expatriate. The (US) Society for Human Resource Management defines an inpatriate as a foreign manager in the US. Thus, an inpatriate is aso defined as an expatriate. A further indication of the confusion created by the use of the term inpatriate is that some writers in internationa management define a HCN empoyees as inpatriates. HCNs ony become inpatriates when they are transferred into the parent-country operations as expatriates, as iustrated in Figure 1.2.

21 4 CHAPTER 1 INTRODUCTION Given the substantia amount of jargon in IHRM, it is questionabe as to whether the term inpatriate adds enough vaue to justify its use. However, some firms now use the term inpatriate for a staff transferred into a country. For carity, we wi use the term expatriate throughout this text to refer to empoyees who are transferred out of their home base/parent country into some other area of the firm s internationa operations. In doing so, we recognize that there is increasing diversity with regard to what constitutes internationa work, the type and ength of internationa assignments and the increasingy strategic roe of the HR function in many organizations, which in turn infuences the nature of some expatriate roes. FIGURE 1.2 Internationa assignments create expatriates Parent-country HQ/operations HCNs HCNs Nationa border PCNs PCNs Subsidiary operations country A TCNs Subsidiary operations country B Nationa border Stah, Björkman and Morris have recognized this expansion in the scope of the fied of IHRM in their Handbook of Research in Internationa Human Resource Management where they define the fied of IHRM as foows: We define the fied of IHRM broady to cover a issues reated to managing the goba workforce and its contribution to firm outcomes. Hence, our definition of IHRM covers a wide range of human resource issues facing MNEs in different parts of their organizations. Additionay we incude comparative anayses of HRM in different countries. 8 We beieve that this broad definition accuratey captures the expanding scope of the IHRM fied and we wi use this definition in this book. DIFFERENCES BETWEEN DOMESTIC AND INTERNATIONAL HRM In our view, the compexity of operating in different countries and empoying different nationa categories of workers is a key variabe that differentiates domestic and internationa HRM, rather than any major differences between the HRM activities performed. Dowing 9 argues that the compexity of internationa HR can be attributed to six factors: 1 More HR activities. 2 The need for a broader perspective.

22 CHAPTER 1 INTRODUCTION 5 3 More invovement in empoyees persona ives. 4 Changes in emphasis as the workforce mix of expatriates and ocas varies. 5 Risk exposure. 6 Broader externa infuences. Each of these factors is now discussed in detai to iustrate its characteristics. More HR activities To operate in an internationa environment, a human resources department must engage in a number of activities that woud not be necessary in a domestic environment. Exampes of required internationa activities are: internationa taxation; internationa reocation and orientation; administrative services for expatriates; host-government reations; anguage transation services. Expatriates are subject to internationa taxation, and often have both domestic (i.e. their homecountry) and host-country tax iabiities. Therefore, tax equaization poicies must be designed to ensure that there is no tax incentive or disincentive associated with any particuar internationa assignment. 10 The administration of tax equaization poicies is compicated by the wide variations in tax aws across host countries and by the possibe time ag between the competion of an expatriate assignment and the settement of domestic and internationa tax iabiities. In recognition of these difficuties, many MNEs retain the services of a major accounting firm for internationa taxation advice. Internationa reocation and orientation invoves the foowing activities: arranging for pre-departure training; providing immigration and trave detais; providing housing, shopping, medica care, recreation and schooing information; finaizing compensation detais such as deivery of saary overseas, determination of various overseas aowances and taxation treatment. The issues invoved when expatriates return to their home-country (repatriation) are covered in detai in Chapter 7. Many of these factors may be a source of anxiety for the expatriate and require considerabe time and attention to successfuy resove potentia probems certainy much more time than woud be invoved in a domestic transfer/reocation such as London to Gasgow, Frankfurt to Munich, New York to Daas, Sydney to Mebourne, or Beijing to Shanghai. An MNE aso needs to provide administrative services for expatriates in the host countries in which it operates. Providing these services can often be a time-consuming and compex activity because poicies and procedures are not aways cear-cut and may confict with oca conditions. Ethica questions can arise when a practice that is ega and accepted in the host country may be at best unethica and at worst iega in the home country. For exampe, a situation may arise in which a host country requires an AIDS test for a work permit for an empoyee whose parent

23 6 CHAPTER 1 INTRODUCTION firm is headquartered in the USA, where empoyment-reated AIDS testing remains a controversia issue. How does the corporate HR manager dea with the potentia expatriate empoyee who refuses to meet this requirement for an AIDS test and the overseas affiiate which needs the services of a speciaist expatriate from headquarters? These issues add to the compexity of providing administrative services to expatriates. Host-government reations represent an important activity for the HR department in an MNE, particuary in deveoping countries where work permits and other important certificates are often more easiy obtained when a persona reationship exists between the reevant government officias and mutinationa managers. Maintaining such reationships heps resove potentia probems that can be caused by ambiguous eigibiity and/or compiance criteria for documentation such as work permits. US-based mutinationas, however, must be carefu in how they dea with reevant government officias, as payment or payment-in-kind, such as dinners and gifts, may vioate the US Foreign Corrupt Practices Act (FCPA). 11 Provision of anguage transation services for interna and externa correspondence is an additiona internationa activity for the HR department. Morgan 12 notes that if the HR department is the major user of anguage transation services, the roe of this transation group is often expanded to provide transation services to a foreign operation departments within the MNE. The need for a broader perspective Human resource managers working in a domestic environment generay administer programs for a singe nationa group of empoyees who are covered by a uniform compensation poicy and taxed by one nationa government. Because HR managers working in an internationa environment face the probem of designing and administering programs for more than one nationa group of empoyees (e.g. PCN, HCN and TCN empoyees who may work together in Zurich at the European regiona headquarters of a US-based mutinationa), they need to take a broader view of issues. For exampe, a broader, more internationa perspective on expatriate benefits woud endorse the view that a expatriate empoyees, regardess of nationaity shoud receive a foreign service or expatriate premium when working in a foreign ocation. Yet some MNEs that routiney pay such premiums to their PCN empoyees on overseas assignment (even if the assignments are to desirabe ocations) are reuctant to pay premiums to foreign nationas assigned to the home country of the firm. Such a poicy confirms the traditiona perception of many HCN and TCN empoyees that PCN empoyees (particuary US and European PCNs) are given preferentia treatment. 13 Compex equity issues arise when empoyees of various nationaities work together, and the resoution of these issues remains one of the major chaenges in the IHRM fied. (Equity issues with regard to compensation are discussed in Chapter 8.) More invovement in empoyees persona ives A greater degree of invovement in empoyees persona ives is necessary for the seection, training and effective management of both PCN and TCN empoyees. The HR department or HR professiona needs to ensure that the expatriate empoyee understands housing arrangements, heath care, and a aspects of the compensation package provided for the assignment (costof-iving aowances, premiums, taxes and so on). Many MNEs have an Internationa HR Services section that coordinates administration of the above programs and provides services for PCNs and TCNs, such as handing their banking, investments, home renta whie on assignment, coordinating home visits and fina repatriation. In the domestic setting, the HR department s invovement with an empoyee s famiy is reativey imited and may not extend beyond providing empoyee benefits such as heath insurance coverage for eigibe famiy members and some assistance in reocating the empoyee and famiy members. In the internationa setting, however, the HR department must be much more

24 CHAPTER 1 INTRODUCTION 7 invoved in order to provide the eve of support required and wi need to know more about the empoyee s persona ife. For exampe, some nationa governments require the presentation of a marriage certificate before granting a visa for an accompanying spouse. Thus, marita status coud become an aspect of the seection process, regardess of the best intentions of the MNE to avoid using a potentiay discriminatory seection criterion. In such a situation, the HR department shoud advise a candidates being considered for the position of the host country s visa requirements with regard to marita status and aow candidates to decide whether they wish to remain in the seection process. Apart from providing suitabe housing and schooing in the assignment ocation, the HR department may aso need to assist chidren paced at boarding schoos in the home country a situation that is ess frequenty encountered in the United States but reativey common in many other countries, particuary former British coonies such as Singapore, Hong Kong, Austraia and New Zeaand and in Europe. 14 In more remote or ess hospitabe assignment ocations, the HR department may be required to deveop, and even run, recreationa programs. For a domestic assignment, most of these matters either woud not arise or woud be seen as the responsibiity of the empoyee rather than the HR department. In a sense the psychoogica contract is now between the MNE and the entire immediate famiy of the internationa assignee. Changes in emphasis as the workforce mix of PCNs and HCNs varies As foreign operations mature, the emphasis put on various human resource activities change. For exampe, as the need for PCNs and TCNs decines and more trained ocas become avaiabe, resources previousy aocated to areas such as expatriate taxation, reocation and orientation are transferred to activities such as oca staff seection, training and management deveopment. The atter activity may require the estabishment of a program to bring highpotentia oca staff to corporate headquarters for deveopmenta assignments. The need to change emphasis in HR operations as a foreign subsidiary matures is ceary a factor that woud broaden the responsibiities of oca HR activities such as human resource panning, staffing, training and deveopment and compensation. Risk exposure Frequenty the human and financia consequences of faiure in the internationa arena are more severe than in domestic business. For exampe, whie we discuss the topic in more detai in Chapter 5, expatriate faiure (the premature return of an expatriate from an internationa assignment) and under-performance whie on internationa assignment is a potentiay high-cost probem for MNEs. The direct costs of faiure (saary, training costs, trave costs and reocation expenses) to the parent firm may be as high as three times the domestic saary pus reocation expenses, depending on currency exchange rates and ocation of assignments. Indirect costs such as oss of foreign market share and damage to key host-country reationships may be considerabe. Another aspect of risk exposure that is reevant to IHRM is terrorism, particuary since the Word Trade Center attack in New York in Most major MNEs must now consider poitica risk and terrorism when panning internationa meetings and assignments and spending on protection against terrorism is increasing. Terrorism has aso ceary had an effect on the way in which empoyees assess potentia internationa assignment ocations. 15 The HR department may aso need to devise emergency evacuation procedures for highy voatie assignment ocations subject to poitica or terrorist vioence, or major epidemic or pandemic crises such as severe acute respiratory syndrome (SARS) and avian infuenza. 16 For a comprehensive anaysis of the impact of SARS on human resource management in the Hong Kong service sector, see Lee and Warner. 17

25 8 CHAPTER 1 INTRODUCTION Broader externa infuences The major externa factors that infuence IHRM are the type of government, the state of the economy and the generay accepted practices of doing business in each of the various host countries in which MNEs operate. A host government can, for exampe, dictate hiring procedures, as has been the case unti recenty in Maaysia. The Maaysian Government during the 1970s introduced a requirement that foreign firms compy with an extensive set of affirmative action rues designed to provide additiona empoyment opportunities for the indigenous Maay ethnic group who constitute the majority of the popuation of Maaysia but tend to be underrepresented in business and professiona empoyment groups reative to Chinese Maaysians and Indian Maaysians. Various statistics showing empoyment eves of indigenous Maays throughout the firm (particuary at midde and senior management eves) were required to be forwarded to the reevant government department. Many foreign investors regarded these requirements as a major reason for compaints about bureaucracy and infexibiity with regard to perceived affirmative action appointments at management eve in Maaysia and these compaints are one significant reason for the subsequent revision of these requirements. In deveoped countries, abor is more expensive and better organized than in ess-deveoped countries and governments require compiance with guideines on issues such as abor reations, taxation and heath and safety. These factors shape the activities of the subsidiary HR manager to a considerabe extent. In ess-deveoped countries, abor tends to be cheaper, ess organized and government reguation is ess pervasive, so these factors take ess time. The subsidiary HR manager must spend more time, however, earning and interpreting the oca ways of doing business and the genera code of conduct regarding activities such as gift giving and empoyment of famiy members. It is aso ikey that the subsidiary HR manager wi become more invoved in administering benefits either provided or financed by the MNE, such as housing, education and other faciities not readiy avaiabe in the oca economy. VARIABLES THAT MODERATE DIFFERENCES BETWEEN DOMESTIC AND INTERNATIONAL HRM Earier in this chapter it was argued that the compexity invoved in operating in different countries and empoying different nationa categories of empoyees is a key variabe that differentiates domestic and internationa HRM, rather than any major differences between the HRM activities performed. Many firms from advanced economies with imited experience in internationa business underestimate the compexities invoved in successfu internationa operations particuary in emerging economies. There is considerabe evidence to suggest that business faiures in the internationa arena are often inked to poor management of human resources. In addition to compexity, there are four other variabes that moderate (that is, either diminish or accentuate) differences between domestic and internationa HRM. These four additiona moderators are: The cutura environment. The industry (or industries) with which the mutinationa is primariy invoved. The extent of reiance of the mutinationa on its home-country domestic market. The attitudes of senior management. Together with the compexity invoved in operating in different countries, these five variabes constitute a mode that expains the differences between domestic and internationa HRM (see Figure 1.3).

26 CHAPTER 1 INTRODUCTION 9 FIGURE 1.3 A mode of the variabes that moderate differences between domestic and internationa HRM The cutura environment The industry (or industries) within which the mutinationa is primariy invoved Extent of reiance of the mutinationa on its home-country domestic market Domestic and internationa activities of the HRM function Compexity invoved in operating in different countries and empoying different nationa categories of empoyees Attitudes of senior management Source: P. J. Dowing, Competing the Puzze: Issues in the Deveopment of the Fied of Internationa Human Resource Management, (mir) Management Internationa Review, Specia Issue No. 3/99 (1999), p. 31. Reproduced with kind permission from VS Verag Für Soziawissenschaften. THE CULTURAL ENVIRONMENT In Chapter 2, The Cutura Context of IHRM, we cover the concept of cuture in considerabe detai, so our comments in this introductory chapter are necessariy brief. There are many definitions of cuture, but the term is usuay used to describe a shaping process over time. This process generates reative stabiity, refecting a shared knowedge structure that attenuates (i.e. reduces) variabiity in vaues, behaviora norms and patterns of behavior. 18 An important characteristic of cuture is that it is so subte a process that one is not aways conscious of its reationship to vaues, attitudes and behaviors. One usuay has to be confronted with a different cuture in order to fuy appreciate this effect. Anyone traveing abroad, either as a tourist or on business, experiences situations that demonstrate cutura differences in anguage, food, dress, hygiene and attitude to time. Whie the traveer can perceive these differences as nove, even enjoyabe, for peope required to ive and work in a new country, such differences can prove difficut. They may experience cuture shock a phenomenon experienced by peope who move across cutures. The new environment requires many adjustments in a reativey short period of time, chaenging peope s frames of reference to such an extent that their sense of sef, especiay in terms of nationaity, comes into question. Peope, in effect, experience a shock reaction to new cutura experiences that cause psychoogica disorientation because they misunderstand or do not recognize important cues. Cuture shock can ead to negative feeings about the host country and its peope and a onging to return home. 19 Because internationa business invoves the interaction and movement of peope across nationa boundaries, an appreciation of cutura differences and when these differences are important is essentia. Research into these aspects has assisted in furthering our understanding of the cutura environment as an important variabe that moderates differences between domestic and internationa HRM. However, whie cross-cutura and comparative research attempts to expore and expain simiarities and differences, there are probems associated with such research. A major probem is that there is itte agreement on either an exact definition of cuture or on the operationaization of this concept. For many researchers, cuture has become an

27 10 CHAPTER 1 INTRODUCTION omnibus variabe, representing a range of socia, historic, economic and poitica factors that are invoked post hoc to expain simiarity or dissimiarity in the resuts of a study. As Bhagat and McQuaid 20 have noted, Cuture has often served simpy as a synonym for nation without any further conceptua grounding. In effect, nationa differences found in the characteristics of organizations or their members have been interpreted as cutura differences. To reduce these difficuties, cuture needs to be defined a priori rather than post hoc and it shoud not be assumed that nationa differences necessariy represent cutura differences. Another issue in cross-cutura research concerns the emic-etic distinction. 21 Emic refers to cuture-specific aspects of concepts or behavior, and etic refers to cuture-common aspects. These terms have been borrowed from inguistics: a phonemic system documents meaningfu sounds specific to a given anguage, and a phonetic system organizes a sounds that have meaning in any anguage. 22 Both the emic and etic approaches are egitimate research orientations. A major probem may arise, however, if a researcher imposes an etic approach (that is, assumes universaity across cutures) when there is itte or no evidence for doing so. A we-known exampe of an imposed etic approach is the convergence hypothesis that dominated much of US and European management research in the 1950s and 1960s. This approach was based on two key assumptions. 23 The first assumption was that there were principes of sound management that hed regardess of nationa environments. Thus, the existence of oca or nationa practices that deviated from these principes simpy indicated a need to change these oca practices. The second assumption was that the universaity of sound management practices woud ead to societies becoming more and more aike in the future. Given that the USA was the eading industria economy at that time, the point of convergence was the US mode. To use Kuhn s 24 terminoogy, the convergence hypothesis became an estabished paradigm that many researchers found difficut to give up, despite a growing body of evidence supporting a divergence hypothesis. In an important eary paper that reviewed the convergence/divergence debate, Chid 25 made the point that there is evidence for both convergence and divergence. The majority of the convergence studies, however, focus on macroeve variabes (for exampe, organizationa structure and technoogy used by MNEs across cutures) and the majority of the divergence studies focus on microeve variabes (for exampe, the behavior of peope within firms). His concusion was that athough firms in different countries are becoming more aike (an etic or convergence approach), the behavior of individuas within these firms is maintaining its cutura specificity (an emic or divergence approach). As noted above, both emic and etic approaches are egitimate research orientations, but methodoogica difficuties may arise if the distinction between these two approaches is ignored or if unwarranted universaity assumptions are made. 26 The debate on assumptions of universaity is not imited to the iterature in internationa management as this issue has aso become a topic of debate in the fied of internationa reations and strategic studies where internationa management research is cited. 27 For a review of the convergence/divergence question, see Brewster. 28 Cutura awareness and the roe of the internationa HR manager Despite the methodoogica concerns about cross-cutura research, it is now generay recognized that cuturay insensitive attitudes and behaviors stemming from ignorance or from misguided beiefs ( my way is best, or what works at home wi work here ) are not ony inappropriate but can a-too-often contribute to internationa business faiure. Therefore, an awareness of cutura differences is essentia for the HR manager at corporate headquarters as we as in the host ocation. 29 Activities such as hiring, promoting, rewarding and dismissa wi be determined by the ega context and practices of the host country and usuay are based on a vaue system reevant to that country s cuture. A firm may decide to head up a new overseas operation with an expatriate genera manager but appoint as the HR department manager a oca, a person who is famiiar with the host country s HR practices. This particuar poicy approach can assist in avoiding probems but can sti ead to diemmas for senior managers. For exampe, in a number of deveoping countries (Indonesia is one such exampe) oca

28 CHAPTER 1 INTRODUCTION 11 managers are expected (i.e. there is a perceived obigation) to empoy their extended famiy if they are in a position to do so. This may ead to a situation where peope are hired who do not possess the required technica competence. Whie this coud be seen as a successfu exampe of adapting to oca expectations and customs, from a Western perspective this practice woud be seen as nepotism, a negative practice which is not in the best interests of the enterprise because the best peope have not been hired for the job. Coping with cutura differences, and recognizing how and when these differences are reevant, is a constant chaenge for internationa firms. Heping to prepare assignees and their famiies for working and iving in a new cutura environment has become a key activity for HR departments in those MNEs that appreciate (or have been forced, through experience, to appreciate) the impact that the cutura environment can have on staff performance and we-being. INDUSTRY TYPE Porter 30 suggests that the industry (or industries if the firm is a congomerate) in which a MNE is invoved is of considerabe importance because patterns of internationa competition vary widey from one industry to another. At one end of the continuum of internationa competition is the mutidomestic industry, one in which competition in each country is essentiay independent of competition in other countries. Traditiona exampes incude retaiing, distribution and insurance. At the other end of the continuum is the goba industry, one in which a firm s competitive position in one country is significanty infuenced by its position in other countries. Exampes incude commercia aircraft, semiconductors and copiers. The key distinction between a mutidomestic industry and a goba industry is described by Porter as foows: The goba industry is not merey a coection of domestic industries but a series of inked domestic industries in which the rivas compete against each other on a truy wordwide basis... In a mutidomestic industry, then, internationa strategy coapses to a series of domestic strategies. The issues that are uniquey internationa revove around how to do business abroad, how to seect good countries in which to compete (or assess country risk), and mechanisms to achieve the one-time transfer of know-how. These are questions that are reativey we deveoped in the iterature. In a goba industry, however, managing internationa activities ike a portfoio wi undermine the possibiity of achieving competitive advantage. In a goba industry, a firm must in some way integrate its activities on a wordwide basis to capture the inkages among countries. (Page 12) The roe of the HRM function in mutidomestic and goba industries can be anayzed using Porter s vaue-chain mode. 31 In Porter s mode, HRM is seen as one of four support activities for the five primary activities of the firm. Since human resources are invoved in each of the primary and support activities, the HRM function is seen as cutting across the entire vaue chain of a firm. If the firm is in a mutidomestic industry, the roe of the HR department wi most ikey be more domestic in structure and orientation. At times there may be considerabe demand for internationa services from the HRM function (for exampe, when a new pant or office is estabished in a foreign ocation and the need for expatriate empoyees arises), but these activities woud not be pivota indeed, many of these services may be provided via consutants and/or temporary empoyees. The main roe for the HRM function woud be to support the primary activities of the firm in each domestic market to achieve a competitive advantage through either cost/efficiency or product/service differentiation. If the mutinationa is in a goba industry, however, the imperative for coordination described by Porter woud require a HRM function structured to deiver the internationa support required by the primary activities of the MNE. The need to deveop coordination raises compex probems for any mutinationa. As Laurent 32 has noted: In order to buid, maintain, and deveop their corporate identity, mutinationa organizations need to strive for consistency in their ways of managing peope on a wordwide basis. Yet, and in order to be

29 12 CHAPTER 1 INTRODUCTION effective ocay, they aso need to adapt those ways to the specific cutura requirements of different societies. Whie the goba nature of the business may ca for increased consistency, the variety of cutura environments may be caing for differentiation. Laurent proposes that a truy internationa conception of human resource management woud require the foowing steps: 1 An expicit recognition by the parent organization that its own pecuiar ways of managing human resources refect some assumptions and vaues of its home cuture. 2 An expicit recognition by the parent organization that its pecuiar ways are neither universay better nor worse than others but are different and ikey to exhibit strengths and weaknesses, particuary abroad. 3 An expicit recognition by the parent organization that its foreign subsidiaries may have other preferred ways of managing peope that are neither intrinsicay better nor worse, but coud possiby be more effective ocay. 4 A wiingness from headquarters to not ony acknowedge cutura differences, but aso to take active steps in order to make them discussabe and therefore usabe. 5 The buiding of a genuine beief by a parties invoved that more creative and effective ways of managing peope coud be deveoped as a resut of cross-cutura earning. In offering this proposa, Laurent acknowedges that these are difficut steps that few firms have taken: They have more to do with states of mind and mindsets than with behavior. As such, these processes can ony be faciitated and this may represent a primary mission for executives in charge of internationa human resource management. (p. 100) Impicit in Laurent s anaysis is the idea that by taking the steps he describes, a MNE attempting to impement a goba strategy via coordination of activities woud be better abe to work through the difficuties and compex trade-offs inherent in such a strategy. Increasingy, mutinationas are taking a more strategic approach to the roe of HRM and are using staff transfers and training programs to assist in coordination of activities. We discuss these issues in more detai in subsequent chapters of the book. EXTENT OF RELIANCE OF THE MULTINATIONAL ON ITS HOME-COUNTRY DOMESTIC MARKET A pervasive but often ignored factor that infuences the behavior of MNEs and resutant HR practices is the extent of reiance of the mutinationa on its home-country domestic market. When for exampe, we ook through ists of very arge firms (such as those that appear in Fortune and other business magazines), it is frequenty assumed that a goba market perspective woud be dominant in the firm s cuture and thinking. However, size is not the ony key variabe when ooking at a mutinationa the extent of reiance of the mutinationa on its home-country domestic market is aso very important. In fact, for many firms, a sma home market is one of the key drivers for seeking new internationa markets. The United Nations Conference on Trade and Deveopment (UNCTAD) in its annua survey of foreign direct investment cacuates what it refers to as an index of transnationaity, which is an average of ratios of foreign assets to tota assets; foreign saes to tota saes; and foreign empoyment to tota empoyment. The top ten MNEs ranked by transnationaity are shown in Tabe 1.1. Based on

30 CHAPTER 1 INTRODUCTION 13 TABLE 1.1 The word s top 10 non-financia TNCs, ranked by Transnationaity Index (TNI) a (Miions of doars and number of empoyees) Ranking by: Assets Saes Empoyment Foreign assets TNI b Corporation Home economy Industry c Foreign Tota Foreign Tota Foreign d Tota TNI b (Per cent) 37 1 Xstrata PLC United Kingdom Mining & quarrying ABB Ltd. Switzerand Engineerig services Nokia Finand Eectrica & eectronic equipment 66 4 Pernod Ricard SA France Food, beverages and tobacco 67 5 WPP Group Pc United Kingdom 3 6 Vodafone Group Pc United Kingdom Business services Teecommunications Linde AG Germany Chemicas Anheuser-Busch Inbev SA 46 9 Ango American United Kingdom Netherands Food, beverages and tobacco ArceorMitta Luxembourg Meta and meta products Mining & quarrying a. A data are based on the companies annua reports uness otherwise stated. b. TNI, the Transnationity Index, is cacuated as the average of the foowing three ratios: foreign assets to tota assets, foreign saes to tota saes and foreign empoyment to tota empoyment. c. Industry cassification for companies foows the United States Standard Industria Cassification as used by the United States Securities and Exchange Commission (SEC). d. In a number of cases foreign empoyment data were cacuated by appying the share of foreign empoyment in tota empoyment of the previous year to tota empoyment of Source: The data in this tabe is based on the Word Investment Report, 2009; Transnationa Corporations, Agricutura Production and Deveopment, United Nations Conference on Trade and Deveopment (UNCTAD), Reproduced with permission.

31 14 CHAPTER 1 INTRODUCTION this index of transnationaity, the most foreign-oriented mutinationa is Xstrata (United Kingdom), with an average of 93.2 per cent of the three ratios (foreign assets to tota assets, foreign saes to tota saes and foreign empoyment to tota empoyment) ocated outside of the UK. A of the top ten firms based on transnationaity are European. The ony US firms in the first 30 mutinationas ranked by the transnationa index are Liberty Goba (Teecommunications) ranked 13, Schumberger (Consumer services) ranked 25 and Coca-Coa (Food & beverages) ranked 29. The reason for this ower ranking of US firms in terms of the transnationa index is as obvious as it is important the size of the domestic market for US firms. A very arge domestic market (for US firms this is in effect the North American Free Trade Agreement [NAFTA] market) infuences a aspects of how a mutinationa organizes its activities. For exampe, it wi be more ikey to use an internationa division as the way it organizes its internationa activities (see Chapter 3) and even if it uses a goba product structure, the importance of the domestic market may be pervasive. A arge domestic market wi aso infuence the attitudes of senior managers towards their internationa activities and wi generate a arge number of managers with an experience base of predominanty or even excusivey domestic market experience. Thus, mutinationas from sma advanced economies ike Switzerand (popuation 7.7 miion), Ireand (6 miion), Austraia (22 miion) and The Netherands (17 miion) and medium-size advanced economies ike Canada (33 miion), the United Kingdom (61 miion) and France (65 miion) are in a quite different position compared to mutinationas based in the USA which is the argest advanced economy in the word with a popuation of 306 miion. A simiar point has been made by Van Den Buke and his coeagues in their study of the roe of sma nations in the goba economy. 33 As aready noted, US mutinationas aso enjoy the advantage of a dominant position in the very arge NAFTA market (the USA, Canada and Mexico). It is worth keeping in mind that the frequent criticism of US companies, US senior managers and US business schoos as inward-ooking and ethnocentric may perhaps be true to some extent, but it is equay true that a focus on domestic US saes and revenue is aso an entirey rationa response to the overwheming importance of the North American market for many of these businesses. The demands of a arge domestic market present a chaenge to the gobaization efforts of many US firms. As Cavusgi 34 has noted when commenting on internationaizing business education, the task of internationaizing business education in the USA is a arge one. So too is the task facing many US firms in terms of deveoping goba managers an issue which we sha return to in Chapter 7. ATTITUDES OF SENIOR MANAGEMENT TO INTERNATIONAL OPERATIONS The point made by Laurent earier in this chapter that some of the changes required to truy internationaize the HR function have more to do with states of mind and mindsets than with behaviors iustrates the importance of a fina variabe that may moderate differences between internationa and domestic HRM: the attitudes of senior management to internationa operations. It is ikey that if senior management does not have a strong internationa orientation, the importance of internationa operations may be underemphasized (or possiby even ignored) in terms of corporate goas and objectives. In such situations, managers may tend to focus on domestic issues and minimize differences between internationa and domestic environments. Not surprisingy, senior managers with itte internationa experience (and successfu careers buit on domestic experience) may assume that there is a great dea of transferabiity between domestic and internationa HRM practices. This faiure to recognize differences in managing human resources in foreign environments regardess of whether it is because of ethnocentrism, inadequate information, or a ack of internationa perspective frequenty resuts in major difficuties in internationa operations. The chaenge for the corporate HR manager who wishes to contribute to the internationaization of their firm is to work with top management in fostering

32 CHAPTER 1 INTRODUCTION 15 the desired goba mindset. This goa requires, of course, a HR manager who is abe to think gobay and to formuate and impement HR poicies that faciitate the deveopment of gobay oriented staff. 35 APPLYING A STRATEGIC VIEW OF IHRM Our discussion up to this point has suggested that a broader or more strategic view of IHRM is required to better expain the compexity and chaenges of managing IHRM issues. An exampe of a theoretica framework that has been derived from a strategic approach using a mutipe methodoogica approach is that of De Cieri and Dowing. 36 Their framework is depicted in Figure 1.4 and assumes that MNEs operate in the context of wordwide conditions, incuding the infuences of industry (goba or mutidomestic) and regiona, nationa, and oca markets that incude geopoitica, ega, socio-cutura, and economic characteristics. In strategic management practice, the acronym of PEST, which represents the Poitica, Economic, Socioogica and Technoogica acronym and anaytica too, has often been used to describe the macro-environmenta factors that may infuence MNEs. Recent additions to this set of factors incude Lega and Environmenta/ecoogica eements (PESTLE). Athough this anaytica too is popuar in consuting and management practice, it appears to have received itte academic research attention or usage. 37 De Cieri and Dowing suggest that exporation and adoption of the PESTLE acronym in academic work woud hep to bring research and practitioner approaches coser together. They propose that externa factors have direct infuence on both interna/organization factors and SHRM strategy and practices and that externa factors have a direct infuence on MNE performance. A arge body of research has expored these reationships; of particuar note is the Cranet study of European HRM practices in different nationa contexts. 38 There are streams of research within the internationa business fied investigating the impications of each of the externa factors for MNEs; for exampe, there is an extensive body of research that has expored the impications of nationa cuture. 39 Further, research in countries undergoing significant economic transformation, such as China, indicates that the human resource function has been substantiay infuenced by the changing externa environment. 40 FIGURE 1.4 A Framework of Strategic HRM in Mutinationa Enterprises Externa Factors PESTLE Organizationa inks with other MNEs and with nationa governments Asymmetric events Environmenta dynamics Organizationa Factors MNE baance of goba integration and oca responsiveness MNE structure Firm size and maturity MNE Strategy Corporate governance Headquarters internationa orientation MNE cuture HR Function Goba corporate HR roe HR practices Crisis management and coordination MNE Performance Financia performance Socia performance Enterprise resiience Source: De Cieri, H. & Dowing, P. J Strategic human resource management in mutinationa enterprises: Deveopments and directions, In G. Stah, I. Björkman and S. Morris (eds) Handbook of Research in Internationa Human Resource Management, 2nd Ed. (Chetenham, UK: Edward Egar. Reproduced with permission from Heen De Cieri and Peter J. Dowing.

33 16 CHAPTER 1 INTRODUCTION Other externa factors incude organizationa inks with other MNEs and nationa governments, asymmetric events and environmenta dynamics. Organizationa networks and aiances may be compex reationship webs based upon persona reationships and may incude parent country managers and empoyees, host country managers and empoyees and host country governments. Centra to network management is an emphasis on human resources that recognizes that knowedge, power, and perceived trustworthiness are often person-specific rather than organization-specific. In the 21 st century, the context for internationa business aso refects heightened concerns about security, risk and voatiity in goba markets. In particuar, terrorism has been identified by severa IB schoars as an important concern. 41 In reativey common usage since the unexpected terrorist attacks in New York in September 2001, asymmetric events have been described by Gray 42 as threats that our poitica, strategic, and miitary cutures regard as unusua. In terms of trying to define asymmetric events, Gray notes that they tend to be: Unmatched in our arsena of capabiities and pans. Such events may or may not appear truy dangerous, but they wi certainy ook different from war as we have known it. Highy everaged against our particuar assets miitary and, probaby more often, civi. Designed not ony to secure everage against our assets, but aso intended to work around, offset, and negate what in other contexts are our strengths. Difficut to respond to in a discriminate and proportionate manner. (p. 5 6) Thus, asymmetric events are not ony difficut to dea with when they occur, they are difficut to pan for, recognize and respond to with specific panning processes and training. The infuence of externa factors on MNEs invoves compex environmenta dynamics. As Andreadis 43 has noted, MNEs operate in a dynamic environment and that environment shoud be taken into consideration when evauating organizationa effectiveness. Organizationa (or interna ) factors have been a major focus of internationa business and strategic HRM research because these factors are suggested to hod impications not ony for areas such as HRM, but aso for overa MNE performance. The first organizationa factor isted in Figure 1.4 is MNE baance of goba integration and oca responsiveness. The act of baancing goba integration and oca responsiveness refers to the extent to which MNEs can maximize oca responsiveness and aso integrate units into a cohesive, goba organization. To achieve this baance is no easy task because as Morris et a. 44 have noted, repication of HR practices across subsidiaries may be difficut due to the infuences of externa factors in the oca context. With regard to MNE structure, the organizationa structure iterature has shown the importance not ony of the structure of internationa operations, 45 but aso of mechanisms of co-ordination and mode of entry into foreign markets, for HRM in MNEs. 46 With regard to Firm size and maturity, for both the MNE overa and for each subsidiary, the size and maturity of the organization (or unit) may infuence decisions with respect to HRM. For exampe, staffing decisions and demand for HR practices such as training wi be infuenced by the ski and experience mix within the firm and/or subsidiary (Lawer et a., 2010). 47 In terms of MNE strategy, as has been we-documented, organizationa strategy in the MNE has substantia impications for HRM in MNEs. 48 With the Organizationa Factor Corporate governance, issues reated to corporate governance and incorporation of ethica principes and vaues into internationa business practice have become increasingy important for MNE managers, particuary in ight of cases of corporate wrongdoing. 49 HR managers may be required to pay important roes in corporate governance, such as the design, impementation and maintenance of corporate codes of conduct. Foowing on from the pioneering work of Permutter, (see Chapter 5) the organizationa factor Headquarters internationa orientation recognizes that internationa orientation of the MNE s headquarters wi invove aspects such as the extent and diversity of experience in

34 CHAPTER 1 INTRODUCTION 17 managing internationa operations. 50 These eements are we-estabished as important factors for HRM in MNEs, as is the factor Organizationa cuture which is defined by Kidger as the sense of common identify and purpose across the whoe organization, 51 (page 81) and is the fina organizationa factor incuded in the framework. For MNEs seeking a high eve of goba integration, this factor may faciitate the deveopment of a goba mindset and enhance firm performance. 52 Overa, the mode offered by De Cieri and Dowing aims to assist in the crossfertiization of ideas to further deveop theory and empirica research in strategic HRM in mutinationa firms. THE CHANGING CONTEXT OF IHRM As Figures 1.3 and 1.4 show, internationa firms compete in an increasingy compex environment where the eve of chaenge of doing business can be highy variabe. Internationaizing firms rey on having the right peope to manage and operate their businesses and good IHRM practices that are appropriate to the context in which they occur. This combination of appropriate peope and HR practices has been a constant critica success factor in internationa business ventures. For exampe, the foowing quotation is taken from a detaied case study of a arge US mutinationa, where the authors, Desatnick and Bennett 53 concuded: The primary causes of faiure in mutinationa ventures stem from a ack of understanding of the essentia differences in managing human resources, at a eves, in foreign environments. Certain management phiosophies and techniques have proved successfu in the domestic environment: their appication in a foreign environment too often eads to frustration, faiure and underachievement. These human considerations are as important as the financia and marketing criteria upon which so many decisions to undertake mutinationa ventures depend. This study was reported in 1978 but many internationa managers today woud concur with the sentiments expressed in this quote. In this book we attempt to demonstrate some ways in which an appreciation of the internationa dimensions of HRM can assist in this process. SUMMARY The purpose of this chapter has been to provide an overview of the emerging fied of internationa HRM. We did this by: Defining key terms in IHRM and considering severa definitions of IHRM. Introducing the historicay significant issue of expatriate assignment management and reviewing the evoution of these assignments to refect the increasing diversity with regard to what constitutes internationa work and the type and ength of internationa assignments. Outining the differences between domestic and internationa human resource management by ooking at six factors which differentiate internationa and domestic HR (more HR activities; the need for a broader perspective; more invovement in empoyees persona ives; changes in emphasis as the workforce mix of expatriates and ocas varies; risk exposure; and more externa infuences) and detaiing a mode which summarizes the variabes that moderate these differences. Presenting the compexity of IHRM, the increasing potentia for chaenges to existing IHRM practices and current modes, and an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and faster and more detaied diffusion of these practices across organizationa units and firms.

35 18 CHAPTER 1 INTRODUCTION We concuded that the compexity invoved in operating in different countries and empoying different nationa categories of empoyees is a key variabe differentiating domestic and internationa HRM, rather than any major differences between the HR activities performed. We aso discussed four other variabes that moderate differences between domestic and internationa HRM: the cutura environment; the industry (or industries) with which the mutinationa is primariy invoved; the extent of reiance of the mutinationa on its home-country domestic market; and the attitudes of senior management. These five variabes are shown in Figure 1.3. Finay, we discussed a mode of strategic HRM in mutinationa enterprises (Figure 1.4), which draws together a number of externa factors and organizationa factors that impact on IHRM strategy and practice and in turn on MNE goas. In our discussion of the internationa dimensions of HRM in this book, we sha be drawing on the HRM iterature. Subsequent chapters wi examine the cutura and organizationa contexts of IHRM; IHRM in cross-border mergers and acquisitions, internationa aiances and SMEs; staffing, recruitment and seection; internationa performance management; training, deveopment and careers; internationa compensation; internationa industria reations and the goba institutiona context; and trends and future chaenges in IHRM. We wi provide comparative data on HRM practices in different countries, but our major emphasis is on the internationa dimensions of HRM confronting MNEs, whether arge or sma, when facing the chaenge of managing peope gobay.

36 CHAPTER 1 INTRODUCTION 19 DISCUSSION QUESTIONS 1 What are the main simiarities and differences between domestic and internationa HRM? 2 Define these terms: internationa HRM, PCN, HCN and TCN. 3 Discuss two HR activities in which a mutinationa firm must engage that woud not be required in a domestic environment. 4 Why is a greater degree of invovement in empoyees persona ives inevitabe in many internationa HRM activities? 5 Discuss at east two of the variabes that moderate differences between domestic and internationa HR practices. FURTHER READING Gerhart, B. and Fang, M. (2005). Nationa Cuture and Human Resource Management: Assumptions and Evidence, Internationa Journa of Human Resource Management, 16(6): Internationa Studies of Management & Organization Specia Issue (2013): The Roe and Importance of Internationa Business in Sma Popuation Advanced Economies. (Guest Editors) Peter J. Dowing, Eizabeth L. Rose and Noee Donney. Leung, K., Bhagat, R., Buchan, N., Erez, M. and Gibson, C. (2005). Cuture and Internationa Business: Recent Advances and their Impications for Future Research, Journa of Internationa Business Studies, 36(4): Lundby, K. and Joton, J. (eds), Going Goba: Practica Appications and Recommendations for HR and OD Professionas in the Goba Workspace (San Francisco, USA: Jossey-Bass, 2010). Stah, G., Björkman, I. and Morris, S. (eds), Handbook of Research in Internationa Human Resource Management, 2nd ed. (Chetenham, UK: Edward Egar, 2012). Wright, P., Sne, S. and Dyer, L. (Guest Editors) (2005). Internationa Journa of Human Resource Management, 16(6). Specia issue on new modes of strategic HRM in a goba context. NOTES AND REFERENCES 1. H. De Cieri and P. Dowing, Strategic Human Resource Management in Mutinationa Enterprises: Theoretica and Empirica Deveopments, in R. Wright et a. (eds) Research and Theory in SHRM: An agenda for the 21st century (Greenwich, CT: JAI Press, 1999). 2. For an exampe of this approach, see N. Ader and A. Gundersen, Internationa Dimensions of Organizationa Behavior, 5th ed. (Cincinnati, OH: South-Western, 2008). 3. See for exampe, C. Brewster, Towards a European mode of human resource management, Journa of Internationa Business Studies, First Quarter (1995), pp See P. Dowing and R. Schuer, Internationa Dimensions of Human Resource Management, 1st ed. (Boston, MA: PWS- Kent, 1990); P. Dowing, R. Schuer and D. Wech, Internationa Dimensions of Human Resource Management, 2nd ed. (Bemont, CA: Wadsworth, 1994); P. Dowing, D. Wech and R. Schuer, Internationa Human Resource Management: Managing Peope in a Mutinationa Context, 3rd ed. (Cincinnati, OH: South-Western, 1998); P. Dowing and D. Wech, Internationa Human Resource Management: Managing Peope in a Mutinationa Context, 4th ed. (London, Thomson, UK: 2004); P. Dowing, M. Festing and

37 20 CHAPTER 1 INTRODUCTION A. Enge, Internationa Human Resource Management: Managing Peope in a Mutinationa Context, 5th ed. (London, Thomson, UK: 2008). 5. P. Morgan, Internationa Human Resource Management: Fact or Fiction, Personne Administrator, Vo. 31, No. 9 (1986), pp See H. De Cieri, S. McGaughey and P. Dowing, Reocation in M. Warner (ed.) Internationa Encycopedia of Business and Management, Vo. 5 (London: Routedge, 1996), pp , for further discussion of this point. 7. For an exampe of the way in which the term is being used, see M. Harvey, M. Novicevic and C. Speier, Strategic Goba Human Resource Management: The Roe of Inpatriate Managers, Human Resource Management Review, Vo. 10, No. 2 (2000), pp G. Stah, I. Björkman and S. Morris (eds), Handbook of Research in Internationa Human Resource Management, 2nd ed. (Chetenham, UK: Edward Egar, 2012), p P. Dowing, Internationa and Domestic Personne/Human Resource Management: Simiarities and Differences, in R. Schuer, S. Youngbood and V. Huber (eds), Readings in Personne and Human Resource Management, 3rd edn (St. Pau, MN: West Pubishing, 1988). 10. See D. Pinney, Structuring an Expatriate Tax Reimbursement Program, Personne Administrator, Vo. 27, No. 7 (1982), pp ; and M. Gajek and M. M. Sabo, The Bottom Line: What HR Managers Need to Know About the New Expatriate Reguations, Personne Administrator, Vo. 31, No. 2 (1986), pp Needess to say there are a arge number of internationa consuting firms set up for assisting in this fast changing area. CCH s ongstanding pubication, the Master Tax Guide for 2012 contains a chapter dedicated to taxation of foreign activities/ taxpayers. There is even a speciaized bimonthy journa, Internationa Tax Journa, pubished by CCH. Athough US in focus, it does present the interaction of internationa tax reguations and US tax aws. 11. For up-to-date information on the FCPA see the US Department of Justice website: fraud/fcpa/ 12. P. Morgan, Internationa Human Resource Management: Fact or Fiction. We wi dea with the compexities of the reationship between anguage fuency, transacting business and cross cutura understanding in Chapter 2 and throughout the book. 13. A cassic textbook such as R. D. Robinson, Internationa Business Management: A Guide to Decision Making, 2nd ed. (Hinsdae, IL: Dryden, 1978) provides a good coverage on this point of traditiona preferentia treatment for US and European expatriates. 14. Athough ess common in the USA, the use of private boarding schoos is common in countries (particuary European countries and former British coonies such as Austraia) which have a coonia tradition where both coonia administrators and business peope woud often undertake ong assignments overseas and expect to eave their chidren at a private boarding schoo in their home country. This is especiay true of Britain which aso has a strong cutura tradition of the midde and upper casses sending their chidren to private boarding schoos, even if the parents are working in Britain. A curious tradition in Britain is to describe these schoos as pubic schoos, even though amost a are private institutions that charge fees often very substantia fees. 15. See Terrorism, Chapter 4 in T. Gadwin and I. Water, Mutinationas Under Fire: essons in the Management of Confict (New York: John Wiey, 1980); M. Czinkota, G. Knight, P. Liesch and J. Steen Terrorism and Internationa Business: A Research Agenda, Journa of Internationa Business Studies, Vo. 41, No. 5 (2010), pp For the atest information on epidemic and pandemic crises see the Word Heath Organization website at: csr/outbreaknetwork/en/ 17. G. Lee and M. Warner, Epidemics, Labor Markets and Unempoyment: The Impact of SARS on Human Resource Management in the Hong Kong Service Sector, Internationa Journa of Human Resource Management, Vo. 16, No. 5 (2005), pp M. Erez and P. C. Earey, Cuture, Sef-Identity and Work (Oxford: Oxford University Press, 1993). 19. J. E. Harris and R. T. Moran, Managing Cutura Differences (Houston, TX: Guf, 1979). 20. R. S. Bhagat and S. J. McQuaid, Roe of Subjective Cuture in Organizations: A Review and Directions for Future Research, Journa of Appied Psychoogy, Vo. 67 (1982), pp See J. Berry, Introduction to Methodoogy, in H. Triandis and J. Berry (eds), Handbook of Cross-Cutura Psychoogy, Vo. 2: Methodoogy (Boston, MA: Ayn and Bacon, 1980); H. De Cieri and P. Dowing, Cross-cutura Issues in Organizationa behavior, in C. Cooper and D. Rousseau (eds), Trends in Organizationa behavior, Vo. 2 (Chichester: John Wiey & Sons, 1995), pp ; and M. Teagarden and M. A. Von Ginow, Human Resource Management in Cross-cutura Contexts: Emic Practices Versus Etic Phiosophies, Management Internationa Review, 37 (1 Specia Issue) (1997), pp See H. Triandis and R. Brisin, Cross-Cutura Psychoogy, American Psychoogist, Vo. 39 (1984), pp See G. Hofstede, The Cutura Reativity of Organizationa Practices and Theories, Journa of Internationa Business Studies, Vo. 14, No. 2 (1983), pp T. Kuhn, The Structure of Scientific Revoution, 2nd edn (Chicago, IL: University of Chicago Press, 1962). 25. J. Chid, Cuture, Contingency and Capitaism in the Cross- Nationa Study of Organizations, in L. Cummings and B. Staw (eds), Research in Organizationa behavior, Vo. 3 (Greenwich, CT: JAI Pubishers, 1981). 26. See D. Ricks, Bunders in Internationa Business (Cambridge, MA: Backwe, 1993) for a comprehensive coection of mistakes made by MNEs that paid insufficient attention to their cutura environment in their internationa

38 CHAPTER 1 INTRODUCTION 21 business operations. For further iterature on this topic see the foowing: M. Tayeb, Organizations and Nationa Cuture: Methodoogy Considered, Organization Studies, 15, No. 3 (1994), pp ; J. Deery and D. Doty, Modes of Theorizing in Strategic Human Resource Management: Tests of Universaistic, Contingency, and Configurationa Performance Predictions, Academy of Management Journa, Vo. 39 (1996), pp ; and P. Sparrow (ed.), Handbook of Internationa Human Resource Management (Chichester, UK: John Wiey & Sons, 2009). 27. S. Huntington, The West: Unique, Not Universa, Foreign Affairs, November/December (1996), pp C. Brewster, Comparing HRM Poicies and Practices Across Geographica Borders, in G. Stah and I. Björkman (eds), Handbook of Research in Internationa Human Resource Management (Chetenham, UK: Edward Egar, 2006), pp R. Tung, Managing Cross-nationa and Intra-nationa Diversity, Human Resource Management, Vo. 32, No. 4 (1993), pp M. Porter, Changing Patterns of Internationa Competition, Caifornia Management Review, Vo. 28, No. 2 (1986), pp M. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: The Free Press, 1985). 32. A. Laurent, The Cross-Cutura Puzze of Internationa Human Resource Management, Human Resource Management, Vo. 25 (1986), pp D. Van Den Buke, A. Verbeke and W. Yuan (eds) Handbook on Sma Nations in the Goba Economy: The Contribution of Mutinationa Enterprises to Nationa Economic Success (Chetenham, UK: Edward Egar, 2009). 34. S. Tamer Cavusgi, Internationaizing Business Education: Meeting the Chaenge (East Lansing, MI: Michigan State University Press, 1993). 35. See C. Bartett and P. Beamish, Transnationa Management: Text, Cases & Readings in Cross-border Management (Boston, MA: McGraw-Hi/Irwin, 2010). 36. H. De Cieri, and P. Dowing, Strategic Human Resource Management in Mutinationa Enterprises: Deveopments and Directions, In G. Stah, I. Björkman and S. Morris (eds) Handbook of Research in Internationa Human Resource Management, 2nd ed. (Chetenham, UK: Edward Egar, 2012). 37. T. Hughes, N. O Regan and D. Wornham The Credibiity Issue: Cosing the Academic/practitioner Gap, Strategic Change, Vo. 17, Nos. 7-8 (2008), pp M. Brookes, R. Croucher, M. Fenton-O Creevy and P. Gooderham. Measuring Competing Expanations of Human Resource Management Practices Through the Cranet Survey, Human Resource Management Review, Vo. 21, No.1 (2011), pp R. Tung and A. Verbeke, Beyond Hofstede and Gobe: Improving the Quaity of Cross-cutura Research, Journa of Internationa Business Studies, Vo. 41, No. 8 (2010), pp See C. Zhu and P. Dowing. The Impact of the Economic System Upon Human Resource Management Practices in China, Human Resource Panning, Vo. 17, No. 4 (1994), pp. 1 21; and C. Zhu, B. Thomson and H. De Cieri. A Retrospective and Prospective Anaysis of HRM Research in China: Impications and Directions for Future Study, Human Resource Management, Vo. 47, No. 1 (2008), pp W. Henisz, E. Mansfied and M. A. Von Ginow, Confict, Security, and Poitica Risk: Internationa Business in Chaenging Times, Journa of Internationa Business Studies, Vo. 41 (2010), pp C. Gray. Thinking Asymmetricay in Times of Terror, Parameters, Vo. 32, No.1 (2002), pp N. Andreadis, Learning and Organizationa Effectiveness: A Systems Perspective, Performance Improvement, Vo. 48, No. 1 (2009), pp S. Morris, P. Wright, J. Trevor, P. Sties, G. Stah, S. Sne, J. Paauwe and E. Farndae, Goba Chaenges to Repicating HR: The Roe of Peope, Processes, and Systems, Human Resource Management, Vo. 48 (2009), pp M. Czinkota and I. Ronkainen, Trends and Indications in Internationa Business. Topics for Future Research, Management Internationa Review, Vo. 49 (2008), pp J. Lawer, S. Chen, P. Wu, J. Bae and B. Bai, Highperformance Work Systems in Foreign Subsidiaries of American Mutinationas: An Institutiona Mode, Journa of Internationa Business Studies Vo 42, No. 2 (2011), pp J. Lawer et a., 2011, op. cit. 48. T. Crook, D. Ketchen Jr., J. Combs and S. Todd. Strategic Resources and Performance: A Meta-anaysis, Strategic Management Journa, Vo. 29 (2010), pp Czinkota and Ronkainen, op. cit. 50. H. Permutter, The Tortuous Evoution of the Muti-nationa Corporation, Coumbia Journa of Word Business, Vo. 4, No. 1 (1969), pp. 9 18; A-W. Harzing, An Empirica Anaysis and Extension of the Bartett and Ghosha Typoogy of Mutinationa Companies, Journa of Internationa Business Studies, Vo. 31, No. 1 (2000), pp P. Kidger, Management Structure in Mutinationa Enterprises, Empoyee Reations, Vo. 24, Nos. 1/2 (2002), pp Ernst & Young, Redrawing the Map. Gobaization and the Changing Word of Business (EYGM Limited, 2010); O. Levy, S. Beecher, S. Tayor and N. Boyacigier, What We Tak About When We Tak About Goba Mindset : Manageria Cognition in Mutinationa Corporations, Journa of Internationa Business Studies, Vo. 38 (2007), pp R. Desatnick and M. Bennett, Human Resource Management in the Mutinationa Company (New York: Nichos, 1978).

39 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM Chapter Objectives Chapter 1 observed that internationa HRM differs from nationay oriented HRM predominanty in the compexities that resut from empoyees of various nationa origins working in different countries. Peope who work in internationay operating companies and customers, suppiers or representatives of government institutions in the host country often face very different cutura and institutiona environments due to various sociaization experiences. In this chapter we systematicay review the environment of internationa HRM decisions so that the compexity of these decisions can be better understood and adequate soutions deveoped. The foowing themes are discussed: Definitions of cuture Cutura concepts Resuts of intercutura management studies such as Hofstede, the GLOBE study and others Refections on cross-cutura management research Discussion of the deveopment of cutures These concepts are highy reevant to deveoping a more comprehensive understanding and expanation of the compexity of internationa HRM. 22

40 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 23 INTRODUCTION Consideration of the foreign environment is seen in the iterature as a key probem of internationa management. 1 Düfer and Jöstingmeier point out the specia situation of professiona empoyees and managers working abroad, because these individuas are exposed to infuences that greaty differ from their country-of-origin environment. 2 An environmenta anaysis is particuary usefu for identifying human resources issues associated with internationa operations. In Europe, the discipine that primariy deas with the comparison of various cutures is caed intercutura comparative research and in the Engish-speaking word it is referred to as crosscutura management. A centra roe in this discussion is occupied by cross-cutura management studies by Hofstede 3 and the Goba Leadership and Organizationa behavior (GLOBE) study. 4 An overview of other studies wi aso be provided. Introduction to cross-cutura management research The first contributions to cross-cutura management research were made in the eary 1960s. Engagement in this subject area was prompted by the increasing internationa compexity of the goba economy and the resuting probems experienced by managers when deaing with empoyees and with customers and suppiers in various host countries. The resuting unforeseen conficts and ow performance of many foreign business enterprises began to create doubts about the assumption that management research and knowedge from the Engish-speaking word was readiy transferrabe to other countries and cutures. 5 This probem was initiay the focus of research in US universities 6 and is now studied at business schoos and universities around the word, which has ed to the we-estabished broad research fied of Internationa Business. The goas of cross-cutura management studies incude: Description of organizationa behavior within countries and cutures Comparison of organizationa behavior between countries and cutures Expanation and improvement of interaction between empoyees, customers, suppiers or business partners from different countries and cutures. 7 The common feature of cross-cutura management research is the basic assumption that there are differences between management practices in various countries and that the respective environment is of particuar significance in expaining these differences. This perspective rejects the approach of researchers who assume universa transferabiity of management knowedge i.e. a universaistic, cuture-free approach to management. 8 Cross-cutura studies have often been the focus of substantia debate and criticism. The rather atheoretica foundations of some cross-cutura research and methodoogica weaknesses in many empirica studies are probematic. These probems have frequenty caused contradictory research resuts and ed to vigorous debate in this fied. Criticisms have been voiced on the nature and use of the construct of cuture, a coective term or residua variabe that is undefined or inadequatey defined and/or operationaized at the start of a research study, as an independent variabe for expaining the variation in management practices between different countries. Despite numerous critica arguments, the knowedge gained from intercutura comparative research is a first step towards understanding the compexity of internationa management and HRM. The next section covers the possibiities of conceptuaizing the concept of cuture and its content. Definition of cuture Numerous definitions and concepts of cuture are discussed in reevant iterature. The term originated from the Latin word coere, which was used in the context of tiing the soi and

41 24 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM simpy signified pant cutivation. The connotation of cutivation is sti obvious in the cooquia use of the word today, which is often appied in the context of a cutivated ife stye. 9 To date, there is no predominant consensus on the exact meaning of cuture. 10 As eary as the 1950s, Kuckhohn and Kroeber had aready put together 164 definitions of cuture from the Engishspeaking cutures and condensed them into a comprehensive, we-estabished and accepted definition of cuture: Cuture consists in patterned ways of thinking, feeing, and reacting, acquired and transmitted mainy by symbos, constituting the distinctive achievements of human groups... incuding their embodiments in artefacts; the essentia core of cuture consists of Traditiona [...] ideas and especiay their attached vaues This mode was abeed by the we-known Dutch researcher Geert Hofstede as menta programming or Software of the Mind, the tite of his 1991 book. 12 Using the anaogy of the way in which computers are programmed, this book wi ca such patterns of thinking, feeing, and acting menta programs, or, as the subtite goes: software of the mind. This does not mean, of course, that peope are programmed the way computers are. A person s behavior is ony partiay determined by her or his menta programs: (s)he has a basic abiity to deviate from them, and to react in ways which are new, creative, destructive, or unexpected. The software of the mind...ony indicates what reactions are ikey and understandabe, given one s past. 13 Hansen criticizes many contributions on cuture with respect to the ack of a theory and thus expanatory power. 14 He describes cutures as the customs of a community that are practiced by a majority. 15 Standardization in the sense of consistent coective behavior can come up in specific situations. Among the many contributions on the definition of cuture, four basic eements of cuture can be derived from Hansen. He distinguishes between: Standardization of communication Standardization of thought Standardization of feeing Standardization of behavior. These dimensions appear in simiar form in Kuckhohn. 16 Whie Hofstede and psychoogists such as Triandis 17 anayticay gather typica characteristics of cutures and transform them into respective instruments for handing these phenomena, 18 Hansen has argued for inductive, dense description of cutures 19 as the ony way that the compexity of cutures can be captured reasonaby and as background for appropriate actions. This brief discussion indicates that the basic understanding of cuture affects the handing of the cuture phenomenon and its subsequent operationaization. 20 The next section presents a we-known and recognized concept of cuture. Schein s concept of cuture Schein s 21 concept of cuture was deveoped in the course of organizationa and not nationa cuture research. However, it can be appied to the anaysis of nationa cutures, given awareness that these two constructs are not exact equivaents. The important contribution of this concept is that Schein considers various eves of cuture: artefacts or creations, vaues and underying assumptions. Artefacts are described as visibe organization structures and processes. They can be anayzed using conventiona methods of empirica socia research, but their meaning is often hard to decipher. The midde eve comprises vaues of a company or society. They are found in the intermediate eve of consciousness; in other words, they are party

42 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 25 conscious and party unconscious. The third eve is described as underying assumptions, which are often presumed to be sef-evident. They incude convictions, perceptions, thoughts and feeings, which are usuay invisibe and unconscious. Nevertheess, they are the sources of vaues and the actions based on them. Schein emphasizes that reationships that ead from artefacts through vaues to underying assumptions are much weaker than those eading in the contrary direction, because the infuence of underying assumptions on vaues and artefacts is stronger than vice versa. The basic assumptions of Schein s ideas originate in the work of Kuckhohn and Strodtbeck from According to the authors, assumptions are organized independenty of individua cases in typica patterns in each cuture based on the human capacity to survive. Some of the underying assumptions wi be expained in more detai beow, modeed according to expanations by Schein. 23 The foowing questions are impicit in the six underying assumptions: 24 The nature of reaity and the nature of truth: What is rea and what is not? Do members of a cuture assume more of an experimenta position, where decisions about true and fase depend on experiment, or do they foow more traditiona convictions? The time dimension: How is the time dimension defined and cacuated? How important is time? Do members of a cuture ive more in reation to the past or to the future? Are they oriented more to the ong-term or the short-term? The effect of spatia proximity and distance: How is space attributed to members of a society? What objects and ocations are private and what are pubic? What roe does spatia distance pay in evauating reationships e.g. in regard to eve of intimacy? The nature of being human: What does it mean to be human? Is human nature marked more by good or bad intentions? Can peope change and deveop, even as aduts? The type of human activity: How is the reationship to the environment evauated? Is the environment considered more compeing or overpowering? Are the members of a society more passive in their fate or do they try to activey change it? The nature of human reationships: What ideas about criteria of socia order dominate in a society (e.g. age, origins, success)? What characterizes reationships between peope? Is team success or individua success important? An exampe of Schein s cuture eves is found in Schoz, Messemer and Schröter. 25 The authors anayze cuture within the European Community using Schein s concept. They state that there are great simiarities on the artefact eve of the European states, which evokes the impression that there are no major differences between countries. However, the consensus is much ower on the eves of vaues and basic assumptions. Under the heading of assumptions, the authors discuss Christianity, the basic understanding of democracy as we as capitaist market organizations as exampes. On the vaues eve, they mention nationa egisation on abortion as an exampe. The artefacts eve addresses aws and guideines that are initiated at the European eve. The authors concude that Europe is a cuture corridor with major simiarities and differences on the eves of basic assumptions, vaues and artefacts. The diversity of definitions and concepts, ony a sma part of which can be presented in this chapter, underines the need for a cear, unambiguous definition of the term cuture for research work in intercutura comparative research. Cross-cutura management studies Cross-cutura management studies aim to describe and compare the working behavior in various cutures. Suggestions on improving interaction between members of various cutures can be drawn from these anayses. This section wi describe important resuts of cross-cutura

43 26 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM management studies. The overview starts with the historicay significant study by Hofstede. The GLOBE study and resuts of the studies by Trompenaars and Hampden-Turner as we as work by Ha and Ha are aso presented and discussed. 26 Hofstede s cross-cutura management study. The research of Hofstede occupies a specia pace in the fied of cross-cutura comparative research 27 because it was the first major study in this fied. It can be positioned on the vaues eve, the intermediate eve of Schein s concept of cuture. This means that it resuts in variabes that are party conscious and party unconscious. This approach is different from other studies that primariy consider the artefacts eve. The atter concentrates on easiy measurabe, but hard to interpret variabes ike, for exampe, economic growth of a country or its poitica system. 28 In his origina study, Hofstede identified four cutura dimensions based on preiminary theoretica considerations and statistica anayses, which can be used to describe cutura differences between countries. 29 This is the most comprehensive study on this subject ever conducted by means of one questionnaire. In tota, the anaysis was based on questionnaires from IBM empoyees. The surveyed empoyees represented a hierarchica eves of the company and possessed various quaifications, from unskied workers to university graduates. Empoyees from a tota of 38 various profession groups were surveyed. 30 In addition, the study was conducted during two different periods in IBM subsidiaries ( and ). 31 The questionnaire was transated into 20 different anguages in tota. 32 Out of 150 questions, 60 were based on convictions and vaues of the respondents. 33 Since the survey questioned ony individuas empoyed at subsidiaries of the same company, there is a high probabiity according to Hofstede that the determined differences are actuay the resut of nationa differences and the menta program of the empoyees. 34 Four underying dimensions of country cutures were identified from the vaues obtained within the scope of the study. These dimensions together expained 49 per cent of the variance. 35 Hofstede named them power distance, uncertainty avoidance, femininity vs. mascuinity, and individuaism vs. coectivism. A ater study invoving participants from the Asian Pacific region incuded a fifth dimension, Confucianism or ong-term orientation. The power distance dimension represents the scae on which the members of a cuture accept that power is not distributed equay in institutions. It expresses the emotiona distance between empoyees and superiors. 36 Power inequaity exists in many cutures, but may be more or ess pronounced from cuture to cuture. Societies marked by high power distance, and high power inequaity, accept hierarchica organization structure, in which every individua can occupy their pace without any need for justification. Cutures with ow power distance aspire to equa power distribution and demand expanations for any instance of formaized power inequaity. The important difference between societies that differ with respect to the Power Distance Index is in how power inequaity is deat with. See IHRM in Action Case 2.1. Naturay, this impies consequences for the structure of organizations. 37 The cutura dimension of uncertainty avoidance represents the extent to which the members of a cuture fee threatened by uncertain, ambiguous and/or unstructured situations and try to avoid them. Cutures with strong uncertainty avoidance are characterized by strict beiefs and behaviora codes and do not toerate peope and ideas that deviate from these. In cutures with weak uncertainty avoidance, the significance of practice exceeds the significance of principes and there is high toerance for deviations. The major difference between countries with differing Uncertainty Avoidance Index is the reaction of individuas to time pressure or uncertainties in the future. Peope try to infuence and contro the future to a varying extent. 38 Just ike the power distance dimension the uncertainty avoidance dimension impies consequences for the structure of organizations. Hofstede even goes as far as to caim that countries with weaker uncertainty avoidance are more ikey to bring about fundamenta innovations, because they have greater toerance for deviate thinking. See IHRM in Action Case 2.2. However, he sees a decisive drawback for these nations in the impementation of such

44 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 27 IHRM in Action Case 2.1 Estabishing a branch of a famiy business in China A famiy-owned carbon stee company from Germany has extended its business to Hong Kong. The owners bought a sma traditiona Chinese firm and decided to copy the successfu structure they had deveoped at home. This structure was headed by three genera managers who equay shared the responsibiities for the business activities of the firm. The consequences were as foows. 1 Now the Chinese empoyees were assigned tasks by peope they have never seen before and whom they did not understand. Many misunderstandings occurred, some were quite costy. 2 The empoyees back in Europe were ony concerned with whether the assigned tasks were competed and did not consider any other obigations to the Chinese empoyees, such as taking care of the reationships with the Chinese government, banks, etc. 3 Eventuay, the oca empoyees became frustrated and were ready to eave the company. The resut was that the management mode was changed again and a singe managing director of the subsidiary was accountabe for a business activities in Hong Kong. Discussion Questions: 1 Reate the described situation to one of the cutura dimensions identified by Hofstede. How can you expain it? 2 How does this situation compare to comparabe situations in your home country? What are the imits of a cutura expanation? Source: Based on DGFP, M. Festing, K.-P. Gempper, G. Gesche, J. Hagenmüer, U. Hann, D. Sevogt, G. Trautwein, P. Esch and S. Armutat (eds) Interkuturee Managementsituation in der Praxis, Kommentierte Fabeispiee für Führungskräfte und Personamanager (Bieefed: Bertesmann, 2004). innovations, because detaied work and punctuaity are required for impementation. An outstanding impementation of compex processes is associated with cutures with higher uncertainty avoidance. In summary, he ascertains that more Nobe Prize winners have come from Great Britain than Japan, but Japan was abe to introduce more new products into the word market. 39 The cutura dimension of femininity vs. mascuinity identified by Hofstede is based on the assumption that vaues can be distinguished as more mascuine or more feminine (see IHRM in Action Case 2.3). The mascuine orientation comprises the pursuit of financia success, heroism and strong performance approach; the feminine orientation contains preferences for ife quaity, modesty and interpersona reationships. Furthermore, roe fexibiity in the feminine oriented cutures is more cear-cut than in more mascuine cutures, in other words, roes of the sexes overap, which means that both women and men coud be modest and vaue a certain quaity of ife. 40 The fundamenta difference between the two approaches is the form of socia roes attributed to gender by the reevant society. 41 The cutura dimension of individuaism vs. coectivism describes the extent to which individua initiative and caring for onesef and the nearest reatives is preferred by a society as

45 28 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM IHRM in Action Case 2.2 Long-term deveopment pans of a German Mutinationa in the USA A German firm had deveoped its activities in the eectrica industry in the USA for two years and the CEO Peter Hansen was happy with their current performance: market share for important products had increased significanty and progress was better than expected. The number of empoyees had increased, incuding quite a few oca American managers in high-eve management positions a situation which was rather unusua for a subsidiary of a German mutinationa in its eary stage of deveopment. The CEO s goa from the beginning was to avoid an ethnocentric approach to the American activities of his firm and to take a poycentric approach that supported recruitment of oca managers. One of these US oca managers was John Mier, the marketing director of the company. During the ast two years, he has been thoroughy prepared for his job. The company had sent him to various high-eve training programs at top business schoos and had provided him with a ong-term career pan, which incuded short-term vertica career advancement. Whie Peter Hansen wanted to support the deveopment of an American management stye he nevertheess tried to transfer some HR practices which are highy vaued in Germany particuary investing in training and taking a ong-term intra-organizationa career perspective. Whie some US firms took this approach, these ideas were not as widey accepted in the US as in Germany. However, Peter Hansen assumed that these poicies woud be vaued by the new US empoyees of the firm and woud provide an important incentive for empoyee retention. One morning, Peter Hansen was shocked to earn that John Mier was about to quit his job. A competitor had offered John a chaenging position in arge part because he had systematicay buit up his knowedge and experience base supported by his German empoyer. How can you interpret Peter Hansen s surprise from a cutura point of view? Discussion Questions: 1 Reate the described situation to one of the cutura dimensions identified by Hofstede. Can you expain Peter Hansen s surprise using this theory? 2 How does this situation compare to comparabe situations in your home country? What are the imits of a cutura expanation? opposed to, for exampe, pubic assistance or the concept of extended famiy. In more individuaist cutures, there is merey a casua network of reationships between peope. Each person is primariy responsibe for himsef. More coective cutures, on the contrary, have coser, more ceary defined systems of reationships. This appies both to extended famiies as we as companies. A cear ine is drawn between one s own group and other groups. In exchange for the care offered by one s own group, the group member provides very intense sense of oyaty. The distinguishing aspect of this dimension is the predominant sefsufficiency among individuas in a society. This appies to private ife just as professiona ife. See IHRM in Action Case 2.4. Thus, this dimension is marked by consequences for the structure of organizations. With regard to professiona ife, coectivist companies differ from individuaist companies in that the reationship between the superior and the empoyee in coectivist structures can be described as more informa. Furthermore, recruitment and career progression is often within the so-caed ingroup. Management means management of groups and the reward systems are frequenty group-oriented. On the contrary, individuaist companies focus on individua aspects

46 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 29 IHRM in Action Case 2.3 Femae Careers in Various Environments Eisabeth Harstad was empoyed as a trainee at the Norwegian risk management consutancy DNV when she reaized that being a woman was a barrier. Athough trainees were supposed to go abroad the company had probems finding a job for Eisabeth in a foreign subsidiary: I wanted to go to London, Houston, or Singapore. At the end I managed to get an internationa assignment from Oso to Copenhagen. This was in the 1980s. However, Harstad did not give up and pursued her career intensivey. Today she is the manager of the research & innovation unit at DNV and since 2006 member of the board of directors of the arge Norwegian chemica company Yara. When the new members of the board of directors were eected, for the first time it was an advantage for Eisabeth to be a woman. Since 2008, Norwegian companies are required by aw to have 40 per cent femae members of their board of directors. Thus, Eizabeth is part of an experiment if women do not make it to the top on their own, poitics support this process in Norway. Discussion Questions: 1 Reate the situation in Norway to one of the cutura dimensions identified by Hofstede. How can you expain it? 2 Can the rues for quotas of femae managers be appied in other countries as we? What are the advantages and disadvantages? Source: M. Festing, P. J. Dowing, W. Weber, A. D. Enge: Internationaes Personamanagement, Wiebaden: Gaber, 3rd ed. (2011) based on L. Nienhaus. Der neidische Bick auf die norwegische Quote, Frankfurter Agemeine Sonntagszeitung 2007, S. 42. Reproduced with kind permission from VS Verag Für Soziawissenschaften. when structuring reward systems. The reationship between the superior and the empoyee is usuay based on a reativey neutra, impersona contractua foundation. Athough the four presented dimensions were derived from data coected from empoyees of a mutinationa company, according to Hofstede, they were confirmed in ater studies by other researchers, who worked with different methods and studied different target groups. 43 Given the composition of the research team during Hofstede s first study, the risk that the cutura identity of researchers from Western industria countries (Great Britain, France, Hoand, Norway, USA) infuenced the form of the questionnaire coud not be rued out. There was a possibiity that some questions were considered irreevant in some cutures, whie other questions reevant for these cutures were not even incuded. To rue out possibe distortion of resuts, a questionnaire that ceary refects Chinese cutura identity was ater designed (Chinese Vaue Survey). This questionnaire was transated into ten anguages and used to survey 100 peope from 23 countries. Ony a few items in the Chinese Vaue Survey were transferred from the IBM questionnaire in the same form. Nevertheess, the resuts refected four dimensions. Dimensions simiar to power distance, individuaism vs. coectivism and mascuinity vs. femininity were manifested in this study as we. Ony the uncertainty avoidance dimension coud not be confirmed in this study. Instead, another dimension was discovered, one which coud not be reated to the resuts of the origina pan-european IBM study. It was described by researchers as Confucianism dynamics. This dimension essentiay refects a basic orientation in the ife of peope, which can be either more ong-term or short-term in nature. It contains vaues that Western researchers can recognize, but they were not taken into account in

47 30 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM IHRM in Action Case 2.4 Meeting on a Friday in Kenya? For a ong time our buiding company had finished an important project concerning a new major route in Kenya. However, not a the money had been paid by our customer. Therefore, the managing director of the Kenyan subsidiary of the buiding corporation organized a meeting with the representative of the respective Kenyan government agency. The meeting was schedued for the next Friday at ten a.m. The meeting started and the representative was very poite and friendy. However, at the same time he aso seemed to be quite nervous. Every few minutes he received a teephone ca or had to initiate a teephone ca himsef. A phone discussions were carried out in the oca anguage. Despite the interruptions, I tried to expain the reason for my visit the outstanding account baance. Of course, the government representative apoogized for every interruption. However, after 15 minutes we were both extremey tense because the conversation did not advance at a. Eventuay, I said that I was sorry that my counterpart had so much to do and asked for another meeting the next Tuesday. Instanty, the government representative was reaxed again and happiy confirmed the new meeting. Now he coud finay concentrate on the preparation and organization of his big famiy meeting this weekend, which is typica for arge Kenyan famiies. Discussion Questions: 1 Reate the described situation to one of the cutura dimensions identified by Hofstede. How can you expain it? 2 How does this situation compare to comparabe situations in your home country? Pease expain. Where are the imits of the cutura expanation? Source: Based on DGFP, M. Festing, K. P. Gempper, G. Gesche, J. Hagenmüer, U. Hann, D. Sevogt, G. Trautwein, P. Esch, and S. Armutat, (eds) Interkuturee Managementsituation in der Praxis. Kommentierte Fabeispiee für Führungskräfte und Personamanager (Bieefed: Bertesmann, 2004). 42 the previous questionnaire. Cutures that are cassified as ong-term in this dimension are characterized by: great endurance and/or persistence in pursuing goas position of ranking based on status adaptation of traditions to modern conditions respect of socia and status obigations within certain imits high savings rates and high investment activity readiness to subordinate onesef to a purpose the feeing of shame. Short-term cassified cutures, on the contrary, are characterized by: persona candor and stabiity avoiding oss of face

48 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 31 respect of socia and status obigations without the consideration of costs ow savings rates and ow investment activity expectations of quick profit; respect for traditions greetings, presents and courtesies based on reciprocity. The first set of vaues is viewed as more future-oriented and dynamic (in particuar, persistence and frugaity); the second set of vaues is viewed as more present-oriented or pastoriented and is reativey static. 44 The name of this dimension comes from the fact that neary a vaues of the short-term and ong-term dimension coud be drawn directy from the study of Confucianism. 45 Country-specific resuts of the Hofstede study. The resuts for individua countries were obtained by the evauation of predetermined answers, which ensured that the resuts coud be demonstrated by point vaues. The point vaues refect reative and not absoute positions of the countries. 46 The resuts are graphicay represented with the hep of coordinates systems, which contain a cutura dimension on the X-axis and another one on the Y-axis respectivey. The representation demonstrates the extent of cutura distance between two countries with regard to these dimensions. For exampe, in Figure 2.1 individua countries are assigned to the coordinates system based on individuaism vs. coectivism and power distance dimensions. FIGURE 2.1 Resuts of the Hofstede study (I): Power distance and individuaism vs. Coectivism Individuaism Index Sma Power Distance Coectivistic ISR AUT IRE DEN NOR COS RN GER SWI SWE NZL NET CAN JAM ARG SAF ITA PAK TAI KOR URU JPN SPA POR COL PER SAL THA CHL CAF HOK SIN GRE IRA TUR BEL BRA FRA ECA GUA VEN PAN IDO Large Power Distance WAF Coectivistic YUG MEX IND ARA PHI MAL GBR AUL USA Sma Power Distance Individuaistic Large Power Distance Individuaistic Power Distance Index Source: G. H. Hofstede, Cuture s consequences: Comparing vaues, behaviors, institutions, and organizations across nations, 2nd ed. (Thousand Oaks: Sage, 2001), p Reproduced with permission.

49 32 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM According to resuts of the Hofstede study, the US cuture is characterized more by individuaist behavior. The same appies to the other Ango Saxon countries such as Austraia or the United Kingdom. The extent of power distance is cassified as rather ow for a these countries. In terms of the characteristics for both of these cutura dimensions, many South Asian countries can be described as the opposite. For exampe, Singapore, Hong Kong and Taiwan (and aso many South American countries) are characterized by coectivist vaues and a high power distance. These custers are cuturay distant from each other according to resuts of the study. The countries are assigned to one custer due to statisticay estabished simiarities among them. Some Asian cutures tend to score high on uncertainty avoidance and high on power distance. Among them are Singapore and Hong Kong. On the contrary, the German speaking countries such as Germany, Austria and Switzerand buid with others a custer that can be described by a comparaby strong tendency of uncertainty avoidance and a reativey ow power distance. As a resut of combining the mascuinity index with the uncertainty avoidance dimension, we can identify a custer that incudes predominanty German-speaking countries Germany, Austria and Switzerand. A three countries are attributed more mascuine vaues with reativey high uncertainty avoidance tendency. The group of predominanty German-speaking countries is the second most mascuine-oriented after Japan. Opposite to this is the Scandinavian custer, incuding Denmark, Sweden, Norway and Finand. In terms of the fifth dimension, ong-term vs. short-term orientation of cutures, the USA, for exampe, is characterized by a rather ow vaue. Therefore, it is cassified more as a short-term oriented cuture. This resut is the opposite of the Asian countries, which demonstrate higher vaue for ong-term orientation. Thus, the robust economic growth of the Four Asian Tigers in the 1980s Hong Kong, Singapore, South Korea and Taiwan is party traced back to a strong orientation on Confucianism vaues. 47 Tabe 2.1 presents exampes of how cutura context may effect seected HRM practices. TABLE 2.1 Exampes of the impact of the cutura context on HRM practices HRM practices Impact of the cutura context Recruitment and seection In societies ow on in-group coectivism individua achievements represent important seection criteria. In societies high on in-group coectivism the emphasis in the recruiting process is more on team-reated skis than on individua competencies. Training and deveopment In societies high on gender egaitarianism women have the same chances for vertica career advancement as men. In societies ow on gender egaitarianism femae managers are rare. Compensation In societies high on uncertainty avoidance empoyees tend to be rather risk averse and prefer fixed compensation packages or seniority-based pay. In societies ow on uncertainty avoidance empoyees tend to be rather risk-taking and accept high income variabiity through performance-based pay. Task distribution Societies high on coectivism tend to emphasize group work. Societies high on individuaism rather attribute individua responsibiities in the work system.

50 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 33 A refection on the Hofstede study. The Hofstede study is an important contribution to cross-cuture management research. The thorough execution of this comprehensive study and its repetition at different points in time is very impressive. The resuts enabe assertions about potentia differences between individua cutures and coud serve as guideines of expaining behavior at east in initia orientation. However, there has been an ongoing debate and critique of Hofstede s study, aside from fundamenta criticism of his concept of cuture, described as determinist and universaist, 48 and his approach of trying to reduce cutures to a few dimensions instead of using more sophisticated descriptions. 49 Hofstede s study is accused of acking theory, because the cutura dimensions were mainy derived ex-post. As aready noted earier in the chapter, Hofstede s study is paced on the vaue eve, the intermediate eve of the Schein concept. However, the emerging question is to what extent the standardized questionnaire method is abe to reach the unconscious and, thus, assess the deeper motives of managers actions. Hofstede is criticized for not drawing a ine between practices per se and perceived practices, in other words a sort of wishfu thinking. 50 Significant questions have been raised about the ack of separation between vaues and behavior 51 and the potentia distortion of the Western outook of the research. 52 Another criticism of the Hofstede study is that countries rather than cutures are deimited. The exampe of what was once Yugosavia in the 1990s shows with terribe carity that country borders by no means contain reativey homogenous cutura groups. Kaasa et a. 53 have compared the Hofstede data with newer data from the European Socia Survey which shows that the Hofstede vaues shoud be regarded with some skepticism, especiay in terms of muticutura societies ike Begium. It shoud be assumed that Hofstede did not adequatey represent the existing ethnic groups and his study cannot cassify countries with severa reativey equay co-existing anguages in his country custers. Finay, it shoud be assumed that nationa cutures are not the ony infuencing factor of behavior. 54 This is a major reason why schoars increasingy assume a progressivey ower infuence of nation states on cutura identity and behavior. 55 The foowing points are germane in thinking about the study s representative nature: the study was conducted in one company (IBM) ony. Hofstede himsef evauates this as positive, because many conditions coud be maintained constant. However, in the case of an organization that is characterized by a very strong corporate cuture such as IBM it shoud be assumed that the choice of personne is based on a simiar profie of requirements around the word, which may ead to distortion of resuts (i.e. seected IBMers were not typica nationa citizens). So the question is: woud the resuts of random samping of severa companies come out differenty as regards the distinctions between individua countries or country custers? The representative nature of data is aso contested, because the IBM study sampe was mainy imited to midde-cass maes in marketing and service positions. Kirkman et a. 56 acknowedge the significance of Hofstede s cuture dimensions but note that future research shoud take the foowing issues into consideration: Reaization of intra-eve studies: Aong with assessing the individua eve, groups, organizations and country eves must be taken into consideration. Incusion of cross-cutura differences: Cutures shoud not be considered homogenous, specific intracutura variance shoud be taken into consideration. Incusion of theoreticay reevant moderator variabes: Cuture shoud not be measured as the ony infuencing factor, other variabes ike sex, cass affiiation, etc. shoud be taken into account. Effects of interaction between cuture variabes: There is a ack of empirica evidence about the interpay of individua cuture variabes, but their interaction shoud aso be taken into account. Athough the historica prominence of the Hofstede study makes continuing debate on the resuts usefu, the resuts must be scrutinized from today s point of view. The resuts of Hofstede s first study are from Determining the scope of vaidity of these resuts for individua

51 34 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM countries today certainy requires a new, comprehensive study. Athough it is assumed that cutures do not change fundamentay in such a time period, certain decisive changes may have occurred ike, for exampe, the reunification of Germany, which coud infuence average vaues. 57 In a recent study, Kaasa et a. tested Hofstede s vaues once again for the European sampe and came to the overa concusion that Hofstede s vaues are reativey stabe. However, changes are seen in countries with subsequent strong economic growth (e.g. Spain, Portuga) or after significant system changes such as a country joining the EU. 58 Because of such changes it is not surprising that an index based on Hofstede s vaues and dimensions deveoped by Kogut and Singh 59 that caims to measure cutura distance and serve as a predictor of how chaenging a specific foreign ocation wi be to a person has been criticized as outdated, of imited vaidity, and bound to a simpistic, static approach. 60 The GLOBE study The GLOBE study was a transnationa project, initiated by Robert J. House in The research team currenty consists of 170 researchers from 62 countries. 61 GLOBE is an acronym for Goba Leadership and Organizationa behavior Effectiveness, in other words, this project concerns the effectiveness of eadership and behavior in organizations at a goba eve with specia consideration given to cutura infuence factors. Three research phases were panned in tota. Phase 1 (1993/1994) consisted of the deveopment of underying research dimensions (new socia and organizationa cutura dimensions, and six eadership dimensions). The objective of Phase II was to gather data on these dimensions. Phase III consists of an anaysis of the effects of eadership behavior on the performance and attitudes of empoyees. 62 The goa of the GLOBE study can be iustrated with the foowing questions: Are there eadership behaviors, attributes and organizationa practices that are generay accepted and effective across cutures? Are there eadership behaviors, attributes and organizationa practices that are accepted and effective in some cutures ony? How much do eadership attributes that are traced back to socia and organizationa contexts affect the effectiveness of specific eadership behavior and its acceptance by subordinates? How much do behaviors and attributes in specific cutures infuence the economic, physica and psychoogica webeing of the members of societies researched in the study? What is the reationship between these socio-cutura variabes and an internationa competitive capacity of the various sampe societies? The GLOBE research tries to study the compex reationships between cuture, eadership behavior, organizationa effectiveness, socia co-habitation conditions and the economic success of societies. 63 Cuture dimensions of the GLOBE study. The study is to some extent based on Hofstede s dimensions: uncertainty avoidance and power distance. However, the dimensions are modified and expanded, eading to some confusion when Hofstede and GLOBE resuts are assessed and compared. This may be seen as somewhat ironic, given the topic area. 64 The Coectivism dimension is divided into socia and group/famiy-based coectivism, which describe two eves of the same dimension. The above dimensions are measured on the socia and organizationa eve respectivey. In addition, there is a distinction in the questions between practices (as is) and vaues (shoud be) of respective dimensions. Thus, the survey covers practices that are assessed as common in the respective societies or organizations. Furthermore, vaue dimensions determine what specific practices shoud be ike in respective organizations or societies. Authors of the GLOBE study are purposefuy trying to overcome the earier critiques of the Hofstede

52 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 35 study, namey that the borders between vaues and practices are burred in his study and cannot be distinguished. The different dimensions are expained briefy beow. Institutiona Coectivism describes the degree to which organizationa and societa institutiona practices encourage and reward coective distribution of resources and coective action. 65 In-Group Coectivism is The degree to which individuas express pride, oyaty, and cohesiveness in their organizations or famiies. 66 Uncertainty Avoidance incudes the extent to which a society, organization, or group reies on socia norms, rues, and procedures to aeviate unpredictabiity of future events. 67 Power Distance is defined as the degree to which members of a coective expect power to be distributed equay. 68 Gender Egaitarianism: is the degree to which a coective minimizes gender inequaity. 69 Assertiveness is The degree to which individuas are assertive, confrontationa, and aggressive in their reationship with others. 70 Performance Orientation is defined as the degree to which a coective encourages and rewards group members for performance improvement and exceence. 71 Humane Orientation incudes the degree to which a coective encourages and rewards individuas for being fair, atruistic, generous, caring, and kind to others. 72 Resuts of the GLOBE study. Quantitative coection of data was conducted in 62 countries by the GLOBE study; peope from midde management, 951 organizations and 3 industries (finance, food and teecommunication services) were surveyed. Based on a iterature anaysis by the GLOBE study authors, the anayzed countries and cutures were separated into ten and custers and tested empiricay. 73 This resuted in the foowing cutura regions: South Asia, Latin America, North America, the Ango custer, Germanic and Latin Europe, Sub-Saharan Africa, Eastern Europe, the Midde East and Confucian Asia. These cutura regions have different characteristics within the respective cutura dimensions. Unique profies emerge when combining cutura dimension characteristics for different cutures. A refection on the GLOBE study. The GLOBE study expicity takes into account the methodica chaenges of cross-cutura comparative research and its theoretica foundation is more comprehensive than that of the Hofstede study. The participation of 170 schoars from around the word heped to avoid a one-sided Western focus and there is a distinction between organizationa cutures and nationa cutures. 74 Furthermore, the dimensions identified in the GLOBE study are aso refined compared to other cross-cutura management studies. In view of the empirica research, for exampe, more branches have been incuded as compared to Hofstede, who has often been criticized for imiting his sampe to IBM empoyees ony. Among other differences to the Hofstede study is that managers were surveyed instead of empoyees. The GLOBE study does have some imitations. Hofstede has criticized the GLOBE study, stating that the scaes do not measure what they shoud, and criticizes the further differentiation of his origina five dimensions. But this criticism has been rejected by authors of the GLOBE study, 75 generating an ongoing debate. 76 In addition, it shoud be noted that despite the expansion to three industries (finance, food and teecommunications), there is imited industry focus in the GLOBE study as we the data is not representative for other industries. Simiar to the criticism of Hofstede, widespread equivaence of cuture to nation can be a source of concern as we. This is yet another exampe of the ongoing eve of anaysis debate in organizationa studies. Athough authors of the GLOBE study counteract this by taking into consideration various cuture eves (individua, organizationa and socia eves) and further distinguish the sampe in some countries (e.g. South Africa, Switzerand and Germany), it shoud be noted that

53 36 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM cutures may consist of various subcutures and that this is not sufficienty refected in the GLOBE study at the present stage. Large popuation countries ike China, India and the USA are very heterogeneous and cannot reay be covered by the reativey sma sampe of the GLOBE study. 77 The Trompenaars and Hampden-Turner study. Trompenaars and Hampden Turner conducted a survey with empoyees of various hierarchica eves and various businesses starting in the 1980s and continuing for severa decades. 78 The target group was primariy participants of cross-cutura training conducted by Trompenaars. Approximatey questionnaires were evauated in the first study. By 2002 there were about questionnaires from 55 countries. 79 In their book Riding the Waves of Cuture Trompenaars and Hampden-Turner differentiated between seven dimensions, the characteristics of which mark the differences between cutures. 80 They grouped these seven dimensions by three aspects: reationships between peope, concept of time and concept of nature. Reationships between peope: Universaism vs. Particuarism: Universaist thought is characterized according to the authors by the foowing ogic: What is good and right can be defined and aways appies. 81 Particuarist cutures, on the contrary, pay more attention to individua cases, deciding what is good and correct depending on reationship and specia friendship arrangements. Individuaism vs. Communitarianism: The underying question here is: Do peope regard themseves primariy as individuas or primariy as parts of a group? 82 The other question is whether it is desirabe that individuas primariy serve group aims or individua aims. Individuaist cutures, simiar to Hofstede s expanation, emphasize the individua, who predominanty takes care of himsef. 83 Emotiona vs. Neutra: This dimension describes how emotions are treated and whether they are expressed or not. 84 Neutra cutures tend to express itte emotion; business is transacted as objectivey and functionay as possibe. In affective cutures, an emotiona cutura basis is accepted as a part of business ife and emotions are freey expressed across many socia contexts. 85 Specific vs. diffuse: In diffuse cutures a person is invoved in the business reationship, whereas specific cutures focus more on contractuay reguated aspects. Specific cutures demand precision, an objective anaysis of circumstances and presentation of resuts, whereas diffuse cutures take other context variabes into consideration. 86 Ascription vs. Achievement: In cutures focused on status achievement, peope are judged based on what they have achieved, in other words the goas they have fufied recenty. In ascriptive cutures, the status is ascribed from birth by characteristics such as origin, seniority, and gender. 87 Concept of time: Sequentia vs. Synchronic concept of time: Cutures are differentiated by the concept of time where they may be more past, future or present oriented. The different concept of time is aso demonstrated by the organization of work processes. Sequentia behavior is behavior that occurs successivey and synchronous behavior is the possibiity to mutitask and do a number of things at the same time. 88 Concept of nature: Interna vs. externa contro: This dimension describes the concept of nature and refers to the extent to which societies try to contro nature. Trompenaars and Hampden-Turner refer to the

54 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 37 exampe of the Sony executive Morita, who expained the invention of the Wakman: from the ove of cassica music and the desire not to burden the word with his own music taste. This is an exampe of externa contro, of how peope adapt heaviy to the environment. In Western societies, the mindset is different; music is heard in the headphones not to be bothered by the environment. Another exampe is wearing a facemask during the cod/fu season. According to Trompenaars, in externa contro cutures masks are used because one does not want to infect others, whereas in interna contro cutures masks are used to protect one s sef from outside sources of infection. 89 An expicit rationae for the operationaization and the genesis of the seven dimensions by Trompenaars and Hampden-Turner remain uncear. The authors use singe aspects of other studies, ike Kuckhohn and Strodtbeck, Parsons, and Hofstede without in-depth justification for their seection and eave out others, aso with no justification. To date, Trompenaars and Hampden-Turner have not demonstrated the vaidity or reiabiity of their dimensions, or justified their cassification schema. An empirica basis for their characterization of differences in nationa characteristics is aso not presented. However, this mode is quite often used in executive education programs as a practica tempate to monitor behavior and to draw concusions for interaction with foreign business partners. The cutura dimensions by Ha and Ha. Based on their own experiences as government and corporate advisors and various quaitative studies, anthropoogist Edward Ha and his wife Midred Ha 90 have presented four dimensions that differentiate cutures. They do not caim that their mode covers a possibiities pointing out that other dimensions may aso exist. The reationship between cuture and communication is emphasized in particuar, as one woud not be possibe without the other. The dimensions mainy invove cutura differences in communication forms and time and space concepts. High vs. Low Context Communication: Cutures differ in the way their members communicate with each other. In High Context cutures, a more indirect form of expression is common, where the receiver must decipher the content of the message from its context, whereas in so-caed Low Context cutures the payers tend to communicate more to the point and verbaize a-important information. Exampes of High Context cutures are Japan as we as France. Germany is more of a Low Context cuture. Spatia orientation: The focus of this dimension is on the distance between peope of various cutures when communicating. Distance that is adequate for members of one cuture, may fee intrusive for members of another cuture. Monochrome vs. poychrome concept of time: A monochrome concept of time is dominated by processes, where one thing is done after the other, whereas in the poychrome concept these actions occur at the same time. Information speed: This dimension focuses on whether information fow in groups is high or ow during communication. Thus, in the USA peope tend to exchange persona information reativey quicky, whie in Europe such a rate of information exchange woud require a more extended acquaintance. 91 As aready mentioned, the cassification of cutura dimensions by Ha and Ha came about in an inductive way and does not caim to be compete. In addition, the dimensions are cosey reated and overapping and cutura regions are represented in a macro sense such as the USA and Europe. Intracutura differences are not touched upon, but persona differences are referred to. The works by Ha and Ha, simiar to that of Trompenaars and Hampden-Turner, focus on offering a practica tempate, aowing individuas to perceive and hande cutura differences.

55 38 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM A refection of cross-cutura management studies Cross-cutura studies are generay subject to the probem of not doing justice to a dynamic, context-sensitive concept of cuture. 92 This criticism has been widey recognized in recent years. However, intercutura interactions contain their own momentum and new aspects become more saient, that cannot be expained with the existing cuture dimensions. In this context, quaitative research is increasingy caed on to assess these dynamic changes. 93 In addition, some authors find it important to consider cuture in the context of task or roe specific situations and not just on the vaues eve, which is the perspective of many studies. 94 The imits of the expanatory power of the resuts of cross-cutura management studies for expaining the infuence of the cutura context are demonstrated by Gerhart 95 using the exampe of organizationa cutures. According to Gerhart, in the GLOBE study 23 per cent of the variance is expained by country-specific differences, however, ony 6 per cent of which is actuay due to cutura differences. Nevertheess, Gerhart agrees that cutura differences are important but notes that these differences do not have as great an infuence as it is frequenty assumed. He identifies a need for action with respect to theoretica and empirica research. 96 The static-dynamic nature of cuture is increasingy discussed by practitioners and researchers aike. The next section wi focus on how cutures may deveop and change. THE DEVELOPMENT OF CULTURES So far, this chapter has primariy deat with how cuture can be defined and conceptionaized and some resuts of cross-cutura management research have been reported. Most expanations and concepts were based on a somewhat static outook. We now wi discuss the extent to which cutures may undergo changes over time. This discussion is cosey reated to the issue of whether organizations and their management practices are simiar due to increasing internationa interconnectedness and the coordination of the goba economy (convergence) or sti exhibit specific cutura characteristics. For exampe, cuture convergence between European countries is often imputed given the deveopment of the European Union, and attendant harmonization of aws and reguations. Thus, increasing convergence of the cutures of individua countries within the EU is assumed. As a resut, the meaning of cutura differences may be safey given itte consideration. If the opposite is true and we assume a ong term stabiity in cutura differences (cutura divergence), their investigation may be a decisive success factor in internationa business activities for the foreseeabe future. In terms of activity within the European Community, this woud mean that pan-european standardization of management practices woud not be easiy achieved and adaptation of practices to underying oca conditions woud be required. Both of these two conficting positions on cutura convergence continue to generate controversy in the academic iterature. 97 Chid 98 anayzed a mutitude of cross-cutura studies and discovered that there are as many researchers who came to the concusion that cutures are simiar, as studies that caimed just the opposite. Upon detaied anaysis he determined that studies positioned on the macro eve (e.g. anayses of organizationa structure) tended to find evidence for convergence, whie studies positioned on the micro eve, e.g. deaing with the anaysis of behavior of empoyees, reached more divergence-oriented concusions. As a resut, it can be concuded that organizations around the word are becoming more simiar in their processes and technoogies, because they are embedded in institutions that are aso subject to convergence, 99 but rea and meaningfu differences in the behavior of empoyees remain, and these differences are enduring. This is aso underined by Schein, who assumes that the infuences operating from the surface artifact eve to the underying assumption eve are much weaker than the infuence on deep assumptions on surface eve artifacts. 100 A new combination of various cutura eements is taking pace, which resuts in new ways of distinguishing otherness and hybridization of what were once distinct cutures. 101 Recenty,

56 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 39 transnationa regions have been investigated. These are regions in which country borders are progressivey superseded by cutures. Due to growing interdependence and a high fow of migration, cuture is not confined to a territoriay imited area. This represents new chaenges for HRM, but at the same time, it aso offers new opportunities. Intracutura changes must aso be considered by HR managers. In this context, demographic changes are an exampe where there has been considerabe discussion on the extent of vaue shift between generations. 102 Generation Y is mentioned as an exampe in this context, because it is distinguished by different demands when it comes to professiona reationships and empoyee retention. 103 Since this generation was born into an information society and grew up with the computer, these peope are described as fast, sef-organized earners. This generation is highy fexibe when it comes to mutitasking and demonstrates high potentia for scrutinizing decisions due to a high eve of awareness. This makes members of Generation Y attractive but somewhat sef-absorbed empoyees with distinct preferences such as distinct work-ife baance preferences. This phenomenon shoud be observed beyond cutura borders. The aging of entire societies, and hence their workforces (for exampe in Japan and Itay) aso represents a form of this generationa phenomenon. SUMMARY In the preceding sections, we outined how the cutura environment may infuence HRM. In summary, it can be concuded that an adequate understanding of the cutura context, as it impacts the behavior of organization s empoyees, is of decisive importance. Thus, resuts of cross-cutura comparative research may provide vauabe hints to managers about how to cope with empoyees of foreign cutures. 104 Furthermore, they can form the basis for the deveopment of intercutura training measures. These resuts coud aso be of great use to HRM in an internationa firm because it coud assist a structured anaysis about the transferabiity of specific eements of the parent firm s existing HR poicy to foreign subsidiaries. In this context, it woud be conceivabe to decide whether incentive systems for groups or for individuas woud be effective in a specific cuture. 105 Tabe 2.1 summarizes these ideas about the cutura context and gives exampes of environmenta differences which coud ead to probems when MNEs attempt to introduce wordwide-standardized HRM practices. 106 Within this context, it is important to reca the discussion on the convergence and divergence of HRM and work practices, as mentioned in the first chapter.

57 40 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM DISCUSSION QUESTIONS 1 Define cuture. How can cuture be conceptionaized? 2 Outine the cross-cutura management study by Hofstede and discuss it. 3 Outine the methodica procedure and the resuts of the GLOBE study. 4 Compare cross-cutura management studies and ist advantages and disadvantages. 5 To what extent do cutures undergo changes? Iustrate your statement by an exampe. 6 What do you think about the statement: Cutures in Europe are becoming more simiar? FURTHER READING Ader, N. J. and Gundersen, A. Internationa Dimensions of Organizationa behavior, 5th ed. (Mason, CA: Thomson South-Western, 2008). Hofstede, G. Cuture s Consequences: Internationa Differences in Work Reated Vaues, 2nd ed. (Bevery His, CA: Sage, 2008). Lane, H. W., DiStefano, J. J. and Maznevski, M. L. Internationa Management behavior: Text, Readings, and Cases, 5th ed. (Oxford et a.: Backwe Business, 2006). Weer, I. and Gerhart, B Empirica Research Issues in Comparative Human Resource Management. In C. Brewster and W. Mayrhofer (eds) Handbook of Research in Comparative Human Resource Management (Chetenham et a.: Edward Egar). NOTES AND REFERENCES 1. See, for exampe, N. J. Ader and A. Gundersen, Internationa Dimensions of Organizationa behavior, 5th ed. (Cincinnati, OH: Thomson South-Western, 2008); R. M. Hodgetts, F. Luthans and J. P. Doh, Internationa Management: Cuture, Strategy, and behavior, 6th ed. (New York: McGraw-Hi/Irwin, 2006). 2. See E. Düfer and B. Jöstingmeier, Internationaes Management in unterschiedichen Kuturbereichen, 7th ed. (München: Odenburg, 2008). 3. Homepage of Geert Hofstede 4. For more information see the website of the GLOBE Project: 5. N. J. Ader and A. Gundersen, Internationa Dimensions of Organizationa behavior, 5th ed. (Cincinnati, OH: Thomson Learning, South-Western, 2008). 6. See aso S. A. Sackmann and M. E. Phiips, Contextua Infuences on Cuture Research: Shifting Assumptions for New Workpace Reaities, Internationa Journa of Cross Cutura Management, Vo. 4, No. 3 (2004), pp N. J. Ader and A. Gundersen, Internationa Dimensions of Organizationa behavior, 5th ed. 8. On this discussion the artice by J. Chid, Cuture, Contingency and Capitaism in the Cross-Nationa Study of Organizations, in L. L. Cummings and B. M. Staw (eds), Research in Organizationa behavior, (Greenwich, CT: JAI, 1981), Vo. 3, pp E.g. K. P. Hansen, Kutur und Kuturwissenschaften. Eine Einführung, 3rd ed. (Stuttgart: Schäffer-Poesche, 2003). 10. For an overview about the deveopment of new cuture concepts and cuture criticism see M. Fischer, M.J., Cuture and Cuture Anaysis, Theory, Cuture and Society, Vo. 23, No. 2 3 (2006), pp

58 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM A. L. Kroeber and C. Kuckhohn, Cuture. A Critica Review of Concepts and Definitions. (New York, NY: Random House, 1952), p G. Hofstede, Cuture and Organizations Software of the Mind. (London et a.: McGraw-Hi, 1991). German transation by G. Hofstede, Lokaes Denken, gobaes Handen. Kuturen, Zusammenarbeit und Management, 5th ed. (München: Beck, 2009). 13. G. Hofstede, Cutures and Organizations Software of the Mind, 4th ed. This definition is based on Hofstede s study described further on in this chapter. 14. See K. P. Hansen, Kutur und Kuturwissenschaften, Eine Einführung, 3rd ed. (Stuttgart: Schäffer-Poesche, 2003). 15. K. P. Hansen, Kutur und Kuturwissenschaften, Eine Einführung, 3rd ed. 16. K. P. Hansen, Kutur und Kuturwissenschaften, Eine Einführung, 3rd ed. 17. H. C. Triandis, The Anaysis of Subjective Cuture. (New York: John Wiey, 1972). 18. F. Fieder, T. Mitche and H. C. Triandis, The Cuture Assimiator: An Approach to Cross-Cutura Training, Journa of Appied Psychoogy, Vo. 55 (1971), pp K. P. Hansen, Kutur und Kuturwissenschaften, Eine Einführung, 3rd ed. 20. On respective different types of cuture concepts that various trends of cross-cutura management are based on and the effects on research design and research topics (see S. A. Sackmann and M. E. Phiips, Contextua Infuences on Cuture Research: Shifting Assumptions for New Workpace Reaities, Internationa Journa of Cross Cutura Management, Vo. 4, No. 3 (2004), pp ). 21. See E. H. Schein, Organizationa Cuture and Leadership, 3rd ed. (San Fransisco: Jossey-Bass, 2004). 22. F. R. Kuckhohn and F. L. Strodtbeck, Variations in Vaue Orientations (Evanston, IL: Row, Peterson and Company, 1961). 23. E. H. Schein, Organizationa Cuture and Leadership, 3rd ed. In addition, see aso N. J. Ader and A. Gundersen, Internationa Dimensions of Organizationa behavior, 5th ed. 24. See aso N. J. Ader and A. Gundersen, Internationa Dimensions of Organizationa behavior, 5th ed. 25. C. Schoz, T. Messemer and M. Schröter, Personapoitik as Instrument zur bewußten Kuturdifferenzierung und Kuturkoexistenz, in R. Marr (eds), Euro-Strategisches Personamanagement (München: Mering, 1991). 26. Other extremey important studies, ike the vaue study by Schwartz (1999) unfortunatey coud not be considered here due to ack of space. The reevance of the mentioned studies is proven in an artice in the Manua of Comparative Human Resource Management by B. S. Reiche, Y. Lee and J. Quintania, Cutura Perspectives on Comparative HRM, in C. Brewster and W. Mayrhofer (eds), Handbook of Research in Comparative Human Resource Management (Chetenham et a.: Edward Egar, 2012, pp ). 27. B. L. Kirkman, K. B. Lowe and C. B. Gibson, A Quarter of Century of Cuture s Consequences: A Review of Empirica Research Incorporating Hofstede s Cutura Vaues Framework, Journa of Internationa Business Studies, Vo. 37, No. 3 (2006), pp In a review of studies identify studies that concentrate on Hofstede s cutura frames. However, the review ony concerns business and psychoogy journas. So it is to be assumed that Hofstede s impact is even higher in reaity. 28. G. Hofstede, Cuture s Consequences: Internationa Differences in Work Reated Vaues. (Bevery His: Sage, 1980). According to Hofstede cuture can be compared to an onion, which has various pees or eves. Artefacts that he subdivides into symbos, heroes and rituas are at the outer eves of the cuture onion according to Hofstede, whereas vaues are on the inner eve. Changes and simiarities are more probabe on the outside than in the core of the cuture, so measurement of vaues is the best approach in his opinion. 29. Remarks are supported by the foowing sources: G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management, Vo. Januar (1984a), pp. 1 22; G. Hofstede, The Cutura Reativity of the Quaity of Life Concept, Academy of Management Review, Vo. 9, No. 3 (1984b), pp ; G. Hofstede, Cuture and Organizations Software of the Mind. (London et a.: McGraw-Hi, 1991); G. Hofstede, Interkuturee Zusammenarbeit. Kuturen Organisationen Management (Wiesbaden: Gaber, 1993); G. Hofstede, Cuture s Consequences: Internationa Differences in Work Reated Vaues, 2nd ed. (Bevery His: Sage, 2008); G. Hofstede, Lokaes Denken, gobaes Handen, Kuturen, Zusammenarbeit und Management, 4., durchges. ed. (München: Beck, 2009). 30. G. Hofstede, Cuture and Organizations Software of the Mind (London et a.: McGraw-Hi, 1991). 31. G. Hofstede, Cuture s Consequences: Internationa Differences in Work Reated Vaues, 2nd ed. (Bevery His: Sage, 2008). The foowing remarks serve to expain different information about the empirica basis of studies in the iterature: The first assessment invoved ony 40 of the 72 surveyed nationa subsidiaries, because no sampe data that was ess than 50 were to be used. The number of researched countries was ater expanded by 10, whie 14 other countries were combined into 3 country groups (East Africa, West Africa and Arabic speaking countries), so the number went up to 53. Eight of the subsidiaries did not have enough empoyees from the foca country, to be abe to incude them in the anaysis. The number of entities increased ater was expanded by 10 countries. Fourteen more countries have been subsumed into three regions. G. Hofstede, Cuture and Organizations Software of the Mind (London et a.: McGraw-Hi, 1991).

59 42 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 32. G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management, Vo. Januar (1984a), p. 3; G. Hofstede, Cuture s Consequences: Internationa Differences in Work Reated Vaues, 2nd ed. (Bevery His: Sage, 2008). 33. In genera: satisfaction, perception, persona goas and preferences and demographic data G. Hofstede, Cuture s Consequences: Internationa Differences in Work Reated Vaues (Bevery His: Sage, 1980). 34. G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management, Vo. Januar (1984a). 35. G. Hofstede, Cuture s Consequences: Internationa Differences in Work Reated Vaues, 2nd ed. (Bevery His: Sage, 2008). 36. G. Hofstede, Cuture and Organizations Software of the Mind (London et a.: McGraw-Hi, 1991). 37. G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management, January (1984a). 38. G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management, January (1984a). 39. G. Hofstede, Cuture and Organizations Software of the Mind. (London et a.: McGraw-Hi, 1991). 40. G. Hofstede, Cuture and Organizations Software of the Mind. 41. G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management. 42. Based on DGFP, M. Festing, K.-P. Gempper, G. Gesche, J. Hagenmüer, U. Hann, D. Sevogt, G. Trautwein, P. Esch, and S. Armutat, (eds). Interkuturee Managementsituation in der Praxis. Kommentierte Fabeispiee für Führungskräfte und Personamanager. (Bieefed: Bertesmann, 2004). 43. G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management, Vo. Januar (1984a) as we as A. Kaasa, M. Vadi and U. Varbane, Retesting Hofstedes Cutura Dimensions of the European Sampe: Some impications for Human Ressource Management, in 10th Internationa Human Resource Conference, edited by W. Scroggins, C. Gomez, P. G. Benson, R. L. Oiver and M. J. Turner (Santa Fe, NM, USA, 2009). and B.L. Kirkman, K. B. Lowe and C. B. Gibson, A Quarter of Century of Cuture s Consequences: A Review of Empirica Research Incorporating Hofstede s Cutura Vaues Framework, Journa of Internationa Business Studies, Vo. 37, No. 3 (2006), pp G. Hofstede, Cutura Dimensions in Management and Panning, Asia Pacific Journa of Management. 45. G. Hofstede, Cuture and Organizations Software of the Mind (London et a.: McGraw-Hi, 1991). 46. G. Hofstede, Cuture and Organizations Software of the Mind (London et a.: McGraw-Hi, 1991). 47. See aso G. Hofstede and M. Bond, Confucius and Economic Growth: New Trends in Cuture s Consequences, Organizationa Dynamics, Vo. 16, No. 4 (1988), pp B. McSweeney, Hofstede s Mode of Nationa Cutura Differences and their Consequences: A Triumph of Faith a Faiure of Anaysis, Human Reations, Vo. 55, No. 1 (2002). 49. On criticism see C. Eary, Leading Cutura Research in the Future: a Matter of Paradigms and Taste, Journa of Internationa Business Studies, Vo. 37, No. 6 (2006), pp ; A. Kaasa, M. Vadi and U. Varbane, Retesting Hofstedes Cutura Dimensions of the European Sampe: Some impications for Human Ressource Management, in Proceedings of the 10th Internationa Human Resource Conference, edited by W. Scroggins, C. Gomez, P. G. Benson, R. L. Oiver and M. J. Turner (Santa Fe, NM, USA, 2009); B. McSweeney, Hofstede s Mode of Nationa Cutura Differences and their Consequences: A Triumph of Faith a Faiure of Anaysis, Human Reations, Vo. 55, No. 1 (2002), pp ; W. H. Staehe, Management: Eine verhatenswissenschaftiche Perspektive, 8th ed. (München: Vahen, 1999); V. Taras, J. Rowney and P. Stee, Haf a Century of Measuring Cuture: A Review of Approaches, Chaenges, and Limitations for Quantifying Cuture, Journa of Internationa Management, Vo. 15, No. 4 (2009), pp B. McSweeney, Hofstede s Mode of Nationa Cutura Differences and their Consequences: A Triumph of Faith a Faiure of Anaysis, Human Reations, Vo. 55, No. 1 (2002). 51. R. J. House, N. S. Wright and R. N. Aditya, Cross- Cutura Research on Organizationa Leadership, in P. C. Earey and M. Erez (eds), New Perspectives on Internationa Industria/Organizationa Psychoogy, (San Francisco: Wiey, 1997) pp G. Aion, Mirror, Mirror on the Wa: Cuture s Consequences in a Vaue Test of its own Design, Academy of Management Review, Vo. 33, No. 4 (2008), pp ; B. McSweeney, Hofstede s Mode of Nationa Cutura Differences and their Consequences: A Triumph of Faith a Faiure of Anaysis, Human Reations, Vo. 55, No. 1 (2002). 53. A. Kaasa, M. Vadi and U. Varbane, Retesting Hofstede s Cutura Dimensions of the European Sampe: Some Impications for Human Resource Management, in 10th Internationa Human Resource Conference, edited by W. Scroggins, C. Gomez, P. G. Benson, R. L. Oiver and M. J. Turner (Santa Fe, NM, USA, 2009). 54. F. Chiang, A Critica Examination of Hofstede s Thesis and its Appication to Internationa Reward Management, Internationa Journa of Human Resource Management, Vo. 16, No. 9 (2005), pp S. Ha, The Question of Cutura Identity, in T. McGrew, S. Ha and D. Hed (eds) Modernities and its Futures. Understanding Modern Societies (London: Poity Press, 1992), pp ; S. Ha, Kuturee Identität und Gobaisierung, in K.-H. Hörning and R. Winter (eds),

60 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 43 Widerspenstige Kuturen. Cutura Studies as Herausforderung, (Frankfurt/Main Suhrkamp, 1999), pp B. L. Kirkman, K. B. Lowe and C. B. Gibson, A Quarter of Century of Cuture s Consequences: A Review of Empirica Research Incorporating Hofstede s Cutura Vaues Framework, Journa of Internationa Business Studies, Vo. 37, No. 3 (2006). 57. W. Weber, P. J. Dowing and M. Festing, Reducing Barriers in Management Education: Evidence from the Command Economics of Eastern Europe, in Academy of Management (Daas, 1994). 58. A. Kaasa, M. Vadi and U. Varbane, Retesting Hofstedes Cutura Dimensions of the European Sampe: Some impications for Human Resource Management, in 10th Internationa Human Resource Conference, edited by W. Scroggins, C. Gomez, P. G. Benson, R. L. Oiver and M. J. Turner (Santa Fe, NM, USA, 2009). 59. B. Kogut and H. Singh, The Effect of Nationa Cuture on the Choice of Entry Mode, Journa of Internationa Business Studies, Vo. 19, No. 3 (1988), pp H. Yeganeh and Z. Su, Conceptua Foundations of Cutura Management Research, Internationa Journa of Cross Cutura Management, Vo. 6, No. 3 (2006), pp R. J. House, P. J. Hanges, M. Javidan, P. W. Dorfman and V. Gupta (eds), Cuture, Leadership, and Organizations: The GLOBE Study of 62 Societies. (Thousand Oaks, London, New Dehi: Sage, 2004). Detaied anayses of individua countries or cutures are based on various quaitative processes ike focus group interviews, in-depth interviews and the anaysis of various documents, in addition see Vo. 2 of the GLOBE Study, pubished by J. S. Chhokar, F. C. Brodbeck and R. J. House (eds), Cuture and Leadership Across the Word:the GLOBE Book of In-Depth Studies of 25 Societies. (Mahwah, NJ et a.: Erbaum, 2008). In this voume, management behavior in 25 cutures is described in depth and recommendations are made for management empoyees. 63. R. J. House, P. J. Hanges, M. Javidan, P. W. Dorfman and V. Gupta (ed.), Cuture, Leadership, and Organizations: The GLOBE Study of 62 Societies. (Thousand Oaks, London, New Dehi: Sage, 2004). 64. R. J. House, P. J. Hanges, M. Javidan, P. W. Dorfman and V. Gupta (ed.), Cuture, Leadership, and Organizations: The GLOBE Study of 62 Societies. (Thousand Oaks, London, New Dehi: Sage, 2004). 65. R. J. House, P. J. Hanges, M. Javidan, P. W. Dorfman and V. Gupta (ed.) Cuture, Leadership, and Organizations: The GLOBE Study of 62 Societies (Thousand Oaks, London, New Dehi: SAGE, 2004), p Ibid, p Ibid, p Ibid, p Ibid, p Ibid, p Ibid, p Ibid, p The study integrates 59 and 62 cutura regions. Three countries are subdivided ike East and West Germany, Switzerand and French-speaking Switzerand; South Africa is divided into white and back, ony Engishspeaking Canada is considered. Ibid, p For detaied presentation see M. Javidan, R. J. House, P. W. Dorfman, P. J. Hanges and M. S. De Luque, Conceptuaizing and Measuring Cutures and their Consequences: a Comparative Review of GLOBE s and Hofstede s Approaches, Journa of Internationa Business Studies, Vo. 37, No. 6 (2006), pp G. Hofstede, What did GLOBE Reay Measure? Researchers Minds versus Respondents Minds, Journa of Internationa Business Studies, Vo. 37, No. 6 (2006), pp On discussion between Hofstede and authors of the GLOBE study Vo. 37, No. 6 of the Journa of Internationa Business Studies from For a commentary on the dispute see P. B. Smith, When Eephants Fight, the Grass Gets Tramped: the GLOBE and Hofstede Projects, Journa of Internationa Business Studies, Vo. 37, No. 6 (2006), pp G. B. Graen, In the Eye of the Behoder: Cross-Cutura Lessons in Leadership from Project GLOBE, Academy of Management Perspectives, Vo. 20, No. 4 (2006), pp F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture (London: Nichoas Breaey, 2002). 79. F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture (London: Nichoas Breaey, 2002). 80. It shoud, however, be noted that these dimensions present an anaytica differentiation that is hard to maintain statisticay, because the vaue of Cronbach s apha exceeds the minimum vaue of 0.7 ony in five dimensions (Universaism/Particuarism ¼ 0.71; Individuaism/ Communitarism ¼ 0.73; Neutra/Affective ¼ 0.75; Ascription/Achievement ¼ 0.71; Concept of time requires a specia measurement, but has a vaue of 0.74). The scaes are not thoroughy reiabe. F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture. (London: Nichoas Breaey, 2002). Respectivey, the number of dimensions varies (Ibid). 81. F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture. 82. F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture. 83. F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture, chapter F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture, chapter 4.

61 44 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 85. F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture, chapter F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture, chapter F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture, chapter F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture, chapter F. Trompenaars and C. Hampden-Turner, Riding the Waves of Cuture, chapter E. T. Ha and M. R. Ha, Understanding Cutura Differences. Germans, Frenchs and Americans. (Yarmouth, ME: Intercutura Press, 1990). 91. E. T. Ha and M. R. Ha, Understanding Cutura Differences. Germans, Frenchs and Americans. (Yarmouth, ME: Intercutura Press, 1990). 92. S. A. Sackmann and M. E. Phiips, Contextua Infuences on Cuture Research: Shifting Assumptions for New Workpace Reaities, Internationa Journa of Cross Cutura Management, Vo. 4, No. 3 (2004), pp ; A.-M. Søderberg and N. Hoden, Rethinking Cross Cutura Management in a Gobaizing Business Word, Internationa Journa of Cross Cutura Management, Vo. 2, No. 1 (2002), pp ; H. Yeganeh and Z. Su, Conceptua Foundations of Cutura Management Research, Internationa Journa of Cross Cutura Management, Vo. 6, No. 3 (2006), pp V. Taras, J. Rowney and P. Stee, Haf a Century of Measuring Cuture: A Review of Approaches, Chaenges, and Limitations for Quantifying Cuture, Journa of Internationa Management, Vo. 15, No. 4 (2009), pp C. Eary, Leading Cutura Research in the Future: a Matter of Paradigms and Taste, Journa of Internationa Business Studies, Vo. 37, No. 6 (2006), pp ; K.-H. Hörning, Kutur as Praxis, in F. Jaeger, B. Liebsch, J. Rüsen and J. Straub (eds), Handbuch der Kuturwissenschaften. Bd.1: Grundagen und Schüssebegriffe (Stuttgart: Metzer, 2004), pp B. Gerhart, How Much Does Nationa Cuture Constrain Organizationa Cuture, Management and Organization Review, Vo. 5, No. 2 (2008), pp Aso B. Gerhart and M. Fang, Nationa Cuture and Human Resource Management: Assumptions and Evidence, Internationa Journa of Human Resource Management, Vo. 16 (2005), pp ; B. L. Kirkman, K. B. Lowe and C. B. Gibson, A Quarter of Century of Cuture s Consequences: A Review of Empirica Research Incorporating Hofstede s Cutura Vaues Framework, Journa of Internationa Business Studies, Vo. 37, No. 3 (2006), pp ; I. Weer and B. Gerhart, Empirica Research Issues in Comparative Human Resource Management, in C. Brewster and W. Mayrhofer (eds), Handbook of Research in Comparative Human Resource Management (Chetenham et a.: Edward Egar, Im Druck). 97. E.g. N. J. Ader and A. Gundersen, Internationa Dimensions of Organizationa behavior, 5th ed. (Cincinnati, OH: Thomson Learning, South-Western, 2008); J. Chid, Cuture, Contingency and Capitaism in the Cross- Nationa Study of Organizations, in L. L. Cummings and B. M. Staw (eds), Research in Organizationa behavior, (Greenwich: Esevier, 1981), Vo. 3, pp ; G. Hofstede, Cuture and Organizations Software of the Mind (London et a.: McGraw-Hi, 1991), p. 238; D. L. Kincaid, The Convergence Theory and Intercutura Communication, in Y. Y. Kim and W. B. Gudykunst (eds), Theories in Intercutura Communication (Newbury Park, CA: Sage, 1988), pp ; S. Ronen and O. Shenkar, Custering Countries on Attitudina Dimensions: A Review and Synthesis, Academy of Management Review, Vo. 10, No. 3 (1985). 98. J. Chid, Cuture, Contingency and Capitaism in the Cross-Nationa Study of Organizations, in L. L. Cummings and B. M. Staw (eds), Research in Organizationa behavior, (Greenwich, CT: JAI, 1981), Vo. 3, pp Like the Word Poity Approach by J. W. Meyer, The Word Poity and the Authority of the Nation State, in G. M. Thomas, J. W. Meyer, F. O. Ramirez and J. Boi (eds), Institutiona Structure. Constituting State, Society, and the Individua (Newbury Park, CA et a.: Sage, 1987), pp , see J. W. Meyer, Gobaization: Theory and Trends, Internationa Journa of Comparative Socioogy, Vo. 48 (2007), pp E. H. Schein, Organizationa Cuture and Leadership, 3rd ed. (San Fransisco: Jossey-Bass, 2004) H. Bhabha, The Location of Cuture (New York, NY: Routedge 2005) Deoitte (eds), Connecting across the Generations in the Workpace: What Business Leaders Need to Know to Benefit from Generationa Differences (2005) Deoitte (eds), Managing the Taent Crisis in Goba Manufacturing. Strategies to Attract and Engage Generation Y (2007) On aspects of cross-cutura management particuary see D. N. Den Hartog, R. J. House, P. J. Hanges, S. A. Ruiz- Quintania and P. W. Dorfman, Cuture-Specific and Cross-Cuturay Generaizabe Impicit Leadership Theories: Are Attributes of Charismatic/Transformationa Leadership Universay Endorsed?, Leadership Quartery, Vo. 10, No. 2 (1999), pp as we as the website of the GLOBE project gobe.nsf/index. In addition, see information on further reading. On Goba Leadership see R. J. House, N. S. Wright and R. N. Aditya, Cross-Cutura Research on Organizationa Leadership, in P. C. Earey and M. Erez (eds), New Perspectives on Internationa Industria/ Organizationa Psychoogy (San Francisco: Wiey, 1997), pp ; M. Mendenha, T. Kühmann and G. Stah (eds), Deveoping Goba Business Leaders (Westport, CT: Quorum Books, 2001). Exampes of cross-cutura

62 CHAPTER 2 THE CULTURAL CONTEXT OF IHRM 45 behaviora situations in organizations can be found in G. Oddou and M. Mendenha, Cases in Internationa Organizationa behavior, (Maden, MA: Backwe, 2000) The major empirica studies by C. B. Gibson, Impementation of Work Teams Across Cutures: Knowedge Sources, Team Beiefs and Team Effectiveness, in Carnegie Bosch Conference on Knowedge in Internationa Coporations (Rom, 1997); T. Kostova and L. L. Cummings, Success of Transnationa Transfer of Organizationa Practices within Mutinationa Companies, Carnegie Bosch Institute, in Carnegie Bosch Conference on Knowedge in Internationa Corporations (Rom, 1997); S. H. Schwartz, A Theory of Cutura Vaues and Some Impications for Work, Appied Psychoogy: An Internationa Review, Vo. 48, No. 1 (1999), pp ; P.-C. Wu and P. R. Sparrow, Understanding the Connections between Nationa Vaue Orientations, Work Vaues, Commitment, and Job Satisfaction: Lessons for Internationa HRM, in K. Macharzina, M. J. Oestere and J. Wof (eds), Goba Business in the Information Age. Proceedings of the 23rd Annua EIBA Conference, (Stuttgart: Extec, 1997), pp Unti recenty, the infuence of institutiona and cutura carification approaches have frequenty been anayzed separatey. In the end, they are in an interdependent reationship, which has not been adequatey expained unti now. There is is certainy a need for future research on this see Z. Aycan, The Interpay between Cutura and Institutiona/Structura Contingencies in Human Resource Management Practices, Internationa Journa of Human Resource Management, Vo. 16, No. 7 (2005), pp

63 CHAPTER 3 THE ORGANIZATIONAL CONTEXT Chapter Objectives In this chapter, we examine how internationa growth paces demands on management, and the factors that impact on how managers of internationaizing firms respond to these chaenges. We start with the premise that the human resource (HR) function does not operate in a vacuum, and that HR activities are determined by, and infuence, organizationa factors. We cover the foowing areas: Issues of standardization and ocaization. Structura responses to internationa growth. Contro and coordination mechanisms, incuding cutura contro. Effect of responses on human resource management approaches and activities. This discussion buids upon materia covered in Chapter 1 to provide a meaningfu organizationa context for drawing out the internationa dimension of human resource management the centra theme of this book. 46

64 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 47 INTRODUCTION Human resource practices, poicies and processes are imbedded in the strategic, structura and technoogica context of the MNE. 1 This administrative heritage is particuary critica for goba firms as the internationa organization wi be caed on to operate across a wide variety of competitive environments and yet somehow baance these diverse socia, poitica and economic contexts with the requirements of the origina home context. 2 In Chapter 1, we ooked at the genera goba environment in which firms compete. Here we focus on interna responses as firms attempt to dea with goba environment chaenges. Figure 3.1 iustrates the major eements encountered as a resut of internationa growth that pace demands on senior managers. The various eements in Figure 3.1 are not mutuay excusive. For exampe, geographica dispersion affects firm size, creating pressure upon contro mechanisms that, in turn, wi infuence structura change. Growth (size of the firm) wi affect the fow and voume of information, which may reinforce a contro response (such as what functions, systems and processes to centraize and what to decentraize). Geographica dispersion wi invove more encounters with nationa cutures and anguages, thus affecting the fow and voume of information. The demands of the host country can infuence the composition of the workforce (the mix of parent country nationas (PCNs), host country nationas (HCNs) and third country nationas (TCNs)). FIGURE 3.1 Management demands of internationa growth Fow and voume of information Size Structure Operation modes Management demands of internationaization Geographica dispersion Host-country demands Nationa cutures and anguages Contro mechanisms An in-depth examination of a these eements is beyond the scope of this book. Rather, the purpose of this chapter is to expore some of the manageria responses to these infuences that concern HRM. Our focus remains on the connection between organizationa factors, management decisions and HR consequences. To a certain extent, how the internationaizing firm copes with the HR demands of its various foreign operations determines its abiity to execute its chosen expansion strategies. Indeed, eary Finnish research suggests that personne poicies shoud ead rather than foow internationa operation decisions, 3 yet one coud argue that most companies take the opposite approach that is, foow market-driven strategies. We wi now discuss the twin forces of standardization and ocaization and foow the path a domestic firm takes as it evoves into a goba entity and iustrate how the HRM function is affected by the way the internationaization process itsef is managed.

65 48 CHAPTER 3 THE ORGANIZATIONAL CONTEXT STANDARDIZATION AND LOCALIZATION OF HRM PRACTICES Controing cross-border operations of a MNE centers around what processes, routines, procedures and practices can be and shoud be transferred abroad and to what degree these require country-specific adaptation, if any, to be effectivey impemented at the oca eve. In the processes of transferring systems and know-how the roe of peope is critica. The management of peope probaby the most cuture-bound resource in an internationa context is faced by a high eve of compexity because of the diverse cutura environment of a MNE. 4 As discussed in previous chapters, expatriates are frequenty used to oversee the successfu impementation of appropriate work practices. At some point, however, mutinationa management repaces expatriates with oca staff with the expectation that these work practices wi continue as panned. This approach is based on assumptions that appropriate behavior wi have been instied in the oca workforce through training programs and hiring practices, and that the mutinationa s way of operating has been accepted by the oca staff in the manner intended. In this way, the mutinationa s corporate cuture wi operate as a subte, informa contro mechanism a substitution for direct supervision. However, this depends on the receptivity of the oca workforce to adhere to corporate norms of behavior, the effectiveness of expatriates as agents of sociaization and whether cost considerations have ed the mutinationa to ocaize management prematurey. Here, the roe of appropriate human resource management activities becomes crucia. The aim of goba standardization of HRM practices is to reach the above-mentioned consistency, transparency and an aignment of a geographicay fragmented workforce around common principes and objectives. 5 The use of common management practices is intended to foster a feeing of equa treatment among managers invoved in cross-border activities and, at the same time, aims at a common understanding of what is expected from the empoyees. Furthermore, consistent systems faciitate the administration processes by increasing operationa efficiencies. 6 The aim of reaizing oca responsiveness is to respect oca cutura vaues, traditions, egisation or other institutiona constraints such as government poicy and/or education systems regarding HRM and work practices. As mentioned above, attempting to impement methods and techniques that have been successfu in one environment can be inappropriate in another. 7 The chaenge of many mutinationas is to create a system that operates effectivey in mutipe countries by expoiting oca differences and interdependencies and at the same time sustaining goba consistency. Uniever, for exampe, uses the same recruitment criteria and appraisa system on a wordwide basis to ensure a particuar type of manageria behavior in each subsidiary. However, features of the nationa education systems and ski eves must be considered. 8 This discussion has shown that the standardization-ocaization choice that confronts the mutinationa in an area of operation such as marketing, appies to the management of the goba workforce as we. This is due to the fact that HRM carries out a strategic support function within the firm. However, as has been indicated above, the extent to which HRM systems are standardized or ocaized depends on various interdependent factors. We ca this the HRM baance between standardization and ocaization. Figure 3.2 iustrates important drivers that either foster standardization or ocaization. To sum up, the exact baance of a firm s HRM standardization-ocaization choice is based on factors of infuence such as strategy structure, firm size and maturity 9. The strength of corporate cuture pays an important roe on the standardization side, whie the cutura and institutiona environment, incuding features of the oca entity such as operation mode and subsidiary roe, pay an important roe on the ocaization side. As Harzing 10 confirms, there exists a continuum of advantages for both standardization and ocaization. Arecentreviewof16NorthAmericanandEuropeanbasedMNEsedtheresearcherstoconcude that between the two poes of standardization (reated to what the writers ca dependent HRM

66 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 49 FIGURE 3.2 Baancing the standardization and ocaization of human resource management in MNEs Goba standardization According to MNE s goba requirements: Strategy and structure Corporate cuture Firm size and maturity Locaization According to the host country context: Cutura environment Institutiona environment Firm size and maturity According to features of the oca affiiate: Mode of operation Subsidiary roe Baancing goba standardization and ocaization of HRM Source: This artice was pubished in M. Festing, J. Eidems and S. Royer. Strategic Issues and Loca Constraints in Transnationa Compensation Strategies: An anaysius of Cutura, Institutiona and Poitica Infuences, European Management Journa, Vo. 25, No 2, 2007, pp Copyright Esevier Reproduced with permission. practices that are ceared by corporate headquarters) and ocaization (reated towhat the writers ca highy independent HRM practices that vary at the discretion of oca managers) there are intermediate strategies of standardization and ocaizationofhrpractices(referredtoas interdependent and independent respectivey). 11 Furthermore, these practices are dynamic, such that HR practices may move between these two poes in response to contextua, firm-specific strategic, environmenta and reguatory deveopments. FACTORS DRIVING STANDARDIZATION The reationship suggested in the iterature expains that a arge MNE with a ong internationa history and extensive cross-border operations: pursues a mutinationa or transnationa corporate strategy; 12 supported by a corresponding organizationa structure; 13 that is reinforced by a shared wordwide corporate cuture. However, in practice, we do not aways observe perfect adherence to these factors in a MNEs. For exampe, a wordwide corporate cuture may not be shared by a empoyees in a subsidiaries. 14 This factor shoud, nonetheess, at east be the target of many firms hoping to cope with the chaenges of gobaization.

67 50 CHAPTER 3 THE ORGANIZATIONAL CONTEXT In such highy internationaized organizations we often find attempts to standardize HRM practices on a wordwide basis. Of course, this approach is not appropriate for the whoe workforce but aims at a group of managers who are working at the cross-border boundaries of the firm in the headquarters or in foreign ocations, i.e., internationa boundary spanners. 15 A good exampe of a MNE which has attempted to gobay standardize compensation practices is Schering AG, a German pharmaceutica company, which introduced a goba performance system for top managers wordwide. 16 Within the context of a new strategic orientation, Schering impemented a standardized bonus system for top executives that aimed at strengthening the performance cuture in the company and faciitating a common orientation for a managers. The corporate eement of the bonus system consisted of a standardized bonus structure. As the cutura acceptance for variabe bonuses varied across Schering s subsidiaries, the proportion between the fix and variabe part of the tota compensation package of managers was adapted to the country-specific conditions. The Schering exampe not ony shows us that the impementation of goba standards is possibe, but at the same time, it aso makes it cear that oca adaptations and exceptions to the standards are often needed. The factors driving the ocaization of HRM practices are outined in the next section. FACTORS DRIVING LOCALIZATION As has been depicted in Figure 3.2, factors driving ocaization incude the cutura and institutiona environment and features of the oca entity itsef. We wi discuss these factors in the foowing paragraphs. The cutura environment In Chapter 2, we identified nationa cuture as a moderating variabe in IHRM. We noted how members of a group or society who share a distinct way of ife wi tend to have common vaues, attitudes and behaviors that are transmitted over time in a gradua, yet dynamic, process. There is evidence that cuture has an important impact on work and HRM practices. Sparrow, for exampe, has identified cutura infuences on reward behavior such as different expectations of the manager-subordinate reationship and their infuence on performance management and motivationa processes. 17 Triandis 18 found that cutures where work is based on more integrated persona socia reationships may vaue a more compete baance of intrinsic and extrinsic rewards, whie cutures characterized by persona independence and isoation ( individuaism ) as we as rapidy changing persona and socia contexts may emphasize extrinsic rewards given the absence of a strong and enduring socia matrix that attributes meaning and power to intrinsic rewards. The exampes indicate that the effectiveness of standardized practices might differ in various cutura contexts. The institutiona environment In addition to nationa or regiona cuture, institutiona settings shape the behavior and expectations of empoyees in subsidiaries. 19 The institutionaism perspective 20 indicates that institutiona pressures may be powerfu infuences on human resource practices. 21 According to Whitey 22 institutiona norms and vaues may be based on the features of a nationa business system. Eements which are reevant to HRM are, for exampe, the characteristics of the education system or the industria reations system. For exampe, in Germany, the dua vocationa training system, which provides theoretica earning opportunities in part-time schoos and practica experience in companies, is widespread. More than 60 per cent of an age group is invoved in dua vocationa training for more

68 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 51 than 350 professions. 23 This kind of training represents a we-accepted quaification in Germany, whereas in other countries such as France, this system is non-existent or restricted to ower quaifications. The pervasiveness and reputation of such a training system has an impact on IHRM. More specificay, for exampe, the recruitment process and the seection criteria refect the importance of these quaifications. Another exampe of institutiona factors which can have HRM-reated effects are the: scope of abor egisation and its regency of codification, [it] creates new codes of conduct through issues such as sex discrimination, equa pay for equa work, and minimum wages. 24 Thus, for egitimacy reasons, it can make sense for some organizations to offer specific benefits or advantages, for exampe, even if they are very expensive and normay woud not be offered due to efficiency considerations. The impact of the institutiona environment on IHRM is shown in the foowing exampe, which addresses staffing decisions. A study by As-Saber, Dowing and Liesch 25 found that there was a cear preference for using HCNs in key positions by mutinationas operating in India. The authors suggest that a major reason for HCN preference was the beief that an Indian woud know more than an expatriate manager coud earn in years on the job. Generay, ocaization of HR staff positions is more ikey to ensure that oca customs and host-government empoyment reguations are foowed. Khiji 26 found that, athough foreign mutinationas in Pakistan had formuated poicies, impementation was ow because managers brought up and trained in a hierarchica and centraized set-up resist sharing power and invoving empoyees in decision making. This occurred despite the host country s expectation that mutinationas woud transfer their best practices and act as a positive force in the introduction of what was regarded as desirabe Western management styes. However, the mutinationas in Khiji s study had taken a poycentric approach, with HCNs in key positions, incuding that of the HR manager. Liberman and Torbiörn, 27 in their study of eight European subsidiaries of a goba firm, found variation in the degree to which empoyees adopted corporate norms. They suggest that at the start of a goba venture, differences in management practices are attributabe to cutura and institutiona factors whereas commonaities might be expained by a common corporate cuture. Empirica resuts confirmed this. In some countries, empoyees were agreeabe towards wearing of company cothing embazoned with its ogo, as such action did not chaenge their nationa cuture. In another focus of the study, there was great resistance to the impementation of performance assessment for non-manageria positions as it went against existing practice in one of the subsidiaries. Tayor 28 found that Chinese empoyees working in Japanese pants in their home country perceived team briefings and other such forums as a new form of rhetoric, repacing nationaist and Communist Party propaganda of the past, and this information was consequenty considered of itte vaue by workers and managers. These exampes underine the importance of finding adequate soutions for the standardization-ocaization baance. These above-described effects iustrate phenomena identified by the theoretica ens of institutionaism. The country-of-origin effect impies that mutinationas are shaped by institutions existing in their country of origin and that they attempt to introduce these parent-country-based HRM practices in their foreign subsidiaries. 29 This is especiay the case in an ethnocentric firm. The country-of-origin effects are stronger in non-restrictive oca environments than in very restrictive countries. For exampe, US MNEs are more fexibe in importing their HRM practices into British affiiates than into German units because British empoyment aw is not as strict as that in Germany and it eaves more choices to the enterprises. 30 However, there is aso evidence that MNEs tend to imit the export of practices typica for the country-of-origin to those that are considered to be their core competences. 31 The host-country effect refers to the extent to which HRM practices in subsidiaries are impacted by the host-country context. For exampe, foreign MNEs in Germany are not free in their choice of pay eves or pay mixes. This is reguated by coective wage agreements, which are typica for the German environment and must be accepted. A simiar effect exists in the headquarters. Here, HRM activities are infuenced by the home-country environment. We ca

69 52 CHAPTER 3 THE ORGANIZATIONAL CONTEXT these effects home-country effects. This differentiation refects the discussion on home and hostcountry environment, which is typica for MNEs. The home-country effect is the basis for the above-described country-of-origin effect, describing MNEs that try to transfer HRM activities shaped by their home-country environment to foreign ocations. This discussion has shown that the institutiona context has an impact on HRM in severa different ways. We have seen that not ony the host country s institutiona context can foster ocaization, but that forces exist from the country-of-origin as we. Sometimes reverse diffusion, i.e. the transfer of practices from foreign ocations to the headquarters, can be observed. 32 For exampe, there is evidence that American MNEs earn from their subsidiaries in the United Kingdom. 33 Edwards et a. 34 have reported that a shared service approach to organizing the HR function was deveoped in the UK and then introduced in the American headquarters. Reationships of the different effects between the institutiona environment and the MNE units are deineated in Figure 3.3. FIGURE 3.3 Institutiona effects on MNEs Host-country environment Subsidiary A Parent-country environment Headquarters Host-country environment Subsidiary B Host-country effect/home-country effect Country-of-origin effect Reverse diffusion effect Concusions on the host-country environment In the preceding two sections we outined how the institutiona environment may infuence HRM and, in particuar, attempts at goba standardization and oca responsiveness 35. Tabe 3.1 summarizes these ideas and gives exampes of environmenta differences, which coud ead to probems when MNEs attempt to introduce wordwide standardized HRM practices. Within this context, it is important to reca the discussion on convergence and divergence of HRM and work practices in Chapter 1.

70 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 53 TABLE 3.1 Exampes of the impact of the cutura and institutiona context on HRM practices HRM practices Recruitment and seection Training and deveopment Compensation Task distribution Impact of the institutiona context Education system The reputation of educationa institutions such as pubic and private universities varies in different countries. This is refected in the recruiting processes (i.e. HR marketing) and seection criteria of the firms in those countries. Education system Education systems differ between different countries (existence of a dua vocationa training system, quaity and reputation of higher education institutions). This has an effect on the training needs perceived and fufied by MNEs. Legisation and industria reations Legisation such as the reguation of minimum wages or respective union agreements with respect to compensation have an impact on the firm s compensation choices with Respect to pay mix and pay eve. Legisation and norms Legisations and respective norms Support gender-based division of abor to a differing extent in different countries. Whie in some countries the percentage of femae managers is reativey high, in other countries it is not common that women work at a. Mode of operation abroad When addressing the mode of operation, it is hepfu to examine this from the eve of the oca affiiate. Thus, we turn to firm-endogenous factors to determine the baance between goba standardization and ocaization. Later in the chapter we wi discuss the various modes of foreign operations and their associated HRM practices. A study by Buckey et a. 36 provides two exampes of how the mode of operation either inhibits or faciitates work standardization. In ate 1978, the Chinese government announced an open-door poicy and commenced economic reforms aimed at moving the country from a centray panned to a market economy. Western firms that entered China eary were more or ess forced to enter into joint ventures with stateowned enterprises (SOEs), whereas those entering ater have been abe to estabish whoy owned subsidiaries (WOSs). One case in the Buckey et a. study is Shanghai Be a joint venture formed in 1983 between a Begian teecommunications firm (now Acate Be), the Begian government and the Chinese Posta and Teecommunications Industries Corporation (PTIC). There was a gradua transfer of reevant technoogy by the Begian firm, with a ong-term reiance on Begian expatriates. The Begian firm had imited contro over the Chinese empoyees in the joint venture and was constrained by its partner s expectations and differing goas. The second case researched was much different. The US teecommunications firm, Motoroa, estabished a whoy owned operation in Tianjin, China, in Changing conditions in China meant that Motoroa coud effectivey buid a transpant factory : importing production equipment, organizationa processes and practices from either the parent or other subsidiaries in its goba network. This enabed Motoroa to integrate the Chinese operation into the broader corporate network and to ocaize management. These have been supported by HRM initiatives such as a specia management training program (China Acceerated Management Program CAMP) 37, Engish anguage training and transfer of Chinese empoyees into the US operations.

71 54 CHAPTER 3 THE ORGANIZATIONAL CONTEXT Motoroa has been abe to transfer its processes and systems, such as Six Sigma quaity contro, bringing its technoogy, knowedge and work practices, supported by HRM activities, into the new faciities in China reativey quicky. Ownership and contro are therefore important factors that need to be taken into consideration when mutinationas attempt to standardize work and HRM practices. A firm s abiity to independenty impement processes and procedures is naturay higher in whoy owned subsidiaries whie the question of contro in internationa joint ventures (IJV) remains a concern for mutinationa firms. Compementarities between IJV partners and the degree of interdependence between the IJV and other parts of the mutinationa have proven to be important infuences on effective IJV operation and the transfer of work practices. For exampe, Yan s 38 study of 87 IJVs operating in China reveaed the importance of defining a strategic objective for the IJV when determining work practices. Yan concuded that task-reated infuence in an IJV pays an important roe in directy shaping HRM practices. The discussion here indicates that the achievement of an acceptabe baance in the standardization and ocaization of HRM practices is ess probematic in whoy owned subsidiaries than in cross-border aiances. However, in the atter, the baance aso depends on many features of a particuar aiance incuding ownership and contro issues. As we wi discuss in the next section, it is important to further differentiate whoy owned subsidiaries. We wi therefore now introduce the concept of a subsidiary roe. Subsidiary roe The subsidiary roe specifies the position of a particuar unit in reation to the rest of the organization and defines what is expected of it in terms of contribution to the efficiency of the whoe MNE. Subsidiaries can take different roes. 39 Studies have examined how subsidiary roes can differ reated to subsidiary function, power and resource reationships, initiative-taking, hostcountry environment, the predisposition of top management and the active championing of subsidiary managers. 40 Subsidiaries may be initiators as we as producers of critica competences and capabiities that contribute as specific profit centers to the competitive advantage of the whoe mutinationa. Centers of exceence at the subsidiary eve can be viewed as an indication of how some network-mutinationas are recognizing that eves of expertise differ across the organization and that not a innovation and best practice originates from the center that is from headquarters. The Japanese eectronics firm Hitachi s estabishment of an R&D center in China is an exampe of buiding up the existing R&D faciity to the status of a goba center for the deveopment of air conditioners. 41 We wi now discuss the we-known typoogy of subsidiary roes by Gupta and Govindarajan. 42 Based on their interpretation of a MNE as a network of capita, product and knowedge fows, they attribute the highest importance to knowedge fows. They differentiate between (1) the magnitude of knowedge fows, i.e., the intensity of the subsidiary s engagement in knowedge transfer, and (2) the directionaity of transactions, which means whether subsidiaries are knowedge providers or recipients. The differentiation between knowedge in- and outfows eads to the foowing typoogy (see Tabe 3.2). Subsidiaries characterized as goba innovators provide significant knowedge for other units and have gained importance as MNEs move towards the transnationa mode. This roe is refected in an IHRM orientation in which the parent firm deveops HRM poicies and practices which are then transferred to its overseas affiiates. 43 The integrated payer aso creates knowedge but at the same time is recipient of knowedge fows. Thus, a subsidiary characterized by this roe can represent an important knowedge node in the MNE network. 44 This shoud be supported by a highy integrated HRM orientation. Thus, the HRM practices and poicies between headquarters and subsidiaries are very simiar, probaby characterized by a high extent of goba standardization and ocaized eements when this is needed.

72 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 55 TABLE 3.2 Gupta and Govindarajan s four generic subsidiary roes Low outfow High outfow Low infow Loca innovator Goba innovator High infow Impementer Integrated payer Source: Adapted from A. Gupta and V. Govindarajan, Knowedge Fows and the Structure of Contro within Mutinationa Corporations, Academy of Management Review, Vo. 16, No. 4 (1991), pp Impementers rey heaviy on knowedge from the parent or peer subsidiaries and create a reativey sma amount of knowedge themseves. If the IHRM system is export-oriented, i.e., goba HRM decisions are mainy made in the parent company, then the oca subsidiaries are responsibe for the impementation process at the oca eve. In the oca innovator roe, subsidiaries engage in the creation of reevant country/region-specific knowedge in a key functiona areas because they have compete oca responsibiity. The HRM systems in such poycentric firms ony have weak ties with the headquarters. As every subsidiary operates independenty from the parent company and from other subsidiaries this independence resuts in a number of ocaized HRM poicies and practices. Harzing and Noorderhaven 45 tested this typoogy and found empirica support in a sampe of 169 subsidiaries of MNEs headquartered in The Netherands, France, Germany, the UK, Japan and the USA: In comparison to earier studies, our resuts show an increasing differentiation between subsidiaries, as we as an increase in the reative importance of both knowedge and product fows between subsidiaries suggesting that MNCs are getting coser to the idea type of the transnationa company. 46 A deveopment towards the idea type of the transnationa corporation invoves more subsidiaries engaging in high-knowedge outfows, and thus, taking on the roe of goba innovator or integrative payers. The difficuties in transferring knowedge and competence with respect to management practices from the subsidiary eve whether from a designated center of exceence 47 or not to the rest of the network are simiar to the difficuties that we discussed in the context of headquarters to subsidiary transfer. The sticky nature of knowedge, for exampe, appies regardess of its origins, but the designated roe of the subsidiary and the standing of its management are critica in determining the spread and adoption of subsidiary initiated practices. Stickiness represents one reason why some firms move towards an export-oriented approach to IHRM rather than an integrative management orientation. 48 Another major barrier to an integrative approach can be what Birkinshaw and Ridderstrâe 49 describe as the corporate immune system. Subsidiary initiatives are often met with significant resistance. Individuas within the organization resist change, or support ow-risk projects, and are wary of ideas that chaenge their own power base. Michaiova and Husted use the terms knowedge-sharing hostiity and knowedge hoarding to expain non-sharing behaviors identified in their study of firms operating in Russia. 50 Increasing the mobiity of managers is one way to break down these barriers and produce corporate rather than subsidiary champions who are prepared to disseminate information about subsidiary initiatives and capabiities, and recommend adoption in other parts of the organization where appropriate. Tregaskis, 51 in her study of R&D centers, reports how one firm found that persona reationships formed through visits of key staff to other units faciitated information sharing and the eventua adoption of new products by other subsidiaries. Face-to-face interactions were important in buiding trust and exchanges of tacit knowedge which might be possibe in the context of corporate or regiona meetings. Hence, frequent persona exchanges between the MNE units via individua encounters or regiona or goba meetings are essentia in the processes of successfu identification and transfer of knowedge. 52

73 56 CHAPTER 3 THE ORGANIZATIONAL CONTEXT This discussion has indicated how the subsidiary roe and reated processes of knowedge transfer may impact the baance of standardization and ocaization in HRM. Recaing the power and resource reationships outined at the beginning of this section, it must be stressed that powerfu subsidiaries may have a stronger position in infuencing the standardization-ocaization baance than those affiiates active in ess significant markets or with rather unspecific skis. 53 Birkinshaw and Ridderstrâe 54 define the structura power and resource-based power of subsidiaries vis-à-vis the corporate headquarters as two basic sources of infuence within networks and distinguish between core subsidiaries and periphera subsidiaries. There is evidence that those subsidiaries controing arge market voumes and possessing strategicay important function-specific skis within the MNE network have a strong impact on the standardization-ocaization baance. 55 Measures creating the HRM baance between standardization and ocaization Various studies 56 have investigated coordination, communication and contro processes between parent organizations and subsidiaries. The anaysis of these mechanisms contributes to our understanding about how the baance between gobaization and ocaization is achieved. Here, we wi foow the distinction between structura/forma and informa/ subte coordination mechanisms used by Martinez and Jario. 57 These authors define coordination as the process of integrating activities that remain dispersed across subsidiaries. 58 The essentia difference between these two groups of coordination mechanisms is that the atter is person oriented whereas the former is not. Martinez and Jario attribute the non-person-oriented coordination mechanisms to simpe strategies of internationaization. More compex strategies, however, require a higher coordination effort. A high degree of coordination is usuay reaized by using both the nonperson-oriented coordination mechanisms and person-oriented coordination mechanisms. 59 In the context of corporate IHRM practices and poicies, non-person-oriented coordination devices incude, for exampe, written materia on HRM practices such as handbooks or information eafets, either provided in print or via the intranet. However, as this is a one-way communication device, it can ony suppement the compex process of baancing goba and oca needs. It does not meet the requirements of a compex transnationa approach to IHRM. Here, person-oriented coordination is indispensabe. As has aready been indicated in the context of knowedge transfer between subsidiaries, HR managers from the headquarters as we as from the foreign affiiates must exchange their knowedge, expectancies and experiences on the different oca contexts. Therefore, meetings and common project work using a respective supporting infrastructure such as intranet patforms 60 are essentia throughout the process of deveoping and impementing the standardization-ocaization baance in IHRM. Furthermore, powerfu ine managers acting as opinion eaders shoud be invoved in the process as we in order to achieve broad support for the transnationa HRM measures. Finay, a high importance paced on the respective HRM soution by the corporate top management is essentia for the success of the initiative. 61 THE PATH TO GLOBAL STATUS Most firms pass through severa stages of organizationa deveopment as the nature, and size, of their internationa activities grow. As they go through these evoutionary stages, their organizationa structures 62 change, typicay due to: The strain imposed by growth and geographica spread. The need for improved coordination and contro across business units. The constraints imposed by host-government reguations on ownership and equity.

74 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 57 Mutinationas are not born overnight; the evoution from a domestic to a truy goba organization may invove a ong and somewhat tortuous process with many and diverse steps, as iustrated in Figure 3.4. Athough research into internationaization has reveaed a common process, it must be stressed that this process is not exacty the same for a firms 63. As Figure 3.4 shows, some firms may use other operation modes such as icensing and subcontracting instead of, or as we as, estabishing their own foreign production or service faciities. FIGURE 3.4 Stages of internationaization Network of subsidiaries Foreign production Saes subsidiary Exporting Licensing Subcontracting Some firms go through the various steps rapidy whie others evove sowy over many years, athough recent studies have identified a speeding up of the process. For exampe, some firms are abe to acceerate the process through acquisitions, thus eapfrogging over intermediate steps (that is, move directy into foreign production through the purchase of a foreign firm, rather than initia exporting, foowed by saes subsidiary, as per Figure 2.2 above). Nor do a firms foow the same sequence of stages as they internationaize some firms can be driven by externa factors such as host-government action (for exampe, forced into a joint venture), or an offer to buy a company. Others are formed expressy with the internationa market in mind often referred to as born gobas. In other words, the number of steps, or stages, aong the path to mutinationa status varies from firm to firm, as does the time frame invoved. 64 However, the concept of an evoutionary process is usefu in iustrating the organizationa adjustments required of a firm moving aong the path to mutinationa status. As mentioned earier, inked to this evoutionary process are structura responses, contro mechanisms and HRM poicies, which we now examine. Export This typicay is the initia stage for manufacturing firms entering internationa operations. As such, it rarey invoves much organizationa response unti the eve of export saes reaches a critica point. Of course, simpe exporting may be difficut for service companies (such as ega firms) so that they may be forced to make an eary step into foreign direct investment operations (via a branch office, or joint venture). 65 Exporting often tends to be handed by an intermediary (for exampe, a foreign agent or distributor) as oca market knowedge is deemed critica. As export saes increase, however, an export manager may be appointed to contro foreign saes and activey seek new markets. This person is commony from the domestic operations. Further growth in exporting may ead

75 58 CHAPTER 3 THE ORGANIZATIONAL CONTEXT to the estabishment of an export department at the same eve as the domestic saes department, as the firm becomes more committed to, or more dependent upon, its foreign export saes, as Figure 3.5 shows. At this stage, exporting is controed from the domestic-based home office, through a designated export manager. The roe of the HR department is uncear, as indicated by the dotted arrow between these two functiona areas in Figure 3.5. There is a paucity of empirica evidence about HR responses at this eary internationaization stage, even though there are HR activities invoved (such as the seection of export staff), and perhaps training of the foreign agency staff. As these activities are handed by the marketing department, or exporting staff, the HR department has itte, if any, invovement with the deveopment of poicies and procedures surrounding the HR aspects of the firm s eary internationa activities. 66 FIGURE 3.5 Export department structure Corporate Executive Finance Manager Logistics/ Procurement Manager Production Manager Marketing Manager Human Resource Manager Domestic Saes Manager Internationa Saes Manager Issues of roes and responsibiities Saes subsidiary As the firm deveops expertise in foreign markets, agents and distributors are often repaced by direct saes with the estabishment of saes subsidiaries or branch offices in the foreign market countries. This stage may be prompted by probems with foreign agents, more confidence in the internationa saes activity, the desire to have greater contro, and/or the decision to give greater support to the exporting activity, usuay due to its increasing importance to the overa success of the organization. The export manager may be given the same authority as other functiona managers, as iustrated in Figure 3.6. FIGURE 3.6 Saes subsidiary structure Corporate Executive Finance Logistics/ Procurement Production Marketing/Saes Exports Human Resources Direct Exports Saes Subsidiary Issues of roes and responsibiities

76 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 59 Exporting is sti controed at corporate headquarters, but the firm must make a decision regarding the coordination of the saes subsidiary, incuding staffing. If it wishes to maintain direct contro, refecting an ethnocentric attitude, it opts to staff the saes subsidiary from its headquarters through the use of PCNs. If it regards country-specific factors such as knowedge of the foreign market, anguage, sensitivity to host-country needs as important, it may staff the subsidiary with HCNs. However, it woud appear that many firms use PCNs in key saes subsidiary positions. The decision to use PCNs eads into expatriation management issues and activities. It may be that, at this point, the HR department becomes activey invoved in the personne aspects of the firm s internationa operations, though there is itte empirica evidence as to when, and how, HR-designated staff become invoved. Internationa division For some firms, it is a short step from the estabishment of a saes subsidiary to a foreign production or service faciity. This step may be considered sma if the firm is aready assembing the product abroad to take advantage of cheap abor or to save shipping costs or tariffs, for exampe. Aternativey, the firm may have a we-estabished export and marketing program that enabes it to take advantage of host-government incentives or counter host-government contros on foreign imports by estabishing a foreign production faciity. For some firms, though, the transition to foreign direct investment is a arge step. However, having made the decision to produce overseas, the firm may estabish its own foreign production faciities, or enter into a joint venture with a oca firm, or buy a oca firm. Regardess of the method of estabishment, foreign production/service operations may trigger the creation of a separate internationa division in which a internationa activities are grouped, as Figure 3.7 demonstrates. FIGURE 3.7 Internationa division structure Headquarters Domestic Division Genera Manager product ine A Domestic Division Genera Manager product ine B Domestic Division Genera Manager product ine C Internationa Division Genera Manager area ine Functiona units Europe Genera Manager (product A, B, and/or C) Midde East Genera Manager (product A, B, and/or C) Africa Genera Manager (product A, B and/or C) Functiona units Source: Adapted from C. Hi, Internationa Business: Competing in the Goba Marketpace, 2nd edn (McGraw Hi, Newark, 1997) ª The McGraw-Hi Companies, Inc. Reproduced with permission. It shoud be noted that this form of organizationa structure is much more common in US firms than European firms which often have a ong history of activity in various countries that were former coonies. Prominent exampes are Britain with ong-term coonies such as Austraia,

77 60 CHAPTER 3 THE ORGANIZATIONAL CONTEXT Canada, India, Ceyon (now known as Sri Lanka), Hong Kong, New Zeaand, South Africa, Singapore and the West Indies; The Netherands with Indonesia (known as the Dutch East Indies ); Portuga with Brazi, Angoa, Mozambique, East Timor and Macau; Spain with Argentina, Venezuea, Peru, Mexico, Chie, Cuba, Panama, Boivia and Uruguay; and France with coonies in Africa (Ageria, Morocco, Tunisia, Congo, Ivory Coast) and in Vietnam. With the spread of internationa activities, typicay the firm estabishes what has been referred to as miniature repicas, as the foreign subsidiaries are structured to mirror that of the domestic organization. The subsidiary managers report to the head of the internationa division, and there may be some informa reporting directy to the various functiona heads. For exampe, in reference to Figure 3.7, there may be contact between the HR managers in the two country subsidiaries, and the HR manager at corporate headquarters, regarding staffing issues. Many firms at this stage of internationaization are concerned about maintaining contro of the newy estabished subsidiary and wi pace PCNs in a key positions in the subsidiary. However, some firms decide that oca empoyment conditions require oca handing and pace a HCN in charge of the subsidiary HR function, thus making an exception to the overa ethnocentric approach. Others may pace HCNs in severa key positions, incuding HRM, either to compy with host-government directives or to emphasize the oca orientation of the subsidiary. The roe of corporate HR staff is primariy concerned with expatriate management; though there wi be some monitoring of the subsidiary HR function formay through the head of the internationa division. Pucik 67 suggests that, initiay, corporate HR activities are confined to supervising the seection of staff for the new internationa division and expatriate managers perform a major roe in: identifying empoyees who can direct the daiy operations of the foreign subsidiaries, supervising transfer of manageria and technica know-how, communicating corporate poicies, and keeping corporate HQ informed. As the firm expands its foreign production or service faciities into other countries, increasing the size of its foreign workforce, accompanied by a growth in the number of expatriates, more forma HR poicies become necessary. The capacity of corporate HR staff to design appropriate poicies may depend on how institutionaized existing approaches to expatriate management concerns have become, especiay poicies for compensation and pre-departure training; and that the more isoated the corporate HR function has been from the preceding internationa activities, the more difficut the task is ikey to be. 68 The export department (or its equivaent) may have been in charge of internationa staffing issues and instigated required personne responses, and now considers it has the competence to manage expatriates. Goba product/area division Over time, the firm moves from the eary foreign production stage into a phase of growth through production, or service, standardization and diversification. Consequenty, the strain of sheer size may create probems. The internationa division becomes over-stretched making effective communication and efficiency of operation difficut. In some cases, corporate top managers may become concerned that the internationa division has enjoyed too much autonomy, acting so independenty from the domestic operations to the extent that it operates as a separate unit a situation that cannot be toerated as the firm s internationa activities become strategicay more important. Typicay, tensions wi emerge between the parent company (headquarters) and its subsidiaries, stemming from the need for nationa responsiveness at the subsidiary unit and goba integration imperatives at the parent headquarters. The demand for nationa responsiveness at the subsidiary unit deveops because of factors such as differences in market structures, distribution channes, customer needs, oca cuture and pressure from the host government. The need for more centraized goba integration by the headquarters comes from having mutinationa customers, goba competitors and the increasingy rapid fow of information and technoogy, and from the quest for arge voume for economies of scae.

78 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 61 As a resut of these various forces for change, the mutinationa confronts two major issues of structure: The extent to which key decisions are to be made at the parent-country headquarters or at the subsidiary units (centraization versus decentraization). The type or form of contro exerted by the parent over the subsidiary unit. The structura response, at this stage of internationaization, can either be a product/servicebased goba structure (if the growth strategy is through product or service diversification) or an area-based structure (if the growth strategy is through geographica expansion); see Figures 3.8A and 3.8B. FIGURE 3.8A Goba product division structure Headquarters Wordwide production group or division A Wordwide production group or division B Wordwide production group or division C Area 1 (domestic) Area 2 (internationa) Functiona units Functiona units Source: Adapted from C. Hi, Internationa Business: Competing in the Goba Marketpace, 2nd edn (McGraw Hi, Newark, 1997) ª The McGraw-Hi Companies, Inc. Reproduced with permission. FIGURE 3.8B Goba area division structure Headquarters North American area Latin America area European area Midde East/ Africa area Far East area As part of the process of accommodating subsidiary concerns through decentraization, the MNE strives to adapt its HRM activities to each host country s specific requirements. This naturay impacts on the corporate HRM function. As there is an increasing devoution of responsibiity for oca empoyee decisions to each subsidiary, with corporate HR staff performing a monitoring roe, intervening in oca affairs occurs ess frequenty. This HRM monitoring roe refects management s desire for centra contro of strategic panning; formuating, impementing and coordinating strategies for its wordwide markets. As we, the growth in foreign exposure combined with changes in the organizationa structure of internationa operations resuts in

79 62 CHAPTER 3 THE ORGANIZATIONAL CONTEXT an increase in the number of empoyees needed to oversee the activities between the parent firm and its foreign affiiates. Within the human resource function, the deveopment of managers abe to operate in internationa environments generay becomes a new imperative. 69 As the MNE grows and the trend toward a goba perspective acceerates, it increasingy confronts the think goba, act oca paradox. 70 The increasingy compex internationa environment characterized by goba competitors, goba customers, universa products, rapid technoogica change and word-scae factories push the mutinationa toward goba integration whie, at the same time, host governments and other stakehoders (such as customers, suppiers and empoyees) push for oca responsiveness. To faciitate the chaenge of meeting these conficting demands, the mutinationa wi typicay need to consider a more appropriate structure, and the choice appears to be either: the matrix; the mixed structure; the heterarchy; the transnationa; or the mutinationa network. These options are now described and discussed. The matrix In the matrix structure, the MNE is attempting to integrate its operations across more than one dimension. As shown in Figure 3.9, the internationa or geographica division and the product division share joint authority. Advocates of this structura form see, as its advantages, that conficts of interest are brought out into the open, and that each issue with priority in decision-making has an executive champion to ensure it is not negected. In other words, the matrix is considered to bring into the management system a phiosophy of matching the structure to the decision-making process. Research on the matrix structure 71 indicates that the matrix; continues to be the ony organizationa form which fits the strategy of simutaneous pursuit of mutipe business dimensions, with each given equa priority [The] structura form succeeds because it fits the situation. In practice, firms that have adopted the matrix structure have met with mixed success. One reason is that it is an expensive structura form in that it requires carefu impementation and commitment (and often a great dea of time) on the part of top management to be successfu. FIGURE 3.9 Goba matrix structure Headquarters Area 1 Area 2 Area 3 Product division A Product division B Product division C Manager here beongs to division B and area 2 Source: Adapted from C. Hi, Internationa Business: Competing in the Goba Marketpace, 2nd edn (McGraw Hi, Newark, 1997) ª The McGraw-Hi Companies, Inc. Reproduced with permission. In Figure 3.9, area managers are responsibe for the performance of a products within the various countries that comprise their regions, whie product managers are responsibe for saes of their specific product ranges across the areas. For exampe, Product A Manager may be

80 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 63 concerned with saes of Product A in Europe, the Americas and in the Asia-Pacific area. Product managers typicay report to a Vice President Goba Products (or simiar tite) for matters pertaining to product and to another Vice President (perhaps a VP Internationa) who is responsibe for geographica matters. There is a simiar dua reporting ine for functiona staff, incuding HR staff. Country/Area HR managers may aso be invoved in staffing issues invoving product division staff (reporting indirecty to Vice President Goba Products). There may be additiona reporting requirements to corporate HR at headquarters. One eary and pubic supporter of the matrix organization was Percy Barnevik, former chief executive officer of Asea Brown Boveri (ABB), the European eectrica systems and equipment manufacturer. 72 The decade-ong efforts by ABB at matrix contro were very infuentia in the popuar and academic press, intriguing executives at a number of goba firms. Overa, efforts to successfuy impement the matrix soution have been probematic. Bartett and Ghosha 73 comment that, in practice, particuary in the internationa context, the matrix has proven to be a but unmanageabe. They isoate four contributing factors: 1 Dua reporting, which eads to confict and confusion. 2 The proiferation of communication channes which creates informationa ogjams. 3 Overapping responsibiities, which produce turf battes and a oss of accountabiity 4 The barriers of distance, anguage, time and cuture, which often make it very difficut for managers to resove conficts and carify confusion. Bartett and Ghosha concude that the most successfu MNEs focus ess on searching for the idea structure and more on deveoping the abiities, behavior and performance of individua managers. This assists in creating a matrix in the minds of managers, where individua capabiities are captured and the entire firm is motivated to respond cooperativey to a compicated and dynamic environment. It seems cear that if the MNE opts for a matrix structure, particuar care must be taken with staffing. As Ronen 74 notes: It requires managers who know the business in genera, who have good interpersona skis, and who can dea with the ambiguities of responsibiity and authority inherent in the matrix system. Training in such skis as panning procedures, the kinds of interpersona skis necessary for the matrix, and the kind of anaysis and ordery presentation of ideas essentia to panning within a group is most important for supporting the matrix approach. Moreover, management deveopment and human resource panning are even more necessary in the voatie environment of the matrix than in the traditiona organizations. Mixed structure In an attempt to manage the growth of diverse operations, or because attempts to impement a matrix structure have been unsuccessfu, some firms have opted for what can ony be described as a mixed form. In an eary survey conducted by Dowing 75 on this issue, more than one-third (35 per cent) of respondents indicated that they had mixed forms, and around 18 per cent had product or matrix structures. Gabraith and Kazanjian 76 aso identify mixed structures that seem to have emerged in response to goba pressures and trade-offs: For exampe, organizations that pursued area structures kept these geographica profit centers, but added wordwide product managers. Cogate-Pamoive has aways had strong country managers. But, as they doubed the funding for product research, and as Cogate Denta Cream became a universa product, product managers were added at the corporate office to direct the R&D funding and coordinate marketing programs wordwide. Simiary the product-divisionaized firms have been

81 64 CHAPTER 3 THE ORGANIZATIONAL CONTEXT reintroducing the internationa division. At Motoroa, the product groups had wordwide responsibiity for their product ines. As they compete with the Japanese in Japan, an internationa group has been introduced to hep coordinate across product ines. Athough a structura forms that resut from the evoutionary deveopment of internationa business are compex and difficut to manage effectivey, given an MNE s deveoping capabiities and experience at each new stage, mixed structures appear even more compex and harder to expain and impement, as we as contro. Thus, as our discussion of the matrix structure emphasized, it is important that a empoyees understand the mixed framework and that attention is aso given to supporting mechanisms, such as corporate identity, interpersona reationships, management attitudes and HR systems, particuary promotion and reward poicies. Beyond the matrix Eary studies of headquarter-subsidiary reationships tended to stress resources, peope and information fows from headquarters to subsidiary, examining these reationships mainy in the context of contro and coordination. However, in the arge, mature, mutinationa, these fows are mutidirectiona: from headquarters to subsidiary; from subsidiary to subsidiary; and between subsidiaries. The resut can be a compex network of inter-reated activities and reationships and the mutinationa management iterature identifies three descriptions of organizationa structures the heterarchy, the transnationa and the network firm. Whie they have been given different terms, each form recognizes that, at this stage of internationaization, the concept of a superior structure that neaty fits the corporate strategy becomes inappropriate. The proponents of these forms are in agreement that mutinationas at this stage become ess hierarchica. We sha take a brief ook at each of these more decentraized, organic forms. The heterarchy This structura form was proposed by Hedund, 77 a distinguished Swedish internationa management researcher, and recognizes that a MNE may have a number of different kinds of centers apart from that traditionay referred to as headquarters. Hedund argued that competitive advantage does not necessariy reside in any one country (the parent country, for exampe). Rather, it may be found in many, so that each subsidiary center may be simutaneousy a center and a goba coordinator of discrete activities, thus performing a strategic roe not just for itsef, but for the MNE as a whoe (the subsidiary abeed center in Figure 3.10). For exampe, some mutinationas may centraize research and deveopment in a particuar subsidiary. In a heterarchica MNE, contro is ess reiant on the top-to-bottom mechanisms of previous hierarchica modes and more on normative mechanisms, such as the corporate cuture and a widey shared awareness of centra goas and strategies. From a HRM perspective, the heterarchy is interesting in that its success appears to rest soey on the abiity of the mutinationa to formuate, impement and reinforce the required human resource eements. Hedund recognized that the heterarchy demands skifu and experienced personne as we as sophisticated reward and punishment systems in order to deveop the normative contro mechanisms necessary for effective performance. The use of staff as an informa contro mechanism is important, which we sha expore ater in this chapter. In a ater artice, Hedund proposed a structura mode he termed the N-form. This mode buids upon his heterarchy concept and integrates work from knowedge organization schoars. Hedund argued that a new structura form is required to aow for knowedge management. His N-form takes away divisions, aows for temporary consteations and the use of project

82 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 65 FIGURE 3.10 The networked organization Center Corporate headquarters Noda unit teams and paces stress on atera communication and diaogue between units and individuas. The top management roe was presented as that of a catayst, architect and protector of knowedge rather than a monitor and resource aocator. 78 The use of mechanisms, such as cross-functiona teams and empowerment of ower eve empoyees was advocated to further support the N-form. The transnationa The term transnationa has been coined to describe an organizationa form that is characterized by an interdependence of resources and responsibiities across a business units regardess of nationa boundaries. The term has aso become a descriptor of a particuar type of mutinationa, one that tries to cope with the arge fows of components, products, resources, peope and information among its subsidiaries, whie simutaneousy recognizing distributed speciaized resources and capabiities. As such, the transnationa demands a compex process of coordination and cooperation invoving strong cross-unit integrating devices, a strong corporate identity, and a we-deveoped wordwide management perspective. In their study, Bartett and Ghosha 79 noted: Among the companies we studied, there were severa that were in the process of deveoping such organizationa capabiities. They had surpassed the cassic capabiities of the mutinationa company that operates as decentraized federations of units abe to sense and respond to diverse internationa needs and opportunities; and they had evoved beyond the abiities of the goba company with its faciity for managing operations on a tighty controed wordwide basis through its centraized hub structure. They had deveoped what we termed transnationa capabiities the abiity to manage across nationa boundaries, retaining oca fexibiity whie achieving goba integration. More than anything ese this invoved the abiity to ink oca operations to each other and to the center in a fexibe way, and in so doing, to everage those oca and centra capabiities. In fact, the matrix, the heterarchy and the transnationa share a common theme regarding the human resource factor. Therefore, deveoping transnationa managers or goba eaders who can think and act across nationa and subsidiary boundaries emerges as an important task for top management introducing these compex organizationa forms. Staff transfers pay a critica roe in integration and coordination. 80

83 66 CHAPTER 3 THE ORGANIZATIONAL CONTEXT The mutinationa as a network Some schoars are advocating viewing certain arge and mature internationaized firms as a network, in situations where: Subsidiaries have deveoped into significant centers for investments, activities and infuence, and can no onger be regarded as at the periphery. 81 Interaction between headquarters and each subsidiary is ikey to be dyadic, taking pace between various actors at many different organizationa eves and covering different exchanges, the outcome of which wi be important for effective goba performance. Such MNEs are oosey couped poitica systems rather than tighty bonded, homogeneous, hierarchicay controed systems. 82 This runs counter to the traditiona structure where inkages are described formay via the organization s structure and standardized procedures, and informay through interpersona contact and sociaization. 83 Figure 3.10 attempts to depict such an intricate crisscrossing of reationships. One subsidiary may act as a noda unit inked a custer of sateite organizations. Thus, one center can assume responsibiity for other units in its country or region. In ine with this view, Ghosha and Bartett 84 have expanded their concept of the transnationa to define the MNE as an inter-organizationa system. This is comprised of a network of exchange reationships among different organizationa units, incuding headquarters and nationa subsidiaries, as we as externa organizations, such as host governments, customers, suppiers and competitors, with which the different units of the mutinationa must interact. These authors argue a new way of structuring is not the issue it is more the emerging management phiosophy, with its focus on management processes: The actua configuration of the processes themseves, and the structura she within which they are embedded, can be very different depending on the businesses and the heritage of each company. 85 Ghosha and Bartett cite GE, ABB and Toyota as prime exampes of companies invoved in deveoping such processes, with Inte and Corning, Phiips and Acate, Matsushita and Toshiba regarded as companies embarking upon a network-type configuration. The management of a muti-centered networked organization is compex. Apart from the intra-organizationa network (comprising headquarters and the numerous subsidiaries), each subsidiary aso has a range of externa reationships (invoving oca suppiers, customers, competitors, host governments and aiance partners). The management of both the intra-organizationa and inter-organizationa spheres, and of the tota integrated network, is crucia to goba corporate performance. It invoves what has been termed a ess-hierarchica structure, featuring five dimensions: Deegation of decision-making authority to appropriate units and eves. Geographica dispersa of key functions across units in different countries. Deayering of organizationa eves. De-bureaucratization of forma procedures. Differentiation of work, responsibiity and authority across the networked subsidiaries. 86 Research cited by Nohria and Ghosha focuses on the capabiity of networking subsidiaries to package sack resources (poos in capita, production or human resources beyond those required for oca purposes) to stimuate oca-for oca, oca-for-goba and goba-forgoba innovation processes. 87 Integrated networks of these sack resource poos are combined by way of interpersona contacts, mentoring reationships and sophisticated communications networks in order to identify and distribute new products processes and technoogies.

84 Beyond networks CHAPTER 3 THE ORGANIZATIONAL CONTEXT 67 Doz, Santos and Wiiamson 88 have coined the term meta-nationa to describe firms comprised of three types of units. First, ocay imbedded sensing units are responsibe for uncovering widey dispersed sources of engineering and market insights. Deveoping new technoogies and processes can no onger be assumed to be the soe task of a convenienty ocated home-country headquarters research and deveopment unit, or even a MNE-based center of exceence. Second, magnet units are described as attracting these unpredictaby dispersed innovative processes, creating a business pan to convert these innovations into viabe services or products. Finay, a third set of units are responsibe for marketing and producing adaptations of these products and services for a range of customers around the word. The metanationa system is described as: a goba tournament payed at three eves. It is a race to identify and access new technoogies and market trends ahead of the competition, a race to turn this dispersed knowedge into innovative products and services, and a race to scae and expoit these innovations in markets around the word. 89 The pace of the HR function in structura forms As we point out in our treatment of the various forms, there has been itte direct investigation into how the HR function deveops in response to structura changes as a consequence of internationa growth. An exception is a study of the changing roe of the corporate HR function in 30 UK firms. 90 The authors, Scuion and Starkey found three distinct groups that they describe as foows: Centraized HR companies, characterized by arge, we-resourced HR departments responsibe for a wide range of functions. The key roe for corporate HR was to estabish and maintain contro over word-wide top eve management positions, such as divisiona and subsidiary managers, so that strategic staffing was under centra contro. Companies in this group operated within productbased or matrix structures. Decentraized HR companies, characterized by devoving the HR responsibiities to a sma group who confined their roe to senior management at corporate HQ. This was consistent with the decentraized approach of other functions. Companies within this group operated within product or regiona-based structures, with ony one reporting using a matrix. Transition companies, characterized by medium-sized corporate HR departments staffed by a reativey sma group at corporate HQ. They operated in a decentraized, product-based structure, though again one company reported using a matrix structure. Scuion and Starkey note that the varied roes of corporate HR within these three groups impacted upon the way in which activities such as training and performance appraisa were handed, and the abiity of corporate HR to pan for staff movements throughout the wordwide operations. Different countries take different paths The above discussion takes a generaist view of the growth of the internationaizing firm through the various stages to mutinationa status, and the correspondent organizationa structures. However, it is important to note a cutura eement. If, as Stopford and Wes, state, MNEs may deveop goba capabiities by an emphasis on product diversity, eading to wordwide product division structures, or aternatey, by an emphasis on cutura responsiveness,

85 68 CHAPTER 3 THE ORGANIZATIONAL CONTEXT eading to regiona or area division structures, the question arises as to what roe does the cutura origin of the mutinationa pay in the path to gobaization? European firms have tended to take a different structura path than their US counterparts. An eary study of 70 European mutinationas reveaed that European firms moved directy from a functiona mother-daughter structure to a goba structure with wordwide product or area divisions, or to a matrix organization without the transitiona stage of an internationa division. 91 Human resource management practices, changing to serve the needs of the new structure, adjusted accordingy. Swedish firms have traditionay adopted the mother-daughter structure, but Hedund s work noted that this had changed. The Swedish mutinationas in his study tended to adopt a mixture of eements of the mother-daughter structure and eements of the product division, at this stage of their internationaization process. 92 It may be that there is a preference for matrixtype structures within European firms, particuary Nordic MNEs. One coud suggest that this structura form has better suited the more coaborative, group-oriented work organization found within these firms. Those US firms that have experimented with the matrix form appear to have met with imited success. For exampe, as part of a reorganization process termed Ford 2000, the Ford Motor Company abandoned its regiona structure in 1993 and adopted a form of goba matrix organization characterized by a mutidiscipinary product team approach with networked pants across regions. In the process, the European regiona headquarters was moved to the USA in an attempt to deveop a more goba decision-making perspective. In November 2001, Ford announced a restructuring and pant rationaization that effectivey took the company back to a regiona structure. Further restructuring, particuary of its North American operations, appears to be ongoing as Ford seeks an optima aocation of resources and operations to maintain a goba competitive position. 93 Japanese mutinationas are evoving aong simiar ines to their US counterparts. Export divisions have become internationa divisions but, according to Ronen, 94 the rate of change was sower. The characteristics of Japanese organizationa cuture (such as the contro and reporting mechanisms and decision-making systems), the roe of trading companies and the systems of management appear to contribute to the sower evoution of the internationa division. In some cases, despite their high degree of internationaization, Japanese firms may not adapt their structure as they become more dispersed. As mentioned previousy, Ghosha and Bartett were abe to incude Japanese firms in their description of the network mutinationa. A 1996 study 95 of 54 companies, taken from the Fortune 1991 ist of the word s 500 argest industria corporations reveaed that the degree of internationaization differed between firms from the USA, Europe and Japan. The study aso reports that the US mutinationas in the sampe gave more autonomy to their internationa operations than did their Japanese counterparts. We shoud mention that internationaizing firms from other Asian nations may aso vary in structura form and growth patterns. Korean congomerates (chaebos) have had a stronger preference for growth-through-acquisitions than the greenfied (buiding) approach taken by Japanese mutinationas, and this has infuenced their structura responses in terms of contro and coordination. The so-caed Chinese bamboo network/famiy firms may face significant chaenges as their internationa activities expand and it becomes more difficut to maintain the tight famiy contro that characterizes overseas-chinese firms. 96 In 1995, ony three mainand Chinese firms were isted in Fortune s top 500 goba companies. This number is expanding as more and more Chinese firms have internationa operations. A recent paper by Sedge notes that by 2009 the number of Chinese firms in the Goba 500 had increased to 37. It is interesting to note that of the 51 firms from deveoping economies that were incuded in the 2009 Goba 500, China was ceary the dominant source country. 97 Some research has begun into the internationaization of Chinese MNEs. For exampe, Shen s study of ten Chinese firms, mosty state owned enterprises of various sizes and from different industries, reports an incrementa approach: moving into neighboring East and South East Asia before expanding into North America. These firms were at different stages of

86 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 69 internationaization: four had foreign saes offices, three had saes offices and subsidiaries, and three were considered goba in terms of number of foreign subsidiaries (either whoy owned or internationa joint ventures). Goba area divisiona or goba functiona structures were utiized. As with China, there is a simiar reative paucity of information regarding Indian MNEs and their internationaization. Some researchers have gone so far as to question the existence of a truy goba firm. Doremus et a., 99 find empirica support for their contention that institutiona infrastructures (the cutura heritage codified into egisation and vaues reated to banking and financia markets, research and deveopment capabiities and patterns of technoogica change, as we as governmenta and manageria preferences and strategic propensities), combine to imit the abiity of firms to move too far beyond their regiona homes. Three regiona bocks are presented for mutinationa firms: North America, Europe (argey German-based mutinationas) and Asia (argey Japanese-based mutinationas). The authors report economic data to support their contention that whie each of these regiona powers have some impact outside of their own regions, practicay no firms operate significanty in a baanced manner across a three regions of the word. Deep-seated differences in financia institutions, how technoogy is acquired and deveoped, and how products and services are consumed are a too divergent from each firm s region of origin for compete goba cross-seeding to occur. According to Rugman, centers of regiona competitive advantage may be created with some imited interventions outside of the regiona core. 100 Fashion or fit? The above discussion has traced the evoution of the firm from domestic-oriented into a gobaoriented firm. A note of caution shoud be added. Growth in the firm s internationa business activity does require structura responses, but the evoutionary process wi differ across mutinationas. Apart from the important country of origin aspect (especiay with countries that had coonies for a reativey ong period of time), other variabes size of organization, pattern of internationaization, management poicies and so on aso pay a part. As our discussion indicates, firms undergo stages of restructuring as they attempt to grappe with environment changes that require strategic responses. CONTROL MECHANISMS As indicated in Figure 3.1 at the beginning of this chapter, internationa operations pace additiona stresses on contro mechanisms. There is aso additiona stress on the firm s abiity to coordinate resources and activities. As the chairman and chief executive officer of the French hote and trave company, Accor, expained in a newspaper interview: 101 Accor has to be a goba company, in view of the revoution in the service sector which is taking pace... Nationa [hote chains] cannot optimize their operations. They cannot invest enough money... Gobaization brings considerabe chaenges which are often under-estimated. The principa difficuty is getting our oca management to adhere to the vaues of the group...every morning when I wake I think about the chaenges of coordinating our operations in many different countries. Figure 3.11 beow presents two strategies for goba contro. It is important to note these two strategies are not independent or divorced from each other. Rather they present a difference in emphasis. Traditionay, MNEs have emphasized more forma, structura forms of contro. As presented earier in the chapter, strategy is impemented via the factoring of work fows, the articuation

87 70 CHAPTER 3 THE ORGANIZATIONAL CONTEXT FIGURE 3.11 Contro strategies for mutinationa firms Structura-forma focus (primary contros) Cutura-informa focus (primary contros) Strategy Strategy Structure Cuture Network processes and activities-socia capita Hierarchy and authority Mind matrix Persons-human capita Job anaysis Competencies HRM processes HRM processes Secondary contros Persona networks Secondary contros Job authority Source: Adapted from A. Enge and Y. Stedham, Von Nebenroe zu Hautptroe, von Statist ins Rampenicht: Mutinationa and Transnationa Strategies Impications for Human Resource Practices, Conference Proceedings of the Sixth Conference on Internationa Human Resource Management, Paderborn, Germany: University of Paderborn, 1998; and A. Enge, M. Mendenha, R. Powers and Y. Stedham, Conceptuaizing the Goba Competency Cube: A Transnationa Mode of Human Resource, Journa of European Industria Training, Vo. 25, No. 7, pp of contro by some combination of speciaization characterized by functiona, goba product division, nationa, regiona (area) divisions, or matrix structures. Structure resuts in hierarchies, functiona authority and increasingy prescribed job descriptions, seection criteria, training standards and compensabe factors. Human resource activities act to impement existing structura systems of contro. Communication and reationships are formaized and prescribed and budgetary targets and rationa, expicit, quantitative criteria dominate performance management systems. 102 Compementary yet definitey secondary contro is deveoped and maintained via more informa persona and socia networks the informa organization. The inadequacy of bureaucratic, structura contros when deaing with significant variations in distance and peope experienced in the far-fung activities and operations of MNEs has been noted by researchers for decades. The unique cutura interactions and the contextua and physica distances that characterized mutinationa operations may have outstripped the capabiities of soey structura and forma forms of contro. 103 As ong ago as 1981, Wiiam Ouchi termed the phrase can contro to describe socia contro as a egitimate contro system to suppement or repace traditiona structura, bureaucratic contro. 104 A more cutura focus emphasizes the group eve potentia of corporate cuture, informa socia processes, persona work networks and the investment in socia capita to act as sources of more compete and nimbe contro in a compex muti-product, muticutura environment. On the individua eve, an emphasis on persons (as opposed to jobs), their competencies and skis, and the investment in human capita become the focus of more customized human resource practices and processes. 105 Forma, structura contros sti exist, but they are not the primary source of contro.

88 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 71 Resuts from a survey of 390 Mexican subsidiaries of US MNEs by Gomez and Sanchez 106 ed them to concude that predicting the preferred combination of forma and informa contros a MNE might choose is probematic. The compexities reated to subsidiary mandate, reiance on oca or corporate technoogies and skis, as we as the cutura distance between the corporate and host cutures need to be considered in determining the mix of forma and informa contro. Ceary more research is caed for in this topic area. 107 Returning to severa of the eements in Figure 3.11, we wi review informa contro processes. Contro though persona reationships A consistent theme in the descriptions of transnationa and networked organization forms is the need to foster vita knowedge generation and diffusion through atera communication via a network of working reationships. Networks are considered as part of an individua s or organization s socia capita: contacts and ties, combined with norms and trust, that faciitate knowedge sharing and information exchanges between individuas, groups and business units. 108 As network reationships are buit and maintained through persona contact, organizations need processes and forums where staff from various units can deveop types of persona reationships that can be used for organizationa purposes. For exampe, working in cross-functiona and/or cross-border teams can assist in deveoping persona contacts. Training and deveopment programs, hed in regiona centers or at headquarters, become an important forum for the deveopment of persona networks that foster informa communication channes. Contro through corporate cuture Some advocates of more compex structura forms regard the use of cutura contro as an effective informa contro mechanism. Corporate cuture is variousy defined, but essentiay it refers to a process of sociaizing peope so that they come to share a common set of vaues and beiefs that then shape their behavior and perspectives. It is often expressed as our way of doing things. Cutura contro may be a contentious issue for some evidence of mutinationa imperiaism where corporate cuture is superimposed upon nationa cutures in subsidiary operations. However, its proponents offer persuasive arguments as to its vaue as a management too. 109 The emphasis is on deveoping vountary adherence to corporate behaviora norms and expectations through a process of internaization of corporate vaues and beiefs. The iterature on corporate cuture recognizes the roe payed by HR activities in fostering corporate cuture. For exampe, Avesson and Berg 110 regard HRM activities as important means of estabishing corporate cuture identity. The HR activities that buid corporate cuture incude recruitment and seection practices, as firms hire or buy peope who appear to hod simiar vaues. Training and deveopment programs, reward systems and promotion are aso activities that reinforce company vaue systems. 111 Such reinforcement is considered to ead to more committed and productive empoyees who evince appropriate behavior and therefore reduce the need for forma contro mechanisms. Pacement of staff is another method. Some goba firms have become even more systematic in their efforts to achieve contro by way of shared corporate cuture. As IHRM shows, these efforts can become a centra eement in IHRM strategy.

89 72 CHAPTER 3 THE ORGANIZATIONAL CONTEXT IHRM in Action Case 3.1 IHRM 6th edition Dowing, Festing and Enge Refections from the Shutte Tram at the Greater Cincinnati/Northern Kentucky Internationa Airport February 14th The cod rain had turned to wet snow as Mary Knox had turned into the airport exit at the Greater Cincinnati/Northern Kentucky Internationa Airport. Having checked in her four pieces of uggage, compete with horribe extra uggage charges and said goodbye to her husband and three chidren, Mary guitiy took her pace on the transfer shutte tram going to Termina 2. Mary had been brought up in rura Cay County Kentucky, near the Tennessee border. Her father was a ong-hau trucker and her mother a traditiona stay-at-home mom. She grew up in a rura part of the county, cose to her paterna grandparent s farm. Doing we in high schoo, she received an Associate Degree in Nursing and had been a nurse for ten years. When her first marriage ended she took her two girs and made a new start in Midway, Kentucky. Royoda Motor Manufacturing, USA (RMM), the North American arm of a goba Japanese auto company had buit a fina fabrication pant in Midway in When the six cyinder engines were first manufactured in the US at the Midway pant (a four biion doar investment, empoying around 4500 empoyees) in 2003, RMM hired a arge number of peope to respond to the expansion. Mary was one of those new hires. She did very we, showing a rea understanding of the technica detais of the production process, rising quicky to the position of ine manager. Mary s supervisor had recommended her for a new seven-week training program for managers at Royoda City in Japan. Mary was the most junior pant empoyee to be part of a cass of 35 managers from the US, Japan, China and Austraia. The RMM Institute was created two years earier to provide training and dea with concerns that Royoda s corporate cuture, ong deemed to be a critica eement in the car company s word-wide success (at ast count workers in 10 Japanese and 21 pants outside of Japan), woud be weakened by the fast pace of growth and geographic dispersion away from Japan. Some a-too-pubic part quaity faiures reinforced this concern a few years earier. The Royoda Institute (RI) was part of a concerted effort to re-estabish a strong, unifying Royoda Path for the gobay dispersed firm. As the shutte quiety but dramaticay started up for Termina 2, Mary gripped the support bar next to her and worried how her famiy woud cope during her seven-week absence, worried about the differences in food (she had packed penty of Pepto-Bismo, antacids and anti-diarrhea pis), worried about anguage differences (she had two years of Spanish in high schoo), worried about the cuture shock she had seen in the preparatory orientation fims the training department had shown her in Midway, and most of a, she worried about etting her production team down. As the shutte arrived and the doors opened, she took a deep breath and stepped out into the underground concourse and awaiting gates. Apri 22 Mary was very tired. Even the formidabe Farbocks Doube Red Eye coffee she had consumed in Los Angees had worn off. The deays at the Los Angees Internationa Airport due to a security scare had made the ong trip home even onger. Even though she was 12 pounds ighter than when she had eft (due to ong waks around the grounds of the Royoda Institute and the charming sma city of Mokkibi not in Royoda City as she had originay thought and reguar ong swims in the heated Institute poo) she fet strangey at peace with the word. The group probem soving sessions, ectures from very senior RMM executives, incuding a memorabe dinner meeting with Fujio Konishi, President of Royoda, exercises in devoving compex probems into their various root causes, consensus buiding activities and an emphasis on how to ead and train others on kaizen, the five stage phiosophy of continuous improvement, made the ten-hour days race by. Many nights she had faen into bed in the sma dormitory-ike rooms too exhausted to say goodnight to her Austraian and Japanese roommates. An entire (Continued)

90 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 73 (Continued) week was spent on interpreting Royoda s compex set of interactive production data dispays, progress charts, and coor coded status information iconography. Mary thought to hersef that is when I just about wanted to go home a that information made hospita intensive care wards ook simpe and pacid by comparison. Mary got to know severa cass members very we, hiking in the mountains with some of them on one weekend (the resurgent spring weather and fowering pants in the mountains reminded her of her home in Eastern Kentucky) and taking buet trains to Kyoto and Tokyo on other weekends. She was very aware that her Austraian, Chinese and Japanese cassmates had far more diversity in anguage skis than she had. She had powered through and overcome the information overki crisis as she ater came to ca it. Mary recaed the first time she had hiked up the Pine Mountain as a chid near her hometown in southeastern Kentucky. Looking down on the town in miniature and the raiway ines and roads connecting the vaey, a aid out before her ike a miniature train set. Maybe that is what I got from my time in Japan a sense of the connectedness of Royoda she mused. Connectedness across cutures, peope, product ines, functiona speciaizations and geographic areas were a cearer to her now. The shutte was crowded with passengers and Mary coud not hep but note how oud and physicay demonstrative the Americans were. Beside her stood a Japanese famiy a man, his wife and their two daughters. Perhaps a saaryman coming to RMM in Midway. Mary strained to hear and ony picked up three Japanese words from the conversation between the younger daughter and the mother home, schoo and friends. Good words. As the shutte stopped at the termina, Mary stepped ighty out of the tram to her waiting uggage (hopefuy) and waiting famiy. Waking down the concourse to the gass encosed section denoting the end of the security zone and fied with peope patienty waiting, she was reminded of part of one of her grandfather s favorite poems by that famous traveer Robert Louis Stevenson Home is the saior, home from the sea, and the hunter, home from the hi. Source: Aen D. Enge, Sr. fictiona composite case from interviews, web sources and artices reated to goba corporate cuture and management deveopment practices. SUMMARY The purpose of this chapter has been to identify the HR impications of the various options and responses that internationa growth paces on the firm. This chapter focused on: The genera topic of baancing standardization and ocaization of MNE operations and how this baancing act runs throughout a human resource panning, processes, activities and systems. The organizationa context in which IHRM activities take pace. Different structura arrangements have been identified as the firm moves aong the path to mutinationa status from export department through to more compex varieties such as the matrix, heterarchy, transnationa and networked structures. Contro and coordination aspects. Forma and informa mechanisms were outined, with emphasis on contro through persona networks and reationships, and contro through corporate cuture, drawing out HRM impications. How internationa growth affects the firm s approach to HRM. Firms vary from one another as they go through the stages of internationa deveopment, and react in different ways to the circumstances they encounter in the various foreign markets. There is a wide variety of matches between IHRM approaches, organizationa structure and stage of internationaization. Over 20 years ago amost haf the US firms surveyed by Dowing 112 reported that the operations of the HR function were unreated to the nature of the firm s internationa operations. A study of nine subsidiaries of mutinationas operating in Ireand by Monks 113 found that the majority adopted a

91 74 CHAPTER 3 THE ORGANIZATIONAL CONTEXT oca approach to the HR function, with headquarters invovement often imited to monitoring the financia impications of HR decisions. Stages of deveopment and organizationa forms shoud not to be taken as normative. 114 Research does suggest a pattern and a process of internationaization but firms do vary in how they adapt to internationa operations we use nationaity of the parent firm to demonstrate this. Through the approach taken in this chapter, we have been abe to demonstrate that there is an interconnection between IHRM approaches and activities and the organizationa context, and that HR managers have a crucia roe to pay. In order to better perform this roe, it woud seem important that HR managers understand the various internationa structura options aong with the contro and coordination demands imposed by internationa growth.

92 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 75 DISCUSSION QUESTIONS 1 What are the issues of standardization and ocaization in genera for MNEs and how do they particuary manifest themseves in IHRM activities? 2 What are the stages a firm typicay goes through as it grows internationay and how does each stage affect the HR function? 3 What are the specific HRM chaenges in a networked firm? 4 Country of origin can strongy infuence a firm s approach to organization structure. As MNEs from China and India internationaize, to what extent are they ikey to differ from that observed for Japanese, European and US MNEs? FURTHER READING Bartett, C. and Beamish, P. Transnationa Management: Text, Cases and Readings in Cross-border Management, 6th Ed. (Boston, MA: McGraw-Hi/Irwin, 2011). Caigiuri, P., Lepak, D. and Bonache, D. Managing the Goba Workforce, (Chichester, U.K.; John Wiey and Sons, Ltd, 2010). Festing, M. and Eidems, J. A Process Perspective on Transnationa HRM Systems A Dynamic Capabiity-based Anaysis, Human Resource Management Review (in press). Sedge, S. (2011) Dynamic competition: a ook at firms in the Fortune Goba 500, Competitiveness Review, Vo. 21, No. 5, pp Sties, E. and Trevor, J. (2006) The Human Resource Department: Roes, Coordination and Infuence, in G. Stah and I. Björkman (eds), Handbook of Research in Internationa Human Resource Management, (Chetenham: Edward Egar), pp NOTES AND REFERENCES 1. For more on the potentia of strategic and structura activities to impact on internationa human resource processes and systems, see P. Evans, V. Pucik and I. Björkman, The Goba Chaenge: Internationa Human Resource Management, 2nd Ed. (Boston: McGraw-Hi, 2011), particuary Chapter A discussion of the administrative heritage that may ink MNE country of origin to a predisposition for certain strategies and structura options is presented by C. Bartett and P. Beamish in Transnationa Management: Text, Cases and Readings in Cross-Border Management, 6th Ed. (Boston: McGraw-Hi/Irwin, 2011), pp ; T. Jackson, Internationa HRM: A Cross-Cutura Approach (London: Sage Pubications, 2002); and P. Buckey and P. Ghauri, Gobaization, Economic Geography and the Strategy of Mutinationa Enterprises, Journa of Internationa Business Studies, Vo. 35, No. 2 (2004), pp M. Svard and R. Luostarinen, Personne Needs in the Internationaising Firm, FIBO Pubication No. 19 (Hesinki: Hesinki Schoo of Economics, 1982). 4. P. M. Rosenzweig and N. Nohria, Infuences on Human Resource Management Practices in Mutinationa Corporations, Journa of Internationa Business Studies, Vo. 25, No. 2 (1994), pp Evans, Pucik and Björkman, The Goba Chaenge; R. White, A Strategic Approach to Buiding a Consistent Goba Rewards Program, Compensation and Benefits Review, Vo. 37, No. 4 (2005), pp M. Boom, G. T. Mikovich and A. Mitra, Internationa Compensation: Learning from How Managers Respond to Variations in Loca Host Contexts, Internationa Journa of

93 76 CHAPTER 3 THE ORGANIZATIONAL CONTEXT Human Resource Management, Vo. 14, No. 8 (2002), pp P. Lawrence and J. Lorsch, Differentiation and Integration in Compex Organizations, Administrative Science Quartery, Vo. 12 (1967), pp. 1 30; N. Forster and R. Whipp, Future of European Human Resource Management: A Contingent Approach, European Management Journa, Vo. 13, No. 4 (1995), pp P. Gunnige, K. R. Murphy, J. N. Ceveand, N. Heraty and M. Morey, Locaization in Human Resource Management: Comparing American and European Mutinationa Corporations, Advances in Internationa Management, Vo. 14 (2002), pp K. Kamoche, Strategic Human Resource Management within a Resource-capabiity View of the Firm, Journa of Management Studies, Vo. 33 (1996), pp The firm-specific compexities of this standardizationocaization issue are presented in a review of dynamic structures, roes and responsibiities at Nesté SA by M. Hird and M. Stripe, Nesté: Refections on the HR Structure Debate in P. Sparrow, M. Hird, A. Hesketh and C. Cooper (eds) Leading HR (Houndsmi, UK: Pagrave/ Macmian, 2010), pp A.-W. Harzing, Managing the Mutinationas: An Internationa Study of Contro Mechanisms (Chetenham: Edward Egar, 1999). 11. E. Farndae, J. Paauwe, S. Morris, G. Stah, P. Sties, J. Trevor and P. Wright, Context-Bound Configurations of Corporate HR Functions in Mutinationa Firms, Human Resource Management, Vo. 49, No. 1, (2010), pp N. J. Ader and F. Ghadar, Strategic Human Resource Management: A Goba Perspective, in R. Pieper (ed.), Human Resource Management: An Internationa Comparison (Berin and New York: De Gruyter, 1991), pp Bartett and Beamish, Transnationa management. 14. S. Bazejewski and W. Dorow, Corporate Cutures in Goba Interaction: A Management Guide. (Gütersoh, Germany: Bertesmann Foundation, 2007). 15. J. D. Thompson, Organizations in Actions (New York: McGraw-Hi, 1967); A. H. Adrich, Organizations & Environments (Engewood Ciffs, NJ: Prentice Ha, 1979). 16. Further detais can be found in M. Festing, J. Eidems, S. Royer and F. Kuak, When in Rome Pay as the Romans Pay? Considerations About Transnationa Compensation Strategies and the Case of a German MNE, ESCP-EAP Working Paper No. 22 (Berin: ESCP-EAP European Schoo of Management, 2006). Schering AG was acquired by Bayer AG in 2006 and is now Bayer Schering Pharma AG. 17. P. Sparrow, Internationa Rewards Systems: To Converge or Not to Converge?, in C. Brewster and H. Harris (eds), Internationa HRM: Contemporary Issues in Europe (London: Routedge, 2004), pp See aso G. T. Mikovich and M. Boom, Rethinking Internationa Compensation, Compensation and Benefits Review, Vo. 30, No. 1 (1998), pp H. Triandis, Generic Individuaism and Coectivism, in M. Gannon and K. Newman (eds), The Backwe Handbook of Cross-cutura Management (Oxford: Backwe Business Pub., 2002), pp A we-known definition for institutions is the foowing: institutions consist of cognitive, normative and reguative structures and activities that provide stabiity and meaning to socia behavior. See W. R. Scott, Institutions and Organizations (Thousand Oaks, CA: Sage, 1995), p P. J. DiMaggio and W. Powe, The Iron Cage Revisited: Institutiona Isomorphism and Coective Rationaity in Organizationa Fieds, American Socioogica Review, Vo. 48 (1983), pp ; R. D. Whitey, European Business Systems: Firms and Markets in Their Nationa Contexts (London: Sage, 1992); R. D. Whitey, Business Systems in East Asia: Firms, Markets and Societies (London: Sage, 1992). For a more concrete appication of the institutiona approach to a specific human resource practice, see M. Festing, and I. Sahakiants Compensation Practices in Centra and Eastern European EU Member States An Anaytica Framework Based on Institutiona Perspectives, Path Dependencies and Efficiency Considerations, Thunderbird Internationa Business Review, Vo. 52, No. 3 (2010), pp A. Ferner, Country of Origin Effects and HRM in Mutinationa Companies, Human Resource Management Journa, Vo. 7, No. 1 (1997), pp Whitey, Business Systems in East Asia; Whitey, European Business Systems. 23. Federa Ministry of Education and Research (ed.), Education in Germany (Bonn/Berin: Federa Ministry of Education and Research, 2004). 24. P. Sparrow, Internationa Rewards Systems: To Converge or Not to Converge?, in C. Brewster and H. Harris (eds), Internationa HRM: Contemporary Issues in Europe (London: Routedge, 2004), p S. N. As-Saber, P. J. Dowing and P. W. Liesch, The Roe of Human Resource Management in Internationa Joint Ventures: A Study of Austraian-Indian Joint Ventures, Internationa Journa of Human Resource Management, Vo. 9, No. 5 (1998), pp S. E. Khiji, Modes of Convergence and Divergence: An Integrative View of Mutinationa Practices in Pakistan, Internationa Journa of Human Resource Management, Vo. 13, No. 2 (2002), pp L. Liberman and I. Torbiörn, Variances in Staff-reated Management Practices at Eight European Country Subsidiaries of a Goba Firm, Internationa Journa of Human Resource Management, Vo. 11, No. 1 (2000), pp B. Tayor, Patterns of Contro Within Japanese Manufacturing Pants in China: Doubts about Japanization in Asia, Journa of Management Studies, Vo. 36, No. 6 (1999), pp

94 CHAPTER 3 THE ORGANIZATIONAL CONTEXT Ferner, Country of Origin Effects and HRM in Mutinationa Companies. 30. Human resource management of US American enterprises in the United Kingdom, pubished in German anguage as: A. Ferner, P. Amond, P. Buter, I. Cark, T. Coing, T. Edwards and L. Hoden, Das Human Resource Management amerikanischer Unternehmen in Grobbritannien, in H. Wächter and R. Peters (eds), Personapoitik amerikanischer Unternehmen in Europa (München and Mering: Hampp, 2004); A. Ferner, P. Amond and T. Coing, Institutiona Theory and the Cross-nationa Transfer of Empoyment Poicy: The Case of Workforce Diversity in US Mutinationas, Journa of Internationa Business Studies, Vo. 36 (2005), pp M. Pudeko and A.-W Harzing, Country-of-Origin, Locaization or Dominance Effect? An Empirica Investigation of HRM Practices in Foreign Subsidiaries, Human Resource Management, Vo. 46 No. 4 (2007) pp Aso see M. Pudeko and A.-W. Harzing The Goden Triange for MNCs: Standardization towards Headquarters Practices, Standardization towards Goba Best Practices and Locaization, Organizationa Dynamics, Vo. 37 No. 4 (2008) pp T. Edwards, P. Amond, I. Cark, T. Coing and A. Ferner, Reverse Diffusion in US Mutinationas: Barriers from the American Business System, Journa of Management Studies, Vo. 42 (2005), pp A. Ferner, J. Quintania and M. Varu, Country-of-origin Effects, Host-country Effects, and the Management of HR in Mutinationas, Journa of Word Business, Vo. 36, No. 2 (2001), pp Edwards, Amond, Cark, Coing and Ferner, Reverse Diffusion in US Mutinationas: Barriers from the American Business System. 35. For a recent tri-regiona approach ( bundes of HR practices apropos to North Western Europe, Ango-Irish Europe and Centra-Southern Europe ) to European HR practices and firm performance, see E. Stavrou, C. Brewster and C. Charaambous, Human Resource Management and Firm Performance in Europe Through the Lens of Business Systems: Best Fit, Best Practice or Both?, Internationa Journa of Human Resource Management, Vo. 21, No. 7 (2010), pp P. Buckey, J. Cegg and H. Tan, The Art of Knowedge Transfer: Secondary and Reverse Transfer in China s Teecommunications Manufacturing Industry, Management Internationa Review, Vo. 43, Specia Issue 2 (2003), pp Motoroa, Company website information, December Y. Yan, A Comparative Study of Human Resource Management Practices in Internationa Joint Ventures: The Impact of Nationa Origin, Internationa Journa of Human Resource Management, Vo. 14, No. 4 (2003), pp For exampe, see J. Birkinshaw and N. Hood, Mutinationa Subsidiary Evoution: Capabiity and Charter Change in Foreign Owned Subsidiary Companies, Academy of Management Review, Vo. 23, No. 4 (1998), pp ; J. Birkinshaw and N. Hood, (eds) Mutinationa Corporate Evoution and Subsidiary Deveopment, (New York: St. Martin s Press, 1998); T. Ambos and J. Birkinshaw, Headquarters Attention and its Effect on Subsidiary Performance, Management Internationa Review, Vo. 50 No. 4 (2010), p ; K. Fatehi, Managing Internationay, (London: Sage Pubications, 2008), pp See, for exampe, Birkinshaw and Hood, Mutinationa Subsidiary Evoution. 41. T. Ying, Eectronics Giant to Open R&D Company, China Daiy, March (2005), p Gupta and Govindarajan, Knowedge Fows and the Structure of Contro within Mutinationa Corporations. 43. Human resource management impications are mainy based on S. Tayor, S. Beecher and N. Napier, Toward an Integrative Mode of Strategic Internationa Human Resource Management, Academy of Management Review, Vo. 21, No. 4 (1996), pp For a more specific exposition of subsidiary mandates and HR issues (in the Hungarian context), see J. Poór, A. Enge, and A. Gross Human Resource Management Practices of Large Mutinationa Firms in Hungary, Acta Oeconomica, Vo. 60, No.4 (2010), pp A. Harzing and N. Noorderhaven, Knowedge Fows in MNCs: An Empirica Test and Extension of Gupta and Govindarajan s Typoogy of Subsidiary Roes, Internationa Business Review, Vo. 15 (2006), pp Ibid. 46. Ibid., p For an interesting study and review of centers of exceence, see M. Adenfet and K. Lagerstrom, The Deveopment and Sharing of Knowedge by Centers of Exceence and Transnationa Teams: A Conceptua Framework, Management Internationa Review, Vo. 48 No. 3 (2008), pp S. Morris, S. Sne and P. Wright, A Resource-based View of Internationa Human Resources: Toward a Framework of Integrative and Creative Capabiities, in G. Stah and I. Bjorkman (eds), Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp J. Birkinshaw and J. Ridderstrâe, Fighting the Corporate Immune System: A Process Study of Subsidiary Initiatives in Mutinationa Corporations, Internationa Business Review, Vo. 8, No. 2 (1999), p S. Michaiova and K. Husted, Knowedge-sharing Hostiity in Russian Firms, Caifornia Management Review, Vo. 45, No. 3 (2003), pp O. Tregaskis, Learning Networks, Power and Legitimacy in Mutinationa Subsidiaries, Internationa Journa of

95 78 CHAPTER 3 THE ORGANIZATIONAL CONTEXT Human Resource Management, Vo. 14, No. 3 (2003), pp Tayor, Beecher and Napier, Toward an Integrative Mode of Strategic Internationa Human Resource Management. For a detaied discussion of the potentia compexities of the transfer of knowedge to subsidiaries in the automobie industry in India, see F. Becker-Ritterspach, Hybridization of MNE Subsidiaries: The Automotive Sector in India, (Houndmis, UK: Pagrave-Macmian, 2009). 53. Festing, Eidems and Royer, Strategic Issues and Loca Constraints in Transnationa Compensation Strategies. 54. J. Birkinshaw and J. Ridderstrâe, Fighting the Corporate Immune System, pp Festing, Eidems and Royer, Strategic Issues and Loca Constraints in Transnationa Compensation Strategies. For other resource-dependent oriented anayses see Y. Kim, Different Subsidiary Roes and Internationa Human Resource Management: An Exporatory Study of Austraian Subsidiaries in Asia, Journa of Asia-Pacific Business, Vo. 4 (2002), pp ; Myoni, Harzing and Mirza, The Effect of Corporate-eve Organizationa Factors on the Transfer of Human Resource Management Practices. 56. Gupta and Govindarajan, Knowedge Fows and the Structure of Contro within Mutinationa Corporations ; Harzing, Managing the Mutinationas. For a recent study emphasizing the discretionary power of the headquarters in the headquarters-subsidiary reationship, see T. Ambos, U. Andersson and J. Birkinshaw, What are the Consequences of Initiative-taking in Mutinationa Subsidiaries? Journa of Internationa Business Studies, Vo. 41, No. 7 (2010), pp J. Martinez and J. Jario, The Evoution of Research on Coordination Mechanisms in Mutinationa Corporations, Journa of Internationa Business Studies, Vo. 19 (1989), pp For a more wide-ranging and recent discussion of the many facets of coordination and contro in mutinationa and subsidiary reationships, see U. Andersson and U. Hom (eds) Managing the Contemporary Mutinationa: The Roe of Headquarters (Chetenham: Edward Egar, 2010). 58. J. I. Martinez and J. C. Jario, Coordination Demands of Internationa Strategies, Journa of Internationa Business Studies, Vo. 21 (1991), p For a further discussion in the context of IHRM strategies see M. Festing, Internationa HRM in German MNCs, Management Internationa Review, Vo. 37, Specia Issue No. 1 (1997), pp For a discussion of the possibe roes corporate HR executives may take on, specific to the context of taent management aspects of goba HRM, see E. Farndae, H. Scuion and P. Sparrow, The Roe of the Corporate HR Function in Goba Taent Management, Journa of Word Business, Vo. 45, No. 2, (2010), pp A PriceWaterhouseCoopers report points out that goba workforce management incudes the management of a respective database. For exampe, empoyees of IBM have their profie onine. PriceWaterhouseCoopers (eds), Technoogy Executive Connections: Successfu Strategies for Taent Management (USA: PriceWaterhouseCoopers, 2006), p. 40. For a discussion and empirica investigation of the human capita impications of goba databases, see C. Ruta, HR Porta Aignment for the Creation and Deveopment of Inteectua Capita, Internationa Journa of Human Resource Management, Vo. 20, No. 3 (2009), pp These insights are based on an interview by one of the authors with the Head of HR of a transnationa organization. For a more genera view from the top of the capabiities of HRM in goba coordination from a UK perspective see G. Maxwe and L. Farqhuarson, Senior Manager s Perceptions of the Practice of Human Resource Management, Empoyee Reations, Vo. 30, No. 3 (2008), pp The organization s structure defines the tasks of individuas and business units within the firm and the processes that resut from the intertwined tasks: identifying how the organization is divided up (differentiated) and how it is united (integrated). For a recent conceptua review of the ongoing quest for an optima structure in an increasingy turbuent word, see J. Davis, K. Eisenhardt and C. Bingham, Optima Structure, Market Dynamism, and the Strategy of Simpe Rues, Administrative Science Quartery, Vo. 54, No. 3 (2009), pp P. Sparrow, Integrating Peope, Processes, and Context Issues in the Fied of IHRM, In P. Sparrow (ed.) Handbook of Internationa Human Resource Management (New York: John Wiey and Sons, 2009), pp See M. Forsgren, Theories of the Mutinationa Firm (Chetenham, UK: Edward Egar, 2008), particuary Chapter 5, The Designing Mutinationa: A Tae of Strategic Fit, pp ; J. Johanson and J. E. Vahne, The Mechanism of Internationaisation, Internationa Marketing Review, Vo. 7, No. 4 (1990), pp ; N. Mahotra and C. Hinings, An Organizationa Mode For Understanding Internationaization Processes, Journa of Internationa Business Studies, Vo. 41, No. 2 (2010), pp The wiingness to entertain and success of export strategies are presented in the Chinese context by G. Gao, J. Murray, M. Kotabe and J. Li, A Strategy Tripod Perspective on Export Behaviors: Evidence from Domestic and Foreign Firms Based in an Emerging Economy, Journa of Internationa Business Studies, Vo. 14, No. 3 (2010), pp A study of US service firms invoved in internationa operations showed that a whoy owned subsidiary/branch office was the most common method, though engineering and architecture firms used direct exports and consumer services used icensing/franchising (K. Erramii, The Experience Factor in Foreign Market Entry Behavior of Service Firms,

96 CHAPTER 3 THE ORGANIZATIONAL CONTEXT 79 Journa of Internationa Business Studies, Vo. 22, No. 3 (1991), pp ). 66. J. Ricart, M. Enright, E Ghemawat, S. Hart and T. Khanna, New Frontiers in Internationa Strategy, Journa of Internationa Business Studies, Vo. 35 (2004), pp ; D. Wech and L. Wech, Pre-expatriation: The Roe of HR Factors in the Eary Stages of Internationaization, Internationa Journa of Human Resource Management, Vo. 8, No. 4 (1997), pp See V. Pucik, Strategic Human Resource Management in a Mutinationa Firm, in H. Wortze and L. Wortze (eds), Strategic Management of Mutinationa Corporations: The Essentias (New York: John Wiey 1985), pp N. Ader and A. Gundersen, Internationa Dimensions of Organizationa Behavior, 5th Ed. (Mason, OH: Thomson South-Western, 2008), chapter 10; M. Boom, G. Mikovich and A. Mitra, Internationa Compensation: Learning How Managers Respond to Variations in Loca Host Contexts, Internationa Journa of Human Resource Management, Vo. 14, No. 8 (2003), pp Pucik, Strategic Human Resource Management in a Mutinationa Firm. 70. C. Bartett and S. Ghosha, Organizing for Wordwide Effectiveness: The Transnationa Soution, in R. Buzze, J. Quech and C. Barrett (eds), Goba Marketing Management: Cases and Readings, 3rd Ed. (Reading, MA: Addison Wesey, 1992). 71. J. Gabraith and R. Kazanjian, Organizing to Impement Strategies of Diversity and Gobaization: The Roe of Matrix Designs, Human Resource Management, Vo. 25, No. 1 (1986), p. 50. See aso R. Daft, Organization Theory and Design, 10th Ed. (Mason, OH: South-Western Pub., 2008), chapter 6; and R. Fitts and J. Danies, Aftermath of the Matrix Mania, Coumbia Journa of Word Business, Vo. 19, No. 2 (1984), for an eary discussion on the matrix structure. 72. W. Tayor, The Logic of Goba Business: An Interview with ABB s Fercy Barnevik, Harvard Business Review, March-Apri 1991, pp For a more compete presentation of ABB s strategic intent and structura and process quaities, see K. Barham and C. Heimer, ABB: The Dancing Giant (London: Financia Times/Pitman Pubishing, 1998). 73. C. Bartett and S. Ghosha, Matrix Management: Not a Structure, a Frame of Mind, Harvard Business Review, Juy-August 1990, pp Hofstede s concerns with the workabiity of baanced matrix structures are presented in his prescription that structure shoud foow cuture and be fexibe and fuid, Hofstede, Hofstede and Minkov, Cutures and Organizations, pp S. Ronen, Comparative and Mutinationa Management (New York: John Wiey 1986), p P. Dowing, Internationa HRM, in L. Dyer (ed.), Human Resource Management: Evoving Roes and Responsibiities, Vo. 1, ASFA/BNA Handbook of Human Resource Management Series (Washington, DC: BNA, 1988), pp Gabraith and Kazanjian, Organizing to Impement Strategies, p G. Hedund, The Hypermodern MNC A Heterarchy?, Human Resource Management, Vo. 25, No. 1 (1986), pp G. Hedund, A Mode of Knowedge Management and the N-form Corporation, Strategic Management Journa, Vo. 15 (1994), pp Bartett and Ghosha, Organizing for Wordwide Effectiveness, p A. Enge and M. Mendenha, Transnationa Roes, Transnationa Rewards: Goba Integration in Compensation, Empoyee Reations, Vo. 26, No. 6, (2004) pp Birkinshaw and Hood, Mutinationa Corporate Evoution and Subsidiary Deveopment. 82. M. Forsgren, Managing the Internationa Muti-center Firm: Case Studies from Sweden, European Management Journa, Vo. 8, No. 2 (1990), pp Aso see Forsgren, Theories of the Mutinationa Firm, Chapter 6, The Networking Mutinationa: A Tae of Business Reationships, pp Much of this work has been based on the concepts of socia exchange theory and interaction between actors in a network. 83. J. I. Martinez and J. C. Jario, The Evoution of Research on Coordination Mechanisms in Mutinationa Corporations, Journa of Internationa Business Studies (Fa 1989), pp S. Ghosha and C. Bartett, The Mutinationa Corporation as an Interorganizationa Network, Academy of Management Review, Vo. 8, No. 2 (1990), pp S. Ghosha and C. Bartett, Buiding the Entrepreneuria Corporation: New Organizationa Processes, New Manageria Tasks, European Management Journa, Vo. 13, No. 2 (1995), p R. Marschan, Dimensions of Less-hierarchica Structures in Mutinationas, in I. Björkman and M. Forsgren (eds), The Nature of the Internationa Firm (Copenhagen: Copenhagen Business Schoo Press, 1997). 87. N. Nohria and S. Ghosha, The Differentiated Network: Organizing Mutinationa Corporations for Vaue Creation (San Francisco, CA: Jossey-Bass, 1997), pp Y. Doz, J. Santos and P. Wiiamson, From Goba to Metanationa: How Companies Win in the Knowedge Economy (Boston: Harvard Business Press, 2001). 89. Y. Doz, J. Santos and P. Wiiamson, From Goba to Metanationa, p H. Scuion and K. Starkey, In Search of the Changing Roe of the Corporate Human Resource Function in the Internationa Firm, Internationa Journa of Human Resource Management, Vo. 11, No. 6 (2000), pp L. Lekse, Headquarter-Subsidiary Reationships in Mutinationa Corporations, unpubished doctora thesis,

97 80 CHAPTER 3 THE ORGANIZATIONAL CONTEXT Institute for Internationa Economic Studies, University of Stockhom, Stockhom (1981). 92. G. Hedund, Organization In-between: The Evoution of the Mother-Daughter Structure of Managing Foreign Subsidiaries in Swedish MNCs, Journa of Internationa Business Studies, Fa (1984), pp Assessment of Ford Motor Company from the New York Times, accessed January 27, 2011 at topics.nytimes.com/top/news/business/companies/ ford_motor_company/index.htm. 94. S. Ronen, Comparative and Mutinationa Management (New York: John Wiey, 1986). 95. R. B. Peterson, J. Sargent, N. K. Napier and W. S. Shim, Corporate Expatriate HRM Poicies, Internationaisation and Performance, Management Internationa Review, Vo. 36, No. 3 (1996), pp S.-K. Chai and M. Rhee, Confucian Capitaism and the Paradox of Cosure and Structura Hoes in East Asian Firms, Management and Organizationa Review, Vo. 6, No. 1 (2010), pp See J. Zhan and G. Liang, Latest Trends in Goba FDI Fows and Poicies: A Synthesis of Recent Research by UNCTAD, AIB Insights, Vo. 10, No. 4 (2010); D. Scissors, Chinese Outward Investment, AIB Insights, Vo. 10, No. 4 (2010), pp. 7 11; and S. Sedge, Dynamic competition: a ook at firms in the Fortune Goba 500, Competitiveness Review, Vo. 21, No. 5 (2011), pp J. Shen, Factors Affecting Internationa Staffing in Chinese Mutinationas (MNEs), Internationa Journa of Human Resource Management, Vo. 17, No. 2 (2006), pp P. Doremus, W. Keer, L. Pauey and S. Reich, The Myth of the Goba Corporation (Princeton, NJ: Princeton University Press, 1998) For additiona empirica support for the idea of the regiona mutinationa and the difficuties inherent in being a baanced, fuy goba firm, see A. Rugman and R. Hodgetts, The End of Goba Strategy, European Management Journa, Vo. 19, No. 4 (2001), pp For a more recent debate on the presence of absence of goba as opposed to regiona firms, see the specia issue in the Journa of Internationa Business Studies, particuary an empirica review of Japanese MNE s, The Regiona Nature of Japanese Mutinationa Business, by S. Coinson and A. Rugman, Journa of Internationa Business Studies, Vo. 39, No. 2 (2008), and a rejoinder to criticisms of the regiona approach by A. Rugman and A. Verbeke, The Theory and Practice of Regiona Strategy: A Response to Osegowitsch and Sammartino, Journa of Internationa Business Studies, Vo. 39, No. 2 (2008), pp Interview by Andrew Jack, Financia Times, October 13 (1997), p A. D. Enge, P. J. Dowing, and M. Festing, State of Origin: Research in Goba Performance Management, a Proposed Research Domain and Emerging Impications, European Journa of Internationa Management, Vo. 2, No. 2 (2008), pp ; G. Jones, Organization Theory, Design and Change, 6th Ed. (Upper Sadde River, NJ: Pearson/Prentice-Ha, 2010, chapters 4 and 5); Hofstede, Hofstede and Minkov, Cutures and Organizations, Chapter See C. Bartett and P. Beamish in Transnationa Management for their discussion of a more compete form of contro, more appropriate to advanced mutinationa firms, via a more baanced combination of structura anatomy, process physioogy and cutura psychoogy, pp W. Ouchi, Theory Z (New York: Avon Books, 1981) A. Enge, M. Mendenha, R. Powers and Y. Stedham, Conceptuaizing the Goba Competence Cube: A Transnationa Mode of Human Resource Management, European Journa of Industria Training, Vo. 25, No. 7 (2001), pp R. Gomez and J. Sanchez, Human Resource Contro in MNCs: A Study of the Factors Infuencing the Use of Forma and Informa Contro Mechanisms, Internationa Journa of Human Resource Management, Vo. 6, No. 10 (2005), pp A prescriptive approach to deveoping a hybrid, more baanced forma and informa strategy of contro is provided by F. Nisson and N. G. Ove, Contro Systems in Mutibusiness Companies: From Performance Management to Strategic Management, European Management Journa, Vo. 19, No. 4 (2001), pp An empirica assessment of 24 internationa manufacturing firms in the UK provided evidence of wide variance in the degree to which mutinationa firms provide forums for informa contro processes, some respondents appeared to rey on more forma contro systems. R. Kidger, Management Structures in Mutinationa Enterprises: Responding to Gobaization, Empoyee Reations, Vo. 24, No. 1 (2002), pp ; for a theoretica discussion of the potentia reationships between socia capita, HRM and corporate strategy, see S.-C. Kang, S. Morris and S. Sne, Reationa Archetypes, Organizationa Learning, and Vaue Creation: Extending Human Resource Architecture, Academy of Management Review, Vo. 32, No. 1 (2007), pp J. Nahapiet and S. Ghosha, Socia Capita, Inteectua Capita, and the Organizationa Advantage, Academy of Management Review, Vo. 23, No. 2 (1998), pp ; M. Hitt, L. Bierman, K. Uhenbruck and K. Shimizu, The Importance of Resources in the Internationaization of Professiona Service Firms: the Good, the Bad and the Ugy, Academy of Management Journa, Vo. 49, No. 6 (2006), pp D. Ravasi and M. Schutz, Responding to Organizationa Identity Threats: Exporing the Roe of Organizationa Cuture, Academy of Management Journa, Vo. 49, No. 3 (2006), pp

98 CHAPTER 3 THE ORGANIZATIONAL CONTEXT M. Avesson and R. Berg, Corporate Cuture and Organizationa Symboism (Berin: Water de Gruyter, 1992). For a more recent discussion of the critica roe of organizationa cuture and effectiveness, see E. Schein, The Corporate Cuture Surviva Guide, 2nd Ed. (San Francisco: Jossey-Bass, 2009) A. Enge and M. Mendenha, Transnationa Roes, Transnationa Rewards: Goba Integration in Compensation, Empoyee Reations, Vo. 26, No. 6 (2004), pp ; D. Wech and L. Wech, Commitment for Hire? The Viabiity of Corporate Cuture as a MNC Contro Mechanism, Internationa Business Review, Vo. 15, No. 1 (2006), pp P. Dowing, Hot Issues Overseas, Personne Administrator, Vo. 34, No. 1 (1989), pp The abiity or effectiveness of actuay baancing standardization and ocaization titing neither one way nor the other remains a question open to empirica assessment. See Festing and Eidems, A Process Perspective on Transnationa HRM Systems A Dynamic Capabiitybased Anaysis K. Monks, Goba or Loca? HRM in the Mutinationa Company: The Irish Experience, Internationa Journa of Human Resource Management, Vo. 7, No. 3 (1996), pp For a discussion of the search for patterns and the evoution of research in the area of internationa human resource management studies, see R. Schuer, P. Sparrow and P. Budhwar, Preface: Major Works in Internationa Human Resource Management, in P. Budhwar, R. Schuer and P. Sparrow (eds) Internationa Human Resource Management: Voume I Internationa HRM: The MNE Perspective (Los Angees: Sage, 2010), pp. xxiii xxxv; aso see P. Sparrow, Integrating Peope, Process, and Context Issues in the Fied of IHRM, in P. Sparrow (ed.) Handbook of Internationa Human Resource Management (Chichester, UK: John Wiey and Sons, 2009), pp

99 CHAPTER 4 IHRM IN CROSS- BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs Chapter Objectives In the ast chapter, we outined how the internationa growth of MNEs paces demands on management. In this chapter, the IHRM impications of other modes of internationa operations become our center of interest. Consequenty, we move from an interna perspective on structure, contro mechanisms, and manageria responses to a goba perspective which incudes externa partners. In this chapter we wi first concentrate on cross-border aiances with a specia emphasis on equitybased aiances. These aiances are given priority here due to their association with compex IHRM processes and practices, 1 which is the main interest of study within this voume. Equity cross-border aiances incude: 82

100 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 83 Mergers and acquisitions (M&As); and Internationa joint ventures (IJVs). At the end of the chapter we wi address the specia case of gobaizing sma and medium-sized enterprises (SMEs) whie ooking for attendant IHRM responses. SMEs represent important eements in the word economy. However, in IHRM research they are often negected. There is evidence that their approaches to internationa human resource management differ to a arge extent from those of arge MNEs and this is why we cover this topic in the present chapter. Chapters 2, 3 and 4 compement each other and are designed to deiver insights in the most important organizationa contexts for internationa human resource management. CROSS-BORDER ALLIANCES The strategic importance of aiances has increased in the course of gobaization. 2 Cross-border aiances are cooperative agreements between two or more firms from different nationa backgrounds, which are intended to benefit a partners. As depicted in Figure 4.1 these comprise equity as we a non-equity arrangements. 3 A non-equity cross-border aiance is an investment vehice in which profits and other responsibiities are assigned to each party according to a contract. Each party cooperates as a separate ega entity and bears its own iabiities. 4 Exampes incude internationa technoogy aiances or strategic research and deveopment aiances 5 as we as cooperative agreements in different functiona areas such as marketing or production. 6 Equity modes invove a foreign direct investor s purchase of shares of an enterprise in a country other than its own. 7 These incude the estabishment of subsidiaries as mentioned in Chapter 3, FIGURE 4.1 Equity and non-equity modes of foreign operation Subsidiaries Subcontracting Outsourcing Offshoring Franchising Joint ventures Equity and non-equity based modes of foreign operation Licensing Mergers and acquisitions Others Management contracts Equity modes Non-equity modes Mixed Source: Further deveoped from M. Kutschker and S. Schmid, Internationaes Management, 6th Ed. (Munich and Vienna: Odenbourg, 2008), p Reproduced with permission.

101 84 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs either through Greenfied investments or acquisitions, as we as through joint ventures or mergers. The atter typicay invove ong-term coaborative strategies, which require the support of appropriate HR practices. 8 They represent typica cross-border equity-based aiances. Equity as we as non-equity cross-border aiances pose specific chaenges to internationa human resource management. Often, these are crucia to the success of the internationa operation. As Schuer and Tarique note, Some of the HR issues that are critica to the success of equity-based internationa or cross-border aiances may aso rise in non-equity cross-border aiances, but they are often ess centra to the success of the aiance. 9 Hence, the difference in HRM in equity and non-equity cross-border aiances is supposed to ie in the differing extent to which specific HR measures are used. 10 However, it has to be stated that there is a research deficit with respect to HRM in non-equity cross-border aiances 11 and it is beyond the scope of this chapter to discuss impications of a foreign entry modes in detai. 12 CROSS-BORDER MERGERS AND ACQUISITIONS A merger is the resut of an agreement between two companies to join their operations together. Partners are often equas. For exampe, the DaimerChryser merger was supposed to be a merger between equas in its first stage. 13 More information about this merger and its eventua ack of success can be found in IHRM in Action Case 4.1. An acquisition, on the other hand, occurs when one company buys another company with the interest of controing the activities of the combined operations. 14 This was the case when the Dutch stee company Mitta, ranked second by voume in crude stee production in 2006, initiated a hostie takeover of the Luxembourg-based Arceor group, ranked first in the same statistic. 15 Figure 4.2 shows that a merger usuay resuts in the formation of a new company whie an acquisition invoves the acquiring firm keeping its ega identity and integrating a new company into its own activities. The HR chaenge in both cases consists of creating new HR practices and strategies that meet the requirements of the M&A. FIGURE 4.2 The formation processes of M&As and HR Chaenges Merger Acquisition Company A Company B Company A Company B Company A and Company B form together the new Company C Company A buys Company B Company A Intra-merger HR chaenge Intra-acquisition HR chaenge Within the context of this internationa voume, our focus wi be on cross-border mergers and acquisitions (M&As). This means that firms with headquarters ocated in two different countries are concerned. Many of the HRM chaenges faced in mergers and in acquisitions are simiar, and

102 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 85 IHRM in Action Case 4.1 HR in the DaimerChryser merger The merger The merger between Chryser and Daimer Benz was one of the argest in history. Both companies had started to screen the automobie industry for partners in In eary 1998 Jürgen E. Schrempp, CEO of the German-based Daimer Benz company took the initiative and suggested a merger to Robert J. Eaton, CEO of the American-based Chryser corporation. The merger contract was signed in May HR in the different phases of the M&A At the beginning of the merger soft peope skis were not an important issue to consider. Even in the second phase when the merger was negotiated HR issues continued to pay a minor roe. Negotiations were dominated by ega and financia aspects. Due to the strict secrecy at this stage, the corporate HR directors from both companies were not informed nor invoved. In the integration panning phase in August 1998, management teams from both firms deveoped strategies for the merged company. These teams identified a number of issues that had to be deat with during the post merger integration. With respect to HR one important chaenge was to sove the remuneration probem: The German top managers earned much ess than their American counterparts. The contrary was the case for the ower management eves. It was decided that the saaries for those German top managers who had internationa responsibiity woud be raised to US eve. For a broader group of German managers a component of their saary woud be inked to the company s profit and its share price. At this stage a empoyees were informed using various media such as etters, the intranet or fims. Furthermore, there was a first awareness about cutura issues in the merger. The new board was composed by 18 members incuding both, Schrempp and Eaton as chairmen, 8 board members from Chryser and the same number from Daimer-Benz pus 2 from the Daimer subsidiaries Dasa and Debis. During the post merger integration phase mixed teams worked on more than 1000 projects identified by the post merger integration coordination team. Ony 43 projects were in the area of HR. They addressed topics such as corporate cuture, empoyee profit-sharing, eadership styes, abor reations, goba job evauation, exchange programs, and management deveopment. The board member responsibe for human resources was not incuded in the Chairman s Integration Counci, the core of DaimerChryser s management structure during the post merger integration phase. Within the first 2 years of the merger DaimerChryser ost about 20 top executives, especiay from the Chryser side. There is itte evidence about a systematic retention program for this eve. During the information campaign for the other eves the focus was on job security. Ony two years after the merger DaimerChryser executives had admitted cutura probems. Exampes incuded inappropriate humor, poitica correctness, perceived excessive formaity, sexua harassment, private reationships, and documentation of meetings. The company offered intercutura training for executives and management exchange programs. Long-term effects In 2000, profitabiity at Chryser had sharpy dropped and there was a 20 per cent decine in the DaimerChryser share price. At that time, the market capitaization of DaimerChryser was itte more than that of Daimer-Benz before the merger. Some years ater, at the beginning of 2007 and after important financia osses mainy on the Chryser side, media is discussing the possibiity of a separation of Daimer and Chryser. Athough Chryser had to cose severa production pants and had cut down around jobs during the first years foowing the merger it has to admit important economic probems for the third time after the merger endangering the overa success of the combined company. 16 This seriousy affected the success of the merger between Daimer and Chryser and ed to a separation of the two partners in due course. Source: Adapted from T. Kühmann and P. J. Dowing, DaimerChryser: A Case Study of a Cross Border Merger, (pp ) in Mergers & Acquistions: Managing Cutura & Human Resources by G. K. Stah and M. E. Mendenha. Copyright ª the Board of Trustees of the Leand Stanford Jr. University, forthcoming. A rights reserved. Used with the permission of Stanford University Press,

103 86 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs for this reason we wi not further differentiate between these two entities, but summarize them and use the abbreviation M&A. UNCTAD defines cross-border M&As as foows: 17 Cross-border M&As invove partia or fu takeover or the merging of capita, assets and iabiities of existing enterprises in a country by TNCs [transnationa corporations] from other countries. M&As generay invove the purchase of existing assets and companies. Cross-border M&As have seen tremendous growth over the ast two decades in part because of the phenomenon of gobaization. Both the vaue and number of cross-border M&As rose in 2005, to $716 biion (an 88 per cent increase) and to 6134 (a 20 per cent increase) respectivey. 18 This is depicted in Figure 4.3. One major reason to engage in mergers or acquisitions is often to faciitate rapid entry into new markets. 19 Thus, mergers and acquisitions are a predominant feature of the internationa business system as companies attempt to strengthen their market positions and expoit new market opportunities. 20 Some of the factors that a firm takes into consideration when deciding on a target country incude: the growth aspiration of the acquiring company, risk diversification, technoogica advantages, a response to government poicies in a particuar country, exchange rate advantages, favorabe poitica and economic conditions, or an effort to foow cients. 21 Despite the high yeary growth rates in the area of M&As there seems to be a gap between the expected added vaue and the benefits reaized from an M&A. 22 However, there is growing appreciation that the way the M&A is managed during the different phases (especiay in the post-merger integration phase) has an impact on its performance, and in turn on the added vaue created. 23 M&A management has been investigated from many different perspectives. The work of Larsson and Finkestein 24 provides an exceent overview of M&As from different research fieds incuding strategic management, economics, finance, organizationa theory and human resource management. 25 Of course, a sources of research are important when expaining the phenomenon of M&A success. For the purposes of this chapter, we are going to focus soey on HR and its roe in empoyee reations. The quaity of empoyee reations, ranging from empoyee support to empoyee resistance, is infuenced by variabes such as the simiarity between the management styes of the two organizations, 26 the type of cross-border combinations, the combination potentia in terms of efficiency gains, or the extent of organizationa integration. There is evidence that empoyee resistance endangers M&A performance as it may hinder synergy reaization. 27 For this reason, it is FIGURE 4.3 Mergers and acquisitions in US$ Biions Cross-border mergers Source: UNCTAD (ed), Word Investment Report 2008 (New York and Geneva, United Nations, 2008), p. 5. Reproduced with permission.

104 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 87 important that a M&As try and effectivey manage issues where empoyee resistance is encountered, in order that empoyee support can evove. This is a process in which the HRM function can pay a crucia roe. A study by Birkinshaw et a. 28 found that the integration of tasks 29 between two companies is interdependent with human integration. The dimensions of human integration in this study incuded visibiity and continuity of eadership, communication processes during integration, integrating mechanisms used, acquired personne retained, and vountary personne oss. Task and human integration interact in different phases to foster vaue creation in acquisitions: In phase one, task integration ed to a satisfying soution that imited the interaction between acquired and acquiring units, whie human integration proceeded smoothy and ed to cutura convergence and mutua respect. In phase two, there was renewed task integration buit on the success of the human integration that has been achieved, which ed to much greater interdependencies between acquired and acquiring units. 30 Birkinshaw et a. concude that the human integration process is especiay difficut to manage and takes time. Compexity and the ength of the integration process increase even more in the case of cross-border aiances. 31 One reason for this is that both of the firms undergoing acquisition processes are embedded in their own nationa, institutiona, and cutura settings (see Chapter 2). 32 Typica probems that arise in cross-border M&As invove the foowing: Within the first year of a merger, it is not uncommon for a company s top management eve to ose up to 20 per cent of its executives. Over a onger time frame, this percentage tends to increase even further. 33 Personne issues are often negected, deayed or not a priority. 34 Finay, a high number of M&As fai or do not produce the intended ong term resuts. 35 When a firm is acquired by another firm, it constitutes an existing workforce. Considering this fact, we wi describe the typica phases characterizing cross-border M&A processes and outine which HR practices are important at each of the different stages. At this point, it must be admitted that the extent to which these HR practices are carried out very much depends on the extent to which integration of the two companies is actuay aspired. In the case of ow integration (e.g. if the M&A is carried out mainy for portfoio reasons) both companies remain separate cutures. However, in the case of high integration, it is crucia for the M&A to meet the HR requirements of the different phases, which wi be outined in the next section. 36 M&A phases and HR impications Typicay, mergers and acquisitions are characterized by a series of phases. Depending on the pubication, these phases wi have different names. However, the M&A process usuay consists of the foowing four steps: A pre-m&a phase incuding a screening of aternative partners based on an anaysis of their strengths and weaknesses. A due diigence phase 37 which focuses more in depth on anayzing the potentia benefits of the merger. Here, product-market combinations, tax reguations, and aso compatibiity with respect to HR and cutura issues are of interest. 38 In the integration panning phase, which is based on the resuts of the due diigence phase panning for the new company is carried out. In the impementation phase pans are put into action.

105 88 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs FIGURE 4.4 HR activities in the phases of a cross-border M&A Impementation and assessment phase Pre-M&A phase Identification of peope-reated issues Panning for due diigence Assessing peope Working out the organizationa/cutura fit Forming the M&A steering team Educating the team on the HR impications Due diigence phase Estimating peope-reated Transactiona costs Ongoing costs Savings Identifying and assessing cutura issues Integration panning phase Deveoping empoyee cuture-sensitive communication strategies Designing key taent retention programs Panning and eading integration efforts Deveoping a new strategy for the new entity Heping the organization cope with change Defining an organizationa bueprint and staffing pan Managing ongoing change, especiay cutura change Managing empoyee communications Advising management on deaing with peope issues Aigning HR poicies, especiay tota rewards Monitoring the process of organizationa and peope-reated integration activities Ensuring the capture of synergies via incentives Initiating earning processes for future M&As Source: Based on J. A. Schmidt, The Correct Speing of M&A Begins with HR, HR Magazine, Vo. 46, No. 6 (2001), pp ª 2001, Society for Human Resource Management, Aexandria, VA. Used with permission. A rights reserved. Various studies have shown that the HR department becomes increasingy invoved in the phases of M&A integration as the process evoves. For exampe, a study conducted in Germany of 68 M&As reveaed that HR issues are ony seriousy considered once the integration strategy has actuay been defined. 39 Schmidt refers to a study of 447 senior HR executives who represent mainy arge companies with more than 1000 empoyees. Most participants were from North America, suppemented by companies from Europe, Latin America and Asia. He found that those companies which invoved the HR department eary in the process were more successfu than others with ate HR invovement. 40 Both studies showed that the strongest invovement of the HR department took pace in the ast two phases of the M&A process. From this study Schmidt has derived best practices, which shoud be considered in the different M&A process phases. They are compemented by cuture-specific aspects, which are of specia importance in cross-border M&As (see Figure 4.4). An anaysis of the data gathered in the context of the Cranfied Studies on Internationa Human Resource Management (CRANET) shows that the foowing HRM measures have an important effect on the success of mergers and acquisitions: increasing invovement of HRM in the strategic decision-making processes of the firm, formaization of HR practices, support of the creation of organizationa capabiities through training and deveopment activities, and deveopment of ines managers and interna abor markets. These aspects seem to be independent from the consideration of specific M&A phases. 41 IHRM in Action case 4.1 anayzes the case of the DaimerChryser merger with respect to the M&A phases and briefy outines which HR measures were taken. If you compare the information given about the DaimerChryser merger with the ist of HR activities outined in Figure 4.4 you can anayze the strengths and the weaknesses from an HR perspective. What essons coud be earned from this process? Strategic HRM and the roe of the HR function in M&As Aguiera and Dencker 42 suggest a strategic approach to HR management in M&A processes. Based on strategic HRM iterature suggesting a fit between business strategy and HR strategy

106 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 89 they argue that firms shoud match their M&A strategy with their HR strategy whie reying on three conceptua toos: Resources are defined as tangibe assets such as money and peope, and intangibe assets, such as brands and reationships. In the context of HRM in M&As decisions about resources invove staffing and retention issues, with termination decisions being particuary important. Processes refer to activities that firms use to convert the resources into vauabe goods and services. For exampe, in our case, these woud be training and deveopment programs as we as appraisa and reward systems. Finay, vaues are the way in which empoyees think about what they do and why they do it. Vaues shape empoyee s priorities and decision making. 43 These ideas deiver starting points for deveoping HR strategies for the newy created entity. Hence, they give hints on how to meet the intra-merger or intra-acquisition HR chaenges outined in Figure 4.1. Taking such a strategic approach and aigning the HRM activities with the M&A strategy with respect to resources, processes and vaues is aso a chaenging task for the HR manager to perform: The HR manager must deveop a set of integrated HR activities which are not ony in ine with the business strategy but with the M&A strategy as we. 44 Based on the work of Urich (1997), 45 the HR function can take the roe of strategic partner (i.e. management of strategic human resources), an administrative expert (i.e. management of the firm s infrastructure), an empoyee champion (i.e. management of the empoyee contribution), or a change agent (i.e. management of transformation and change). In each phase of the M&A process each roe invoves different activities. Rees and Edwards 46 see an emerging integrated HR strategy within M&As mainy as the resut of the interpay of the various intraorganizationa micropoitica forces and the infuence factors from the institutiona and industria environment. M&As may provide an exceent basis to reconsider the HR strategy of a company and to pace the HR function in an important position as a key actor responsibe for intercutura integration and consideration of the ega environment of the various abor markets. However, there is a danger that due to unfavorabe micropoitica conditions within the merger a company may not utiize the fu strengths of its human resource management function. The roe of expatriates in M&As The roe of expatriates has been discussed with respect to knowedge transfer between the acquiring and the acquired company. However, the transfer of embedded knowedge is not guaranteed by each internationa assignment. Whie some studies have reveaed the importance of prior working experience with a specific host country or with a particuar entry mode as a success factor for expatriates invoved in the integration of mergers, 47 this has not been confirmed for acquisitions. In a study by Hébert et a., prior experience did not have an impact on the performance of the acquired firm. 48 In contrast to these findings, the above-mentioned study on M&As in Germany reveaed that successfu integration is dependent upon managers industry experience, experience with simiar projects, and particuary in the case of cross-border aiances, eve of intercutura competence. 49 An emphasis on industry experience is in ine with the suggestion by Hébert et a. who state that industry experience is an important asset when staffing an acquired subsidiary with an expatriate because it can ead to a transfer of best practices. 50 These arguments have impications for the staffing of the post-merger integration team. Hébert et a. 51 suggest that acquiring companies shoud not competey rey on the pacement of expatriates within the top management team of an acquired subsidiary. They suggest creating a strong team incuding a mix of both groups expatriates and oca members of top management and that the acquisition integration be viewed as a coective earning process.

107 90 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs A study by Viinger of 35 acquisitions by western MNEs in Hungary, the Czech Repubic, Sovakia and Poand found that post-acquisition manageria earning 52 highights the importance of appropriate cross-border management skis. The author emphasizes that oca anguage skis as we as sensitivity towards cutura differences are crucia for M&A success. It is especiay important to note this when companies from deveoping countries represent the acquired firm in the M&A process. As Viinger 53 notes: Interestingy, athough anguage and communication probems are ceary pointed out as the key barrier to successfu earning from both sides, there seems to be a consensus that the command of the partner s anguage is mainy a requirement for eastern managers, and significanty ess so for western partners. This may be surprising, as it can ead to a situation in which a hundred eastern European managers have to earn German, instead of a sma number of German expatriates earning the oca anguage. However, it may be argued that the anguage chosen for (future) communications wi depend on the expected direction of the fow of earning between the two partners. A comparative approach to HRM in M&A processes Whie it seems possibe to identify the typica phases of M&A processes across nationaities and industries, the content of the HR measures appears to depend very much on the nationaity and cuture of the companies invoved in the M&A a specific appication of our previous discussion of country of origin effect in Chapter 2. Chid et a. 54 highight the foowing HRM poicy characteristics for the different countries of their investigation (USA, Japan, Germany, France, and UK): Performance-reated pay is more popuar in the USA than in Japan or Germany. Recruitment in the USA tends to be rather short-term compared to Germany, France and the UK. In Japan the ifetime orientation is now ess prevaent but there is sti a onger-term focus than in the other countries. 55 Training and career panning is most extensive in the USA. Despite the fact that there are signs of convergence in HR practices across countries due to the increasing gobaization of markets, the cutura and institutiona differences between MNEs and the resuting impact on HR sti seems to be important. 56 This seems to aso hod true when M&A processes are concerned and especiay in the post-integration phase. Chid et a. 57 summarize the resuts of their case study research as foows: Convergence across nationaities in HRM poicies was evident in post-acquisition moves towards performance-reated pay, training and team-based product deveopment. Most acquirers aso made adjustments to suit the oca cuture. American HRM refected a short-term individuaistic nationa business cuture. Japanese HRM, athough adopting some American methods, generay refected ong-term, consensua, team-based, coectivist nationa phiosophies. French companies have been infuenced by internationa HRM best practice but sti tend to dispay an ethnocentric approach that gives precedence to managers of French origin. German companies were the most anxious to adopt internationa practices in their acquisitions, even when these confict with their traditiona practices. For exampe, they force themseves to be more informa.

108 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 91 INTERNATIONAL EQUITY JOINT VENTURES Internationa joint ventures (IJVs), the second type of equity-based cross-border aiance discussed in this chapter, have experienced tremendous growth during the ast two decades and wi continue to represent a major means of goba expansion for MNEs. 58 In emerging economies such as China they represent the dominant operation mode for MNEs market entry. 59 According to a we-known definition by Shenkar and Zeira 60 an IJV is: A separate ega organizationa entity representing the partia hodings of two or more parent firms, in which the headquarters of at east one is ocated outside the country of operation of the joint venture. This entity is subject to the joint contro of its parent firms, each of which is economicay and egay independent of the other. An IJV can have two or more parent companies. Many IJVs, however, invove two parent companies. An increasing number of IJV partners eads to increasing compexity overa, incuding the internationa HR function and practices. 61 For reasons of simpification we concentrate on a consteation of two partners in the foowing. As wi be outined ater, probems wi get even more compex with more than two partners. The equity division between the parent companies of the joint venture may differ. In some cases the ratio is 50:50, in others the dominance of one partner becomes more obvious with a ratio of 51:49 or through various other combinations. This, of course, has impications for the contro of the IJV; an issue which wi be discussed ater in this chapter. Figure 4.5 depicts the formation of an IJV. In contrast to M&As, the parent companies of an IJV keep their ega identity and an additiona new ega entity representing the IJV is estabished. Figure 4.5 aso indicates the eve of compexity that an IJV represents for the human resource management function. For this reason, IJVs ceary represent an important fied of research for IHRM schoars. 62 The topics of research on IHRM in IJVs are very simiar to those in M&As. In both cases, partners with different institutiona, cutura and nationa backgrounds come together and must baance their interests. However, in IJVs, this chaenge incudes the foowing factors: HR must manage reations at the interfaces between IJV and the parent companies. The different partners that make up the IJV may possiby foow different sets of rues and this can ead to critica duaities 63 within the HR function. The HR department must deveop appropriate HRM practices and strategies for the IJV entity itsef. HR has to recruit, deveop, motivate and retain human resources at the IJV eve. FIGURE 4.5 Formation of an internationa equity joint venture Parent firm B Country B Parent firm A Country A Interface HR chaenge Parent firm C Internationa joint venture Reationa interfaces Possibe additiona reationa interfaces Intra-IJV HR chaenge

109 92 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs These two chaenges have to be taken into consideration during the different phases of estabishing and managing the joint venture 64 and wi be described ater in this chapter. According to a iterature anaysis by Schuer, the main reasons for engaging in an IJV are as foows: 65 To gain knowedge and to transfer that knowedge. Host government insistence. Increased economies of scae. To gain oca knowedge. To obtain vita raw materias. To spread the risks (i.e. share financia risks). To improve competitive advantage in the face of increasing goba competition. To provide a cost effective and efficient response required by the gobaization of markets. Specia emphasis shoud be given to the knowedge transfer or earning objective. 66 IJVs provide an exceent opportunity to earn from another company in two ways. First, each company has the chance to earn the other partner s skis. This can incude gaining know-how and process knowedge in specific functiona areas such as R&D or acquiring oca knowedge about a specific market or cuture. Second, companies acquire working experience in cooperating with other firms. Thus, the IJV can be used as a medium for organizationa earning processes as we. 67 Unfortunatey, there is evidence that many IJVs fai 68 or do not produce the expected resuts. 69 Some reasons for these faiures can be traced back to the ack of interest in the human resource management and cross-cutura management aspects of internationa joint ventures. 70 These two issues wi be addressed in the foowing sections. IJV deveopment stages and HRM impications Simiar to the M&A processes discussed earier, the deveopment of IJVs can aso be described in deveopment stages. Schuer distinguishes four stages: the formation, in which the partnership between the parent companies is the center of interest, the deveopment and impementation of the joint venture itsef, and the advancement of the activities. 71 It is important to note that HRM is invoved in each of the IJV deveopment stages, 72 which are not independent from each other. Activities in the first stage have an impact on activities in the second stage and so on. Furthermore, compexity can increase depending upon the number of parent companies 73 and countries invoved in the joint venture. 74 The stages mode shows that compatibiity between the IJV partners is most important when it comes to mutua earning opportunities between the parent companies and the joint venture. This aspect shoud be focused on from the beginning of a joint venture formation process. As a earning processes incude communication processes and are carried out by peope, the management of the human resources at this point is critica. This encompasses a activities of the HR function incuding recruitment, seection, training and deveopment, performance management and compensation. A strategic approach requires not ony a strong compatibiity of the various HR activities and practices, but aso with the IJV strategy. 75 Within the different stages of IJV formation, the HR manager may take on many roes in order to meet the chaenges of interaction between the parent company and the IJV: In the partnership roe, HR managers shoud take the needs of a stakehoders into account and demonstrate a thorough understanding of the business and the market.

110 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 93 As a change faciitator and strategy impementer, HR managers shoud be abe to conceptuaize and impement new strategies invoving trust-based communication and cooperation with reevant partners. This aso requires the creation of a stabe earning environment. As an innovator, the HR manager shoud be abe to identify taent for executing IJV strategies and adapting to changes in the IJV stages. As a coaborator, the HR manager s strengths shoud ie in creating win-win situations characterized by sharing rather than competing between the different entities engaged in the joint venture. 76 The importance of cross-cutura management in internationa joint ventures As outined in the previous section on the comparative approach of HR in M&As, the nationa, institutiona and cutura environments of a firm do indeed matter. Here, we wi focus on cutura issues which pay an important roe in IJVs. 77 This information on comparative HRM as we as on cross-cutura HRM is reevant to both M&As and IJVs. In many studies, the impications of different cutura empoyee backgrounds coming together in an IJV have been the center of interest. Such a case is described in the foowing IHRM in Action case 4.2, which addresses the HR-reated chaenges of two different institutiona and cutura environments working together in a common venture. This exampe iustrates how cutura differences matter in coaboration, decision-making and oyaty in the German Chinese Joint Venture of Beijing Lufthansa Center Co. Ltd. The top management team and the roe of expatriates in IJVs As shown in IHRM in Action Case 4.2, the IJV s top management team has a high impact on the performance of the joint venture. The team s main task is to contro the daiy business operations of the IJV. The case described here is typica when the two parent firms of an IJV share equa equity division. Usuay, both have the right to be equay represented in the management team and contro of the key management positions is a critica issue when negotiating an IJV contract. Each firm tries to protect its own interests and to keep as much contro as possibe by staffing key positions with its own peope. 78 Kabst 79 cas these IJV positions functiona gatekeepers they try to protect their firm s assets in specific functiona areas such as R&D, production or marketing. Due to the fact that the parent companies compete for these key management positions, the top management team is usuay composed of individuas from different cutura contexts. As in a muticutura teams, diversity may provide opportunities, but the individuas may aso have probems working effectivey together. The critica chaenge for a muticutura team heading an IJV is not ony that it has to dea with different cutura expectations, but that it aso has to baance various management styes and strategic objectives of the different parent firms. Li et a. 80 point out that identification with both the IJV and the parent firm can ead to significant roe conficts and divided oyaty for IJV managers. As in the Beijing-Lufthansa case study, an exaggerated identification with the parent firm can affect communication and decision-making processes in the muticutura team and ead to ower commitment, and consequenty, to probems in decision-making and unsatisfactory resuts. To avoid intercutura conficts, companies often recruit country experts from outside the company rather than repositioning interna technica experts. To address these probems and to increase IJV performance, Li et a. suggest taking expicit measures for improving organizationa identity and identification at the IJV eve. 81 In his study on the retention of experienced managers in IJVs in China Li 82 notes the invovement of the managers in strategic decision-making processes and intensive socia integration measures as the most important measures for reducing turnover of high potentias in IJVs. However, the effectiveness of these measures decreases with the increase of the shares of the foreign partner.

111 94 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs IHRM in Action Case 4.2 Coaboration, decision-making and oyaty in a German- Chinese joint venture: Beijing Lufthansa Center Co. Ltd. The joint venture When in 1978 the Peope s Repubic of China opened its frontiers for foreign investors, the need for modern hotes, apartments and office space that coud meet western requirements became obvious. Deutsche Lufthansa AG together with the government of the city of Beijing decided to cooperate in the estabishment of a mutifunctiona service center. This was supposed to provide a ogistica basis for internationa business traveers for whom China was an unknown territory at that time. The joint venture contract was signed in 1986, and in May 1992 the Beijing Lufthansa Center Co. Ltd. was opened as one of the argest Chinese-German ventures. Requirements for the seection of the management team According to the ega requirements of joint ventures in China, the management team of a joint venture is composed with equa representation of both parties. For the seection of the German members their technica abiities and industry as we as management know-how were of major importance to ensure acceptance by their Chinese counterparts. Furthermore, an understanding of Chinese cuture, combined with the abiity to accept and cope with decision-making structures and the ifestye of the foreign country were important in creating an environment of cooperation and earning. Learning opportunities were a major motive in the Chinese decision to work in a joint venture. Another important aspect was anguage. As many of the oder Chinese were not abe to speak Engish at that time, there was often a need for a transator. A documents had to be transated either into Engish or Chinese. For a important meetings there were transators. German managers took into account that this was time consuming and that not a information might have been transferred. Consequenty, it woud be usefu for the cooperation and the atmosphere within the joint venture if the Germans aso had Chinese anguage capabiities. The German management team members were tod that if they were abe to infuence the seection of their Chinese counterparts they needed to understand that status and important contacts, as we as informa reationships within the administration and government payed an important roe in ensuring an important contribution to the joint venture s success. Coaboration Athough a parties shoud have a common interest in the success of the joint venture different perspectives on specific topics can ead to confict. This can have an impact on the choice of suppiers (foreign versus Chinese instead of quaity considerations) or on the use of company cars representing important status symbos. The use of foreign consutants was favored by the Germans for quaity reasons, whie the Chinese voted for oca consutants for cost reasons. The same was true in discussions concerning the need of expatriates. Chinese managers tried to avoid expensive expatriates whie the German counterparts were convinced that they needed peope with specific quaifications, which, according to them, coud ony be provided by expatriates. Again, the negotiations about these issues were very time consuming. With respect to decision-making, the joint venture contract stated that the genera manager is responsibe for daiy business and that this person be supported by a Chinese deputy. These reguations ensured that the Chinese ega and cutura environment was sufficienty respected in the decision-making processes. However, in practice, this meant that the genera manager coud not decide anything without the Chinese deputy and decision processes became sow and compicated. This ed to a change in the decision-making reationship between the genera manager and the deputy, which gave more power to the deputy and ensured that the genera manager coud take ony a imited number of decisions without the deputy. (Continued)

112 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 95 (Continued) Loyaty In many situations, strong oyaty to the parent company presented a probem because the managers did not put the common project at the center of interest. For exampe, it was reported that the Chinese managers didn t want to take decisions without consuting their parent firm, which again ed to very sow decision processes. Here, the high degrees of power distance and uncertainty avoidance of the Chinese partners may have infuenced this behavior. However, this approach endangers oyaty to the joint venture and such deays aso discourage oca empoyees and management from both sides. Another issue which ed to difficuties invoved the way in which expatriate managers viewed their jobs in the joint venture. For them, their positions were often just another step in their careers which coud possiby ead to a higher position after the assignment. In this case, oyaty to the parent company was higher than oyaty to the joint venture. Source: Based on H. J. Probst, Human Resources in a German-Chinese Joint Ventures Experiences from the Beijing Lufthansa Center Co. Ltd, pubished in German anguage as H. J. Probst, Human Resources in einem deutsch-chinesischen Joint Venture: Praxiserfahrungen am Beispie der Beijing Lufthansa Center Co. Ltd., Duisburger Papiere zur Ostasienwirtschaft, Vo. 22 (1995), pp Reproduced with permission. INTERNATIONAL SMEs 83 SMEs: Strategic importance and barriers to internationaization The roe of sma and medium-sized companies (SMEs) is often not discussed in the internationa management iterature. SMEs can be defined using headcount, annua turnover or annua baance sheet tota. Tabe 4.1 outines the definition deveoped by the European Commission. It is important to note that there is no commony accepted definition of an SME and criteria and imits differ. The European Commission definition is very specific whie other definitions incude companies with up to 1000 empoyees as SMEs. 84 TABLE 4.1 SME definition Enterprise Category Headcount Annua Turnover Annua Baance Sheet Tota Medium-sized < 250 < E 50 miion < E 43 miion Sma < 50 < E 10 miion < E 10 miion Source: European Commission (ed.), The New SME Definition. User Guide and Mode Decaration (Brusses: European Commission, 2005), p. 14. Reproduced with permission. It is often forgotten that SMEs pay an important roe in the word economy as shown by the foowing figures: In the European Economic Area (EEA) and Switzerand there are more than 16 miion enterprises. Less than 1 per cent are arge enterprises, the rest are SMEs. Two thirds of a jobs in this region are in SMEs, whie one third of a jobs are provided by arge enterprises. 85 In many countries the percentage of empoyees working for enterprises with ess than 20 empoyees amounts to more than 80 per cent. 86

113 96 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs SMEs constitute the backbone of the Asia Pacific region, accounting for 90 per cent of enterprises, between 32 and 48 per cent of empoyment and between 80 and 60 per cent of gross domestic product in individua Asia Pacific economies. 87 In the United States more than 80 per cent of tota empoyment is with organizations with ess than 20 empoyees. 88 The strong position of SMEs in their nationa economies is not refected to the same extent in the internationa business environment. 89 When internationaizing their operations, SMEs experience different chaenges than arge organizations. They have ess experience with environmenta contexts in different countries, ess power to withstand the demand of host governments, ess reputation and financia resources as we as fewer resources for managing internationa operations. 90 The top ten barriers to access to internationa markets as identified by an OECD survey on 978 SMEs wordwide incude the foowing: 1 Shortage of working capita to finance exports. 2 Identifying foreign business opportunities. 3 Limited information to ocate/anayze markets. 4 Inabiity to contact potentia overseas customers. 5 Obtaining reiabe foreign representation. 6 Lack of manageria time to dea with internationaization. 7 Inadequate quantity of and/or untrained personne for internationaization. 8 Difficuty in managing competitor s prices. 9 Lack of home government assistance/incentives. 10 Excessive transportation/insurance costs. 91 In many countries such as Singapore, Korea, South Africa and in the European Union, SME internationaization is promoted by poicies of their home-countries. As the Word Investment Report 92 suggests: Poicymakers need to support entrepreneurship and foster the creation of start-up MNEs, especiay in knowedge-based industries. In terms of enterprise deveopment countries make up for the ack of entrepreneuria taents and start-up candidates through the promotion of new industries and the creation of seed companies. Spin-offs from pubic research institutes or from eading universities may aso be encouraged, backed by reevant financia institutions. IHRM features in SMEs Much of our knowedge generated in the area of IHRM appies to arge organizations. 93 Whie there is evidence that some recruitment or compensation practices are appicabe to sma organizations as we, the management of peope in sma organizations often differs from practices and strategies of estabished arge organizations. 94 Athough our understanding of IHRM in SMEs is sti imited, there are some key points which we outine in this section of the chapter. The importance of the founder/owner. Internationaization process theory, which is derived from the behaviora mode of uncertainty avoidance, 95 suggests that specific features of the owner or founder of an SME have an impact on the internationaization process of this particuar enterprise. 96 The experientia market knowedge of the managers is assumed to have a

114 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 97 direct impact on the choice of foreign markets and thus, the internationaization process of the SME. This theoretica approach predicts that managers start the internationaization process in geographicay and cuturay cose markets and that with increasing experience they move towards more distant markets. Consequenty, in a gobaizing SME the top managers responsibe for internationaization decisions shoud have sufficient internationa background and experience to be abe to take informed decisions. Research on goba start-ups or born gobas, 97 which are characterized by an emphasis on internationa orientation and growth from inception have confirmed that: 98 the founders of internationa new ventures are more aert to the possibiities of combining resources from different nationa markets because of the competencies they deveoped from their earier activities. 99 Manoova et a. report that person-reated factors such as internationa experiences/ skis, internationa orientation, environmenta perceptions and demographic factors such as age, education and tenure had systematic effects on the internationaization of sma firms. Summarizing the resuts of their own study they state: 100 We expected that owners/founders who had internationa work experience, or estabished persona networks and reationships abroad woud possess the skis necessary to conduct internationa business arrangements. Consistent with this, owners/founders or managers who have more positive perceptions of the internationa environment wi aso be more ikey to internationaize their own sma businesses. Recruitment, seection and retention. The above-mentioned barriers to SME internationaization incuded a scarcity of quaified internationa managers. Sma firms may have more difficuties than arge firms in recruiting adequate internationa managers. 101 It has been argued that many ess-quaified empoyees are empoyed by SMEs because they do not meet the recruitment requirements of arge organizations and were forced to work for SMEs as their second choice. As one interviewee in the study by MacMahon and Murphy 102 stated: You get these big mutinationas who cream off the top graduates and production operatives which eaves a sma business very vunerabe in terms of the quaity and avaiabiity of abor. Indeed, recruitment, seection and staffing have been shown to be probematic for SMEs because these firms are perceived to ack egitimacy as empoyers with a strong internationa orientation. 103 Kühmann 104 has anayzed the image of SMEs as empoyers in the externa abor market in Germany. He found that image advantages of SMEs as compared to arge organizations incuded a good working atmosphere, ess anonymity, a high degree of information and ow requirements for mobiity. Participants of the study perceived the foowing factors as disadvantages: career opportunities, empoyee benefits, progressiveness of the company, training programs, pay, and internationa working opportunities. The resuts indicate a sef-fufiing prophecy: Potentia job candidates think that SMEs do not have strong internationa operations and do not appy. Because the SMEs cannot recruit quaified internationa managers they are not as successfu in internationa markets as they coud be. In order to attract more appicants interested in internationa operations, Kühmann suggests HR marketing activities for SMEs, which ceary communicate that the firm has a strong position in internationa markets and offers internationa career opportunities. If the sma size of the firm makes it difficut to attract sufficient interest, he recommends cooperation with other SMEs in a simiar situation. In a recent study Park and Ghauri 105 have pointed out that it is not sufficient for sma and medium-sized companies to empoy highy-quaified, internationay experienced managers in order to gain new technoogica knowedge from acquisitions. In addition to this, the managers must be highy motivated to acquire this knowedge. According to the authors this shoud be supported by a number of measures that faciitate the transfer of technoogica knowedge. This is in ine with the resuts of a study on cross-border knowedge transfer by Pérez-Nordtwedt, Kedia, Datta and Rahed. 106 For these researchers the intention to earn is decisive for understanding the reevant context, for a faster knowedge transfer, and thus for a more successfu

115 98 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs earning process. Furthermore, their resuts indicate that in addition to the quaity of the reationships, trust as we as the attractiveness of knowedge to be acquired may have a positive effect on knowedge acquisition. Research 107 has shown that seection criteria of SMEs often incude a genera fit with the sma organization or technica capabiities rather than requirements that refer to a future position with internationa responsibiity. Sma firms ook for generaist knowedge rather than for speciaists. However, it has to be stressed that the requirements for internationa managers in SMEs are simiar to those identified in arge organizations. 108 Consequenty, internationaizing SMEs shoud rethink their seection criteria and define a set of internationa competencies. 109 With respect to retaining key empoyees, the perceived advantages and disadvantages of working for a SME outined in the image study cited above provide usefu information. The advantages need to be emphasized and SMEs shoud aso consider improving, for exampe, the training opportunities or career paths of their key empoyees. Furthermore, the importance of financia benefits shoud be noted. In an empirica study of 449 German SMEs with up to 1000 empoyees, Weber and Kabst 110 found that financia participation programs were offered in more than 20 per cent of the companies presumaby to increase the manager s identification with the firm with the aim to enhance the ong-term retention of key personne. Human resource deveopment: The chaenge of earning. Learning processes are of critica importance in the voatie goba environment of modern business. This is especiay true in cross-border aiances, which are ranked third as preferred foreign market entry strategies of SMEs, after export activities and subsidiaries. 111 Athough organizationa earning is a negected area in SME research 112 eary evidence indicates that it may differ between sma and arge organizations. Training and deveopment activities tend to be rather short-term oriented in SMEs and are not aways designed to meet ong-term strategic needs. 113 The distinctive cutura features of a sma organization indicate an informa earning approach using oca networks and sociaization 114 rather than formaized training. 115 Often, the focus is on acquiring tacit knowedge reated to the specific context of the firm rather than on gaining expicit knowedge. With respect to the specificities of the internationa environment, Brussig et a. 116 suggest that HRM shoud encourage staff in boundary spanning positions, 117 (i.e. at the externa interface of the SME) to pay attention to aspects reevant to internationaization decisions. This invoves improving the capacity for perceiving reevant environmenta deveopments e.g. training programs coud incude strategy and communication seminars. However, empoyees must be motivated to report and share their observations reguary and systematicay which requires good communication within the company. Anderson and Boocock 118 note that: Those invoved in HRD [human resource deveopment] in smaer organizations... shoud resist the temptation to impose arge firm thinking into a sma organizationa context. In sma firms there is a compex interaction between scarce resources, reiance on the motivations and abiities of a few key individuas and a necessary focus on short-term priorities. The study suggests that smaness does not precude generative earning, but the achievement of this is not universay reevant. However, there is sti a ack of knowedge about the optima baance between forma and informa training in SMEs 119 and the reationship between training and firm performance is sti unresoved. 120 Another probem is that training is often perceived as an unaffordabe uxury in SMEs, particuary with regard to the training of expatriates. 121 Expatriate management. As the previous sections have shown, an informa approach to human resource management sti dominates in SMEs 122 especiay for expatriate empoyees. 123 Research on this topic is reativey scarce, but an empirica study by Weber and Kabst of 449 German SMEs with up to 1000 empoyees shows that expatriate assignments

116 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 99 predominanty occur in joint ventures and whoy owned foreign subsidiaries but icensing agreements may aso invove expatriates. After the chaenge of recruiting peope in foreign markets the interna recruitment of empoyees for internationa jobs was perceived as the most important probem for the firms in this study. This finding is in ine with the above discussion concerning probems with SME recruiting. However, a positive sign of a systematic approach to expatriate management in SMEs is that more than 16 per cent of firms indicated that they send empoyees abroad for management deveopment reasons. In terms of training the most important activities were anguage courses whie cross-cutura training ony payed a minor roe. 124 When SMEs needed cross-cutura training for potentia expatriates, these empoyees were sent to externa training institutions. Given the sma number of expatriates, in-house training is not a viabe option for most SMEs. Ceary, the cutura integration of foreign acquisitions remains a chaenge for most SMEs. 125 Limited resources of the HR department and outsourcing. The ist of barriers to internationaization of SMEs at the beginning of this section indicated that resources such as financia capita, quaified human capita to initiate and contro internationaization processes and time are often a too scarce. This in part expains why sophisticated management strategies are acking and the appointment of HR speciaists does not occur on the grounds that the costs cannot be justified with respect to the size of SMEs. 126 The focus of the usuay sma HR group in an SME is usuay on transacting administrative tasks and most important HR decisions are taken by the founder/owner of the enterprise. 127 The fact that most of the important HR activities are eft to ine managers is probematic for two reasons: 128 First, the compexity of many HR activities is ikey to resut in them becoming a significant drain on manageria time and resources. As such, HR tasks may interfere with manageria responsibiities that are directy reated to revenue production... Second, many HR tasks invove substantia compexity and, thus, the quaity of HR decisions may we be affected that the genera managers often ack significant training and expertise in HR. On the nationa eve, professiona empoyer organizations have been discussed as possibe providers of HR-reated services based on a contractua agreement with the SME, the professiona empoyer organization can become the outsourced HR department for the respective firm. This option can ead to improved manageria satisfaction in SMEs and higher quaity HR decisions. 129 Thus, outsourcing of HR practices represents a potentiay vauabe strategy to cope with the size-reated deficiencies of HRM in SMEs. However, risks of outsourcing strategicay important activities shoud aways be cosey monitored. Despite these tendencies, a study of French SMEs has shown that the importance of strategic HRM has increased within this group: in the period between 1998 and 2005 more and more firms deveoped a strategic approach to HRM and spent ess time on administrative issues. 130 An aternative approach for SMEs can be found in the co-operation between SMEs and arge MNEs in the German automobie industry. Suppiers foowed the car producers into foreign ocations and benefited from the HR experience of the MNE. The atter supports sma suppiers with its know-how about expatriate management, the environment of the reevant markets, and its reationships with reevant governmenta institutions for gaining visa and working permits. Furthermore, information about human resource management issues in the oca country is shared. Thus, a symbiosis can emerge between the interests of the MNE in faciitating the effective functioning of its suppiers abroad and the interests of SMEs which need reevant speciaized information in order to prevent mistakes and reduce costs.

117 100 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs SUMMARY In this chapter we have extended the discussion about the organizationa context of MNEs conducted in Chapter 3 to other organizationa forms, which pose specific probems to IHRM, i.e. cross-border aiances and gobaizing SMEs. Cross-border M&As have seen a tremendous growth in the course of gobaization. We have described their formation process as we as four important deveopment phases: pre-m&a phase, due diigence phase, integration panning phase and impementation phase. In each of the phases specific strategic HR requirements need to be taken into account in order to effectivey manage the M&A process. The roe of expatriates is mainy discussed with respect to earning effects. A comparative approach to HR in M&As indicates the compexity that emerges from the institutiona and cutura environments in which the firms are embedded. The number of IJVs has increased significanty over the ast few decades. In the chapter we have outined the IJV formation process, which poses considerabe chaenges for the HR function. Four stages are identified for the deveopment of IJVs (formation; deveopment; impementation; advancement and beyond) that require specific HR measures and roes. We aso addressed the importance of cross-cutura management in IJVs, which is an important factor for effective cooperation across a eves of the IJV incuding the top management team. Both types of equity-based cross-border aiances are very simiar invoving both strategic, comparative and cross-cutura HRM issues as we as specified expatriate roes. The third organization form we addressed was the case of the internationaized SME. In this case, different chaenges have been identified. First we outined the strategic importance of SMEs in internationa business and examined barriers to SME internationaization. We aso addressed important IHRM features distinguishing SMEs from MNEs: the founder/owner of the SME; recruitment, seection and retention; human resource deveopment with specia emphasis on earning; expatriate management; and the imited resources of the HR department in SMEs and outsourcing opportunities.

118 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 101 DISCUSSION QUESTIONS 1 Describe the formation process of cross-border mergers, acquisitions and internationa joint ventures. What are the major differences? 2 Describe the deveopment phases of an M&A and the respective HR impications. 3 Outine the deveopment phases of an IJV and the respective HR impications. 4 In which way do cutura and institutiona differences impact the HR integration in M&As and in IJVs? 5 What are the barriers to internationaization for SMEs? 6 What are some of the typica chaenges for HRM in internationaized SMEs? FURTHER READING Gouet, P. and Schweiger, D. 2006, Managing Cuture and Human Resources in Mergers and Acquisitions, In G. K. Stah, and I. Björkman (eds), Handbook of Research in Internationa Human Resource Management: (Chetenham et a.: Edward Egar). Li, J. 2008, How to Retain Loca Senior Managers in Internationa Joint Ventures: The Effects of Aiance Reationship Characteristics, Journa of Business Research, 61(9): Park, B. and P. Ghauri 2011, Key factors affecting acquisitions of technoogica capabiities from foreign acquiring firms by sma and medium sized oca firms Journa of Word Business, Vo. 46(1): Rees, C. and Edwards, T. 2009, Management Strategy and HR in Internationa Mergers: Choice, Constraint and Pragmatism, Human Resource Management Journa, 19(1): Schuer, R., Jackson, S. and Luo, Y., Managing Human Resource in Cross-Border Aiances, (London, New York: Routedge, 2004). Stah, G. and Mendenha, M., Mergers and Acquisitions. Managing Cutures and Human Resources, (Stanford, CA: Stanford Business Books, 2005). NOTES AND REFERENCES 1. R. Schuer and I. Tarique, Aiance Forms and Human Resource Issues, Impications, and Significance, in O. Shenkar and J. J. Reuer (eds), Handbook of Strategic Aiances (Thousand Oaks: Sage, 2006), pp Ibid. 3. W. Cascio and M. Serapio Jr., Human Resources Systems in an Internationa Aiance: The Undoing of a Done Dea?, Organizationa Dynamics, Vo. 19, No. 3 (1991), pp R. Schuer, S. Jackson and Y. Luo, Managing Human Resource in Cross-Border Aiances (London, New York: Routedge, 2004, p UNCTAD (ed.) Word Investment Report 2005 (New York and Geneva: United Nations, 2005), p R. Schuer and I. Tarique, Aiance Forms and Human Resource Issues, Impications, and Significance, in O. Shenkar and J. J. Reuer (eds) Handbook of Strategic Aiances (Thousand Oaks: Sage, 2006), pp UNCTAD (ed.) Word Investment Report 2005 (New York and Geneva: United Nations, 2005), p J. Chid and D. Faukner, Strategies of Cooperation: Managing Aiances, Networks, and Joint Ventures (Oxford, London: Oxford University Press, 1998). 9. R. Schuer and I. Tarique, Aiance Forms and Human Resource Issues, Impications, and Significance, in O. Shenkar and J. Reuer (eds) Handbook of Strategic Aiances (Thousand Oaks: Sage, 2006), p. 220.

119 102 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 10. R. Schuer and I. Tarique, Aiance Forms and Human Resource Issues, Impications, and Significance, in O. Shenkar and J. Reuer (eds) Handbook of Strategic Aiances (Thousand Oaks: Sage, 2006), pp For recent notabe exceptions see for exampe the work by P. Budhwar, H. Luthar and J. Bhatnagar, The Dynamics of HRM Systems in Indian BPO Firms, Journa of Labor Research, Vo. 27, No. 3 (2006), pp ; B. M. Lajara, F. G. Lio and V. S. Sempere, The Roe of Human Resource Management in the Cooperative Strategy Process, Human Resource Panning, Vo. 25, No. 2 (2002), pp ; B. M. Lajara, F. G. Lio and V. S. Sempere, Human Resources Management: A Success and Faiure Factor in Strategic Aiances, Empoyee Reations, Vo. 25, No. 1 (2003), pp See aso for internationa HRM practices in project organizations C. L. Wech, D. E. Wech and M. Tahvanainen, Managing the HR Dimension of Internationa Project Operations, The Internationa Journa of Human Resource Management, Vo. 19, No. 2 (2008), pp For an overview see D. Wech and L. Wech, Linking Operation Mode Diversity and IHRM, Internationa Journa of Human Resource Management, Vo. 5, No. 4 (1994), pp T. Kühmann and P. J. Dowing, DaimerChryser: A Case Study of a Cross-Border Merger, in G. K. Stah and M. E. Mendenha (eds) Mergers and Acquisitions: Managing Cuture and Human Resources (Stanford, CA: Stanford Business Books, Stanford University Press, 2005), pp For other definitions see aso R. S. Schuer, S. E. Jackson and Y. Luo, Managing Human Resource in Cross-Border Aiances (London, New York: Routedge, 2004), p UNCTAD (ed.) Word Investment Report (New York and Geneva: United Nations, 2006), p See for exampe, htm; 12 February UNCTAD (ed.), Word Investment Report 2006 (New York and Geneva: United Nations, 2006), p UNCTAD (ed.) Word Investment Report 2006 (New York and Geneva: United Nations, 2006), p Greenfied FDI refers to investment projects that entai the estabishment of new production faciities such as offices, buidings, pants and factories, as we as the movement of intangibe capita (mainy services). See UNCTAD (ed.) Word Investment Report 2006 (New York and Geneva: United Nations, 2006), p J. Chid, D. Faukner and R. Pitkethy, The Management of Internationa Acquisitions (Oxford: Oxford University Press, 2001), p R. S. Schuer, S. E. Jackson and Y. Luo, Managing Human Resource in Cross-Border Aiances (London, New York: Routedge, 2004). Chid, Faukner, and Pitkethy distinguish between market drivers, cost drivers, competitive drivers and government drivers for M&As. See J. Chid, D. Faukner and R. Pitkethy, The Management of Internationa Acquisitions (Oxford: Oxford University Press, 2001). 22. The same is true for internationa joint ventures. See K. W. Gaister, R. Husan and P. J. Buckey, Learning to Manage Internationa Joint Ventures, Internationa Business Review, Vo. 12, No. 1 (2003), pp J. Chid, D. Faukner and R. Pitkethy, The Management of Internationa Acquisitions (Oxford: Oxford University Press, 2001). 24. R. Larsson and S. Finkestein, Integrating Strategic, Organizationa, and Human Resource Perspectives on Mergers and Acquisitions: A Case Survey of Synergy Reaization, Organization Science, Vo. 10, No. 1 (1999), pp For the specia case of acquisitions see a simiar anaysis by J. Birkinshaw, H. Bresman and L. Hakanson, Managing the Post-Acquisition Integration Process: How the Human Integration and Task Integration Processes Interact to Foster Vaue Creation, Journa of Management Studies, Vo. 37, No. 3 (2000), pp R. Larsson and S. Finkestein, Integrating Strategic, Organizationa, and Human Resource Perspectives on Mergers and Acquisitions: A Case Survey of Synergy Reaization, Organization Science, Vo. 10, No. 1 (1999), pp. 1 26, state that the emphasis primariy was on the post-combination integration process investigating cutura and other conficts. In the reated HRM research, psychoogica aspects, communication and careers were important topics. 26. This is confirmed by the work of D. K. Datta, Organizationa Fit and Acquisition Performance: Effects of Post-Acquisition Integration, Strategic Management Journa, Vo. 12, No. 4 (1991), pp In contrast, he didn t find an impact of differences in the evauation and rewards systems on post merger integration performance athough reward systems are often empoyed to reinforce vaues, beiefs, and practices in an organization (p. 292). 27. R. Larsson and S. Finkestein, Integrating Strategic, Organizationa, and Human Resource Perspectives on Mergers and Acquisitions: A Case Survey of Synergy Reaization, Organization Science, Vo. 10, No. 1 (1999), pp J. Birkinshaw, H. Bresman and L. Hakanson, Managing the Post-Acquisition Integration Process: How the Human Integration and Task Integration Processes Interact to Foster Vaue Creation, Journa of Management Studies, Vo. 37, No. 3 (2000), pp Task integration was measured by the initia pans for integration, integration mechanisms used, probems encountered during integration, and task speciaization during integration. See J. Birkinshaw, H. Bresman and L. Hakanson, Managing the Post-Acquisition Integration Process: How the Human Integration and Task Integration Processes Interact to Foster Vaue Creation, Journa of Management Studies, Vo. 37, No. 3 (2000), pp

120 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs Ibid, p J. A. Krug and D. Nigh, Executive Perceptions in Foreign and Domestic Acquisitions: An Anaysis of Foreign Ownership and its Effect on Executive Fate, Journa of Word Business, Vo. 36, No. 1 (2001), pp R. V. Aguiera and J. C. Dencker, The Roe of Human Resource Management in Cross-Border Mergers and Acquisitions, Internationa Journa of Human Resource Management, Vo. 15, No. 8 (2004), pp See for exampe the IHRM in action case 4.1 and the study by J. A. Krug and D. Nigh, Executive Perceptions in Foreign and Domestic Acquisitions: An Anaysis of Foreign Ownership and its Effect on Executive Fate, Journa of Word Business, Vo. 36, No. 1 (2001), pp R. V. Aguiera and J. C. Dencker, The Roe of Human Resource Management in Cross-Border Mergers and Acquisitions, Internationa Journa of Human Resource Management, Vo. 15, No. 8 (2004), pp A. Deios and P. W. Beamish, Surviva and Profitabiity: The Roes of Experience and Intangibe Assets in Foreign Subsidiary Performance, Academy of Management Journa, Vo. 44, No. 5 (2001), pp Schuer et a. differentiate between four types of integration: 1. The portfoio type, which has been mentioned in the text; 2. bending, i.e. the best eements from each cuture are chosen: 3. a new company creation with a new cuture that fits the new organization; 4. assimiation, where egitimacy is ony assigned to one cuture. See R. S. Schuer, S. E. Jackson and Y. Luo, Managing Human Resource in Cross-Border Aiances. (London, New York: Routedge, 2004), p Some experts argue that the due diigence phase is part of the first phase, which they ca pre-combination. This is foowed by a combination and integration stage and a soidification and assessment stage. See R. S. Schuer, S. E. Jackson and Y. Luo, Managing Human Resource in Cross-Border Aiances (London, New York: Routedge, 2004). 38. With respect to auditing human resource management see G. W. Forkowski and R. S. Schuer, Auditing Human Resource Management in the Goba Environment, Internationa Journa of Human Resource Management, Vo. 5, No. 4 (1994), pp Successfu M&As The Impact of Human Resource Management, pubished in German anguage as: C. Geighardt, S. Armutat, H. Döring, M. Festing, C. Frühe, E. Ne and W. Werner, Erfogreiche M&As? Was das Personamanagement dazu beiträgt (Düssedorf: DGFP, 2007). 40. J. A. Schmidt, The Correct Speing of M&A Begins with HR, HR Magazine, Vo. 46, No. 6 (2001), pp I. Nikandrou and N. Papaexandris, The Impact of M&A Experience on Strategic HRM Practices and Organisationa Effectiveness: Evidence from Greek Firms, Human Resource Management Journa, Vo. 17, No. 2 (2007), pp R. V. Aguiera and J. C. Dencker, The Roe of Human Resource Management in Cross-Border Mergers and Acquisitions, Internationa Journa of Human Resource Management, Vo. 15, No. 8 (2004), pp Ibid, p E. M. Antia, The Roe of HR Managers in Internationa Mergers and Acquisitions: A Mutipe Case Study, Internationa Journa of Human Resource Management, Vo. 17, No. 6 (2006), pp D. Urich, Human Resource Champions: The Next Agenda for Adding Vaue and Deivering Resuts (Boston, MA: Havard Business Schoo Press, 1997). 46. C. Rees and T. Edwards, Management Strategy and HR in Internationa Mergers: Choice, Constraint and Pragmatism, Human Resource Management Journa, Vo. 19, No. 1 (2009), pp A. Deios and P. W. Beamish, Surviva and Profitabiity: The Roes of Experience and Intangibe Assets in Foreign Subsidiary Performance, Academy of Management Journa, Vo. 44, No. 5 (2001), pp L. Hébert, P. Very and P. W. Beamish, Expatriation as a Bridge over Troubed Water: A Knowedge-Based Perspective Appied to Cross-Border Acquisitions, Organization Studies, Vo. 26, No. 10 (2005), p Successfu M&As The Impact of Human Resource Management, pubished in German anguage as: C. Geighardt, S. Armutat, H. Döring, M. Festing, C. Frühe, E. Ne and W. Werner, Erfogreiche M&As? Was das Personamanagement dazu beiträgt (Düssedorf: DGFP, 2007). 50. L. Hébert, P. Very and P. W. Beamish, Expatriation as a Bridge over Troubed Water: A Knowedge-Based Perspective Appied to Cross-Border Acquisitions, Organization Studies, Vo. 26, No. 10 (2005), p L. Hébert, P. Very and P. W. Beamish, Expatriation as a Bridge over Troubed Water: A Knowedge-Based Perspective Appied to Cross-Border Acquisitions, Organization Studies, Vo. 26, No. 10 (2005), pp R. Viinger, Post-Acquisition Manageria Learning in Centra East Europe, Organization Studies, Vo. 17, No. 2 (1996), pp Ibid, p J. Chid, D. Faukner and R. Pitkethy, The Management of Internationa Acquisitions (Oxford: Oxford University Press, 2001). 55. G. Ocott, The Poitics of Institutionaization: The Impact of Foreign Ownership and Contro on Japanese Organizations, Internationa Journa of Human Resource Management, Vo. 19, No. 9 (2008), pp Katz and Darbishire (2001), Streeck (2001), and Pudeko (2006) discuss converging divergences in empoyment systems. With respect to empoyment systems they see an increasing divergence. However, in terms of workpace patterns at east Katz and Darbishire (2001) have identified a growing convergence. This is confirmed by research

121 104 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs from the Cranet network mainy focusing on Europe (Brewster, 2006). Brewster, Mayrhofer and Morey (2004) give a more differentiated perspective. They distinguish between directiona convergence and fina convergence. The first is concerned with the question whether the same trends can be observed in different countries, the atter addresses the resuts. Their concusion based on the Cranet data is as foows: From a directiona point of view, there seems to be a positive indication of convergence. However, when one ooks at the question from a fina convergence point of view, the answer is no onger a cear positive. None of the HR practices converged at the end of the decade. Rather, the maximum point of convergence is reached in the midde of the decade with signs of divergence after that (Brewster, Mayrhofer and Morey, 2004). Thus the resuts concerning the convergence or divergence of HRM systems incuding performance management systems are mixed. There is no cear tendency athough in an empirica study concerning the convergence-divergence debate in HRM. Pudeko (2005) concudes that the majority of the HR managers investigated (originated from Germany, the US and Japan) expect a convergence of HRM systems. See C. Brewster, Internationa Human Resource Management: If There Is no Best Way, How Do We Manage?, in Inaugura Lecture (Heney Management Coege, UK, 2006); C. Brewster, W. Mayrhofer and M. Morey, Human Resource Management in Europe. Evidence of Convergence? (London, Oxford: Esevier Butterworth-Heinemann, 2004); H. C. Katz and O. Darbishire, Converging Divergences: Wordwide Changes in Empoyment Systems, Industria and Labor Reations Review, Vo. 54, No. 3 (2001), pp ; M. Pudeko, A Comparison of HRM Systems in the USA, Japan and Germany in their Socio-Economic Context, Human Resource Management Journa, Vo. 16, No. 2 (2006), pp ; W. Streeck, High Equaity, Low Activity: The Contribution of the Socia Wefare System to the Stabiity of the German Coective Bargaining Regime: Comment, Industria and Labor Reations Review, Vo. 54, No. 3 (2001), pp J. Chid, D. Faukner and R. Pitkethy, The Management of Internationa Acquisitions (Oxford: Oxford University Press, 2001), p Y. Gong, O. Shenkar, Y. Luo and M.-K. Nyaw, Human Resources and Internationa Joint Venture Performance: A System Perspective, Journa of Internationa Business Studies, Vo. 36, No. 5 (2005), pp K.-B. Chan, V. Luk and G. Xun Wang, Confict and Innovation in Internationa Joint Ventures: Toward a New Sinified Corporate Cuture or Aternative Gobaization in China, Asia Pacific Business Review, Vo. 11, No. 4 (2005), pp O. Shenkar and Y. Zeira, Human Resources Management in Internationa Joint Ventures: Directions for Research, Academy of Management Review, Vo. 12, No. 3 (1987), p R. S. Schuer and I. Tarique, Internationa Human Resource Management: A North American Perspective, A Thematic Update and Suggestions for Future Research, Internationa Journa of Human Resource Management, Vo. 18, No. 5 (2007), pp The foowing sources represent miestones in HRMreated IJV research: D. J. Cyr, The Human Resource Chaenge of Internationa Joint Ventures (Westport, CT, London: Quorium Books, 1995); Y. Gong, O. Shenkar, Y. Luo and M.-K. Nyaw, Human Resources and Internationa Joint Venture Performance: A System Perspective, Journa of Internationa Business Studies, Vo. 36, No. 5 (2005), pp ; P. Lorange, Human Resource Management in Mutinationa Cooperative Ventures, Human Resource Management, Vo. 25, No. 1 (1986), pp ; R. S. Schuer, Human Resource Issues and Activities in Internationa Joint Ventures, Internationa Journa of Human Resource Management, Vo. 12, No. 1 (2001), pp. 1 52; R. S. Schuer, S. E. Jackson and Y. Luo, Managing Human Resource in Cross-Border Aiances (London, New York: Routedge, 2004); O. Shenkar and Y. Zeira, Human Resources Management in Internationa Joint Ventures: Directions for Research, Academy of Management Review, Vo. 12, No. 3 (1987), pp P. Evans, V. Pucik and J.-L. Barsoux, The Goba Chaenge: Frameworks for Internationa Human Resource Management (Boston et a.: McGraw-Hi, 2002). 64. For these chaenges see Y. Gong, O. Shenkar, Y. Luo and M.-K. Nyaw, Human Resources and Internationa Joint Venture Performance: A System Perspective, Journa of Internationa Business Studies, Vo. 36, No. 5 (2005), pp Simiar ideas can be found in K. W. Gaister, R. Husan and P. J. Buckey, Learning to Manage Internationa Joint Ventures, Internationa Business Review, Vo. 12, No. 1 (2003), pp R. Schuer, Human Resource Issues and Activities in Internationa Joint Ventures, Internationa Journa of Human Resource Management, Vo. 12, No. 1 (2001), p See for exampe H. Barkema, O. Shenkar, F. Vermeuen and J. Be, Working Abroad, Working with Others: How Firms Learn to Operate Internationa Joint Ventures, Academy of Management Journa, Vo. 40, No. 2 (1997), pp ; D. Cyr, The Human Resource Chaenge of Internationa Joint Ventures. (Westport, CT, London: Quorium Books, 1995); P. Ies and M. Yoes, Internationa Joint Ventures, HRM and Viabe Knowedge Migration, Internationa Journa of Human Resource Management, Vo. 13, No. 4 (2002), pp K. W. Gaister, R. Husan and P. J. Buckey, Learning to Manage Internationa Joint Ventures, Internationa Business Review, Vo. 12, No. 1 (2003), pp

122 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs However, changes in the ownership structure do not necessariy refect a faiure but can aso meet the necessities of a voatie goba environment. 69. See, for exampe, S. H. Park and M. V. Russo, When Competition Ecipses Cooperation: An Event History Anaysis of Joint Venture Faiure, Management Science, Vo. 42, No. 6 (1996), pp ; A. B. Sim and M. Y. Ai, Determinants of Stabiity in Internationa Joint Ventures: Evidence from a Deveoping Country, Asia Pacific Journa of Management, Vo. 17, No. 3 (2000), pp For an encompassing ist of reasons for faiures of internationa joint ventures see R. S. Schuer, S. E. Jackson and Y. Luo, Managing Human Resource in Cross-Border Aiances (London, New York: Routedge, 2004). See aso B. B. Barger, Cuture an Overused Term and Internationa Joint Ventures: A Review of the Literature and a Case Study, Journa of Organizationa Cuture, Communications & Confict, Vo. 11, No. 2 (2007), pp , who identifies a research deficit in this area. 71. R. S. Schuer, Human Resource Issues and Activities in Internationa Joint Ventures, Internationa Journa of Human Resource Management, Vo. 12, No. 1 (2001), pp P. S. Budhwar, A. Varma, A. A. Katou and D. Narayan, The Roe of HR in Cross-Border Mergers and Acquisitions: The Case of Indian Pharmaceutica Firms, Mutinationa Business Review, Vo. 17, No. 2 (2009), pp See, for exampe P. W. Beamish and A. Kachra, Number of Partners and JV Performance, Journa of Word Business, Vo. 39, No. 2 (2004), pp ; D. R. Briscoe and R. S. Schuer, Internationa Human Resource Management: Poicy and Practice for the Goba Enterprise, 2nd ed. (New York: Routedge 2004); D. J. Cyr, The Human Resource Chaenge of Internationa Joint Ventures. (Westport, CT, London: Quorium Books, 1995); R. S. Schuer and I. Tarique, Aiance Forms and Human Resource Issues, Impications, and Significance, in O. Shenkar and J. J. Reuer (eds) Handbook of Strategic Aiances (Thousand Oaks: Sage, 2006), pp R. S. Schuer and I. Tarique, Aiance Forms and Human Resource Issues, Impications, and Significance, in O. Shenkar and J. J. Reuer (eds) Handbook of Strategic Aiances (Thousand Oaks: Sage, 2006), pp For Fit-concepts in IHRM see for exampe J. Miiman, M. A. Von Ginow and M. Nathan, Organizationa Life Cyces and Strategic Internationa Human Resource Management in Mutinationa Companies: Impications for Congruence Theory, Academy of Management Review, Vo. 16, No. 2 (1991), pp R. S. Schuer, Human Resource Issues and Activities in Internationa Joint Ventures, Internationa Journa of Human Resource Management, Vo. 12, No. 1 (2001), p For conceptua work see, for exampe, L. McFarane Shore, B. W. Eage and M. J. Jede, China-United States Joint Ventures: A Typoogica Mode of a Goa Congruence and Cutura Understanding and their Importance for Effective Human Resource Management, Internationa Journa of Human Resource Management, Vo. 4, No. 1 (1993), pp or P.-X. Meschi and A. Roger, Cutura Context and Socia Effectiveness in Internationa Joint Ventures, Management Internationa Review (MIR), Vo. 34, No. 3 (1994), pp Y. Gong, O. Shenkar, Y. Luo and M.-K. Nyaw, Human Resources and Internationa Joint Venture Performance: A System Perspective, Journa of Internationa Business Studies, Vo. 36, No. 5 (2005), pp ; J. Li, K. Xin and M. Piuta, Muti-Cutura Leadership Teams and Organizationa Identification in Internationa Joint Ventures, Internationa Journa of Human Resource Management, Vo. 13, No. 2 (2002), pp R. Kabst, Human Resource Management for Internationa Joint Ventures: Expatriation and Seective Contro, Internationa Journa of Human Resource Management, Vo. 15, No. 1 (2004b), pp J. Li, K. Xin and M. Piuta, Muti-Cutura Leadership Teams and Organizationa Identification in Internationa Joint Ventures, Internationa Journa of Human Resource Management, Vo. 13, No. 2 (2002), pp See aso C. A. Frayne and J. M. Geringer, A Socia Cognitive Approach to Examining Joint Venture Genera Manager Performance, Group & Organization Management, Vo. 19, No. 2 (1994), pp For the roe of HRM poicies as providers of contro mechanisms see aso J. Chid, D. Faukner and R. Pitkethy, The Management of Internationa Acquisitions (Oxford: Oxford University Press, 2001). 81. Ibid, pp J. J. Li, How to Retain Loca Senior Managers in Internationa Joint Ventures: The Effects of Aiance Reationship Characteristics, Journa of Business Research, Vo. 61, No. 9 (2008), pp This section is party based on M. Festing, Gobaization of SMEs and Impications for Internationa Human Resource Management, Internationa Journa of Gobaisation and Sma Business, Vo. 2, No. 1 (2007), pp Internationaization of medium-sized enterprises, pubished in German anguage as: R. Kabst, Internationaisierung mitteständischer Unternehmen. (München, Mehring: Hampp, 2004a). 85. UNECE, UNECE Operationa Activities: SME Their Roe in Foreign Trade, foreignt.htm, 17. February CSP6, 20 February UNECE, UNECE Operationa Activities: SME Their Roe in Foreign Trade, foreignt.htm, 17. February 2007.

123 106 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs defaut.aspx?datasetcode¼csp6, 20 February OECD (ed.) OECD Keynote Paper on Removing Barriers to SME Access to Internationa Markets (Geneva: OECD, 2006) pdf, 17 February For empirica evidence on the UK see H. Matay and D. Fetcher, Gobaization and Strategic Change: Some Lessons from the UK Sma Business Sector, Strategic Change, Vo. 9, No. 7 (2000), pp For a discussion of SME barriers to internationaization in various contexts see Z. Acs, R. Morck, J. M. Shaver and B. Yeung, The Internationaization of Sma and Medium- Sized Enterprises: A Poicy Perspective, Sma Business Economics, Vo. 9 (1997), pp. 7 20; P. J. Buckey, Internationa Technoogy Transfer by Sma and Medium- Sized Enterprises, Sma Business Economics, Vo. 9 (1997), pp ; M. Fujita, Sma and Medium-Sized Transnationa Corporations: Saient Features, Sma Business Economics, Vo. 7 (1995), pp ; D. A. Kirby and S. Kaiser, Joint Ventures as an Internationaization Strategy for SMEs, Sma Business Economics, Vo. 21 (2003), pp ; UNECE, UNECE Operationa Activities: SME Their Roe in Foreign Trade, 17 February 2007; S. Vachani, Probems of Foreign Subsidiaries of SMEs Compared with Large Companies, Internationa Business Review, Vo. 14, No. 4 (2005), pp OECD (ed.) OECD Keynote Paper on Removing Barriers to SME Access to Internationa Markets (Geneva: OECD, 2006) pdf, 17 February UNCTAD (ed.) Word Investment Report 2006 (New York and Geneva: United Nations, 2006), p V. Anderson and G. Boocock, Sma Firms and Internationaisation: Learning to Manage and Managing to Learn, Human Resource Management Journa, Vo. 12, No. 3 (2002), pp. 5 24; A. Wikinson, Empoyment Reations in SMEs, Empoyee Reations, Vo. 21, No. 3 (1999), pp For an exceent overview see V. Anderson and G. Boocock, Sma Firms and Internationaisation: Learning to Manage and Managing to Learn, Human Resource Management Journa, Vo. 12, No. 3 (2002), pp. 5 24; A. E. Barber, M. J. Wesson, O. M. Roberson and M. S. Tayor, A Tae of Two Job Markets: Organizationa Size and its Effects on Hiring Practices and Job Search Behavior, Personne Psychoogy, Vo. 52, No. 4 (1999), pp ; M. S. Cardon and C. E. Stevens, Managing Human Resources in Sma Organizations: What do we know?, Human Resource Management Review, Vo. 14, No. 3 (2004), pp J. Johanson and J. E. Vahne, The Internationaization Process of the Firm A Mode of Knowedge Deveopment and Increasing Foreign Market Commitments, Journa of Internationa Business Studies, Vo. 8, No. 1 (1977), pp ; J. Johanson and J. E. Vahne, The Mechanism of Internationaisation, Internationa Marketing Review, Vo. 7, No. 4 (1990), pp ; L. Mein, Internationaization as a Strategy Process, Strategic Management Journa, Vo. 13 (1992), pp This finding is comparabe to board internationaization of arge companies. Knowedge and experiences gained in foreign markets are supposed to positivey infuence the extent and quaity of firm internationaization. See, for exampe N. Athanassiou and D. Nigh, The Impact of the Top Management Team s Internationa Business Experience on the Firm s Internationaization: Socia Networks at Work, Management Internationa Review (MIR), Vo. 42, No. 2 (2002), pp For measurement issues of board internationaization see S. Schmid, Measuring Board Internationaization Toward a More Hoistic Approach, in ESCP-EAP Working Paper No. 21 (ESCP-EAP European Schoo of Management, Berin, 2006). For empirica evidence from the UK sma business sector see H. Matay and D. Fetcher, Gobaization and Strategic Change: Some Lessons from the UK Sma Business Sector, Strategic Change, Vo. 9, No. 7 (2000), pp G. A. Knight and S. T. Cavusgi, The Born Goba Firm: A Chaenge to Traditiona Internationaization Theory, in T. K. Madsen (eds) Advances in Internationa Marketing (Greenwich, London: JAI Press, 1996), Vo. 8, pp ; M. Rennie, Goba Competitiveness: Born Goba, McKinsey Quartery, Vo. 4 (1993), pp T. K. Madsen and P. Servais, The Internationaization of Born Gobas: An Evoutionary Process?, Internationa Business Review, Vo. 6, No. 6 (1997), pp P. P. McDouga, S. Shane and B. M. Oviatt, Expaining the Formation of Internationa New Ventures: The Limits of Theories from Internationa Business Research, Journa of Business Venturing, Vo. 9 (1994), p T. S. Manoova, C. G. Brush, L. F. Edeman and P. G. Greene, Internationaization of Sma Firms, Internationa Sma Business Journa, Vo. 20, No. 1 (2002), p I. O. Wiiamson, Empoyer Legitimacy and Recruitment Success in Sma Businesses, Entrepreneurship Theory and Practice, Vo. 25, No. 1 (2000), pp J. MacMahon and E. Murphy, Manageria Effectiveness in Sma Enterprises: Impications for HRD, Journa of European Industria Training, Vo. 23, No. 1 (1999), p M. S. Cardon and C. E. Stevens, Managing Human Resources in Sma Organizations: What do we know?, Human Resource Management Review, Vo. 14, No. 3 (2004), pp Internationaization of Mediums-Sized Enterprises as a Chaenge for Recruitment and Deveopment, pubished in German anguage as T. M. Kühmann, Internationaisierung des Mittestands as

124 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 107 Herausforderung für die Personaauswah und - entwickung, in Gerhard und Lore Kienbaum Stiftung, J. Gutmann and R. Kabst (eds) Internationaisierung im Mittestand. Chancen-Risiken-Erfogsfaktoren (Wiesbaden: Gaber, 2000), pp B. I. Park and P. N. Ghauri, Key Factors Affecting Acquisition of Technoogica Capabiities from Foreign Acquiring Firms by Sma and Medium Sized Loca Firms, Journa of Word Business, Vo. 46, No. 1 (2011), pp L. Pérez-Nordtvedt, B. L. Kedia, D. K. Datta and A. A. Rasheed, Effectiveness and Efficiency of Cross-Border Knowedge Transfer: An Empirica Examination, Journa of Management Studies, Vo. 45, No. 4 (2008), pp This has been confirmed in iterature anaysis by M. S. Cardon and C. E. Stevens, Managing Human Resources in Sma Organizations: What do we know?, Human Resource Management Review, Vo. 14, No. 3 (2004), pp However, this study does not focus expicity on internationa SMEs Gobaization of SMEs Experiences and Recommendations for Human Resource Management, pubished in German anguage as: DGFP (ed.) Gobaisierung in keinen und mitteren Unternehmen. Erfahrungen und Ansatzpunkte für das Personamanagement (Düssedorf: DGFP, 2007) Ibid Internationaization of Medium-sized Enterprises Organization form and Human Resource Management, pubished in German anguage as: W. Weber and R. Kabst, Internationaisierung mitteständischer Unternehmen: Organisationsform und Personamanagement, in Gerhard und Lore Kienbaum Stiftung, J. Gutmann and R. Kabst (eds) Internationaisierung im Mittestand. Chancen-Risiken- Erfogsfaktoren (Wiesbaden: Gaber, 2000), pp Ibid V. Anderson and G. Boocock, Sma Firms and Internationaisation: Learning to Manage and Managing to Learn, Human Resource Management Journa, Vo. 12, No. 3 (2002), pp R. Hi and J. Stewart, Human Resource Deveopment in Sma Organizations, Journa of European Industria Training, Vo. 24, No. 2 4 (2000), pp M. S. Cardon and C. E. Stevens, Managing Human Resources in Sma Organizations: What do we know?, Human Resource Management Review, Vo. 14, No. 3 (2004), pp Gobaization of SMEs Experiences and Recommendations for Human Resource Management, pubished in German anguage as: DGFP (ed.) Gobaisierung in keinen und mitteren Unternehmen. Erfahrungen und Ansatzpunkte für das Personamanagement (Düssedorf: DGFP, 2007) M. Brussig, L. Gerach and U. Wikens, The Deveopment of Gobaisation Strategies in SME and the Roe of Human Resource Management, Paper presented at the Goba Human Resource Management Conference, Barceona A. H. Adrich, Organizations & Environments (Engewodd Ciffs: Prentice Ha, 1979); J. D. Thompson, Organizations in Action: Socia Science Bases of Administrative Theory (New York, NY: McGraw-Hi, 1967) V. Anderson and G. Boocock, Sma Firms and Internationaisation: Learning to Manage and Managing to Learn, Human Resource Management Journa, Vo. 12, No. 3 (2002), p M. S. Cardon and C. E. Stevens, Managing Human Resources in Sma Organizations: What do we know?, Human Resource Management Review, Vo. 14, No. 3 (2004), pp D. J. Storey, Exporing the Link, among Sma Firms, between Management Training and Firm Performance: A Comparison between the UK and other OECD Countries, Internationa Journa of Human Resource Management, Vo. 15, No. 1 (2004), pp J. MacMahon and E. Murphy, Manageria Effectiveness in Sma Enterprises: Impications for HRD, Journa of European Industria Training, Vo. 23, No. 1 (1999), p J. S. Hornsby and D. F. Kuratko, Human Resource Management in U.S. Sma Businesses: A Repication and Extension, Journa of Deveopmenta Entrepreneurship, Vo. 8, No. 1 (2003), pp ; B. Kotey and P. Sade, Forma Human Resource Management Practices in Sma Growing Firms, Journa of Sma Business Management, Vo. 43, No. 1 (2005), pp ; D. J. Storey, Exporing the Link, among Sma Firms, between Management Training and Firm Performance: A Comparison between the UK and other OECD Countries, Internationa Journa of Human Resource Management, Vo. 15, No. 1 (2004), pp For an exception see H. Harris and L. Hoden, Between Autonomy and Contro: Expatriate Managers and Strategic IHRM in SMEs, Thunderbird Internationa Business Review, Vo. 43, No. 1 (2001), pp Internationaization of Medium-sized Enterprises Organization Form and Human Resource Management, pubished in German anguage as: W. Weber and R. Kabst, Internationaisierung mitteständischer Unternehmen: Organisationsform und Personamanagement, in Gerhard und Lore Kienbaum Stiftung, J. Gutmann and R. Kabst (eds) Internationaisierung im Mittestand. Chancen-Risiken- Erfogsfaktoren, (Wiesbaden: Gaber, 2000), pp Gobaization of SMEs Experiences and Recommendations for Human Resource Management, pubished in German anguage as: DGFP (ed.) Gobaisierung in keinen und mitteren Unternehmen. Erfahrungen und Ansatzpunkte für das Personamanagement (Düssedorf: DGFP, 2007).

125 108 CHAPTER 4 IHRM IN CROSS-BORDER MERGERS & ACQUISITIONS, INTERNATIONAL ALLIANCES AND SMEs 126. N. Kinnie, J. Purce, S. Hutchinson, M. Terry, M. Coinson and H. Scarbrough, Empoyment Reations in SMEs Market-Driven or Customer-Shaped?, Empoyee Reations, Vo. 21, No. 3 (1999), pp ; B. S. Kaas, J. Mc Cendon and T. W. Gainey, Managing HR in the Sma and Medium Enterprise: The Impact of Professiona Empoyer Organizations, Entrepreneurship Theory and Practice, Vo. 25, No. 1 (2000), pp Internationaization of Mediums-Sized Enterprises as a Chaenge for Recruitment and Deveopment, pubished in German anguage as T. M. Kühmann, Internationaisierung des Mittestands as Herausforderung für die Personaauswah und - entwickung, in Gerhard und Lore Kienbaum Stiftung, J. Gutmann and R. Kabst (eds) Internationaisierung im Mittestand. Chancen-Risiken-Erfogsfaktoren (Wiesbaden: Gaber, 2000), pp B. S. Kaas, J. Mc Cendon and T. W. Gainey, Managing HR in the Sma and Medium Enterprise: The Impact of Professiona Empoyer Organizations, Entrepreneurship Theory and Practice, Vo. 25, No. 1 (2000), p Ibid, pp A. A. Razouk and M. Bayad, Investigating the Use of Strategic Human Resource Management in French Sma and Medium-Sized Enterprises: Longitudina Study, Human Systems Management, Vo. 28, No. 1/2 (2009), pp

126 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Chapter Objectives The previous three chapters have concentrated on the goba environment and organization contexts. We now focus on the managing peope aspect. The aim is to estabish the roe of HRM in sustaining internationa business operations and growth. We first ay the foundations in covering the foowing: Issues reating to the various approaches to staffing foreign operations. The reasons for using internationa assignments: position fiing, management deveopment and organizationa deveopment. 109

127 110 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION The various types of internationa assignments: short-term, extended and onger-term; and nonstandard arrangements: commuter, rotator, contractua, virtua and sef-initiated assignments. The roe of expatriates and non-expatriates in supporting internationa business activities. Then we wi concentrate more cosey on recruitment and seection issues, focusing especiay on: The debate surrounding expatriate faiure as a starting point. Seection criteria and procedures for internationa assignments. Gender in internationa HRM: Dua careers and the femae expatriate. INTRODUCTION The purpose of this chapter is to expand on the roe of IHRM in sustaining goba growth. In this context sourcing decisions are most important. We examine the various approaches taken to staffing internationa operations and the aocation of human resources to the firm s varied internationa operations to ensure effective strategic outcomes. The pivota roe of internationa assignments is outined. We then concentrate on recruitment and seection as major infuence factors on the success of goba assignments. APPROACHES TO STAFFING There are staffing issues that internationaizing firms confront that are either not present in a domestic environment, or are compicated by the internationa context in which these activities take pace. Take, for exampe, this scenario. A US MNE wishes to appoint a new finance director for its Irish subsidiary. It may decide to fi the position by seecting from finance staff avaiabe in its parent operations (that is, a PCN); or to recruit ocay (a HCN); or seek a suitabe candidate from one of its other foreign subsidiaries (a TCN). The IHRM iterature uses four terms to describe MNE approaches to managing and staffing their subsidiaries. These terms are taken from the semina work of Permutter, 1 who caimed that it was possibe to identify among internationa executives three primary attitudes ethnocentric, poycentric and geocentric toward buiding a mutinationa enterprise, based on top management assumptions upon which key product, functiona and geographica decisions were made. To demonstrate these three attitudes, Permutter used aspects of organizationa design; such as decision-making, evauation and contro, information fows, and compexity of organization. He aso incuded perpetuation, which he defined as recruiting, staffing, deveopment. A fourth attitude regiocentric was added ater. 2 We sha consider the connection between these four categories and staffing practices, and examine the advantages and disadvantages of each approach. Ethnocentric In ethnocentric firms, few foreign subsidiaries have any autonomy and strategic decisions are made at headquarters. Key positions in domestic and foreign operations are hed by managers from headquarters. Subsidiaries are managed by staff from the home country (PCNs). There are often sound business reasons for pursuing an ethnocentric staffing poicy: A perceived ack of quaified host-country nationas (HCNs). The need to maintain good communication, coordination and contro inks with corporate headquarters. For firms at the eary stages of internationaization, an ethnocentric approach can

128 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 111 reduce the perceived high risks inherent in these nove environments. When a mutinationa acquires a firm in another country, it may wish to initiay repace oca managers with PCNs to ensure that the new subsidiary compies with overa corporate objectives and poicies; or because oca staff may not have the required eve of competence. Thus, an ethnocentric approach to a particuar foreign market situation coud be perfecty vaid for a very experienced mutinationa. Having your own person, in whom you can pace a degree of trust to do the right thing, can moderate the perceived high risk invoved in foreign activities. This has been we described by Bonache, Brewster and Suutari as assignments as contro. 3 An ethnocentric poicy, however, has a number of disadvantages: 4 It imits the promotion opportunities of HCNs, which may ead to reduced productivity and increased turnover among that group. The adaptation of expatriate managers to host countries often takes a ong time, during which PCNs often make mistakes and poor decisions. When PCN and HCN compensation packages are compared, the often considerabe income gap in favor of PCNs may be viewed by HCNs as unjustified. For many expatriates a key overseas position means new status, authority, and an increase in standard of iving. These changes may affect expatriates sensitivity to the needs and expectations of their host country subordinates which may be quite different to the perceptions of the PCN manager. Poycentric Using a poycentric approach invoves the MNE treating each subsidiary as a distinct nationa entity with some decision-making autonomy. Subsidiaries are usuay managed by oca nationas (HCNs), who are sedom promoted to positions at headquarters, and PCNs are rarey transferred to foreign subsidiary operations. The main advantages of a poycentric poicy, some of which address shortcomings of the ethnocentric poicy identified above, are: Empoying HCNs eiminates anguage barriers; avoids the adjustment probems of expatriate managers and their famiies, and removes the need for expensive cutura awareness training programs. Empoyment of HCNs aows a mutinationa company to take a ower profie in sensitive poitica situations. Empoyment of HCNs is often ess expensive, even if a premium is paid to attract high-quaity oca appicants. This approach gives continuity to the management of foreign subsidiaries and avoids the turnover of key managers that, by its very nature, resuts from an ethnocentric approach. A poycentric poicy, however, has its own disadvantages: Bridging the gap between HCN subsidiary managers and PCN managers at corporate headquarters is difficut. Language barriers, conficting nationa oyaties, and a range of cutura differences (for exampe, persona vaue differences and differences in attitudes to business) may isoate the corporate headquarters staff from the various foreign subsidiaries. The resut may be that an MNE coud become a federation of independent nationa units with nomina inks to corporate headquarters. Host-country managers have imited opportunities to gain experience outside their own country and cannot progress beyond the senior positions in their own subsidiary. Parent-country

129 112 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION managers aso have imited opportunities to gain overseas experience. As headquarters positions are hed ony by PCNs, the senior corporate management group wi have imited exposure to internationa operations and, over time, this may constrain strategic decision-making and resource aocation. Of course, in some cases the host government may effectivey dictate that key manageria positions are fied by its nationas. Aternativey, the MNE may wish to be perceived as a oca company as part of a strategy of oca responsiveness. Having HCNs in key, visibe positions assists a ocaization strategy. Geocentric With a geocentric approach, the MNE is taking a goba approach to its operations, recognizing that each part (subsidiaries and headquarters) makes a unique contribution with its unique competence. It is accompanied by a wordwide integrated business, and nationaity is ess important than abiity. This is a major goa the European teecommunications company Vodafone woud ike to achieve. As a company speaker said: We want to create an internationa cass of managers. In our view, the right way to do it is to have peope cose to one another, sharing their different approaches and understanding how each different part of the company now faces specific business chaenges in the same overa scenario. We want to deveop a group of peope who understand the chaenges of being goba on the one hand and are sti deepy rooted in the oca countries on the other. Our target is to deveop an internationa management capabiity that can everage our goba scae and scope to maintain our eadership in the industry. 5 There are three main advantages to this approach: It enabes an MNE to deveop an internationa executive team which assists in deveoping a goba perspective and an interna poo of abor for depoyment throughout the goba organization. It overcomes the federation drawback of the poycentric approach. This approach supports cooperation and resource sharing across units. As with the other staffing approaches, there are chaenges and disadvantages associated with a geocentric poicy: Host governments want a high number of their citizens empoyed and may utiize immigration contros in order to increase HCN empoyment if enough peope and adequate skis are avaiabe or require training of HCNs over a specified time period to repace foreign nationas. Most countries (both advanced economies and deveoping economies) require MNEs to provide extensive documentation if they wish to hire a foreign nationa instead of a oca nationa. Providing this documentation can be time-consuming, expensive, and at times futie. Of course, the same drawback appies to an ethnocentric poicy. A reated issue is the difficuty of obtaining a work permit for an accompanying spouse or partner. A geocentric poicy can be expensive to impement because of increased training and reocation costs. A reated factor is the need to have a compensation structure with standardized internationa base pay, which may be higher than nationa eves in many countries. Large numbers of PCNs, TCNs, and HCNs need to be sent abroad in order to buid and maintain the internationa cadre required to support a geocentric staffing poicy. To successfuy impement a geocentric staffing poicy requires reativey ong ead times and more centraized contro of the

130 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 113 staffing process. This necessariy reduces the independence of subsidiary management in these issues, and this oss of autonomy may be resisted by subsidiaries. Regiocentric This approach refects the geographic strategy and structure of the MNE. Like the geocentric approach, it utiizes a wider poo of managers but in a imited way. Staff may move outside their home countries but ony within the particuar geographic region. Regiona managers may not be promoted to headquarters positions but enjoy a degree of regiona autonomy in decisionmaking. 6 For exampe, a US-based MNE coud create three regions: Europe, the Americas, and Asia-Pacific. European staff woud be transferred throughout the European region but staff transfers to the Asia-Pacific region from Europe woud be rare, as woud transfers from the regions to headquarters in the United States. The advantages of using a regiocentric approach are: It faciitates interaction between managers transferred to regiona headquarters from subsidiaries in that region and PCNs posted to the regiona headquarters. It refects some sensitivity to oca conditions, since oca subsidiaries are usuay staffed amost totay by HCNs. 7 There are some disadvantages in a regiocentric poicy: It can produce federaism at a regiona rather than a country basis and constrain the MNE from deveoping a more goba perspective. Whie this approach does improve career prospects at the nationa eve, it ony moves the barrier to the regiona eve. Taented managers may advance to jobs in regiona headquarters but ess frequenty to positions at the MNE headquarters. A phiosophy towards staffing In summary, based in part on top management attitudes, a mutinationa can pursue one of severa approaches to internationa staffing. It may even proceed on an ad-hoc basis, 8 rather than systematicay seecting one of the four approaches discussed above. However, an ad-hoc approach is reay poicy by defaut; there is no conscious decision or evauation of appropriate poicy. The poicy is a resut of corporate inertia, inexperience, or both. The major disadvantage here (apart from the obvious one of inefficient use of resources) is that the MNE s responses are reactive rather than proactive and a consistent human resources strategy that fits the overa MNE strategy is more difficut to achieve. Tabe 5.1 summarizes the advantages and disadvantages of using the three categories of staff PCNs, HCNs and TCNs. These approaches to staffing in part refect top management attitudes but it is important to keep in mind that the nature of internationa business often forces adaptation upon impementation. For exampe, an MNE may adopt an ethnocentric approach to a its foreign operations, but a particuar host government may require the appointment of its own citizens to the key subsidiary positions so, for that market, a poycentric approach needs to be impemented. The strategic importance of the foreign market, the maturity of the operation and the degree of cutura distance between the parent and host country can infuence the way in which the MNE makes key staffing decisions. In some cases an MNE may use a combination of approaches. For exampe, it may operate its European interests in a regiocentric manner and its Asia Pacific interests in an ethnocentric way unti there is greater confidence in operating in that region of the word.

131 114 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION TABLE 5.1 The advantages and disadvantages of using PCNs, TCNs and HCNs Parent country nationas Advantages Organizationa contro and coordination is maintained and faciitated. Promising managers are given internationa experience. PCNs may be the best peope for the job because of specia skis and experiences. There is assurance that the subsidiary wi compy with MNE objectives, poicies, etc. Disadvantages The promotiona opportunities of HCNs are imited. Adaptation to host-country may take a ong time. PCNs may impose an inappropriate HQ stye. Compensation for PCNs and HCNs may differ. Third-country nationas Advantages Saary and benefit requirements may be ower than for PCNs. TCNs may be better informed than PCNs about the host-country environment. Disadvantages Transfers must consider possibe nationa animosities (e.g. India and Pakistan). The host government may resent hiring of TCNs. TCNs may not want to return to their home country after the assignment. Host-country nationas Advantages Language and other barriers are eiminated. Hiring costs are reduced and no work permit is required. Continuity of management improves, since HCNs stay onger in their positions. Government poicy may dictate hiring of HCNs. Morae among HCNs may improve as they see future career potentia. Disadvantages Contro and coordination of HQ may be impeded. HCNs have imited career opportunity outside the subsidiary. Hiring HCNs imits opportunities for PCNs to gain foreign experience. Hiring HCNs coud encourage a federation of nationa rather than goba units. Determinants of staffing choices Because of these operating reaities, it is sometimes difficut to precisey equate manageria attitudes towards internationa operations with the structura forms we presented in Chapter 3. The externa and interna contingencies facing an internationaizing firm infuence its staffing choices. These incude the foowing: Context specificities the oca context of the headquarters as we as of the subsidiary can be described by cutura and institutiona variabes (as outined in Chapter 2). 9 Cutura vaues may differ consideraby between the headquarters and the host country context. For exampe, Tarique, Schuer and Gong see the cutura simiarity between parent country and subsidiary country as a moderator in the reationship between MNE strategy and subsidiary staffing. 10 Gong found that MNEs tend to staff cutura distant subsidiaries with PCNs which had a positive effect on abor

132 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 115 productivity. 11 The institutiona environment incudes, for exampe, the ega environment and the education system. 12 The atter may be directy inked to staff avaiabiity on the oca abor market. Furthermore, the country-specific contextua factors in the parent country may ead to a country-oforigin effect, i.e. MNEs may try to transfer management practices from their home country to foreign ocations. Another effect is the host-country-effect, which impies that subsidiaries are infuenced by their oca environment. 13 As discussed in Chapter 1, the type of industry the firm is active in may have an impact as we. Firm specific variabes these are mainy depicted from the framework on strategic HRM in mutinationa enterprises introduced in Chapter 1. The most reevant variabes are MNE structure and strategy, internationa experience, corporate governance and organizationa cuture which describe the MNE as a whoe. 14 Loca unit specificities as the staffing approach may vary with the cutura and institutiona environment it may aso be dependent on the specificities of the oca unit. An important factor here is the estabishment method of the subsidiary, i.e., whether it is a greenfied investment, a merger, an acquisition or a shared partnership. 15 Furthermore, the strategic roe of a subsidiary, its strategic importance for the MNE as a whoe and the reated questions of the need for contro and the ocus of decision-making can infuence staffing decisions. 16 IHRM practices seection, training and deveopment, compensation, and career management (incuding expatriation and repatriation) pay an important roe in the deveopment of effective poicies required to sustain a preferred staffing approach. These four groups of factors systematicay infuence staffing practices. Due to situationa factors, individua staffing decisions might be taken in a non-expected way. Further, it has to be acknowedged that there are interdependencies between these variabes. Figure 5.1 iustrates the various determinants of staffing choices. This mode may be hepfu in drawing together the various contextua, organizationa, and HR-reated issues in determining staffing choices. For exampe, a firm that is maturing into a networked organization (firm specificity) wi require IHRM approaches and activities that wi assist its abiity to deveop a fexibe goba organization that is centray integrated and coordinated yet ocay responsive a geocentric approach. However, a key assumption underying the geocentric staffing phiosophy is that the MNE has sufficient numbers of high-caiber staff (PCNs, TCNs and HCNs) constanty avaiabe for transfer anywhere, whenever goba management needs dictate. 17 FIGURE 5.1 Determinants of staffing choices 18 Context specificities Cutura context Institutiona context Staff avaiabiity Type of industry Company specificities MNE structure and strategy Internationa experience Corporate governance Organizationa cuture Staffing choices Ethnocentric Poycentric Regiocentric Geocentric Loca unit specificities Estabishment method Strategic roe and importance Need for contro Locus of decision IHRM practices Seection Training and deveopment Compensation Career management

133 116 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Whie most of the research on staffing has concentrated on movements from the headquarters to other units of the MNE, a study by Coings, McDonne, Gunnige and Lavee has anayzed outward staffing fows in MNEs, i.e. fows of HCNs and TCNs working in Irish subsidiaries, to headquarters or other units of their empoyer. Athough the numbers of outfow movements were quite sma they indicate a movement from ethnocentric approaches to more goba staffing perspectives in many MNEs. 19 Many studies investigating the determinants of staffing poicies have been conducted in MNEs stemming from deveoped countries. A study of Chinese MNEs has confirmed that Western modes are generay appicabe to Chinese MNEs as we. 20 However, the author points out that the same categories sometimes have different meanings. It is interesting to note that in this study cuturay determined factors such as trust and persona ethics proved to be of specia importance for staffing decisions. Overa, it seems that the different determinants of staffing choices outined above a have an important impact, athough the mode as a whoe is yet to be empiricay tested. TRANSFERRING STAFF FOR INTERNATIONAL BUSINESS ACTIVITIES The above discussion demonstrates the options for staffing key positions in foreign operations. We wi now ook at the HR consequences of these approaches, and the broader impications in terms of the reasons for using internationa assignments, types of internationa assignments, the roe of expatriates and non-expatriates, and the roe of inpatriates. Importance of internationa assignments Given the difficuties surrounding internationa assignments, it is reasonabe to question why mutinationas persist in using expatriates. Certainy, there are ebbs and fows associated with the number of staff moved internationay. Frequenty, predictions are made that expatriates wi become ike dinosaurs as firms impement ocaization strategies, repacing expatriates with HCNs as a way of containing empoyment costs. In a 2005 survey by the consuting firm PriceWaterhouseCoopers, 21 participants reported that their use of expatriates woud continue to grow in response to pressure for internationay mobie staff. The economic crisis starting in 2008 had an important impact on the expected importance of internationa assignments. Whie 68 per cent of the companies investigated by GMAC in 2008 expected a further increase in the number of internationa assignments ony 37 per cent of these companies coud report areagrowthwhentheywereaskedater. The Brookfied Report showed that this pessimistic deveopment was an ongoing trend: per cent of the companies expected an increase whie 25 per cent were convinced of a decrease in the number of internationa assignments (the average of the years before was 60 per cent, respectivey 12 per cent). In fact, in 2010 ony 27 per cent of the investigated companies experienced an increase in the number of expatriate assignments. Ony in 2001 was the increase in the expatriate popuation ower. 24 However, a sight optimism can be identified in the 2010 survey as 44 per cent of the companies expected an increase in the number of internationa assignments. 25 Currenty, the response of the MNEs to the economic crisis with respect to internationa assignments is that 72 per cent of companies have reduced assignment expenses, 84 per cent even reported increased pressure to further reduce costs as compared to Important measures to reduce costs were reduced poicy offerings (29 per cent), scrutiny of poicy exceptions (19 per cent), oca hiring (11 per cent), and short-term assignments (9 per cent). 26

134 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 117 Reasons for internationa assignments The internationa management and IHRM iterature has consistenty identified three key organizationa reasons for the use of various forms of internationa assignments: Position fiing. The organization has a need and depending on the type of position and the eve invoved wi either empoy someone ocay or transfer a suitabe candidate. Some studies 27 state that the probem of avaiabiity of quaified empoyees has decreased and that personne costs are more important when deciding about internationa assignments. However, the Brookfied Goba Reocation Trends Survey provides evidence in 2010 that short-term position fiing continues and a ack of avaiabe skis is the major reason for internationa assignments. In many cases the most important assignment objectives were fiing a manageria skis gap (22 per cent) and fiing a technica skis gap (21 per cent). 28 Management deveopment. Staff are often moved into other parts of the organization for training and deveopment purposes and to assist in the deveopment of common corporate vaues. Headquarters staff may be transferred to subsidiary operations, or subsidiary staff transferring into the parent operations, or to other subsidiary operations. Assignments may be for varying engths of time and may invove project work as we as a trainee position. The perceived ink between internationa experience and career deveopment can be a motivator for staff to agree to such transfers. 29 The Brookfied Goba Reocation Trends Survey 2010 identified buiding management expertise as the third most important reason for internationa assignments. 30 Organization deveopment. Here the more strategic objectives of the operation come into pay: the need for contro; the transfer of knowedge, competence, procedures and practices into various ocations; and to expoit goba market opportunities. As a resut, organizationa capabiities enabing a firm to compete in goba markets might be deveoped. 31 This category can be iustrated by the two other reasons for internationa assignments mentioned by the Brookfied Goba Reocation Trends Survey 2010: technoogy transfer (16 per cent), and aunching new endeavors (13 per cent). 32 Harzing 33 states in her study that most of the reasons for internationa assignment eventuay ead to organization deveopment. 34 In fact, internationa assignments are often undertaken to reach severa goas simutaneousy. 35 Furthermore, a study by Tungi und Peiper, 36 investigating the assignments poicies and measures in 136 MNEs reveaed that the importance of the assignment objectives aso differed by country-of-origin. For exampe, the deveopment of management skis was one of the most important reasons for internationa assignments in German MNEs whereas MNEs from the US mainy sent managers abroad to fi oca ski gaps. Japanese as we as British MNEs indicated that the deveopment of new operations abroad was their major reason to send expatriates abroad. 37 Types of internationa assignments Empoyees are transferred internationay for varying engths of time depending on the purpose of the transfer and the nature of the task to be performed. MNEs tend to cassify types according the ength or duration of the assignment: Short-term: up to three months. These are usuay for troubeshooting, project supervision, or a stopgap measure unti a more permanent arrangement can be found. Extended: up to one year. These may invove simiar activities as that for short-term assignments. Long-term: varies from one to five years, invoving a ceary defined roe in the receiving operation (e.g. a senior management roe in a subsidiary). The ong-term assignment has aso been referred to as a traditiona expatriate assignment.

135 118 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION TABLE 5.2 Differences between traditiona and short-term assignments Traditiona assignments Short-term assignments Purpose Fiing positions or skis gaps Management deveopment Organizationa deveopment Skis transfer/probem soving Management deveopment Manageria contro Duration Typicay months Typicay up to 6 or 12 months Famiy s position Famiy joins the assignee abroad Assignee is unaccompanied by the famiy Seection Forma procedures Mosty informa, itte bureaucracy Advantages Good reationships with coeagues Constant monitoring Disadvantages Dua-career considerations Expensive Less fexibiity Fexibiity Simpicity Cost-effectiveness Taxation Side-effects (acohoism, high divorce rate) Poor reationships with oca coeagues Work permit issues Source: Adapted from M. Tahvanainen, D. Wech and V. Worm, Impications of Short-term Internationa Assignments, European Management Journa, Vo. 23, No. 6 (2005), p. 669, with permission from Esevier. Tabe 5.2 iustrates some of the differences between short-term and traditiona expatriate assignments. It shoud be noted that definitions of short-term and ong-term assignments vary and depend on organizationa choices. The resuts of the 2010 Brookfied Report indicate that 64 per cent of the internationa assignments were ong-term and 22 per cent short-term. 38 Most of the research on internationa assignments focuses on traditiona ong-term assignments because these represent the highest number of internationa assignments. Our knowedge concerning aternative assignment types such as commuter, rotationa, contractua and virtua assignments (aso termed non-standard assignments) is sti imited 39 but the growth of these non-standard assignments is described in further detai in the foowing paragraphs. 40 Commuter assignments specia arrangements where the empoyee commutes from the home country on a weeky or bi-weeky basis to the pace of work in another country. Cross-border workers or daiy commuters are not incuded. Usuay, the famiy of the assignee stays in the home country. For exampe, the empoyee may ive in London but work in Moscow. Reasons for these assignments can incude that a particuar probem must be soved and the assigned empoyee due to their experience and quaifications is needed in two paces at the same time or that the target country is unstabe. 41 The Brookfied Report from 2010 indicates that 35 per cent of the investigated companies have a poicy for commuter assignments in pace and that this type of assignment wi even gain importance in the future. 42 However, it is important to note that a nonstandard assignment is not aways an effective substitute for the traditiona expatriate assignment: There are rea concerns about the viabiity of commuter arrangements over an extended period of time due to the buid up of stress resuting from intensive trave commitments and the impact on persona reationships. 43 Rotationa assignments empoyees commute from the home country to a pace of work in another country for a short, set period foowed by a break in the home country. The empoyee s

136 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 119 famiy usuay remains in the home country. This arrangement is commony used on oi rigs and with hardship ocations in the goba mining industry. Contractua assignments used in situations where empoyees with specific skis vita to an internationa project are assigned for a imited duration of 6 to 12 months. Research and Deveopment (R&D) is one area that is using mutinationa project teams and ends itsef to shortterm contractua assignments in conjunction with onger-term assignments and virtua teams. 44 Virtua assignments where the empoyee does not reocate to a host ocation but manages, from home-base, various internationa responsibiities for a part of the organization in another country. In this case, the manager reies heaviy on communication technoogies such as teephone, emai or video conferences. Visits to the host country are aso necessary. The main reasons for using virtua assignments are simiar to that of other non-standard forms of internationa assignments: the shortage of experienced staff prepared to accept onger term postings, the immobie famiy, and cost containment. Wech, Worm and Fenwick s 45 study into the use of virtua assignments in Austraian and Danish firms suggests that whie there are certain advantages to operating virtuay (such as not having to reocate a famiy unit), there are disadvantages that may affect successfu work outcomes. For exampe, roe confict, dua aegiance, and identification issues occur between the person in the home ocation and the virtua work group in the foreign ocation. It is not cear to whom the virtua assignee beongs the home ocation where the person physicay resides for most of the time, or to the foreign unit. Another issue is how much time shoud be devoted to virtua work responsibiities versus the rea work. In addition, given that much of the work is done through eectronic media, the potentia for cutura misunderstandings increases, and the geographica distance rues out norma group interaction. Communication is mainy through conference cas, videoconferencing, and emais, and requires good skis in using these media. Visits between the two ocations are necessary to support the working of this arrangement as not everything can be setted virtuay. Face-to-face meetings are sti needed. In summary, virtua assignments tend to be used for regiona positions (e.g. European Marketing Manager) where the person is mainy coordinating a number of nationa marketing activities but is based at a regiona center. Based on the resuts of a German/Asian case study, Hotbrügge and Schio 46 suggest that specific intercutura training needs to be provided for the virtua assignee as we as for the team members abroad in order to avoid intercutura misunderstandings. Sef-initiated assignments Whie standard expatriations are usuay initiated by the organization, sef-initiated assignments are initiated by the individua. Many organizations do not systematicay track and manage these kinds of assignments. However, often these empoyees are highy interested in an internationa chaenge, have adequate anguage skis, an internationa mindset and are quite entrepreneuria. They comprise an important resource for their empoyers and can increase internationa mobiity potentia in the organization. 47 It is therefore important to manage them carefuy and to understand their motivation to stay in the MNE, particuary upon competion of the sef-initiated internationa assignment. 48 According to a study by Cerdin and Pragneux, 49 organization-assigned and sef-initiated expatriates are reativey simiar with respect to the career anchors of internationaism, chaenge and their ifestye with a preference for achieving a baance between work and persona ife. They differ from each other with respect to other dimensions such as security. A recent exampe of university academics as sef-initiated expatriates is reported by Semer and Lauring. 50 THE ROLES OF AN EXPATRIATE As mentioned above, the reasons for using expatriates are not mutuay excusive. They do however underpin expectations about the roes that staff pay as a consequence of being transferred from one ocation to another country. These roes are deineated in Figure 5.2.

137 120 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION FIGURE 5.2 The roes of an expatriate Agent of direct contro Language node Agent of sociaizing Expatriate roes in the interpay of headquarters and oca unit Boundary spanner Network buider Transfer of competence and knowedge The expatriate as an agent of direct contro The use of staff transfers can be regarded as a bureaucratic contro mechanism, where the primary roe is that of ensuring compiance through direct supervision. Harzing 51 found that German companies tend towards this form of contro. She abes expatriates who are such agents as bears, arguing that the anaogy refects the eve of dominance of this type of expatriate contro. To a certain extent, using expatriates for contro refects an ethnocentric predisposition, but this can be important in ensuring subsidiary compiance, enabing strategic objectives for oca operations to be achieved. The expatriate as an agent of sociaization There is an impicit expectation that expatriates assist in the transfer of shared vaues and beiefs. Harzing names expatriates who transfer corporate vaues as bumbe-bees. However, as Fenwick et a. 52 point out, there has been itte empirica investigation of the effectiveness of expatriates as agents of sociaization. In fact, attempts to insti corporate vaues and norms rituaized in the form of certain expected behaviors often have negative resuts at the subsidiary eve. Expatriates as network buiders As we discussed in Chapter 3, internationa assignments are viewed as a way of deveoping socia capita 53 by fostering interpersona inkages that can be used for informa contro and communication purposes. Naturay, as empoyees move between various organizationa units, their network of persona reationships changes, eading to Harzing s anaogy of expatriates as spiders to describe this roe. How these empoyees are utiized is person-dependent. Peope tend to nurture and protect their networks, to be very seective about the way they use their connections, and to evauate the potentia damage to key individuas in their networks if the connection was to be used inappropriatey. In their study of project teams and networks, Schweiger et a. 54 provide the foowing exampe of how internationa assignments assisted network deveopment: I depended heaviy on the contacts I had deveoped over the years. The time spent in internationa assignments was invauabe. I knew important peope in severa key operations. I knew how they operated and what was important to them. They aso knew that I was credibe and woud hep them when the opportunity arose.

138 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 121 Whie short-term assignments may not aow the expatriate to deveop as wide a range of contacts in one ocation to the degree that a traditiona assignment permits, over time they can increase the number and variety of networks, buiding channes for the transfer of ideas and competence. 55 Duration of the assignment, therefore, wi have an impact on the person s abiity to deveop networks. Expatriates as boundary spanners Boundary spanning refers to activities, such as gathering information, that bridge interna and externa organizationa contexts. Expatriates are considered boundary spanners because they can coect host country information, act as representatives of their firms in the host country, and can infuence agents. For exampe, attending a socia function at a foreign embassy can provide the expatriate with an opportunity to network, gather market inteigence and promote the firm s profie at a high eve. Expatriates as anguage nodes Marschan-Piekkari et a. 56 found that Finnish expatriates working for the eevator company Kone, sometimes became what they termed anguage nodes upon repatriation. Transfer of competence and knowedge Internationa assignments do assist in knowedge sharing and competence transfer, and encourage adoption of common work practices which may strengthen eements of corporate cuture. Thus, they may contribute to further deveoping the socia capita within the MNE. 57 Staff in various organizationa units aso encounter different viewpoints and perspectives that wi shape their behavior and may reinforce their feeing of beonging. Gooda and Roberts 58 reate the experience of a Chinese empoyee in the Chinese operation of a European oi company. Her time in the parent s operation in Europe enabed her to appreciate how the company vaued its name and reputation, and was abe to better understand the company s code of conduct and attitude towards occupationa heath and safety. Overa, internationa assignments are seen as an effective way of accompishing mutipe objectives. In fact, one coud argue that there are eements of knowedge transfer in a the roes we have identified. However, cear empirica evidence as to the effectiveness of expatriates in conducting their numerous roes is imited. Factors that may infuence effectiveness incude: The creation of an environment of openness and support for cross-fertiization of ideas and impementation of best practice. The need for knowedge and information to trave dyadicay, that is, between the expatriate and the host ocation, and back to the expatriate s home ocation, if the mutinationa is to benefit from internationa assignments as a mechanism for knowedge transfer. Despite the recognition of the importance of persona networks in knowedge and information transfer, staffing decisions are often made without regard to their effect on network reationships. In many cases there is no strategic approach appied to contro for potentiay negative effects. There is a ink between the duration of the assignment and the effective transfer of knowedge. Some knowedge may be transferred quicky whie other skis and knowedge (particuary where a high eve of tacitness is present) may take onger. Much of what is transferred depends on the expatriate concerned in terms of abiity to teach others and motivation to act as an agent of knowedge transfer.

139 122 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION The success of the knowedge transfer process depends not ony on the motivation and abiities of the assignee but aso on the oca empoyees and their reationships. 59 A fina point: Boino and Fedman 60 make an interesting observation that when expatriates are assigned for position fiing due to a ack of appropriate oca staff, these expatriates are often forced to take over some of the responsibiities of their coeagues due to differences in knowedge eves. Consequenty, they argue, that expatriates often spend a ot of time on ess chaenging tasks to hep out oca co-workers, and train them. In such cases, whie the expatriates may assist in skis transfer, over time their own eve of competence may erode as they are not deveoping their own expertise. Thus, when expatriates return to their home operation, they may find that their knowedge is somewhat out of date. THE ROLE OF NON-EXPATRIATES The above discussion has centered on the internationa assignment. What has tended to be overooked is that a considerabe amount of internationa business invoves what can be caed nonexpatriates : peope who trave internationay but are not considered expatriates, as they do not reocate to another country. These non-expatriates have been caed internationa business traveers 61 empoyees who spend a arge proportion of their time visiting foreign markets, subsidiary units and internationa projects. Popuar terms for these empoyees incude road warriors, gobetrotters, frequent fiers and fexpatriates. 62 Internationa trave is an essentia component of their work, such as internationa saes staff whose job is amost totay comprised of internationa trave; and managers whose job entais numerous visits to internationa operations. Internationa saes representatives attend trade fairs, visit foreign agents and distributors, demonstrate new products to potentia cients, and negotiate saes contracts. Various staff wi visit foreign ocations to dea with host-country government officias, aiance partners, subcontracting firms, and foreign suppiers. Apart from the resource impications, there are issues reating to the management of internationa business traveers. DeFrank et a. 63 identify the foowing factors as stressors: Home and famiy issues such as missing important anniversaries and schoo events. The more frequent the trave, the greater the potentia for famiy and marita reationships to be strained. Work arrangements the domestic side of the job sti has to be attended to even though the person is traveing internationay. Modern communications aow work to accompany the business traveer who is often expected to remain up to date with home-office issues whie away from the office. Trave ogistics airine connections, hote accommodation, and meeting schedues. Heath concerns poor diet, ack of physica exercise, ack of seep, coping with jetag, and exposure to viruses and other heath probems (e.g. Deep Vein Thrombosis from excessive air trave). Host cuture issues as internationa business is conducted in other cutura settings, the person is sti expected to be abe to operate in unfamiiar environments and hande cutura differences effectivey. However, the imited empirica and anecdota evidence suggests that non-expatriates do not receive the same eve of cross-cutura training as expatriates if any. Non-expatriate business traveers aso perform many of the roes of expatriates in terms of being agents for sociaization, network-buiders, boundary spanners and anguage nodes. From the imited evidence avaiabe, however, it woud seem that the management of staff using these forms of arrangements fas to the functiona or ine managers invoved rather than the HR department as such. Possibe HR strategies that coud better meet the demand of fexpatriates

140 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 123 have been suggested by Deme and Mayrhofer. 64 They suggest that the specific situation of fexpatriates shoud be incuded in job descriptions and working contracts and coud be part of specific HRM poicies for this target group. For exampe, seection criteria shoud go beyond technica knowedge and cross-cutura skis and incude, for exampe, heath issues such as physica fitness. The issue of working and traveing time must aso be addressed with respect to recognizing the need for the empoyee to recover from internationa trave (adjustment to jetag, changes in diet, etc.). If these concerns are taken into consideration, fexpatriates can be an even more vauabe aternative soution to internationa mobiity. THE ROLE OF INPATRIATES As we have outined in Chapter 1, inpatriates are mainy distinguished from expatriates by definition. They incude internationa assignments of HCNs or TCNs from a foreign ocation to the parent country (usuay the corporate headquarters) of the MNE. Inpatriates are: expected to share their oca contextua knowedge with HQ staff in order to faciitate effective corporate activities in these oca markets. At the same time they are sociaized in the HQ corporate cuture and earn firm-specific routines and behaviors that enabe them to master future management tasks within the organization. As a resut, inpatriates seem to act both as knowedge senders and receivers. 65 Coings and Scuion 66 have identified the foowing key drivers for recruiting and transferring inpatriate managers: Desire to create a goba core competency and a cutura diversity of strategic perspectives in the top management team, 67 thus, increasing the capabiity of organizations to think goba and act oca. Desire to provide career opportunities for high potentia empoyees in host countries, i.e., HCNs and TCNs. The emergence of deveoping markets which often represent difficut ocations for expatriates in terms of quaity of ife and cutura adjustment. However, the strategy of inpatriation aso underines that the strategic importance of the headquarters is sti predominant, indicating that the knowedge of the cuture, the structure, and the processes specific to the headquarters are sti important requirements for vertica career advancement. Usuay, the assignment to the headquarters aims at training the manager for a top management position back home in the foreign subsidiary. In many MNEs, an inpatriate assignment may be a first and imited career step, refecting a rather ethnocentric approach. Harvey and Buckey 68 concude that in this case inpatriation may be a dangerous process. Whie it might be more difficut for inpatriates than for PCNs to reaize a vertica career in the headquarters they experience the same integration and repatriation probems as expatriates during and after their internationa assignment. Consequenty, they may not receive the same return on investment for their internationa assignment as expatriates. This can ony be guaranteed if career opportunities for inpatriate HCNs or TCNs exist within the headquarters and across the wider organization. In this case inpatriation can be an important step in reaizing a geocentric orientation within the MNE and thus an open sky (i.e. where career success is not dependent on an empoyee s nationaity) for HCN and TCN managers. Based on a sampe of 143 inpatriates in ten German mutinationas Reiche, Kraimer and Harzing 69 have anayzed the retention of inpatriates. They found that trust and fit with the headquarters staff as we as firm-specific earning and career prospects payed an important roe in ensuring retention of inpatriate empoyees. In an internationa comparative study Tungi und Peiper found significant differences in the target group of internationa assignments between German, British, Japanese and US MNEs.

141 124 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION The authors differentiate between PCNs, TCNs and inpatriates The study found that Japanese MNEs rey amost soey on PCNs for internationa assignments whie British MNEs seem to systematicay use different groups of empoyees (56 per cent PCNs, 37 per cent TCNs and 7 per cent expatriates in the headquarters). The group of internationa assignees from German MNEs consisted of 79 per cent PCNs, 12 per cent TCNs and 9 per cent inpatriates. 70 More research on the ong-term consequences of these different practices is needed. RECRUITMENT AND SELECTION OF INTERNATIONAL MANAGERS Hiring and depoying peope to positions where they can perform effectivey is a goa of most organizations, whether domestic or internationa. Recruitment is defined as searching for and obtaining potentia job candidates in sufficient numbers and quaity so that the organization can seect the most appropriate peope to fi its job needs. Here, empoyer branding may pay a crucia roe, especiay in emerging countries such as China or India where it may be difficut to find enough quaified personne for foreign companies due to the strong growth rates of these economies and the fierce competition for taent in the oca abor markets. Seection is the process of gathering information for the purposes of evauating and deciding who shoud be empoyed in particuar jobs. It is important to note that recruitment and seection are discrete processes and both processes need to operate effectivey if the firm is to effectivey manage its staffing process. For exampe, a firm may have an exceent seection system for evauating candidates but if there are insufficient candidates to evauate, then this seection system is ess than effective. Both processes must operate effectivey for optima staffing decisions to be made. Some of the major differences between domestic and internationa staffing are first that many firms have predispositions with regard to who shoud hod key positions in headquarters and subsidiaries (i.e. ethnocentric, poycentric, regiocentric and geocentric staffing orientations) and second, the constraints imposed by host governments (e.g. immigration rues with regard to work visas and the common requirement in most countries to provide evidence as to why oca nationas shoud not be empoyed rather than hiring foreigners) which can severey imit the MNE s abiity to hire the right candidate. In addition, as Scuion and Coings 71 note, most expatriates are recruited internay rather than externay, so the task of persuading managers (particuary if they are primariy working in a domestic environment) to recommend and/or agree to reease their best empoyees for internationa assignments remains a key issue for internationa HR managers. The sma number of externa recruits is confirmed by data from the Goba Reocation Trends Survey Here, the proportion of externa hires for internationa positions was ony 8 per cent across a firms that participated in the 2010 survey. This represented the owest figure in the history of the report (the benchmark historica average is 12 per cent of expatriates). 72 Recruitment of interna hires for expatriate assignments is preferred because this reduces the risk of a poor seection decision. In an interna seection process performance appraisas, persona reports, interviews with coeagues and firm-interna career pans can be used as information sources in order to reduce uncertainty. In their study of 653 Spanish companies Bayo- Moriones and Ortín-Ánge show that the preference for interna recruitment is not ony motivated by the minimization of seection risks but aso by the wish to secure present and past investments in human capita. 73 In the case of expatriate recruitment on the externa abor market the seection risk is often managed by using speciaized (and reativey expensive) consutants. The more traditiona devices of recruitment and seection such as traditiona job advertisements and executive search (aso known as headhunting) can aso be used (See IHRM in Action Case 5.1).

142 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 125 IHRM in Action Case 5.1 Internationa Headhunting Pecuiarities occur in the seection process when externa service providers are assigned to undertake the search for internationa managers and are invoved in the subsequent seection. Whereas, in the scientific iterature there are hardy any discussions or ideas presented addressing this topic, in practice, headhunting is a commony used method in order to fi internationa positions. According to Hewitt s HR Outsourcing Survey which incudes more than 100 US companies, these companies pursue four centra aims with the transfer of most (nationa and internationa) HR activities to externa service providers. Accordingy, most of the companies surveyed (65 per cent) indicated they want to reduce costs by outsourcing activities. Furthermore, access to externa expertise is attractive to many companies, as we as an improved service quaity and the possibiity to more intensivey direct interna resources to strategic human resource management. With reference to outsourcing IHRM, the survey reveas that 43 per cent of the companies revert to the expertise of externa service providers for expatriate management matters and 56 per cent in repatriation issues; 3 to 4 per cent of the companies even pan to outsource these areas in the near future. Concerning recruiting, 10 per cent of the companies surveyed indicated that they aready assigned their recruiting to externa service providers, an additiona 6 per cent definitey pan to outsource their recruiting. As there are no expicit figures avaiabe, one can ony specuate, how many firms make use of outsourcing for their internationa empoyee seection as we. However, the speciaization of numerous headhunting agencies and management consutancies in the area of IHRM and executive search for internationa managers indicates a high demand in these areas. An exampe is the management consutancy ABC Asian Business Consutants from South Korea. Not ony does it support companies from different branches in the search and seection of quaified managers, it aso assists firms in organizing internationa management training or internationa career panning. Currenty, 7 empoyees and 15 trainers work on internationa projects at the company s offices in Korea, China, India and Germany. Every year, about 15 empoyee seection projects are competed by ABC Asian Business Consutants. Headhunting seection criteria and job profies are adjusted to the needs of the recruiting company and the requirements of the vacant position. Due to the high degree of candidates quaifications and confidentiaity of information, the seection process is very compex. First of a, potentia candidates must be identified and personay contacted. Aternative forms of Human Resource Marketing (for exampe, activities invoving internet-based patforms or socia networks) are not used because of the need for confidentiaity. Often, a cover story is used to identify quaified candidates, seek further information and evauate interest. Before the first contact between the candidate and the recruiting company takes pace, the candidate s curricuum vitae is evauated, foowed by two interviews with representatives of ABC Asian Business Consutants. Interviews via software programs such as ICQ, Skype or Windows Live Messenger may be used occasionay to bridge ong distances and to conduct the interviews without nationa or internationa reocation. Based on the protocos of the interviews and the appication forms a short report on every candidate is compied and a shortist of the most quaified candidates is presented to the recruiting company. Utimatey, fina interviews with the candidates are conducted by empoyees of the recruiting company, before a fina decision on the fiing of the internationa position is reached. The whoe seection process may cover a period of severa months. Occasionay, internationa assessment centers are organized using different methods such as individua presentations, roe pay or presentations to the board of directors. Based on his past experience Dr Urich Hann, owner and CEO of ABC Asian Business Consutants can identify cutura differences and differences in the quaifications of candidates from diverse internationa backgrounds. Differences depending on the respective nationaity appear, for exampe, in the persona contact during the seection interviews. There are aso differences regarding the professiona quaifications and skis of candidates. Many Indian candidates have a very high eve of quaifications in natura sciences, whie there is a strong demand for German candidates with a degree in mechanica engineering. (Continued)

143 126 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION (Continued) There are particuar chaenges for HR consutants in a dynamic internationa environment. Dr Hann notes: Simiar to the requirements for the candidates, the requirements and criteria for a quaified HR consutant in the internationa business environment are aso high. Notaby, mutiinguaism is important to understand the needs of the customers and those of the candidates. In addition to a professiona quaification, entrepreneuria thinking as we as internationa work experience are essentia requirements to find a position in a recruiting company as an externa service provider for IHRM. Source: ª Lena Knappert and Marion Festing. Based on Persona communication with Urich Hann, June 8, Maekeae, Björkman and Ehrnrooth 74 have identified a variety of staffing archetypes (ocainterna, oca-externa, goba-interna and goba externa) that reate to human capita advantages. These are mainy concerned with knowedge and socia capita advantages incuding a positive effect on interaction and trust within the organization. EXPATRIATE FAILURE AND SUCCESS Expatriate faiure and success are obviousy critica and reated issues for goba firms. Both topics have been intensivey examined by IHRM researchers for decades. We wi start with the more traditiona focus on expatriate faiure. Considering the major determinants for expatriate faiure carifies the inks to expatriate success. First, there are three questions reated to faiure: its definition, the magnitude of the phenomenon, and the costs associated with faiure. What do we mean by expatriate faiure? The term expatriate faiure has been defined as the premature return of an expatriate (that is, a return home before the period of assignment is competed). In such a case, an expatriate faiure represents a seection error, often compounded by ineffective expatriate management poicies. There has been some discussion in the iterature about the usefuness of defining expatriate faiure so narrowy. For exampe, an expatriate may be ineffective and poory adjusted, but if not recaed, the person wi not be considered a faiure. Ceary, an inabiity to either effectivey hande new responsibiities or to adjust to the country of assignment is very ikey to contribute to diminished performance eves. These resuts may not be immediatey apparent but can have ong-term negative consequences in terms of subsidiary performance. However, if the expatriate remains for the duration of the assignment, to a intents and purposes, the assignment wi have been considered a success. Another significant issue is that of expatriates eaving the MNE within the first or second year after repatriation (for more detais on repatriation see Chapter 7) because they fee that their newy acquired knowedge is not vaued. 75 Again, in this case the internationa assignment woud be regarded as a success athough it eads to the oss of a vauabe empoyee. On the other hand, a project abroad can be competed eary, which coud ead to a premature return of an expatriate. According to the above-mentioned definition this woud be erroneousy cassified as a faiure. Thus, the traditiona definition of premature return of an expatriate that has dominated the iterature does not necessariy indicate expatriate faiure. Harzing suggests that a definition of expatriate faiure shoud incude poor performance as we as repatriation probems. 76 An exampe of research that adopts this broader definition of expatriate faiure (that is, incuding under-performance and retention upon competion of the assignment) is a study conducted by Forster 77 on 36 British firms that concuded:

144 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 127 If we accept that a broader definition of EFRs [expatriate faiure rates] is warranted, then it can be argued that the actua figure of those who are faiing on IAs [internationa assignments] coud be somewhere between 8 per cent and 28 per cent of UK expatriates and their partners. In the next section we ook at the magnitude of expatriate faiure in further detai. What is the magnitude of the phenomenon we ca expatriate faiure? The Brookfied Report 2010 provides severa indicators for expatriate faiure. Firms indicated that 6 per cent of expatriate assignments were regarded as faiures. The survey aso reported that expatriate turnover was about 17 per cent during the internationa assignment, 28 per cent within the first year upon repatriation, 23 per cent between the first and the second year and 22 per cent after two years. Comparing these figures to an average annua turnover rate of 13 per cent these percentages can be considered as reativey high, especiay since important investments by the assigning firm are at stake. Locations with the highest expatriate faiure rates were China (12 per cent), India (10 per cent) and the USA (8 per cent). 78 In the foowing section we wi report some seected resuts from academic studies on expatriate faiure. First, the anayses show that differences in expatriate faiure rates by country-oforigin of the MNE are reativey ow. Second, they indicate the historica deveopment of expatriate faiure rates. We draw on data from the important work by Tung 79 on expatriate faiure in US, European and Japanese MNEs which initiated this discussion in the eary 1980s and recent work by Tungi and Peiper, which reports figures from Germany, Japan, Britain and the USA in The resuts of both studies are presented in Tabe 5.3. TABLE 5.3 Expatriate Faiure Rates Premature return rate Western Europe 1982 Germany 2009 UK 2009 Japan 1982 Japan 2009 USA 1982 USA 2009 Less than 10% 97% 91% 93% 86% 94% 24% 86% More than 10% but ess than 20% Equa to or more than 20% 3% 0% 3% 14% 0% 69% 2% 0% 9% 3% 0% 6% 7% 11% Source: R. L. Tung, Seection and Training Procedures of U.S., European, and Japanese Mutinationas, Caifornia Management Review, Vo. 25, No. 1 (1982), pp and p. 164; Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp Reproduced with permission. As Tabe 5.3 shows, Tung identified higher expatriate faiure rates and a higher percentage of MNEs reporting more than 10 per cent faiure rates in US MNEs than in European or Japanese organizations. The more recent data show that the reported figures have become more simiar across the investigated countries and that premature return of expatriates sti represents an ongoing chaenge. 81 Harzing 82 has questioned the reported faiure rates in the US iterature, caiming there is amost no empirica foundation for the existence of high faiure rates when measured as premature re-entry. More recenty, Christensen and Harzing have again questioned the vaue of the whoe concept of expatriate faiure, arguing that it might we be time to abandon the concept of expatriate faiure atogether and instead draw on the genera HR iterature to anayze probems reated to turnover and performance management in an expatriate context. 83

145 128 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION From the above discussion we can draw the foowing concusions: 1 Broadening the definition of expatriate faiure beyond that of premature return is warranted. Foowing up broad surveys with interviews with responding firms may assist in this exporation. 2 Regardess of the definition or precise amount of faiure, its very presentation as a probem has broadened the issue to demonstrate the compexity of internationa assignments. In fact, one coud argue that the so-caed persistent myth of high US expatriate faiure rates has been a positive eement in terms of the attention that has subsequenty been directed towards expatriation practices. It has certainy provoked considerabe research attention into the causes of expatriate faiure. What are the costs of faiure? The costs of expatriate faiure can be both direct and indirect. Direct costs incude airfares and associated reocation expenses, and saary and training. The precise amount varies according to the eve of the position concerned, country of destination, exchange rates, and whether the faied manager is repaced by another expatriate. The invisibe or indirect costs are harder to quantify in money terms but can prove to be more expensive for firms. Many expatriate positions invove contact with host government officias and key cients. Faiure at this eve may resut in oss of market share, difficuties with host-government officias, and demands that expatriates be repaced with HCNs (thus affecting the mutinationa s genera staffing approach). The possibe effect on oca staff is aso an indirect cost factor, since morae and productivity coud suffer. 84 Faiure aso has an effect on the expatriate concerned, who may ose sef-esteem, sef-confidence, and prestige among peers. 85 Future performance may be marked by decreased motivation, ack of promotiona opportunities and perhaps increased productivity to compensate for the faiure. Finay, the expatriate s famiy reationships may be threatened. These are additiona costs to organizations that are often overooked. Reasons for expatriate faiure and what about expatriate success? Tung 86 is recognized as the first researcher to investigate the reasons for expatriate faiure. Athough she found differences according to the country-of-origin of the MNE, important persona factors were the inabiity to adapt either on the part of the spouse or the manager. Other famiy probems, the maturity of the manager and probems coping with higher responsibiities inherent in the position abroad were aso noted. The more recent comparative study by Tungi and Peiper does not indicate any country specificities in the resuts. It confirms the importance of the first three reasons mentioned in the study by Tung: the inabiity to adapt by the famiy or the manager as we as other famiy issues. However, in addition they aso find that firm-specific issues and deficient performance by the expatriate were major reasons for a premature return. 87 In his study based on 21 interviews Lee 88 found simiar reasons for expatriate faiure. However, he aso found that the activities of the MNE itsef and support for the expatriate and the famiies were major success factors for internationa assignments. 89 Finay, the Brookfied study reports that spouse/partner dissatisfaction (65 per cent), the inabiity to adapt (47 per cent), other famiy concerns (40 per cent) and poor candidate seection (39 per cent) accounted for expatriate faiure. In a verbatim comment they confirm the resuts by Lee that IHRM has an important roe in creating successfu internationa assignments: career and taent management (before, during, and after) is the singe most important factor in retaining empoyees after the assignment 90

146 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 129 SELECTION CRITERIA We now have a fuer understanding of the phenomenon caed expatriate faiure, as we as the muti-faceted nature of internationa assignments, and why deveoping appropriate seection criteria has become a critica IHRM issue. It shoud be noted that seection is a two-way process between the individua and the organization. A prospective candidate may reject the expatriate assignment, either for individua reasons, such as famiy considerations, or for situationa factors, such as the perceived toughness of a particuar cuture. It is a chaenge for those responsibe for seecting staff for internationa assignments to determine appropriate seection criteria. Figure 5.3 iustrates the factors invoved in expatriate seection, both in terms of the individua and the specifics of the situation concerned. It shoud be noted that these factors are interreated. We base the foowing discussion around Figure 5.3. Technica abiity Naturay, an empoyee s abiity to perform the required tasks of a particuar job is an important seection factor. Technica and manageria skis are therefore an essentia criterion. Indeed, research findings consistenty indicate that mutinationas pace heavy reiance on reevant technica skis during the expatriate seection process. 91 Since expatriates are predominanty interna recruits, personne evauation records can be examined and checked with the candidate s past and present superiors. The diemma is that past performance may have itte or no bearing on one s abiity to achieve a task in a foreign cutura environment. Cross-cutura suitabiity: Competence, adjustment and other indicators As we have aready discussed, the cutura environment in which expatriates operate is an important factor for determining successfu performance. Here, intercutura competence and reated concepts as we as the abiity to adjust to a foreign cuture pay important roes. However, a precondition for cross-cutura suitabiity are soft skis that are aso important in other nationa positions. Soft skis. Soft skis are a criterion which is underestimated by many MNEs. 92 They are a precondition for intercutura competence. As Caigiuri, Tarique and Jacobs state, they are FIGURE 5.3 Factors in expatriate seection Technica abiity Cross-cutura suitabiity Famiy requirements Individua Situation Seection decision Country/cutura requirements Language MNE requirements

147 130 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION important success factors of internationa managers and need to be considered in addition to technica knowedge and skis. They incude psychoogica as we as persona features, internationa experience and anguage knowedge. Furthermore, a capacity to internaize and provide training to oca personne is an often negected issue. However, this capacity may pay a vita roe for the success of an internationa assignment due to the crucia importance of knowedge and technoogy transfer. 93 Intercutura competence. Apart from the obvious technica abiity and manageria skis, expatriates require cross-cutura abiities that enabe the person to operate in a new environment and to guarantee the functioning of cuturay diverse teams. 94 This is often expressed by using the term intercutura competence, which is defined as the abiity to function effectivey in another cuture. 95 There appears to be a consensus that desirabe attributes shoud incude dimensions such as cutura empathy, adaptabiity, dipomacy, anguage abiity, positive attitude, emotiona stabiity, maturity, etc. 96 These various issues can be reated to three basic structura dimensions of intercutura competence. 97 The affective dimension of intercutura competence refects the emotiona attitude towards a foreign cuture. The cognitive ayer reates to cuture-specific knowedge. 98 Most important is the abiity dimension because this incudes the actua intercutura behavior. 99 Intercutura competence and reated concepts. Cosey reated to intercutura competence is the concept of cutura inteigence. Anget a. 100 define cutura inteigence as a specific form of inteigence focused on capabiities to grasp, reason and behave effectivey in situations characterised by cutura diversity. Whie it is very simiar to the concept of intercutura competence in aso considering perceptua, cognitive, motivationa and abiity eements, it focuses mainy on the cognitive dimension of this construct. 101 Bücker and Poutsma 102 have reated the concepts of intercutura competence, intercutura sensitivity, cutura inteigence and goba mindset (abiity to appreciate eements of various cutures 103 to goba management competencies and use this as a more comprehensive approach to describe what kind of management skis a goba manager needs to have. Bird, Mendenha, Stevens and Oddou 104 see intercutura competence as one part of the terrain of goba eadership. Intheirconceptcross-cuturareationship skis, traits and vaues, the cognitive orientation and the goba business expertise are the core piars of intercutura competence. To map the terrain of goba eadership they add goba business competencies at the macro eve incuding goba organizing expertise and visioning. To define the term goba eadership they adopt the definition by Osand and Bird. According to them, goba eadership is the process of infuencing the thinking, attitudes, and behaviors of a goba community to work together synergisticay toward a common vision and common goa. 105 The abiity to adjust to a foreign cuture. This factor has been a consistent reason given for expatriate faiure and has been the subject of considerabe interest to researchers. 106 The diemma is that adjustment to a foreign cuture is mutifaceted, and individuas vary in terms of their reaction and coping behaviors. The concept of an adjustment cyce or curve is hepfu in demonstrating the typica phases that may be encountered during cutura adjustment. The curve (sometimes referred to as the U-Curve) is based on psychoogica reactions to the assignment and comprises four phases. 107 Phase 1 commences with reactions prior to the assignment the expatriate may experience a range of positive and negative emotions such as excitement, anxiety, fear of the unknown or a sense of adventure. There can be an upswing of mood upon arriva in the assignment country that produces what has been referred to as the honeymoon or tourist phase.then,asthenovetywearsoff,reaities of everyday ife in the foreign ocation begin to intrude, homesickness sets in, and a downswing may commence a feeing that the party is over 108 whichcancreatenegativeappraisasofthe

148 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 131 situation and the ocation eading to a period of crisis Phase 2. Thiscanbeacriticatime,andhow the individua copes with the psychoogica adjustment at this phase has an important impact in terms of success or faiure. There is a suggestion that faiure as an eary reca may be triggered at this point. Once past this crisis point, as the expatriate comes to terms with the demands of the new environment, there is a puing up Phase 3 as the person begins to adjust to the new environment. This eves off over time to what has been described as heathy recovery Phase 4. However, when considering the above U-Curve, one shoud remember some critica points. The U-Curve is normative. Some peope do not experience this U-Curve. Individuas wi differ in their reactions to the foreign ocation and with respect to their internationa experience prior to this assignment. 109 The time period invoved varies, and there is no concusive statistica support for the various phases. Back and Mendenha 110 point out that the U-Curve describes these phases but does not expain how and why peope move through the various phases. There may be other critica points during the assignment beyond Phase 4 that may produce downturns, negative reactions and upswings (that is, a cycica wave rather than a U-Curve). In summary, it can be stated that despite its pausibiity the U-curve acks theoretica foundation and empirica support and does not indicate what the resuts of cross-cutura adjustment may necessariy be. 111 This critique on the U-Curve adjustment and other adjustment concepts 112 has ed to important research activities and to a ot more carity on the determinants of the adjustment process, the process itsef and its outcomes. 113 Figure 5.4 provides an overview. Today, we differentiate between two kinds of adjustment: psychoogica adjustment, which is measured with respect to the psychoogica we-being of the expatriate; and socio-cutura adjustment, which describes the abiity to interact successfuy in the foreign country. 114 Antecedents of cross-cutura adjustment incude: Individua aspects (e.g. sex or goa orientation). Work reated factors (e.g. roe carity, decision autonomy 115 ). Organizationa aspects (e.g. company support). Non-work reated factors (e.g. famiy issues). FIGURE 5.4 Overview of important adjustment variabes Antecedents Modes Outcome P s y c h o o g i c a Individua Job Organizationa Non-work Strategies of adjustment (e.g. coping) Interaction adjustment Work adjustment Genera adjustment S o c i o c u t u r a Source: M. Festing and M. Maetzky, Cross-Cutura Leadership Adjustment A Framework Based on the Theory of Structuration, Human Resource Management Review, Vo. 21, No. 3 (2011), p With permission from Esevier.

149 132 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Adjustment modes are strategies to achieve adjustment. Depending on the focus of the study this can, for exampe, be strategies for coping with stress. 116 For adjustment outcomes it is often referred to the three variabes identified in the popuar concept by Back and Mendenha: 117 work adjustment; interaction adjustment; and genera adjustment. Often the outcomes aso incude an expicit performance 118 or effectiveness dimension 119 or address the issue of commitment. 120 Famiy Requirements The famiy is a very important infuence factor on the success of an internationa assignment, particuary the spouse. 121 Despite the importance of the accompanying spouse/partner, as Shaffer and Harrison 122 point out, the focus has been on the expatriate. From the mutinationa s perspective, expatriate performance in the host ocation is the important factor. However, the interaction between expatriate, spouse/partner and famiy members various adjustment experiences is now we documented. It shoud be pointed out that the spouse (or accompanying partner) often carries a heavy burden. Upon arriva in the country of assignment, the responsibiity for setting the famiy into its new home fas on the spouse, who may have eft behind a career, aong with friends and socia support networks (particuary reatives). In deveoping countries the empoyment of house servants is quite common but this is an aspect of internationa iving that many Westerners from deveoped countries have some difficuty adjusting to. It is often not possibe for the spouse/partner to work in the country of assignment due to immigration reguations and the we-being and education of the chidren may be an ongoing concern for the spouse. As discussed above, apart from the accompanying partner s career, there are other famiy considerations that can cause a potentia expatriate to decine the internationa assignment. Disruption to chidren s education is an important consideration, and the seected candidate may reject the offered assignment on the grounds that a move at this particuar stage in his or her chid s ife is inappropriate. The care of aging or invaid parents is another consideration. Whie these two reasons have been noted in various studies, what has been somewhat overooked is the issue of singe parents. Given increasing divorce rates, this may become a critica factor in assignment seection and acceptance where the custody of chidren is invoved. The associated ega constraints, such as obtaining the consent of the other parent to take the chid (or chidren) out of the home country, and visiting/access rights, may prove to be a major barrier to the internationa mobiity of both singe mothers and singe fathers. Country/Cutura requirements As discussed in Chapter 1, internationa firms are usuay required to demonstrate that a HCN is not avaiabe before the host government wi issue the necessary work permit and entry visa for the desired PCN or TCN. In some cases, the mutinationa may wish to use an expatriate and has seected a candidate for the internationa assignment, ony to find the transfer bocked by the host government. Many deveoped countries are changing their egisation to faciitate empoyment-reated immigration which wi make internationa transfers somewhat easier for exampe the European Union Socia Charter aows for free movement of citizens of member

150 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 133 countries within the EU. It is important that HR staff keep up-to-date with reevant egisative changes in the countries in which the MNE is invoved. An important reated point is that generay a work permit is granted to the expatriate ony. The accompanying spouse or partner may not be permitted to work in the host country. Increasingy, mutinationas are finding that the inabiity of the spouse to work in the host country may cause the seected candidate to reject the offer of an internationa assignment. If the internationa assignment is accepted, the ack of a work permit for the accompanying spouse or partner may cause difficuties in adjustment and even contribute to ong term faiure. For these reasons, some mutinationas provide assistance in this regard. Further, the host country may be an important determinant. Some regions and countries are considered hardship postings : remote areas away from major cities or modern faciities; or war-torn regions with high physica risk. Accompanying famiy members may be an additiona responsibiity that the mutinationa does not want to bear. There may be a reuctance to seect femaes for certain Midde East or South East Asian regions and in some countries a work permit for a femae expatriate wi not be issued. These aspects may resut in the seection of HCNs rather than expatriates. To overcome this probem, a group of more than 20 arge mutinationas (incuding She, British Airways, Uniever, PricewaterhouseCoopers, and Siemens) has estabished an organization caed Permits Foundation, 123 in an attempt to promote the improvement of work permit reguations for spouses of expatriates. It aso aims to raise government awareness of the connection between work permits and empoyee mobiity. MNE Requirements Seection decisions are infuenced by the specific situation of the MNE. For exampe, the MNE may consider the proportion of expatriates to oca staff when making seection decisions, mainy as an outcome of its staffing phiosophy. However, operations in particuar countries may require the use of more PCNs and TCNs than woud normay be the case, as mutinationas operating in parts of Eastern Europe and China are discovering. Furthermore, the mode of operation invoved needs to be considered. Seecting staff to work in an internationa joint venture may invove major input from the oca partner, and coud be heaviy constrained by the negotiated agreement on seection processes. 124 Language Language skis may be regarded as of critica importance for some expatriate positions, but esser in others, though some woud argue that knowedge of the host country s anguage is an important aspect of expatriate performance, regardess of the eve of position. The abiity to speak the oca anguage is an aspect often inked with cross-cutura abiity. Nevertheess, mastering the oca anguage is most often not the most important quaification with respect to anguages. 125 Another component to anguage in the seection decision is the roe of the common corporate anguage. As previousy discussed, many mutinationas adopt a common corporate anguage as a way of standardizing reporting systems and procedures. 126 This is not, perhaps, an issue for PCN seection within mutinationas from the Ango-Saxon word (Britain, the US, Canada, Austraia and New Zeaand) where the chosen corporate anguage remains the same as that of the home country. However, it becomes an expatriate seection issue for mutinationas from non-engish speaking countries that adopt Engish as the corporate anguage, uness the posting is to a country with a shared anguage. For instance, a Spanish mutinationa, using Spanish as the corporate anguage, seecting a PCN to head its new subsidiary in Mexico, does not face the same anguage issue as a Spanish mutinationa, with Engish as its corporate anguage, seecting a PCN to its US faciity. For the atter, fuency in Engish woud be required.

151 134 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Lack of fuency in the corporate anguage, therefore, can be a seection barrier. Prospective candidates may be eiminated from the potentia poo due to a ack of at east competency in the common anguage. 127 Language abiity therefore may imit the MNE s abiity to seect the most appropriate candidate. EXPATRIATE SELECTION PROCESSES IN PRACTICE Once the seection criteria for internationa positions have been defined, processes need to be put in pace to measure these criteria. However, it is reativey common in many MNEs that internationa seection processes can be rather informa. As we indicated at the beginning of the section on seection criteria, most mutinationas admit that technica and/or manageria skis are the dominant, sometimes ony, criteria used. We have suggested that reiance on technica skis is mainy due to the fact that the reason for most internationa assignments is position fiing. Of the factors outined in Figure 5.3, technica skis are perhaps the easiest to measure. It coud be argued that Figure 5.3 represents a best practice or idea seection mode that many MNEs do not in fact use. Harris and Brewster 128 have argued that expatriate seection, in reaity, often tends to be an ad-hoc process that they describe as the coffee-machine system. They suggest that managers chatting around the coffee-machine (or water cooer) can start the seection process through a casua conversation about a vacant expatriate position that needs to be fied. A coeague may vounteer the name of a potentia expatriate thus starting an informa shortist of candidates. What happens next, according to Harris and Brewster, is that the MNE s forma seection processes are then activated to egitimize the decision that has, in effect, aready been taken around the coffee-machine. Harris and Brewster reate that this process is the most common form of seection process they encountered in their study of UK firms. They then derived a typoogy of seection systems to expain variations found in the way expatriate seection is conducted. It is, of course, possibe to find exampes of forma, open seection processes in firms as we as informa or cosed systems. Harris and Brewster note that the process can be infuenced by the maturity of the MNE, its stage in the internationaization process, and its size or industry. The type of position invoved, the roe of the HR function in the process, and whether the mutinationa is reactive rather than proactive where internationa assignment seection is invoved remain key factors in how seection processes work in MNEs. Forma seection procedures In their comparative study, Tungi and Peiper 129 found that in Germany, the United Kingdom and the US, structured interviews dominate the seection of expatriates in MNEs. Furthermore, recommendations and sef-seection payed important roes. On the contrary, in Japanese MNEs recommendations and sef-seection were the most important techniques foowed by tests of intercutura skis. In comparison, psychoogica and cognitive tests are used much ess, especiay in Germany and the US. The effectiveness of such tests as predictors of cutura adjustment is open to question. For exampe, Torbiörn 130 comments that though desirabe personaity traits are specified and recommended, the tests or criteria to assess these traits are sedom convincingy vaidated. Likewise, Wiis 131 states that if tests are used they shoud be seected with care and regard for reiabiity and vaidity because, whie some tests may be usefu in suggesting potentia probems, there appears to be itte correation between test scores and actua performance. He further adds that most of the reevant tests have been deveoped in the US and, therefore, may be cuture-bound. The use of

152 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 135 such tests outside the US without carefu modification adds another question mark to their reiabiity and vaidity as predictors of expatriate success. For a ong time assessment centers and interviews have been recommended to seect personne for internationa positions. In these cases a seection board, (i.e. a group of internationay experienced managers and IHRM speciaists) coud be used to interview the candidates and assess their suitabiity for internationa assignments. Thus, questions shoud address the specifics of the work environment of internationa managers. Prior internationa experience, the abiity to adjust to a foreign environment, soft skis in an intercutura context such as intercutura communication abiities and the personaity of the candidate coud be the focus of these interviews. 132 Besides seection practices focusing on the candidate, interviews can aso be conducted with the spouse of the possibe future expatriate. The comparative study by Tungi and Peiper 133 reveaed no significant differences concerning this practice in Germany, the United Kingdom, the US and Japan. For exampe, 13.6 per cent of investigated MNEs conducting interviews with the spouse. The reason for introducing this practice can be found in our discussion of premature return of expatriates the inabiity of the spouse to adjust pays an important roe in premature return and a number of firms are trying to minimize this risk, which may ead to an expatriate faiure. Approaches that are designed for internationa seection processes often focus on intercutura competence. For exampe, the Intercutura Deveopment Inventory suggested by Hammer, Bennett und Wiseman 134 tests sensitivity for intercutura differences based on a 50 item questionnaire. The aim is to differentiate candidates on a dimension between ethnocentrism and ethnoreativism. Whie ethnocentrism is associated with denia of foreign cutures, ethnoreativism is characterized by adjustment to foreign cutures and integration. Another option to measure intercutura competence woud be an intercutura assessment center. This requires a cear definition of intercutura competence and every singe exercise of the assessment center woud have to be designed in order to measure its dimensions. Tabe 5.4 provides an exampe of such a design used by German MNEs. Normay, a group of IHRM managers and managers with internationa experience observes the candidates and evauates the resuts. For the vaidity of the seection toos it is important that there is a cear and shared understanding of the indicators to evauate whether the resuts of an exercise are positive or negative. This must be provided by the MNE or the consutants responsibe for conducting the intercutura assessment center. 135 The roe pay exercise outined in IHRM in Action Case 5.2 iustrates one of these exercises and Tabe 5.5 shows evauation criteria for a roe pay exercise. TABLE 5.4 Tasks and exercises used in an assessment center Exercises Features Toerance for ambiguity Goa orientation Interpersona skis Empathy Fexibiity Non-judgementaism Metacommunication Presentation Roe pay Questionnaire Group discussion Case Study Source: Based on T. M. Kühmann and G. Stah, Diagnose interkutureer Kompetenz: Entwickung und Evauierung eines Assessment Centers, in C. I. Barmeyer and J. Boten (eds.), Interkuturee Personaorganisation, (Berin: Verag Wissenschaft und Praxis, 1998), p Reproduced with permission.

153 136 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION TABLE 5.5 Evauation scheme for a roe pay in an intercutura assessment center Dimensions Exampes for high intercutura competence Exampes for ow intercutura competence Toerance for ambiguity Is patient Shows a sense of humour Interpersona skis Takes advantage of the time for a short conversation Speaks about himsef/private issues Empathy Puts onesef in the pace of the business partner Avoids offending behavior Non-judgementaism Assumes unintended ateness Does not compare to home country behavior Fexibiity Changes the subject Suggest a new meeting Learning orientation Tries to carfiy uncear issues Takes the arguments of the Mexican Is impatient Is very serious Says immediatey Good Bye Speaks immediatey about business Is ony aware of his/her situation Is offending Assumes intended ateness Points to the virtue of punctuaity in their home country Repeats continuousy Speaks about wasted opportunities Does not ask to carify uncear issues Does not take the point of the Mexican Source: T. Kühmann and G. Stah, Fachkompetenz aein genügt nicht Interkuturee Assessment Center unterstützen die geziete Personaauswah, Personaführung Pus (1996), p. 24. Reproduced with permission. IHRM in Action Case 5.2 Roe paying: Intercutura competence You have been assigned to Mexico for a two year internationa assignment. Your task is to support the deveopment of a new subsidiary. During the first weeks of your stay in Mexico you experience again and again that your Mexican empoyees as we as your suppiers and customers are never on time. Now you are sitting in a restaurant and you are waiting for the Saes Director of one of your Mexican suppiers. Your meeting was at but it is aready and the person you were waiting for did not show up. As you have another appointment at you ask for the bi, sti hungry! Exacty at this moment the Saes Director shows up haf an hour ate. How do you react? What reaction do you expect from your Mexican partner? Which reactions woud be intercuturay competent and which woud not be? Source: Based on T. M. Kühmann and G. K. Stah, Fachkompetenz aein genügt nicht Interkuturee Assessment Center unterstützen die geziete Personaauswah, Personaführung Pus (1996), p. 24. Reproduced with permission.

154 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 137 DUAL CAREER COUPLES So far, we have focused on defining profies and seecting suitabe candidates for internationa assignments. We wi now consider an emerging constraint the dua career coupe on the avaiabe poo of candidates, thus hindering the recruitment and seection process. The rise in dua career coupes, aong with the aging popuation and other famiy-reated situations, combine to make more peope immobie. Empoyees are prepared to state the grounds for refusa as famiy concerns. That this justification has become more acceptabe refects a significant shift in thinking about the roe of non-work aspects impinging on work-reated matters. The importance of the dua career coupe chaenge becomes cear when we ook at some numbers. The Brookfied Goba Reocation Trend Survey 2010 states that 50 per cent of spouses were empoyed before an assignment (but not during). However, ony 9 per cent were empoyed both before and during the assignment (historica average 14 per cent). These figures may be party caused by the difficut economic environment since However, the report aso states: Language and cutura difficuties may inhibit empoyment and the chaenges of immigration may make potentia empoyers unwiing to consider an expatriate spouse candidate who woud need immigration support. 136 Considering these numbers it is not surprising that whie the most important reason for turning down assignments reported in the Brookfied study was famiy concerns (83 per cent), the partner s career (47 per cent) was the second most common response. MNEs are aware of the dua career chaenge and have reacted by providing a series of resources. Important support measures incude anguage training, educationa assistance, empoyer-sponsored work permits, and assistance with career panning. 137 Other soutions to the chaenge of dua career coupes incude the foowing: Inter-firm networking Here the mutinationa attempts to pace the accompanying spouse or partner in a suitabe job with another mutinationa sometimes in a reciproca arrangement. To iustrate: a US MNE may enter into an agreement with a German MNE aso operating in a city or a region, e.g. China, in order to find a position within their respective Chinese faciities for each other s accompanying partner (that is, you find my expatriate s spouse a job and work visa, and I wi do ikewise for you ). Aternativey, a oca suppier, distributor, or joint venture partner may agree to empoy the accompanying spouse/partner. Job-hunting assistance Here the MNE provides spouse/partner assistance with the empoyment search in the host country. This may be done through empoyment agency fees, career counseing, or simpy work permit assistance. Some may provide a fact-finding trip to the host ocation before the actua assignment. Intra-firm empoyment This is perhaps a ogica but often a somewhat difficut soution. It means sending the coupe to the same foreign faciity, perhaps the same department. Not a mutinationas (nor a coupes) are comfortabe with the idea of having a husband and wife team in the same work ocation and there can often be significant difficuties obtaining work visas for such arrangements. On-assignment career support Some time ago Motoroa 138 provided an exampe of how a mutinationa may assist spouses to maintain and even improve career skis through what Motoroa caed its Dua-Career Poicy. This consisted of a ump-sum payment for education expenses, professiona association fees, seminar attendance, anguage training to upgrade work-reated skis and empoyment agency fees. There were conditions attached, such as the spouse must have been empoyed before the assignment. Thus, if the spouse was unabe to find suitabe empoyment, the assignment time coud be spent on career deveopment activities.

155 138 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Other exampes of on-assignment assistance are providinghepinestabishingcontactsand paying for ost spouse income. The idea is to maintain skis so that the spouse may find work upon re-entry into the home country. These attempts demonstrate that creative thinking can assist MNEs to overcome this potentia barrier. It is not possibe to comment with authority on how effective the above assistance schemes are in terms of overcoming the dua career barrier. However, it is cear that mutinationas are attemptingtoaddresstheissueandcreatesoutions for this barrier to mobiity. According to the Brookfied Goba Reocation Trend Survey 2010: Spouses and partners fee strongy that their professiona ives are vaid concerns both during and after internationa assignments. After a, 50 per cent of spouses were empoyed before such assignments. Consequenty, they are demanding that companies assist them in maintaining their careers especiay when economic conditions make this difficut. 139 Besides supporting the expatriate s spouse before, during and after the internationa assignment MNEs can aso choose to offer non-standard assignments as described earier in this chapter commuter and virtua assignments seem to provide reevant options here. Are femae expatriates different? Our fina issue in terms of seection for internationa assignments is reated to gender. The typica expatriate sti tends to be mae. The Brookfied Goba Reocation Trend Survey found in 2010 that 17 per cent of a expatriates were femae (historica average in the Brookfied Reports: 16 per cent). However, there is a trend towards increasing numbers of femae expatriates. For exampe, in 1984 Ader 140 reported a survey of internationa HR practices in over 600 US and Canadian companies that found ony three per cent of the expatriates identified were femae. She found that femae expatriates tended to be empoyed by companies with over 1000 empoyees in the banking, eectronics, petroeum and pubishing industries. Researchers have continued to examine why so few expatriates are femae. Is it because they were unwiing to reocate? Is it attitudina? Does it refect a common preconception that men in some cutures, such as certain Asian countries, do not ike reporting to femae managers, particuary foreign women, and therefore women shoud not be posted overseas. This unspoken assumption may contribute to what has been referred to as the gass border that supports the gass ceiing. However, this is a view that has no strong empirica support. 141 A number of studies chaenge some of the attitudes regarding the suitabiity of femaes for internationa assignments. For exampe, Stroh, Varma and Vay-Durbin 142 found that US and Canadian women are interested in and ikey to accept internationa assignments, though there are response variations between those with chidren and those without. However, the women in this study tended to beieve that their firms were hesitant to ask them to accept an internationa assignment, though supervisors (whether mae or femae) did not necessariy share that beief. Further, performance of femae expatriates was found initiay to be affected by host country prejudice regarding the roe of women in certain countries considered as cuturay tough assignment ocations. However, the onger the women were on such assignments, the ess they perceived that prejudice was a barrier to effectiveness. Caigiuri and Tung, 143 in their study of femae and mae expatriates in a US-based mutinationa found that femaes can perform equay as we as their mae counterparts regardess of a country s attitude toward women in manageria positions. Taking a different approach in her study of Austrian femae expatriates, Fischmayr 144 used the concepts of externa and sef-estabished barriers to expore why women are underrepresented in internationa assignments. Through 21 interviews with HR managers and femae expatriates in Austrian mutinationas from various industries and positions, Fischmayr found that attitudes of HR directors

156 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 139 were a major barrier to the seection of femae expatriates, though sef-estabished barriers were aso very strong. Femaes in Austrian companies often had to specificay request an internationa assignment whereas their mae coeagues were required to take internationa assignments. Further, some women regarded their age as a factor in terms of others perceptions and expectations about their behavior. The oder the woman, the easier it was to obtain a position overseas. Fischmayr concudes that women are party to bame for their under-representation. Mayrhofer and Scuion 145 report on the experiences of mae and femae expatriates in the German cothing industry. They found that women were sent to a diverse range of countries, incuding Isamic countries. Overa, there were few differences in the experiences of both gender groups, though femae expatriates paced more vaue on integration of spouse/famiy issues prior to and during the assignment than did the maes in the sampe. Assignment engths in this industry tended to be shorter and invoved various forms of non-standard assignments and there were generay more femae managers than perhaps found in other industries. More women than men were assigned for onger assignment terms, and the authors concude that the higher proportion of women in the industry appeared to make gender a ess important issue. However, this did not appy to the top senior management positions where women were ess represented. Mayrhofer and Scuion concude that there are sti barriers to femae expatriates in terms of senior expatriate positions. AfurthercontributioncomesfromastudybyNapierandTayor 146 of femae expatriates from various countries working in Japan, China and Turkey. The women fe into three categories: traditiona expatriates, traiers who were spouses/partners of mae expatriates, and independents professiona women who coud becaedsef-seectedexpatriates.napier and Tayor found that gaining credibiity with oca cients was a major issue. Accommodating to cutura differences, maintaining a socia ife and a need for appropriate interpersona skis were important factors in coping with work demands. Networks became important for both business and socia contexts. Being a minority (a foreign femae) meant higher visibiity than they were used to and coud be positive in terms of getting access to key cients and customers. What emerges as common across the various studies on femae expatriates is that assignment ocation, eve of organization support, spouse/partner satisfaction and inter-cutura experiences are important in terms of performance. The ist of moderators is simiar to those we discussed in genera terms earier in this chapter. What does appear to differentiate femae and mae expatriates is the degree to which these moderators affect individua performance and the vaue paced on cutura awareness training prior to the internationa assignment. The dua career issue may prove to be a greater barrier for femae mobiity as maes are more reuctant to accompany their spouse/partner. Insch, McIntyre und Napier 147 have deveoped strategies for breaking the gass ceiing before, during and after an internationa assignment. They consider the perspectives of both the femae expatriate and the MNE. Tabe 5.6 depicts these strategies. Overa, the performance of femae expatriates is infuenced by the prejudicesagainstfemaemanagersintherespective countries. However, this infuence is perceivedasessstrongtheongerthefemae managers stay abroad. 148 Caigiuri and Cascio 149 argue that foreign women are often evauated according to other criteria than oca women. In countries in which femaes tend to be rather discriminated against in working ife, foreign women are seen as neutra. Caigiuri and Cascio state that it coud be a success factor if femae expatriates do not emphasize too much their femae roe and take on typica femae roe behavior in the foreign country. Instead they shoud deiberatey differentiate themseves from the behavior described as typica for oca women. This shoud ead to the perception of being seen as an expert rather than being seen as a woman and shoud enabe a successfu and equa business reationship.

157 140 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION TABLE 5.6 Strategies for breaking the expatriate gass ceiing Strategies For femae expatriates For MNEs Pre-assignment strategies On-assignment strategies Post-assignment strategies Sef awareness Understanding their own strengths, and recognize the vaues and emotions that one identifies with based on upbringing and cuture Using those strengths and skis to the fuest advantage Panning one s ife as we as one s career Deveopment of the reationships and socia networks Finding and using mentors as we as corresponding with femae expatriates for advice and guidance Finding and using mentors as a key to success Deveop the wiingness and ski to absorb knowedge from the oca settings Simpy acknowedging that the ikeihood of extensive use of knowedge is unikey Femae expatriates may think and act more entrepreneuriay, taking even greater responsibiity for managing their careers Begin with a thorough review of their seection criteria for overseas assignments Eiminate, through poicy and training, any overt or subte gender biases in the seection process Train seection decision-makers to avoid the subte gender biases in the seection process Traiing spouse and dua-career issues shoud be discussed and provided for regardess of the manager s gender Make a more concerted effort to insert women into the reevant informa and forma organizationa networks Consider assigning femae expatriates to countries where they are ikey to have a greater opportunity to adjust quicky, deveop, and grow, particuary earier in their careers Consider and deveop possibiities for short-term assignments Continued training and mentoring Psychoogica contract must be fufied when an expatriate returns e.g. pay particuary attention to the continued mentoring and training, opportunities for the expatriates to use their new expertise Source: G. Insch, N. McIntyre and N. Napier, The Expatriate Gass Ceiing: The Second Layer of Gass, Journa of Business Ethics, Vo. 83, No. 1 (2008), pp Reproduced with permission via Rightsink. SUMMARY This chapter has expanded on the roe of staffing, recruitment and seection in internationa operations for sustaining internationa business operations. The foowing issues were discussed: We have outined the various approaches to staffing internationa operations ethnocentric, poycentric, geocentric, and regiocentric and discussed their advantages and disadvantages. In addition, we presented a mode deineating factors that may determine the choice of these options: Context specificities, MNE characteristics, features of the oca unit as we as IHRM practices. Primary reasons for using internationa assignments incude position fiing, management deveopment and organization deveopment. There are indicators that the importance of management deveopment is increasing.

158 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 141 Various types of internationa assignments can be distinguished: short, extended and ong-term (traditiona); and non-standard forms such as commuter, rotationa, contractua, virtua and sefinitiated assignments. A are presented incuding impications for the MNE as we as for the individua. Roes of expatriates are compex. They can act as an agent for direct contro, as an agent for sociaization, as a network buider, as a boundary spanner and as a anguage node. These various roes of the expatriate hep to expain why expatriates are utiized and iustrate why internationa assignments continue to be an important aspect of internationa business from the organization s perspective. We paced emphasis on the fact that non-expatriates are aso critica to internationa business operations. Internationa business traveers present their own chaenges, such as the effect of frequent absences on famiy and home ife, the possibe negative heath effects, and other stress factors. The management of such individuas though does not appear to fa within the domain of the HR department. Another important deveopment in IHRM is the roe of inpatriates. This is a group of empoyees who ony differ by definition from expatriates because it incudes ony those empoyees who are sent to the headquarters by foreign ocations and not those who are assigned by the headquarters. This chapter has addressed key issues affecting recruitment and seection for internationa assignments. We have covered: The debate surrounding expatriate faiure and success. We presented important factors in the seection of expatriates. They incude technica abiity, crosscutura suitabiity (soft skis in an internationa context, intercutura competence and cross-cutura adjustment), famiy requirements, country/cutura requirements, anguage and MNE requirements. Informa seection processes can often infuence expatriate seection. More formay, interview, assessments centers, recommendation and sef-seection have been discussed. Dua career coupes were discussed as a barrier to staff mobiity, and we discussed a number of techniques that MNEs are utiizing to overcome this constraint. The specific case of femae expatriates was discussed and whether they face different issues than their mae counterparts. It is aso cear that, whie our appreciation of the issues surrounding expatriate recruitment and seection has deepened in the past 30 years, much remains to be expored. The fied is dominated by US research on predominanty US sampes of expatriates, though there has been an upsurge in interest from European academics and practitioners. Wi the factors affecting the seection decision be simiar for mutinationas emerging from countries such as China and India? If more MNEs are to encourage subsidiary staff to consider internationa assignments as part of an intra-organizationa network approach to management, we wi need further understanding of how vaid the issues and findings discussed in this chapter are for a categories of staff from different country ocations. It is apparent, though, that staff seection remains critica. Finding the right peope to fi positions, particuary key managers whether PCN, TCN or HCN can significanty infuence internationa expansion. However, effective recruitment and seection is ony the first step.

159 142 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION DISCUSSION QUESTIONS 1 Outine the main characteristics of the four approaches to internationa staffing. 2 Which factors determine the choice of a staffing approach? Woud a MNE choose the same staffing approach wordwide? Pace your arguments in the context of the mode outining determinants of staffing choices. 3 What are the reasons for using internationa assignments? 4 What is the roe of inpatriates? Do inpatriates guarantee a geocentric staffing poicy? 5 As a newy-appointed Project Manager of a research team, you beieve that you wi be abe to manage the project virtuay from your office in London, even though the other six members are ocated in Munich. This wi sove your persona diemma as your famiy does not want to be reocated. The project has a sixmonth deadine. What factors shoud you consider in order to make this virtua assignment effective? 6 Shoud mutinationas be concerned about expatriate faiure? If so, why? 7 What are the most important factors invoved in the seection decision? FURTHER READING Beecher, S. and Woodward, I. C. The Goba War for Taent, Journa of Internationa Management, Vo. 15, No. 3 (2009), pp Caigiuri, P., Tarique, I. and Jacobs, R. Seection for Internationa Assignments, Human Resource Management Review, Vo. 19, No. 3 (2009), pp Coings, D., Scuion, H. and Dowing, P Goba staffing: A review and thematic research agenda, Internationa Journa of Human Resource Management, Vo. 20, No. 6 (2009), pp Howe-Wash, L. and Schyns, B. Sef-Initiated Expatriation: Impications for HRM, Internationa Journa of Human Resource Management, Vo. 21, No. 2 (2010), pp Rees, C. and Edwards, T. Management Strategy and HR in Internationa Mergers: Choice, Constraint and Pragmatism, Human Resource Management Journa, Vo. 19, No. 1 (2009), pp Scuion, H. and Coings, D. Goba Taent Management (London: Routedge, 2010). NOTES AND REFERENCES 1. H. V. Permutter, The Tortuous Evoution of the Mutinationa Corporation, Coumbia Journa of Word Business, Vo. 4, No. 1 (1969), pp D. A. Heenan and H. V. Permutter, Mutinationa Organizationa Deveopment. A Socia Architectua Perspective (Reading, MA: Addison Wesey, 1979). 3. J. Bonache, C. Brewster and V. Suutari, Expatriation: A Deveoping Research Agenda, Thunderbird Internationa Business Review, Vo. 43, No. 1 (2001), pp Y. Zeira, Management Deveopment in Ethnocentric Mutinationa Corporations, Caifornia Management Review, Vo. 18, No. 4 (1976), pp PricewaterhouseCoopers (eds) Managing Mobiity Matters 2006 (London: PricewaterhouseCoopers, 2006). 6. D. A. Heenan and H. V. Permutter, Mutinationa Organizationa Deveopment. A Socia Architectua Perspective (Reading, MA: Addison Wesey, 1979).

160 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION A. J. Morrison, D. A. Ricks and K. Roth, Gobaization Versus Regionaization: Which Way For the Mutinationa?, Organizationa Dynamics, Vo. 19, No. 3 (1991), pp I. Torbiörn, Staffing Poicies and Practices in European MNCs: Strategic Sophistication, Cuture-Bound Poicies or Ad-hoc Reactivity, in H. Scuion and M. Linehan (eds) Internationa Human Resource Management. A Critica Text, (Houndsmis, Basingtoke, Hampshire: Pagrave Macmian, 2005), pp For a recent discussion based on comparative HRM data see M. Brookes, R. Croucher, M. Fenton-O Creevy and P. Gooderham, Measuring Competing Expanations of Human Resource Management Practices through the Cranet Survey: Cutura versus Institutiona Expanations, Human Resource Management Review, Vo. 21, No. 1 (2011), pp I. Tarique, R. Schuer and Y. Gong, A Mode of Mutinationa Enterprise Subsidiary Staffing Composition, Internationa Journa of Human Resource Management, Vo. 17, No. 2 (2006), pp See the resuts of a study among Japanese subsidiaries by Y. Gong, Subsidiary Staffing in Mutinationa Enterprises: Agency, Resources, and Performance, Academy of Management Journa, Vo. 46, No. 6 (2003), pp A simiar anaysis has been carried out by K. Thompson and M. Keating, An Empirica Study of Executive Nationaity Staffing Practices in Foreign-Owned MNC Subsidiaries in Ireand, Thunderbird Internationa Business Review, Vo. 46, No. 6 (2004), pp For an institutiona perspective see the nationa business systems approach by R. Whitey, European Business Systems: Firms and Markets in their Nationa Contexts (London: Sage, 1992). 13. For a discussion of European staffing approaches see I. Torbiörn, Staffing Poicies and Practices in European MNCs: Strategic Sophistication, Cuture-Bound Poicies or Ad-hoc Reactivity, in H. Scuion and M. Linehan (eds) Internationa Human Resource Management. A Critica Text (Houndsmis, Basingtoke, Hampshire: Pagrave Macmian, 2005), pp For a simiar discussion see C. M. Vance and Y. Paik, Managing a Goba Workforce. Chaenges and Opportunities in Internationa Human Resource Management (Armonk, N. Y., London: M. E. Sharpe, 2006). 15. For a discussion of these factors on subsidiary HRM see Y. Kim and S. J. Gray, Strategic Factors Infuencing Internationa Human Resource Management Practices: An Empirica Study of Austraian Mutinationa Corporations, Internationa Journa of Human Resource Management, Vo. 16, No. 5 (2005), pp For the issue of subsidiary consideration see M. M. Novicevic and M. Harvey, Staffing Architecture for Expatriate Assignments to Support Subsidiary Cooperation, Thunderbird Internationa Business Review, Vo. 46, No. 6 (2004), pp For a discussion of the impact of different subsidiary strategies see J. Bonache and Z. Fernandez, Strategic Staffing in Mutinationa Companies: A Resource Based Approach, in C. Brewster and J. E. Harris (eds) Internationa Human Resource Management: Contemporary Issues in Europe (London, New York: Routedge, 2004), pp For a resource dependence perspective on the emergence of internationa HRM strategies see M. Festing, J. Eidems and S. Royer, Strategic Issues and Loca Constraints in Transnationa Compensation Strategies: An Anaysis of Cutura, Institutiona and Poitica Infuences, European Management Journa, Vo. 25, No. 2 (2007), pp D. E. Wech, HRM Impications of Gobaization, Journa of Genera Management, Vo. 19, No. 4 (1994), pp This figure is informed by the work of D. E. Wech, Determinants of Internationa Human Resource Management Approaches and Activities: A Suggested Framework, Journa of Management Studies, Vo. 31, No. 2 (1994), pp ; and H. De Cieri and P. J. Dowing, Strategic Internationa Human Resource Management in Mutinationa Enterprises, in G. K. Stah and I. Björkman (eds) Handbook of Internationa Human Resource Management Research (Chetenham, Northhampton, MA: Edward Egar, 2006), pp ; M. Festing, J. Eidems and S. Royer, Strategic Issues and Loca Constraints in Transnationa Compensation Strategies: An Anaysis of Cutura, Institutiona and Poitica Infuences, European Management Journa, Vo. 25, No. 2 (2007), pp ; K. Thompson and M. Keating, An Empirica Study of Executive Nationaity Staffing Practices in Foreign-Owned MNC Subsidiaries in Ireand, Thunderbird Internationa Business Review, Vo. 46, No. 6 (2004), pp In their mode they predict that headquarters, subsidiary, structura and HR Systems factors predict these fows. The empirica findings party support these assumptions. For detais see D. G. Coings, A. McDonne, P. Gunnige and J. Lavee, Swimming against the Tide: Outward Staffing Fows from Mutinationa Subsidiaries, Human Resource Management, Vo. 49, No. 4 (2010), pp J. Shen, Factors Affecting Internationa Staffing in Chinese Mutinationas (MNEs), Internationa Journa of Human Resource Management, Vo. 17, No. 2 (2006), pp PricewaterhouseCoopers (eds) Internationa Assignments. Goba Poicy and Practice. Key Trends 2005 (London: PricewaterhouseCoopers, 2005). 22. The former GMAC-reports became Brookfied reports in Brookfied Goba Reocation Services (eds) Goba Reocation Trends: 2009 Survey Report (2009). 24. The impact of the financia crisis on internationa assignments has been subject to many pubications. This trend is, for exampe, aso confirmed by The Economist

161 144 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Inteigence Unit (eds) Up or Out: Next Moves for the Modern Expatriate (London, New York, Hong Kong, Geneva: The Economist, 2010). 25. Brookfied Goba Reocation Services (eds) Goba Reocation Trends Survey 2010 (2010). 26. Brookfied Goba Reocation Services (eds) Goba Reocation Trends Survey 2010 (2010). For a confirmation see aso The Economist Inteigence Unit (eds) Up or Out: Next Moves for the Modern Expatriate (London, New York, Hong Kong, Geneva: The Economist, 2010). 27. See PricewaterhouseCoopers (eds) Managing Mobiity Matters 2006 (London: PricewaterhouseCoopers, 2006). 28. Brookfied Goba Reocation Services (eds) Goba Reocation Trends Survey 2010 (2010). 29. For exampe, Benson and Patties (2008) found that in the case of US-American managers internationa experience was associated with greater firm interna and externa career opportunities. Jokinen (2010) argues that expatriates buid internationa career capita, i.e. knowing-how, knowing-why and knowing-whom as a basis for internationa career deveopment. See G. S. Benson and M. Pattie, Is Expatriation Good for my Career? The Impact of Expatriate Assignments on Perceived and Actua Career Outcomes, Internationa Journa of Human Resource Management, Vo. 19, No. 9 (2008), pp ; T. Jokinen, Deveopment of Career Capita through Internationa Assignments and its Transferabiity to New Contexts, Thunderbird Internationa Business Review, Vo. 52, No. 4 (2010), pp Brookfied Goba Reocation Services (eds) Goba Reocation Trends Survey 2010 (2010). 31. Based on a iterature review on German IHRM studies Harzing concudes that a key reasons for internationa assignments can ead to organization deveopment defined as the increase of the company s potentia to succeed and to compete in the internationa market (Harzing 2001: 368). See A.-W. Harzing, Of Bears, Bumbe-Bees, and Spiders: The Roe of Expatriates in Controing Foreign Subsidiaries, Journa of Word Business, Vo. 36, No. 4 (2001), pp With respect to IHRM, Morris et a. distinguish between integrative and creative capabiities to meet the chaenges of the goba market. See S. S. Morris, S. A. Sne, P. M. Wright, G. K. Stah and I. Björkman, A Resource-Based View of Internationa Human Resources: Toward a Framework of Integrative and Creative Capabiities, (eds) Handbook of Research in Internationa Human Resource Management (Northampton, MA: Edward Egar, 2006), pp Brookfied Goba Reocation Services (eds) Goba Reocation Trends Survey 2010 (2010). 33. See aso A.-W. Harzing, Of Bears, Bumbe-Bees, and Spiders: The Roe of Expatriates in Controing Foreign Subsidiaries, Journa of Word Business, Vo. 36, No. 4 (2001), p For recent empirica evidence on organizationa assignments (and individua) goas see M. Dickmann and N. Doherty, Exporing Organizationa and Individua Career Goas, Interactions, and Outcomes of Deveopmenta Internationa Assignments, Thunderbird Internationa Business Review, Vo. 52, No. 4 (2010), pp They summarize their arguments by introducing the dimensions of knowing-how, knowingwhom and knowing-why on the organizationa as we as on the individua side. 35. For further detais see P. Sparrow, C. Brewster and J. E. Harris, Gobaizing Human Resource Management (London, New York: Routedge, 2004). 36. For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp For further detais see Brookfied Goba Reocation Services (eds) Goba Reocation Trends: 2010 Survey Report (2010). 39. For further detais see D. E. Wech, V. Worm and M. Fenwick, Are Virtua Assignments Feasibe?, Management Internationa Review, Vo. 43 Specia Issue No. 1 (2003), pp For further discussions about non-standard assignments see aso J. Bonache, C. Brewster, V. Suutari and P. De Saá, Expatriation: Traditiona Criticisms and Internationa Careers: Introducing the Specia Issue, Thunderbird Internationa Business Review, Vo. 52, No. 4 (2010), pp ; D. G. Coings, H. Scuion and M. J. Morey, Changing Patterns of Goba Staffing in the Mutinationa Enterprise: Chaenges to the Conventiona Expatriate Assignment and Emerging Aternatives, Journa of Word Business, Vo. 42, No. 2 (2007), pp ; H. Harris, C. Brewster and C. Erten, Ausandseinsatz, aber wie? Kassisch oder aternative Formen: Neueste empirische Erkenntnisse aus Europa und den USA, in G. K. Stah, W. Mayrhofer and T. M. Kühmann (eds) Internationaes Personamanagement: Neue Aufgaben, Neue Lösungen (München, Mering: Hampp, 2005), pp For more detais see J. Bonache, C. Brewster, V. Suutari and P. De Saá, Expatriation: Traditiona Criticisms and Internationa Careers: Introducing the Specia Issue, Thunderbird Internationa Business Review, Vo. 52, No. 4 (2010), pp Brookfied Goba Reocation Services (eds) Goba Reocation Trends Survey 2010 (2010). 43. Ibid, p A. Mendez, The Coordination of Gobaized R&D Activities through Project Teams Organization: An Exporatory

162 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION 145 Empirica Study, Journa of Word Business, Vo. 38, No. 2 (2003), pp D. E. Wech, V. Worm and M. Fenwick, Are Virtua Assignments Feasibe?, Management Internationa Review, Vo. 43 Specia Issue No. 1 (2003), pp , p For further detais see D. Hotbruegge and K. Schio, Intercutura Training Requirements for Virtua Assignments: Resuts of an Exporative Empirica Study, Human Resource Deveopment Internationa, Vo. 11, No. 3 (2008), pp For a summary of the historica deveopment of this type of assignment J. Bonache, C. Brewster, V. Suutari and P. De Saá, Expatriation: Traditiona Criticisms and Internationa Careers: Introducing the Specia Issue, Thunderbird Internationa Business Review, Vo. 52, No. 4 (2010), pp For a study on the impact factors on sef-assigned expatriate repatriation see P. Tharenou and N. Caufied, Wi I Stay or Wi I Go? Expaining Repatriation by Sefinitiated Expatriates, Academy of Management Journa, Vo. 53, No. 5), pp For detais of the study see J.-L. Cerdin and M. L. Pargneux, Career Anchors: A Comparison between Organization assigned and Sef initiated Expatriates, Thunderbird Internationa Business Review, Vo. 52, No. 4 (2010), pp For an empirica study see J. Semer and J. Lauring, Sef- Initiated Academic Expatriates: Inherent Demographics and Reasons to Expatriate, European Management Review, Vo. 7, No. 3 (2010), pp A.-W. Harzing, Of Bears, Bumbe-Bees, and Spiders: The Roe of Expatriates in Controing Foreign Subsidiaries, Journa of Word Business, Vo. 36, No. 4 (2001), pp M. S. Fenwick, H. L. De Cieri and D. E. Wech, Cutura and Bureaucratic Contro in MNEs: The Roe of Expatriate Performance Management, Management Internationa Review, Vo. 39 (1999), pp S. S. Morris, S. A. Sne, P. M. Wright, G. K. Stah and I. Bjoerkman, A Resource-Based View of Internationa Human Resources: Toward a Framework of Integrative and Creative Capabiities, (eds) Handbook of Research in Internationa Human Resource Management (Northampton, MA: Edward Egar, 2006), pp D. M. Schweiger, T. Atamer and R. Caori, Transnationa Project Teams and Networks: Making the Mutinationa Organization More Effective, Journa of Word Business, Vo. 38, No. 2 (2003), pp J. Birkinshaw and N. Hood, Uneash Innovation in Foreign Subsidiaries, Harvard Business Review, Vo. 79, No. 3 (2001), pp R. Marschan-Piekkari, D. Wech and L. Wech, Adopting a Common Corporate Language: IHRM Impications, Internationa Journa of Human Resource Management, Vo. 10, No. 3 (1999), pp K. Maekeae, Knowedge Sharing Through Expatriate Reationships, Internationa Studies of Management & Organization, Vo. 37, No. 3 (2007), pp K. Gooda and J. Roberts, Ony Connect: Teamwork in the Mutinationa, Journa of Word Business, Vo. 38, No. 2 (2003), pp For an anaysis of these reationships see J. Bonache and C. Zárraga-Oberty, Determinants of the Success of Internationa Assignees as Knowedge Transferors: A Theoretica Framework, Internationa Journa of Human Resource Management, Vo. 19, No. 1 (2008), pp M. C. Boino and D. C. Fedman, Increasing the Ski Utiization of Expatriates, Human Resource Management, Vo. 39, No. 4 (2000), pp D. E. Wech, L. S. Wech and V. Worm, The Internationa Business Traveer: A Negected but Strategic Human Resource, Internationa Journa of Human Resource Management, Vo. 18, No. 2 (2007), pp H. Mayerhofer, L. C. Hartmann, G. Micheitsch-Ried and I. Koinger, Fexpatriate Assignments: A Negected Issue in Goba Staffing, Internationa Journa of Human Resource Management, Vo. 15, No. 8 (2004), pp R. S. DeFrank, R. Konopaske and J. M. Ivancevich, Executive Trave Stress: Peris of the Road Warrior, Academy of Management Executive, Vo. 14, No. 2 (2000), pp For more detais and empirica evidence see B. Deme and W. Mayrhofer, Frequent Business Traveers across Europe: Career Aspirations and Impications, Thunderbird Internationa Business Review, Vo. 52, No. 4 (2010), pp ; and B. Deme, Karrieren von Expatriates und Fexpatriates (München, Mering: Hampp, 2010). 65. S. B. Reiche, The Inpatriate Experience in Mutinationa Corporations: An Exporatory Case Study in Germany, Internationa Journa of Human Resource Management, Vo. 17, No. 9 (2006), pp , p D. Coings and H. Scuion, Goba Staffing, in G. K. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham, Northampton, MA: Edward Egar, 2006), pp Simiar ideas can be found in M. Harvey, C. Speier and M. M. Novicevic, The Roe of Inpatriation in Goba Staffing, Internationa Journa of Human Resource Management, Vo. 10, No. 3 (1999), pp M. G. Harvey and M. R. Buckey, Managing Inpatriates: Buiding a Goba Core Competency, Journa of Word Business, Vo. 32, No. 1 (1997), pp For more detais see S. B. Reiche, Kraimer M. L. and A.-W. Harzing, Why do Internationa Assignees Stay? An Organizationa Embeddedness Perspective, Journa of Internationa Business Studies, Vo. 42, No. 4 (2011), pp For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of

163 146 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp H. Scuion and D. Coings, Internationa Recruitment and Seection, in H. Scuion and D. Coings (eds) Goba Staffing (London, New York: Routedge, 2006), pp For further detais see Brookfied Goba Reocation Services (eds) Goba Reocation Trends: 2010 Survey Report (2010). 73. For further detais see A. Bayo-Moriones and P. Ortín- Ánge, Interna Promotion versus Externa Recruitment in Industria Pants in Spain, Industria & Labor Reations Review, Vo. 59, No. 3 (2006), pp For further detais see K. Maekeae, I. Björkman and M. Ehrnrooth, MNC Subsidiary Staffing Architecture: Buiding Human and Socia Capita within the Organisation, Internationa Journa of Human Resource Management, Vo. 20, No. 6 (2009), pp For further detais see Brookfied Goba Reocation Services (eds) Goba Reocation Trends: 2010 Survey Report (2010). 76. For further detais see A.-W. Harzing (eds) Composing Internationa Staff, (London et a.: Sage, 2004). 77. N. Forster, The Persistent Myth of High Expatriate Faiure Rates: A Reappraisa, Internationa Journa of Human Resource Management, Vo. 8, No. 4 (1997), p For further detais see Brookfied Goba Reocation Services (eds) Goba Reocation Trends: 2010 Survey Report (2010). 79. R. L. Tung, Seection and Training of Personne for Overseas Assignments, Coumbia Journa of Word Business, Vo. 16, No. 1 (1981), pp ; R. L. Tung, Seection and Training Procedures of U.S., European, and Japanese Mutinationas, Caifornia Management Review, Vo. 25, No. 1 (1982), pp ; and R. L. Tung, Human Resource Panning in Japanese Mutinationas: A Mode for U.S. Firms?, Journa of Internationa Business Studies, Vo. 15, No. 2 (1984), pp For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp A.-W. K. Harzing, The Persistent Myth of High Expatriate Faiure Rates, Internationa Journa of Human Resource Management, Vo. 6, No. 2 (1995), p A.-W. Harzing and C. Christensen, Expatriate Faiure: Time to Abandon the Concept?, Career Deveopment Internationa, Vo. 9, No. 7 (2004), pp M. E. Mendenha and G. Oddou, The Overseas Assignment: A Practica Look, Business Horizons, Vo. 31, No. 5 (1988), pp M. Mendenha and G. Oddou, The Dimensions of Expatriate Accuturation: A Review, Academy of Management Review, Vo. 10, No. 1 (1985), pp For further detais see R. L. Tung, Seection and Training Procedures of US, European, and Japanese Mutinationas, Caifornia Management Review, Vo. 25, No. 1 (1982), pp For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp H.-W. Lee, Factors that Infuence Expatriate Faiure: An Interview Study, Internationa Journa of Management, Vo. 24, No. 3 (2007), pp For simiar resuts see M. L. Kraimer, S. J. Wayne and R. A. Jaworski, Sources of Support and Expatriate Performance: The Mediating Roe of Expatriate Adjustment, Personne Psychoogy, Vo. 54, No. 1 (2001), pp Brookfied Goba Reocation Services (ed.) Goba Reocation Trends: 2010 Survey Report (2010), p I. Björkman and M. Gertsen, Seecting and Training Scandinavian Expatriates: Determinants of Corporate Practice, Scandinavian Journa of Management, Vo. 9, No. 2 (1993), pp ; A. L. Hixon, Why Corporations Make Haphazard Overseas Staffing Decisions, Personne Administrator, Vo. 31, No. 3 (1986), pp ; E. Marx, Internationa Human Resource Practices in Britain and Germany (London: Ango German Foundation for the Study of Industria Society, 1996); J. McEnery and G. DesHarnais, Cuture Shock, Training & Deveopment Journa, Vo. 44, No. 4 (1990), pp ; M. E. Mendenha, E. Dunbar and G. R. Oddou, Expatriate Seection, Training and Career Pathing: A Review and Critique, Human Resource Management, Vo. 26, No. 3 (1987), pp ; PricewaterhouseCoopers (eds) Internationa Assignments. European Poicy and Practice (PricewaterhouseCoopers, 1996). 92. For further detais see D. G. Coings, H. Scuion and M. J. Morey, Changing Patterns of Goba Staffing in the Mutinationa Enterprise: Chaenges to the Conventiona Expatriate Assignment and Emerging Aternatives, Journa of Word Business, Vo. 42, No. 2 (2007), pp For further detais see P. Caigiuri, I. Tarique and R. Jacobs, Seection for Internationa Assignments, Human Resource Management Review, Vo. 19, No. 3 (2009), pp For empirica evidence see, for exampe, the recent paper by S. Loyd and C. Haerte, Intercutura Competencies for Cuturay Diverse Work Team, Journa of Manageria Psychoogy, Vo. 25, No. 8 (2010), pp

164 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION M. C. Gertsen, Intercutura Competence and Expatriates, Internationa Journa of Human Resource Management, Vo. 1, No. 3 (1990), p P. M. Caigiuri, The Big Five Personaity Characteristics as Predictors of Expatriate s Desire to Terminate the Assignment and Supervisor-rated Performance, Personne Psychoogy, Vo. 53, No. 1 (2000), pp For further detais see W. B. Gudykunst, R. L. Wiseman and M. R. Hammer, Determinants of the Sojourner s Attitudina Satisfaction: A Path Mode, Communication Yearbook, Vo. 1 (1977), pp For further detais see R. L. Wiseman, M. R. Hammer and H. Nishida, Predictors of Intercutura Communication Competence, Internationa Journa of Intercutura Reations, Vo. 13, No. 3 (1989), pp These three facets are very common eements in a discussion on intercutura competence. See, for exampe, M. C. Gertsen, Intercutura Competence and Expatriates, Internationa Journa of Human Resource Management, Vo. 1, No. 3 (1990), pp ; S. Loyd and C. Haerte, Intercutura Competencies for Cuturay Diverse Work Team, Journa of Manageria Psychoogy, Vo. 25, No. 8 (2010), pp S. Ang, L. Van Dyne, C. Koh, K. Y. Ng, K. J. Temper, C. Tay and N. A. Chandrasekar, Cutura Inteigence: Its Measurement and Effects on Cutura Judgment and Decision-Making, Cutura Adaptation and Task Performance, Management & Organization Review, Vo. 3, No. 3 (2007), pp , p For further detais see K.-Y. Ng, L. Van Dyne and S. Ang, Beyond Internationa Experience: The Strategic Roe of Cutura Inteigence for Executive Seection in IHRM, in P. Sparrow (eds) Handbook of Internationa Human Resource Management: Integrating Peope, Process, and Context (Chippenham, Witshire: Wiey, 2009), pp For more detais see J. Bücker and E. Poutsma, Goba Management Competencies: A Theoretica Foundation, Journa of Manageria Psychoogy, Vo. 25, No. 8 (2010), pp T. Jokinen, Goba Leadership Competencies: A Review and Discussion, Journa of European Industria Training, Vo. 29, No. 3 (2005), pp For more detais see A. Bird, M. Mendenha, M. J. Stevens and G. Oddou, Defining the Content Domain of Intercutura Competence for Goba Leaders, Journa of Manageria Psychoogy, Vo. 25, No. 8 (2010), pp J. S. Osand and A. Bird, Goba Leaders as Experts, in W. H. Mobey and E. Wedon (eds) Advances in Goba Leadership (London: Esevier, 2006), Vo. 4, pp , p M. L. Kraimer, S. J. Wayne and R. A. Jaworski, Sources of Support and Expatriate Performance: The Mediating Roe of Expatriate Adjustment, Personne Psychoogy, Vo. 54, No. 1 (2001), pp For a review and assessment of the U-Curve, see J. S. Back and M. Mendenha, The U Curve Adjustment Hypothesis Revisited: A Review and Theoretica Framework, Journa of Internationa Business Studies, Vo. 22, No. 2 (1991), pp H. De Cieri, P. J. Dowing and K. F. Tayor, The Psychoogica Impact of Expatriate Reocation on Partners, Internationa Journa of Human Resource Management, Vo. 2, No. 3 (1991), pp ; M. Kauppinen, Antecedents of Expatriate Adjustment. A Study of Finnish Managers in the United States, (Hesinki Schoo of Economics, 1994) For a critica discussion of the adjustment concept see A. Furnham and S. Bochner, Cuture Shock Psychoogica Reactions to Unfamiiar Environments (London: Routedge 1986); C. Ward, Y. Okura, A. Kennedy and T. Kojima, The U-Curve on Tria: A Longitudina Study of Psychoogica and Sociocutura Adjustment during Cross-Cutura Transition, Internationa Journa of Intercutura Reations, Vo. 22, No. 3 (1998), pp J. S. Back and M. Mendenha, The U-Curve Adjustment Hypothesis Revisited: A Review and Theoretica Framework, Journa of Internationa Business Studies, Vo. 22, No. 2 (1991), pp For further detais see J. S. Back and M. Mendenha, The U-Curve Adjustment Hypothesis Revisited: A Review and Theoretica Framework, Journa of Internationa Business Studies, Vo. 22, No. 2 (1991), pp For further detais see D. C. Thomas and M. B. Lazarova, Expatriate Adjustment and Performance: A Critica Review, in G. K. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham et a.: Edward Egar, 2006), pp For further detais see M. Festing and M. Maetzky, Leadership Adjustment of Western Expatriates in Russia A Structurationaist Perspective, in 10th Internationa Human Resource Management Conference (Santa Fe, NM, 2009); A. Hasberger, The Compexities of Expatriates Adaption, Human Resource Management Review, Vo. 15 (2005), pp ; T. Hipper and P. Caigiuri, Revisiting the Construct of Expatriate Adjustment: Impications for Theory and Measurement, in 10th Internationa Human Resource Management Conference (Santa Fe, NM, USA, 2009) For further detais see P. Bhaskar-Shrinivas, D. A. Harrison, M. A. Schaffer and D. Luk, What Have We Learned About Expatriate Adjustment? Answers Accumuated from 23 Years of Research, in Academy of Management Annua Meeting (2004); A. Hasberger, The Compexities of Expatriates Adaption, Human Resource Management Review, Vo. 15 (2005), pp ; A. Hasberger, Expatriate Adjustment. A More Nuanced View, in M. Dickmann, C. Brewster and P. Sparrow (eds) Internationa HRM: A European Perspective (New York: Routedge, 2008), pp ; G. K. Stah,

165 148 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION Internationaer Einsatz von Führungskräften (München: Odenbourg, 1998) For further detais see W. Seare and C. Ward, The Prediction of Psychoogica and Sociocutura Adjustment during Cross-Cutura Transitions, Internationa Journa of Intercutura Reations, Vo. 14, No. 4 (1990), pp See, for exampe, the study by R. Takeuchi, J. P. Shay and J. Li, When Does Decision Autonomy Increase Expatriate Managers Adjustment? An Empirica Test, Academy of Management Journa, Vo. 51, No. 1 (2008), pp For further detais see G. K. Stah, Internationaer Einsatz von Führungskräften (München: Odenbourg, 1998) For further detais see J. S. Back and M. Mendenha, The U-Curve Adjustment Hypothesis Revisited: A Review and Theoretica Framework, Journa of Internationa Business Studies, Vo. 22, No. 2 (1991), pp See, for exampe, G. Chen, B. L. Kirkman, K. Kim, C. I. C. Farh and S. Tangiraa, When Does Cross-cutura Motivation Enhance Expatriate Effectiveness? A Mutieve Investigation of the Moderating Roes of Subsidiary Support and Cutura Distance, Academy of Management Journa, Vo. 53, No. 5 (2010), pp ; A. M. Osman-Gani and T. Rockstuh, Antecedents and Consequences of Socia Network Characteristics for Expatriate Adjustment and Performance in Overseas Assignments: Impications for HRD, Human Resource Deveopment Review, Vo. 7, No. 1 (2008), pp This has, for exampe, been subject of the study by K. Kim and J. W. Socum, Individua Differences and Expatriate Assignment Effectiveness: The Case of US-based Korean Expatriates, Journa of Word Business, Vo. 43, No. 1 (2008), pp See, for exampe, S.-Y. Lii and S.-Y. Wong, The Antecedents of Overseas Adjustment and Commitment of Expatriates, Internationa Journa of Human Resource Management, Vo. 19, No. 2 (2008), pp See aso The Economist Inteigence Unit (eds) Up or Out: Next Moves for the Modern Expatriate (London, New York, Hong Kong, Geneva: The Economist, 2010) M. A. Shaffer and D. A. Harrison, Forgotten Partners of Internationa Assignments: Deveopment and Test of a Mode of Spouse Adjustment, Journa of Appied Psychoogy, Vo. 86, No. 2 (2001), pp See for the home page of the Permits Foundation S. N. As-Saber, P. J. Dowing and P. W. Liesch, The Roe of Human Resource Management in Internationa Joint Ventures: A Study of Austraian-Indian Joint Ventures, Internationa Journa of Human Resource Management, Vo. 9, No. 5 (1998), pp For further detais see K. Gooda and J. Roberts, Ony Connect: Teamwork in the Mutinationa, Journa of Word Business, Vo. 38, No. 2 (2003), pp For further information on company-specific anguage issues see Y. Luo and O. Shenkar, The Mutinationa Corporation as a Mutiingua Community: Language and Organization in a Goba Context, Journa of Internationa Business Studies, Vo. 37, No. 3 (2006), pp ; R. Piekkari, Language Effects in Mutinationa Corporations: A Review from an Internationa Human Resource Management Perspective, in G. K. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp ; D. Wech, L. Wech and R. Piekkari, Speaking in Tongues, Internationa Studies of Management & Organization, Vo. 35, No. 1 (2005), pp R. Marschan-Piekkari, D. Wech and L. Wech, Adopting a Common Corporate Language: IHRM Impications, Internationa Journa of Human Resource Management, Vo. 10, No. 3 (1999), pp H. Harris and C. Brewster, The Coffee-Machine System: How Internationa Seection Reay Works, Internationa Journa of Human Resource Management, Vo. 10, No. 3 (1999), pp For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, U.K., and U.S. Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp I. Torbiörn, Living Abroad: Persona Adjustment and Personne Poicy in the Oversea Setting (New York: Wiey, 1982) H. L. Wiis, Seection for Empoyment in Deveoping Countries, Personne Administrator, Vo. 29, No. 7 (1984), p. 55; K. Y. Au and J. Fukuda, Boundary Spanning Behaviors of Expatriates, Journa of Word Business, Vo. 37, No. 4 (2002), pp For further detais see M. Mendenha and G. Oddou, The Dimensions of Expatriate Accuturation: A Review, Academy of Management Review, Vo. 10, No. 1 (1985), pp For further detais see Z. Tungi and M. Peiper, Expatriate Practices in German, Japanese, UK, and US Mutinationa Companies: A Comparative Survey of Changes, Human Resource Management, Vo. 48, No. 1 (2009), pp For further detais see M. R. Hammer, M. J. Bennett and R. Wiseman, Measuring Intercutura Sensitivity: The Intercutura Deveopment Inventory, Internationa Journa of Intercutura Reations, Vo. 27, No. 4 (2003), pp For further detais see J. Beneke, Vorschäge für ein interkuturees Assessment Center, in J. Beneke (eds) Kutur, Mentaität, nationae Identität, Sprachen und Sprachernen. Arbeitspapiere zur internationaen Unternehmenskommunikation (Hidesheim: Universität Hidesheim, 1992), Vo. 1, Schriftenreihe der Forschungsstee für interkuturee Kommunikation Brookfied Goba Reocation Services (ed.) Goba Reocation Trends: 2010 Survey Report (2010), p. 8.

166 CHAPTER 5 SOURCING HUMAN RESOURCES FOR GLOBAL MARKETS STAFFING, RECRUITMENT AND SELECTION See Brookfied Goba Reocation Services (eds) Goba Reocation Trends: 2010 Survey Report (2010) The Conference Board, Managing Expatriates Return, Report Number RR (New York, 1996) Brookfied Goba Reocation Services (ed.) Goba Reocation Trends: 2010 Survey Report (2010), p N. J. Ader, Women in Internationa Management: Where are They?, Caifornia Management Review, Vo. 26, No. 4 (1984), pp For further detais see P. M. Caigiuri and W. F. Cascio, Can We Send Her There? Maximizing the Success of Western Women on Goba Assignments, Journa of Word Business, Vo. 33, No. 4 (1998), pp L. K. Stroh, A. Varma and S. J. Vay-Durbin, Why Are Women Left at Home: Are They Unwiing to Go on Internationa Assignments?, Journa of Word Business, Vo. 35, No. 3 (2000), pp P. M. Caigiuri and R. L. Tung, Comparing the Success of Mae and Femae Expatriates from a US-based Mutinationa Company, Internationa Journa of Human Resource Management, Vo. 10, No. 5 (1999), pp I. C. Fischmayr, Femae Sef-Perception as Barrier to Internationa Careers?, Internationa Journa of Human Resource Management, Vo. 13, No. 5 (2002), pp W. Mayrhofer and H. Scuion, Femae Expatriates in Internationa Business: Empirica Evidence from the German Cothing Industry, Internationa Journa of Human Resource Management, Vo. 13, No. 5 (2002), pp N. K. Napier and S. Tayor, Experiences of Women Professionas Abroad: Comparisons across Japan, China and Turkey, Internationa Journa of Human Resource Management, Vo. 13, No. 5 (2002), pp For further detais see G. Insch, N. McIntyre and N. Napier, The Expatriate Gass Ceiing: The Second Layer of Gass, Journa of Business Ethics, Vo. 83, No. 1 (2008), pp For further detais see L. K. Stroh, A. Varma and S. J. Vay-Durbin, Why Are Women Left at Home: Are They Unwiing to Go on Internationa Assignments?, Journa of Word Business, Vo. 35, No. 3 (2000), pp For further detais see P. M. Caigiuri and W. F. Cascio, Can We Send Her There? Maximizing the Success of Western Women on Goba Assignments, Journa of Word Business, Vo. 33, No. 4 (1998), pp

167 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT Chapter Objectives The aim of this chapter is to draw together the reevant iterature on performance management in the internationa context as it reates to IHRM. The concentration is on the subsidiary context, refecting the historica bias towards subsidiary management in the internationa business and performance management iterature, athough the focus is broadening. The approach is to identify those aspects that require a substantia modification of traditiona performance management (especiay appraisa criteria, the roes of various actors in the processes and processes themseves) that are imposed by internationa operations. We specificay address the foowing aspects: Mutinationa performance management at the goba and oca eve: considering aspects such as non-comparabe data, the voatiity of the goba environment, the effect of distance and eve of subsidiary maturity. Performance management as part of a MNE s contro system. Factors associated with expatriate performance, incuding compensation package, task and roe, headquarters support, host environment factors and cutura adjustment. Performance management of expatriates and non-expatriates, and for those on non-standard tasks and assignments such as commuter and virtua work. Issues reated to the performance appraisa of internationa empoyees. 150

168 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 151 INTRODUCTION The compexities of managing performance in a MNE s various gobay distributed faciities have received a great dea of professiona and academic attention in the ast decade. As presented in Chapters 2 and 3, diversity in cutures, production and operations, geographica dispersa and varieties of modes of operations a combine to make performance measurement and the creation of performance management processes that are simutaneousy ocay reevant and gobay comparabe a major chaenge for HRM practitioners. 1 Monitoring performance and ensuring conformity to agreed-upon standards are significant eements in the manageria contro system of a mutinationa firm; and yet, as Cascio has stated, the terrain of goba performance management systems is argey uncharted. 2 In this chapter, we differentiate between performance management and performance appraisa. Performance management is a process that enabes the MNE to evauate and continuousy improve individua, subsidiary unit and corporate performance, against ceary defined, pre-set goas and targets. Figure 6.1 iustrates the major issues, actors and decision processes reated to performance management in the internationa context. This mode wi aow us to investigate the compex interaction between oca and goba contexts for performance and the tasks of the actors, performance criteria, purposes for, and timing of performance management as these eements reate to individua and firm outcomes. It provides a convenient starting point for our exporation of the ink between the MNE s internationaization strategies, its goas for individua units in terms of contribution to goba profitabiity and the performance management of individua empoyees, whether PCN, TCN or HCN. The aspects of these reationships are critica as an individua s performance is appraised (or evauated) according to expectations of appropriate outcomes and behavior that contribute to organizationa goa attainment. FIGURE 6.1 Perspectives, issues, actions and consequences in MNE performance management Goba corporate strategies, roes, processes and practices Pattern of priorities, goba or oca emphasis Loca strategies, roes, processes and practices Remote appraisa sources/input Performance management processes for individua empoyee Loca appraisa sources/inputs Critica issues Criteria Impicit/expicit Person vs. activities vs. outcomes Purposes Deveopmenta Pay Tasks/roes Timing Individua outcomes Training Career impications Financia consequences Additiona subsequent assessment purposes Organizationa outcomes Contro Reputation Lega compiance Source: Adapted from A. Enge and P. Dowing, State of Origin: Research in Goba Performance Management: Progress or a Lost Horizon?, Conference Proceeding of the VIIIth Word Congress of the Internationa Federation of Schoary Associations of Management, Berin, September, 2006.

169 152 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT MULTINATIONAL PERFORMANCE MANAGEMENT Whie a given firm s genera strategic position may vary 3 (depending on, for instance, its size, industry and geographic dispersa), a mutinationa makes strategic choices based on economic and poitica imperatives. Within this context, as indicated in Figure 6.1, the MNE has specific expectations for each of its foreign subsidiaries, cooperative ventures and other forms of operation modes, in terms of market performance and contribution to tota profits and competitiveness. When evauating subsidiary performance against these expectations, however, it is important to recognize various constraints that may affect goa attainment. These incude the foowing five constraints outined beow. Whoe versus part First, it is important to appreciate that by its very nature, the MNE is a singe entity that faces a goba environment, which means that it simutaneousy confronts differing nationa environments. Integration and contro imperatives often pace the mutinationa in the position where it decides that the good of the whoe (i.e., the entire MNE) is more important than one subsidiary s short-term profitabiity. An exampe is provided by Pucik, 4 where a mutinationa estabishes an operation in a particuar market where its main goba competitor has a dominant position. The main objective of entering the market may be to chaenge the competitor s cash fow with aggressive pricing poicies. Pucik expains that: The baance sheet of this particuar subsidiary might be continuay in the red, but this strategy, by tying up the competitor s resources, may aow substantiay higher returns in another market. The difficuties in quantifying such a goba strategy in terms of the usua return-on-investment objectives are obvious. Another situation is where the MNE estabishes a joint venture in a particuar market in order to have a presence there, even though it has ow expectations in the short term, and may provide a reativey ow eve of resources to the venture. Therefore, the consequences of such goba decisions for subsidiary management must be taken into consideration when considering the issue of performance appraisa of the senior managers of this joint venture. Non-comparabe data A second key constraint it that frequenty the data obtained from subsidiaries may be neither easiy interpretabe nor reiabe. The foowing exampes iustrate this point: 5 Saes in Brazi may be skyrocketing, but there are reports that the Braziian government may impose tough new exchange contros within a year, thus making it difficut for the mutinationa to repatriate profits. Does this mean that the MNE is performing effectivey? Is the subsidiary performing effectivey? Are the senior managers of the subsidiary performing effectivey? Saes in Peru may be booming, but headquarters management was unaware that under Peruvian accounting rues, saes on consignment are counted as firm saes. How shoud the headquarters accounting system hande these saes reative to saes from other subsidiaries, which do not consider saes on consignment as firm saes? As Garand et a. 6 expain, physica measures of performance may be easier to interpret than in the above exampes, but difficuties may sti arise. For instance, notions of what constitutes adequate quaity contro checks can vary widey from one country to another, import tariffs can distort pricing schedues, or a dock strike in one country can unexpectedy deay suppy of

170 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 153 necessary components to a manufacturing pant in another country. Further, oca abor aws may require cose to fu empoyment at pants that are producing at beow capacity. These factors can make an objective appraisa of subsidiary performance probematic, which in turn compicates the task of appraising the performance of individua subsidiary managers. Voatiity in the goba business environment A third factor that can impact on the performance of a subsidiary is the occurrence of voatiity and turbuence in the goba business environment. This voatiity may require that ong-term goas be fexibe in order to respond to potentia market contingencies. According to Pucik, 7 an infexibe approach may mean that subsidiaries coud be pursuing strategies that no onger fit the new environment. Consider, for exampe, the impact on internationa business of major events in the past three decades or so, such as: the coapse of communist rue in the ate 1980s in Eastern Europe and the former Soviet Union; the adoption of the Euro (E) as the singe currency by most of the European Union countries; Chinese market reforms; the Severe Acute Respiratory Syndrome (SARS) and bird fu epidemics; the spread of internationa terrorism; the Guf Wars; rising oi prices; high-profie corporate coapses; the adoption of internationa accounting standards (IAS); the Indian Ocean tsunami disaster in 2004, government cutbacks and austerity measures associated with the goba financia crisis that began in 2008 and the Arab Spring poitica disturbances in Each of these events has had profound impications for the goba and oca strategies of mutinationas. Because subsidiaries operate under such voatiity and fuctuation, they must taior ong-term goas to the specific situation in a given market. Probems arise when subsidiary managers perceive that goas and deadines set by a distant headquarters strategy team are unreaistic and infexibe, due to a faiure to take into account oca conditions that change as a resut of a voatie environment. Obviousy, invoving regiona and subsidiary managers in strategic panning assists in managing this perception. Separation by time and distance A fourth factor that can impact on the performance of a subsidiary is the effect of separation by time and distance. Judgments concerning the congruence between the MNE and oca subsidiary activities are further compicated by the physica distances invoved, time-zone differences, the frequency of contact between the corporate head-office staff and subsidiary management and the cost of the reporting system. 8 Deveopments in sophisticated wordwide communications systems such as increasingy advanced video-conference faciities do not fuy substitute for face-to-face contacts between subsidiary managers and corporate staff. In some areas, the teecommunications system may be underdeveoped or impacted by an unreiabe power grid and it may be necessary to meet personay with a manager and their team to fuy understand the probems that these oca managers must dea with. For this reason, many MNE corporate managers spend a considerabe amount of time traveing in order to meet expatriate and oca managers in foreign ocations. It is then possibe for HR corporate staff, when designing performance management systems, to more accuratey account for the infuence of countryspecific factors. The growing use of web-based HRIS patforms are in part a response to the separations of time, distance and cuture experienced by mutinationa firms. These strategies may be driven by the compexity and inherent uncertainty of goba performance and a sense that successfuy competing in the goba marketpace wi require increased efficiency of operations. However, the potentia of these technica systems to contro and coordinate activities and processes within the MNE may be imited by unspoken or i-articuated roes, processes, practices, criteria and purposes. 9

171 154 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT Variabe eves of maturity across markets: the need for reevant comparative data A fina factor infuencing the performance of a subsidiary is the variabe eve of maturity across markets. According to Pucik, 10 without the supporting infrastructure of the parent, market deveopment in foreign subsidiaries is generay sower and more difficut to achieve than at home, where estabished brands can support new products and new business areas can be crosssubsidized by other divisions. As a resut, more time may be needed to achieve resuts than is customary in a domestic market, and this fact ought to be recognized in the performance management process. Further, variations in customs and work practices between the parent country and the foreign subsidiary need to be considered. For exampe: One does not fire a Mexican manager because worker productivity is haf the American average. In Mexico, that woud mean that this manager is working at a eve three or four times as high as the average Mexican industria pant. Here we need reevant comparative data, not absoute numbers; our harassed Mexican manager has to ive with Mexican constraints, not European or American ones, and these can be very different. The way we measure worker productivity is exacty the same, but the numbers come out differenty because of that environmenta difference. 11 In summary, there are a number of significant constraints that must be taken into account when considering foreign subsidiary performance. Because performance measurement is primariy based on strategic factors, it affects the appraisa and success of the subsidiary s chief executive and senior management team most directy. CONTROL AND PERFORMANCE MANAGEMENT Athough it is not often described as such, performance management is a part of a mutinationa s contro system because performance targets are a part of forma contro. Through forma contro mechanisms and communication through the feedback and appraisa aspects, performance management aso contributes to shaping corporate cuture, both formay and informay 12 thereby acting as an informa contro mechanism as we as part of the bureaucratic contro system. Empoyees are rewarded for adopting appropriate work behaviors and this in turn reinforces normative contro. Figure 6.2 iustrates the performance-behavior-outcomes FIGURE 6.2 MNE contro and performance MNE HQ Forma and informa contro activities Focusing on: Standardization of practices Sociaization and compiance to norms/vaues Goba mix of strategic outcomes and resuts Subsidiary

172 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 155 inkage. It is through forma and informa contro mechanisms that the MNE achieves the consistency, coordination and compiance of desired behavior and outcomes to impement its goba strategy. These behaviors and outcomes are expected at a eves and areas at headquarters as we as in subsidiary operations. In a sense, by adopting a performance management approach, MNEs are drawing on a number of human resource management activities to reaize performance goas set during the performance appraisa process. Its proponents argue, somewhat convincingy, that effective performance management is beneficia to both the individua and the firm. Strong goa setting and appraisa are key eements of an individua performance management system that aso may incude training and deveopment, and performance-reated pay. 13 PERFORMANCE MANAGEMENT OF INTERNATIONAL EMPLOYEES Having considered the broader context, we now turn our attention to individua performance management. Consistent with our genera approach, we use the term expatriate to cover PCNs, TCNs and those HCNs on assignment to headquarters. We aso address performance management issues reating to those on non-standard and short-term assignments (such as commuter and virtua) and non-expatriates (e.g. internationa business traveers). Given the broad scope, and the fact that often issues are common to both expatriates and non-expatriates, we use the term internationa empoyees when a these various groups are invoved. As discussed in Chapter 5, internationa assignments vary in terms of the duration and scope of physica reocation required. That is, from traditiona expatriate assignments when expatriates and, usuay, their famiy members reocate; to virtua assignments, where no physica reocation by empoyees or their famiies is required. When attempting to manage the performance of staff working across the mutinationa, it is essentia to consider a these variabes in reation to the nature of the internationa assignment. The foowing sections aso identify some performance management issues associated with both expatriate and non-expatriate internationa assignments. Expatriate performance management As noted in Chapter 5, expatriation remains a key dimension of mutinationa enterprise and performance. When attempting to determine expatriate performance, it is important to consider the impact of the foowing variabes and their interreationship: The compensation package. The task the assignment task variabes and roe of the expatriate. Headquarters support. The environment in which performance occurs the subsidiary or foreign faciity. Cutura adjustment of the individua and the accompanying famiy members. Figure 6.3 depicts these variabes and forms the basis upon which we wi expore the nature of the internationa assignment, how performance is managed, the criteria for assessment and the other eements that comprise an effective performance management system. Compensation package. We wi examine the issues surrounding compensation in Chapter 8. However, it is essentia that we recognize the importance of remuneration and reward in the

173 156 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT FIGURE 6.3 Variabes affecting expatriate performance Cutura adjustment sef and famiy Host environment Headquarters support Task Expatriate performance Compensation package performance equation. Perceived financia benefits, aong with the progression potentia associated with an overseas assignment, are often important motives for accepting the posting. If these expectations are not reaized during the assignment, the eve of motivation and commitment is ikey to decrease, thus affecting performance. Task. As outined earier, expatriates are assigned to foreign operations to fufi specific tasks. Hays 14 identified four such tasks: The chief executive officer, or subsidiary manager, who oversees and directs the entire foreign operation. The structure reproducer carries the assignment of buiding or reproducing in a foreign subsidiary a structure simiar to that which he or she knows from another part of the company. He or she coud be buiding a marketing framework, impementing an accounting and financia reporting system, or estabishing a production pant, for exampe. The troubeshooter is the individua who is sent to a foreign subsidiary to anayze and sove a particuar operationa probem. The operative is the individua whose assignment is to perform functiona job tasks in an existing operationa structure, in generay ower eve, supervisory positions. Interesting presentations on executive performance management have recenty been provided as part of a wider discussion of corporate governance. Issues of performance criteria (an overreiance on sharehoder vaue modes of executive performance) and the evoving roes, responsibiities and institutiona safeguards to assure a compete, accurate and unbiased assessment of top eve managers are widey cited for this critica task group. 15 In a recent review of cross-cutura performance management systems, Caigiuri identifies four basic types of internationa assignments: technica assignments short-term knowedge transference activities, said to make up 5 to 10 per cent of expatriate assignments; deveopmenta assignments focusing on in-country performance and the acquisition of oca or regiona understanding by the assignee, said to make up 5 to 10 per cent of assignments; strategic assignments high-profie activities that focus on deveoping a baanced goba perspective, said to make up 10 to 15 per cent of assignments; and functiona assignments described as more enduring assignments with oca empoyees that invove the two-way transfer of existing processes and practices, said to make up between 55 and 80 per cent of assignments. 16 Accuratey assessing performance in the tasks inherent in technica and functiona assignments may we invove a imited number of sources and focus on more concrete output criteria (projects competed, contracts signed, etc.).

174 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 157 Assessing progress in deveopmenta and strategic assignments, given their more compex, subjective tasks, are ikey to invove a wider variety of oca and goba participants and perspectives. 17 Task variabes are generay considered to be more under a mutinationa s contro than environmenta factors. Because of this reative contro, task variabes can be better assessed and more easiy changed, depending, of course, on the eve of position, and the nature of the task assignment. Aong with the specifics of the task, the mutinationa, ike any other organization, determines the roe that accompanies each task position. A roe is the organized set of behaviors that are assigned to a particuar position. Athough an individua may affect how a roe is interpreted and performed, the roe itsef is predetermined. 18 For the expatriate (roe recipient), the parent company (roe sender) predetermines his or her roe in the foreign assignment, and roe expectations may be ceary communicated to the expatriate before departure. Back and Porter 19 found that American expatriates working in Hong Kong exhibited simiar manageria behavior to those remaining in the US. In their discussion of this finding, these authors suggest that the US mutinationas invoved in this study communicated roe expectations by omitting to provide cross-cutura training before departure. In the absence of incentives to modify their roe behavior when abroad, it is not surprising that the expatriates concerned performed as they did. This study reminds us that the transmission of expatriate roe conception is cuturay bound. As Torbiörn 20 expains: The content of the manageria roe, as perceived by both the individua manager and the parent company, is affected by organizationa norms, in terms of parent-company expectations of the manager, and by the set of cutura norms that the manager hods in reation to other cutura and organizationa norms that may be represented by other roe senders. Organizationa and cutura norms thus interactivey determine the roe content of the manager. The difficuty this presents for the expatriate manager is that the roe is defined in one country, but performed in another. That is, the cutura norms regarding the set of behaviors that define a manager in the US may not be the same as those considered appropriate for a manager s roe in an important emerging economy such as Indonesia. Communication of roe conception from the mutinationa to the expatriate is indicated by the straight arrows in Figures 6.4 and 6.5. Roe conception is aso communicated to the roe recipient by host-country stakehoders (e.g., subsidiary empoyees, host-government officias, customers, suppiers, etc.) as shown by the dashed arrows. This, however, crosses a cutura boundary. Roe behavior provides the feedback oop, again at two eves: the parent and the host-country stakehoders. Trying to perform to differing expectations may cause roe confict. If PCN managers adapt their roe behavior according to the roe conception communicated in the host environment, it may confict with that predetermined at headquarters. Janssens 21 study of expatriate FIGURE 6.4 PCN roe conception Mutinationa (roe sender) Communicates roe conception PCN manager (roe recipient) Cutura boundary Host-country stakehoders (roe senders) PCN manager s roe behavior Source: Adapted from I. Torbiörn, The Structure of Manageria Roes in Cross-cutura Settings, Internationa Studies of Management & Organization, Vo. 15, No. 1 (1985), p. 60. Reproduced with permission.

175 158 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT FIGURE 6.5 TCN roe conception Cutura boundary Parent company (roe sender) Communicates roe conception TCN manager (roe recipient) Cutura boundary Host-country stakehoders (roe senders) TCN manager s roe behavior Source: Adapted from I. Torbiörn, The Structure of Manageria Roes in Cross-cutura Settings, Internationa Studies of Management & Organization, Vo. 15, No. 1 (1985), p. 60. Reproduced with permission. performance indicated that roe confict is ikey to resut in situations where the internationa manager has an understanding of the host-country cuture and reaizes that the use of headquarters procedures or actions may ead to ineffective management. She postuates that the higher the degree of intercutura interaction, the more probems the expatriate has with roe confict. From the perspective of headquarters, commitment to the parent is perceived as important, given the part that the PCN pays in transferring know-how and the preferred way of doing things into the subsidiary. This heps to expain the preference for using headquarters standards in expatriate performance appraisa as a contro mechanism. 22 If the PCN is perceived to identify too cosey with host-subsidiary concerns (the term going native has, in the past, often been used to describe this perception), he or she may be recaed. Some MNEs wi restrict the ength of stay to no more than three years to contain the possibiity of PCN identification with oca concerns. Because of the importance given to the parent as roe sender in performance appraisa, a PCN may eect to ignore roe communication sent from the host-country stakehoders if they consider that performance appraisa is determined by how roe behavior conforms to headquarters expectations. After a, the expatriate s career is with the parent firm, not the host subsidiary. Some empirica support for such a view comes from work by Gregersen and Back 23 in their study of US expatriate retention and dua commitments (to the parent and the oca organizations). They found, at the correationa eve, commitment to the parent and to the oca operation were both positivey reated to intent to stay. However, regression anaysis indicated that when controing for certain demographic and attitudina variabes, commitment to the parent company appears to be sighty more reevant to expatriates intention to stay. Roe confict was found to affect commitment to the parent company, but was unreated to commitment to the host company. Another intervening variabe may be that of roe autonomy. For exampe, job discretion emerged as an important aspect from a survey of 115 US expatriates working in various countries by Birdseye and Hi. 24 They found that: Foreign work methods may be more structured than their American counterparts (perhaps more procedures and protocos) and that individuas have ess discretion in how they approach tasks and probems. These authors concude that individuas are ikey to bame this ack of discretion on the organization, the job and the ocation in that order. A simiar finding emerged from an earier study of US domestic and internationa reocation by Fedman and Tompson. 25 The degree of change in job duties was positivey reated to adjustment, whie the degree of change in the organization was negativey reated to adjustment. Thus, roe confict and roe autonomy appear to be important eements in job satisfaction and task performance.

176 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 159 Roe carity emerged as an important variabe in a meta-anaysis of expatriate adjustment and performance. Integrating studies on expatriate adjustment, the authors 26 found that: roe carity and work adjustment was the second argest effect... suggesting that the uncertainty regarding objectives, goas and roe requirements is the strongest stressor in expatriates overseas work environments. In addition, roe carity aso has a moderate potentia to spi over and minimize non-work difficuties. Roe expectations are ikey to be more compex for the TCN than the PCN, as the roe is defined by and performed in two different countries. That is, roe conception crosses two cutura boundaries, as shown in Figure 6.5. Parent and host-country roe senders may have differing expectations of roe behavior that, in turn, are different to the accepted manageria behavior defined by the prevaiing norms in the TCN s own country. For exampe, a US manager working for a Dutch mutinationa posted as a TCN in Indonesia may face added difficuties. The American s roe behavior may be deemed inappropriate by both the parent (Dutch mutinationa) and the host nationas (Indonesians). As Torbiörn 27 points out: The task of the PCN manager coud be described as one of reaizing the expectations of a psychoogicay cose, but physicay distant stakehoder [parent] in an environment containing other roe senders [host-country stakehoders] who are psychoogicay distant, but physicay cose... The TCN manager must try to meet the expectations of roe senders who are a psychoogicay distant in a context that is aso psychoogicay distant. However, as you may reca from our discussion of the rationae for using TCNs, often the country of assignment is perceived by headquarters as cuturay cose and this may be an important factor which infuences the decision to use a TCN (e.g., a German mutinationa decides to transfer a Canadian into the USA rather than a German). As there are very few studies that specificay examine TCN performance management issues, 28 we can ony assume that many of the aspects reating to PCNs discussed above wi appy to the TCN situation. An American manager working in Indonesia, for instance, whether as a PCN or TCN, may encounter ack of job discretion with perhaps the same effect in terms of performance depending on the strength of other intervening variabes. For exampe, differing roe senders may exacerbate the situation through conficting roe expectations. The preceding discussion demonstrates the importance of considering the roe that accompanies each task position. Given that task performance is a core component of expatriate appraisa, it is aso necessary to recognize that it does not occur in isoation. Many individuas and firms rank job abiity as the primary ingredient reating to their expected probabiity of success in the internationa assignment, as discussed in Chapter 5. Certain types of tasks, however, require significanty more interaction with host-country stakehoders. Thus, the task variabes shoud not be evauated in isoation from the subsidiary environment context. Another factor reating to task variabes that warrants consideration is the simiarity of the job the individua is assigned abroad to the job that they hed domesticay. Some types of tasks require an individua to operate within a given structure, whie other tasks demand the creation of the structure. Individuas vary greaty in their abiity to conceive and impement a system and their toerance for ack of structure and ambiguity. Some MNEs have experienced faiure abroad because they assumed that an individua coud be effective in setting up a structure, such as a marketing system, based on evidence of good performance within the existing marketing structure in the domestic corporation. 29 Headquarters support. The expatriate assignment differs from a domestic reocation as it invoves the transfer of the individua (and possiby accompanying famiy members) into a foreign environment, outside their norma cutura comfort zones. The individua s primary

177 160 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT motivation for accepting the assignment may be career or financiay orientated, but this is often mixed with a genuine feeing of oyaty and commitment to the sending organization. As mentioned previousy, the process of adjustment to the foreign ocation typicay produces, to varying degrees, a range of emotiona and psychoogica reactions to unfamiiar situations encountered over the period of the stay in the host country. The eve of headquarters support provided to the individua and the famiy is an important performance variabe. Host environment. The environment has an impact on any job, but it becomes of primary importance with regard to expatriate management. According to Gregersen et a., 30 the internationa context with its differing societa, ega, economic, technica and physica demands can be a major determinant of expatriate performance. Consequenty, expatriate performance shoud be paced within its internationa as we as its organizationa context. Therefore, the five major constraints identified above in terms of mutinationa strategy and goa setting for the subsidiary are important considerations for expatriate performance management. The type of operation to which the expatriate is assigned is important. For instance, it may be reativey easier to perform in a whoy owned subsidiary than in a joint venture with a stateowned enterprise in China. Conficting goas between the parent companies are a common probem within internationa joint ventures and can make the expatriate s job more difficut. An expatriate IJV manager may have difficuty trying to serve two masters and experience a high eve of uncertainty regarding the effect of differing goa expectations for the IJV upon their performance appraisa. Simiary, the stage of the internationa business wi infuence the success of the expatriate. An expatriate overseeing the estabishment of a new faciity in a foreign country, especiay in a deveoping or emerging market, wi face different chaenges and constraints to an expatriate manager who is posted into an estabished operation. Cutura adjustment. The process of cutura adjustment may be a critica determinant of expatriate job performance. Indeed, much of the iterature reviewed in our discussion of the cause of expatriate faiure covers the process of adjustment. It is ikey that expatriates and their famiies wi have some difficuty adjusting to a new environment, and this wi impact on the manager s work performance. The diemma is that adjustment to a foreign cuture is mutifaceted, and individuas vary in terms of their reaction and coping behaviors. Determining the reevance of adjustment to the new environment when assessing expatriate work performance may be probematica. The five variabes compensation package, task, headquarters support, host environment and cutura adjustment reviewed above, and shown in Figure 6.3, are not mutuay excusive, but interact in a way that has significant impications for the appraisa of internationa empoyees performance. Designers and users of performance management systems need to be conscious of, and responsive to, the impact of these variabes. A cross-cutura context for performance management As noted in Figure 6.1, corporate and oca strategies and roe expectations create much of the potentia for compexity and confict in the definitions underying criteria, processes and standards that make up performance management. Regiona and nationa institutiona, reguatory and historica contexts can impact the character of the criteria seected, task definitions, the timing and even the purposes of performance management. We present three exampes of the reationship between nationa context and firm eve practices. Chinese performance management systems have been described as personaized, network driven, focused on pay decision consequences, often impicit or under-spoken, and argey historica and critica in nature. 31 In France, ega and cutura factors combine to create a performance management system characterized by administrators with a high eve of ega expertise even though France s abor aws aow some fexibiity in assessing performance, within a merit-based, and

178 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 161 non-discriminatory framework. It is seen as a system inked to motivation and deveoping inteectua capita via coaching and competency-based assessments, with tasks often faciitated by the acceptance of advanced forms of technoogy. Centraization in processes, impicit or nontransparent procedures, a propensity to have more or ess favorabe impressions of individuas based on the prestige of their previous university-corporate-governmenta experiences, and a strong ink between assessment and hierarchica remuneration may be seen to resut from widey hed cutura norms and vaues within certain segments of French society. 32 As with any nationa assessment, care must be taken not to over-generaize. Practices in France vary by size of the firm with arger firms being more open to a wider variety of performance management practices and criteria than smaer firms as we as by industry, eve of internationaization and occupationa eve of empoyee. 33 By contrast, and with the same caveats against overgeneraization, performance management in Germany must adjust to a much more precisey deineated set of ega and institutiona factors. A strong tradition of coective bargaining be it on the pant, firm or industry eve pant eve codetermination and a centuries-od tradition of vocationa training a contribute to performance management systems characterized by a high eve of worker input via works councis, consensus buiding processes and activities, a ong-term career focus, vauing fexibiity in task capabiity to enhance ong-term job security and a high vaue paced on speciaized technica knowedge. 34 Processes tend to be more consensua, expicit, ongoing and informa in a day-today setting, yet roes, standards, criteria, purposes, schedues and consequences are expicity formaized and reguated via codetermination. Performance-based pay, as a consequence or outcome of the performance management system has been much sower to gain widespread acceptance among German firms. This may be due to the use of short-term performance criteria often appied to trigger British and US modes of performance-based pay. German firms tend to focus on inking performance management resuts to drive ong-term training and deveopment activities. 35 Performance management of non-expatriates In Chapter 5, non-expatriates (i.e. the internationa business traveer, or frequent fyer ) were described as empoyees whose work invoved internationa trave but who are not considered internationa assignees because they do not reocate to another country. Performance management issues may aso impact upon the performance of another group: commuters. This is a form of non-standard assignment outined in Chapter 5 where the person does not competey reocate but commutes between their home country and their office in another country. An exampe woud be an executive who considers home to be a suburb of London, but who, from Monday morning to Friday night, ives and works in Germany whie the famiy remains in London. 36 In Chapter 5, we aso discussed the trend towards the use of virtua assignments to overcome staff immobiity. Instead of moving into the host environment, the person manages the internationa position from the home country using a combination of reguar communication ink-ups and frequent trips to the foreign ocation. As yet, itte is reay known about the impications of such internationa business trave, whether as part of a non-standard assignment, or as a component of a specific job, on individua performance. However, it is possibe to suggest some performance management chaenges: How to determine performance criteria and goas reated to the effective conduct of non-standard assignments, especiay virtua assignees. As indicated in Figure 6.1, agreement on performance criteria is an important component of the performance management process. This requires the ink between each empoyee s performance and the achievement of the MNE s strategic goas and objectives to be ceary estabished and understood. However, as the roe conceptions in Figures 6.4 and 6.5 show, shared conceptions of roes and expectations are compicated by the number of cutures and organizationa contexts invoved. With virtua assignees, monitoring and evauating a physicay and geographicay distant group of empoyees is probematica. It is management by

179 162 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT remote contro. In addition, the virtua assignee may be faced with dua goas that of the domesticay ocated job and the virtua work group. Therefore, the perennia chaenge of effectivey communicating the strategic inks between the assignee s performance and organizationa strategy is ikey to be magnified. 37 An understanding of the criteria for performance is generay advocated as a highy participative process between supervisor and empoyee. 38 As with the traditiona expatriate assignment, work conducted through non-standard assignments and internationa trave is sti conducted across cutura and nationa boundaries, and thereby subject to cutura differences in norms about acceptabe or preferred eves of participation. Isoating the internationa dimensions of job performance might not be as straightforward as in traditiona expatriate assignments. It may depend on the eve of difficuty inherent in the performance criteria set and how individua performance eves are determined. Outstanding performance, under-performance or faiure in non-expatriate and non-standard assignments wi chaenge the performance appraisa process. As we sha expore in a ater section of this chapter, reguar feedback on progress towards those performance goas is most usuay provided through the performance appraisa activity. Performance feedback for assignees wi ony be reevant if it refects the internationa contexts in which they are performed. 39 Those enduring concerns of who conducts performance appraisas, how and based on what performance data, may be intensified when it invoves increasing numbers of others outside head office with whom the assignee is working. One key function of performance appraisa feedback is that it provides opportunities to improve performance by identifying performance gaps that might be eiminated with training and deveopment. Cross-cutura awareness and competence training wi sti be reevant for nonexpatriates. However, detaied anaysis and study of other pre-departure and ongoing training that might be required for non-expatriate assignments is yet to be conducted. Empoyee expectations about rewards for performance and as eements of their working conditions, together with motivation are important aspects of individua performance. In MNEs, the management of inks between performance and rewards is aready compex, due to the speciaized oca knowedge required across mutipe empoyment and ega environments. The chaenges for IHRM are to determine what to reward when deaing with non-expatriate assignments, and the way compensation for each type of internationa assignment fits with the mutinationa s goba compensation strategy. The impact of non-standard assignments on host-country nationa co-workers shoud aso be considered particuary in terms of the impact on these staff of internationa business traveers and commuters who drop in, drop out. PERFORMANCE APPRAISAL OF INTERNATIONAL EMPLOYEES Now that we have an understanding of the variabes ikey to infuence performance, incuding the nature of the internationa assignment being performed, we can discuss the criteria by which performance is to be appraised (or evauated the terms are used interchangeaby in the reevant iterature). We note that the focus on expatriate management is aso refected in the iterature about the performance appraisa of internationa staff, and much of the foowing discussion refects that emphasis. However, aspects of expatriate performance appraisa are aso reevant to the appraisa of non-expatriates and these, aong with the aspects that distinguish between the two categories of internationa staff, wi be highighted.

180 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 163 As shown in Figure 6.1, individua performance management invoves a set of decisions on the dimensions and eve of performance criteria, task and roe definitions, and the timing of the forma and informa aspects of the appraisa. Traditionay, it comprises a forma process of goa setting, performance appraisa and feedback. Data from this process is often used to determine pay and promotion, and training and deveopment requirements. MNE goas infuence the individua s saient task set, against which job goas and standards are estabished and measured. There are differences in the way this process is handed within MNEs. For exampe, in Germany and Sweden it is common for empoyees to have input into job goa setting, whereas in other countries such as the USA, job goas tend to be assigned. 40 In addition, the type and ength of assignment appears to infuence how performance management is handed. For exampe, a study of Finnish firms reveaed that those on short-term assignments were treated the same as any other empoyee in the company, and there was more fexibiity in the timing of the performance review for those assigned to projects. 41 Performance criteria The goba firm s abiity to measure an empoyee s individua contribution to performance and to assess the aggregate contribution of human capita to strategic progress is a compex and timey topic in organizationa studies. 42 Goas tend to be transated into performance appraisa criteria so specificity and measurabiity issues are important aspects, and we need to recognize that hard, soft and contextua goas are often used as the basis for performance criteria. Hard goas are objective, quantifiabe and can be directy measured such as return-on-investment (ROI), market share, etc. Soft goas tend to be reationship or trait-based, such as eadership stye or interpersona skis. Contextua goas attempt to take into consideration factors that resut from the situation in which performance occurs. For exampe, MNEs commony use arbitrary transfer pricing and other financia toos for transactions between subsidiaries to minimize foreign-exchange risk exposure and tax expenditures. Another consideration is that a financia figures are generay subject to the probem of currency conversion, incuding saes and cash positions. Further compications coud arise because some host governments (usuay emerging economies) may decide to pace restrictions on repatriation of profits and currency conversion. The nature of the internationa monetary system and oca accounting differences may aso precude an accurate measurement of resuts. The diemma this poses is that the use of transfer pricing and other financia toos is necessary because of the compexity of the internationa environment. Mutinationas cannot aow subsidiaries to become autonomous in financia management terms, and pace contros on subsidiary managers. Thus, the financia resuts recorded for any particuar subsidiary do not aways accuratey refect its contribution to the achievements of the MNE as a whoe. Therefore, such resuts shoud not be used as a primary input in performance appraisa. 43 For this reason, a performance management approach is now advocated, rather than traditiona performance appraisa, as it aows carification of goas and expectations of performance against those goas. Janssens 44 suggests that performance appraisa of subsidiary managers against hard criteria is often suppemented by frequent visits by headquarters staff and meetings with senior managers from the parent company. Soft criteria can be used to compement hard goas, and take into account areas that are difficut to quantify such as eadership skis, but their appraisa is somewhat subjective and, in the context of both expatriate and non-expatriate assignments, more compicated due to cutura exchanges and cashes. However, reying on hard criteria such as financia data to evauate how we a manager operates a foreign subsidiary does not consider the way resuts are obtained and the behaviors used to obtain these resuts. 45 Concern with questionabe ethica practices ed to the enactment of the US Foreign Corrupt Practices Act (FCPA), which may prompt an increased use of behaviora as we as resuts data to appraise the performance of managers in foreign subsidiaries. 46 However, an appraisa system that uses hard, soft and contextua criteria buids upon the strengths of each whie minimizing their

181 164 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT disadvantages. 47 Using mutipe criteria wherever possibe is therefore recommended in the reevant iterature. In addition, job anaysis must, as Harvey 48 suggests, generate criteria that adequatey capture the nature of internationa work as opposed to the domestic context, in order to provide vaid appraisa information. Who conducts the performance appraisa? Another issue is who conducts the performance appraisa. Typicay, empoyees are appraised by their immediate superiors, and this can pose probems for subsidiary chief executive officers (or senior managers). They work in countries geographicay distant, yet are evauated by superiors back at headquarters who are not in a position to see on a day-to-day basis how the expatriate performs in the particuar situation. Consequenty, subsidiary managers tend to be assessed according to subsidiary performance, with a reiance on hard criteria simiar to that appied to heads of domestic units or divisions. Of course, there is a danger that a subsidiary manager wi take decisions and impement oca strategies that favor short-term performance to the detriment of onger-term organizationa goas. Appraisa of other empoyees is ikey to be conducted by the subsidiary s CEO, or the immediate host-country supervisor, depending upon the nature and eve of the position concerned. 49 With regard to expatriate performance appraisa, host-country managers may have a cearer picture of expatriate performance and can take into consideration contextua criteria. However, they may have cuturay bound biases (e.g. about roe behavior) and ack an appreciation of the impact of the expatriate s performance in the broader organizationa context. As the IHRM in Action Case 6.1 iustrates, some expatriates may prefer to have parent-company evauators given that their future career progression may depend on how the appraisa data is utiized back at headquarters. This may be especiay so in cases where foreign operations are reativey ess important than, say, domestic US operations. 50 Others may prefer a host-country appraisa if they perceive it as a more accurate refection of their performance. Mutipe raters are sometimes used in the domestic context e.g. the 360-degree feedback process. It has been argued that, given the cross-cutura compexity of the foreign assignment, a team of evauators shoud be used for performance appraisa. For exampe, Gregersen et a. 51 found that most firms (81 per cent) in their survey of HR directors in 58 US mutinationas used more than one rater when assessing expatriate performance. The immediate superior (in either the home or host country), the expatriate as sef-rater, and the HR manager (either home or hostcountry based) were commony used as mutipe evauators of US expatriate performance. The 2010 Brookfied Goba Reocation Trends Survey Report found that 35 per cent of respondents reported using performance reviews in the host country, 27 per cent used reviews in both host and home countries and 10 per cent used performance reviews in the home country. 52 For the virtua assignment situation, the use of mutipe appraisers woud most ikey be the most accurate way to determine performance. However, the avaiabiity of knowedgeabe, trained raters may constrain the approach taken in the internationa context. Standardized or customized performance appraisa forms Domestic firms commony design performance appraisa forms for each job category, particuary those using a traditiona performance appraisa approach rather than performance management. Such standardization assists in the coection of accurate performance data on which HR decisions can be made, and aows for cross-empoyee comparisons. The question often posed is shoud these standardized forms be adapted when used for appraising internationa managers? As Gregersen et a. 53 argue:

182 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 165 IHRM in Action Case 6.1 A rainy expatriate performance appraisa Richard Hoffman, a Québécois Chemica Engineer working for a Canadian-based energy firm, was given a three-year expatriate assignment in Venezuea as a technica iaison and environmenta protection project manager. His oca project supervisor was Jean, a French engineer who had ived in French Guiana and then Venezuea for over 20 years. Richard thought that as a Francophone from Quebec, he and Jean woud be abe to buid a quick working reationship. Rich sent Jean an eary emai (in French, and not the usua corporate Engish) containing what he thought of as the five most significant goas associated with his assignment simiar to the management by objectives section of the more or ess standard performance appraisa forms he had fied out for years during earier assignments in Edmonton, Toronto and at corporate headquarters in Montrea. After severa months with no response from Jean, Richard caught Jean in the haway between meetings and asked him about the emai and his progress to date. Don t worry about that, Jean responded bandy, Just keep working to the deadines and I wi check with your coworkers and the other project managers on your work. Where did you go to engineering schoo by the way? Richard waited another six months and was becoming increasingy anxious as the firm s annua review week approached. He finay caught up with Jean on a rainy Friday in the obby of the office buiding as they both waited for their drivers to arrive. When asked about the upcoming performance review, Jean snorted and said. C est tout fini, it s a been taken care of. Make an appointment with my assistant Louisa next week and we can go over the report we have sent to Montrea. As Jean stepped gingery into the rainy Caracas parking ot, Richard thought back to the ast few weeks with his team, the sometimes oud disagreements with his feow project managers, and wondered if it was too ate in the day to ca his od supervisor in Toronto. Source: Based on the synthesis of a series of expatriate experiences. In principe, performance appraisa systems are designed carefuy and often presumed to be static. Vaid reasons exist for maintaining standard, traditionay used appraisas (e.g., when the system has been tested, has identified baseines, and reduces future deveopment costs). These reasons are vaid as ong as the context of the performance does not change. In the expatriate setting, however, the performance context does change, and sometimes it changes dramaticay. Given a goba context, previous testing and estabished baseines grounded in domestic situations can become meaningess. Despite this, they found that in their sampe of US firms, 76 per cent used the same standardized appraisa forms for expatriate appraisa. 54 Empoyees who reocate within the mutinationa and non-expatriate assignees who aso cross cutura boundaries in their performance context do not aways fee headquarters-based appraisa forms aow for consideration of the critica success factors of their performance ike cross-cutura competence. 55 Frequency of appraisa In practice, forma appraisa is commony on a yeary basis, and this appears to extend to internationa performance systems, even though the domestic-oriented iterature on this topic recommends an ongoing combination of forma and informa performance appraisa and feedback. For exampe, the majority of the US companies in the Gregersen et a. study referred to above reported annua appraisa practices. It is interesting to note that the US companies using annua appraisa systems were more ikey to use standard appraisa forms and hard criteria. In their

183 166 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT discussion of this finding, Gregersen et a. comment that repicating domestic practices requires ess effort in coecting and interpreting the data, and that the preference for foowing the domestic system might refect ack of internationa experience within the companies in the sampe. It is important to note that ony 28 per cent of the HR respondents in their study reported having actuay been on an internationa assignment themseves, so it is reasonabe to assume that they might not be fuy aware of the need to take contextua criteria into consideration, or see a need for the customization of their expatriate performance systems. Performance feedback An important aspect of an effective performance management system is the provision of timey feedback of the appraisa process. One of the probems with annua appraisa is that empoyees do not receive the consistent frequent feedback considered critica in order to maintain or improve their performance. The performance iterature aso suggests that reguar feedback is an important aspect in terms of meeting targets and revising goas, as we as assisting in motivation of work effort. The difficuty for the expatriate who is being evauated by a geographicay distant manager is that timey, appropriate feedback is ony viabe against hard criteria. For virtua assignees, this is further compicated when geographic dispersion dictates reiance on emai communication. Interpersona reations and an effective choice of communication medium are two factors infuencing virtua workgroup reations. 56 Miiman et a. 57 reported two critica incidents invoving miscommunication between managers working on a virtua assignment in the USA and Maaysia. Emai feedback about his Maaysian counterpart s good performance provided to the Maaysian by the American head of the project generated a cyce of cross-cutura confict. This threatened the virtua team s performance when the Maaysian sought to transfer out of the team. Adopting an organizationa earning approach, the researchers anayzed the miscommunication and its consequences. They concuded that the two managers concerned had different views about what constituted the primary source of job performance, how performance feedback is provided, what roe the subordinate wi have in communicating with a superior, how confict is handed, and what communication styes are expected. The approach used to anayze these incidents provides a usefu IHRM starting point for deveoping effective cross-cutura performance feedback communication skis. Appraisa of HCN empoyees The discussion so far has omitted the issue of appraising the performance of HCN empoyees. To a certain extent, this refects the imited research on the topic in the context of IHRM, though there is a growing body of iterature on comparative HRM practices. What is important to mention here is that the practice of performance appraisa itsef confronts the issue of cutura appicabiity. 58 Performance appraisa in different nations can be interpreted as a signa of distrust or even an insut. In Japan, for instance, it is important to avoid direct confrontation to save face, and this custom affects the way in which performance appraisa is conducted. A Japanese manager cannot directy point out a work-reated probem or error committed by a subordinate: Instead, he is ikey to start discussing with the subordinate the strong points of that person s work, continuing with a discussion about the work on a reativey genera eve. Then he might continue to expain the consequences of the type of mistake committed by the subordinate, sti without directy pointing out the actua mistake or the individua empoyee. From a this, the subordinate is supposed to understand his mistake and propose how to improve his work. 59

184 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 167 One way to overcome the diemma of cutura adaptation is to use host-country nationas to assist in devising a suitabe system for appraising subsidiary empoyees and to advise on the conduct of the appraisa. At times, the need for oca responsiveness may affect the mutinationa s abiity to effectivey impement a standardized approach to performance management at a eves within the goba operation. 60 As we discussed in reation to PCNs and TCNs, the eve of position invoved is an important consideration. Shoud a mutinationa appoint a HCN as its subsidiary manager, much of what we covered in terms of goas (particuary hard goas) and performance measures coud be expected to appy to the HCN. In terms of task performance and potentia roe confict, as can be seen from Figure 6.6, Torbiörn 61 recognizes that HCN managers face particuar roe concerns that are different from those of PCN and TCN managers. The HCN manager is expected to perform a roe that is conceptuaized by a psychoogicay and physicay distant parent company, but enacted in an environment with other roe senders who are both psychoogicay and physicay cose. FIGURE 6.6 HCN roe conception Parent company (roe sender) Cutura boundary Communicates roe conception Host-country stakehoders (roe senders) HCN manager (roe recipient) HCN manager s roe behavior Source: Adapted from I. Torbiörn, The Structure of Manageria Roes in Cross-cutura Settings, Internationa Studies of Management & Organization, Vo. 15, No. 1 (1985), p. 61. Reproduced with permission. Parent-company roe conception is communicated to the HCN, but it crosses the cutura boundary, as does feedback expressed as the HCN s roe behavior (the straight arrows in Figure 6.6). Input from host-country roe senders, though, does not cross a cutura boundary. The HCN receives roe expectations and enacts roe behaviors in his or her own cutura environment. For subsidiary staff beow the top management eve, one woud expect that the performance management system be ocaized to take into consideration oca behaviora norms of work behavior. Torbiörn s mode depicts ony HCN manageria roe conception and communication. Confict may arise in cases where HCNs report to a PCN expatriate manager who aso conducts their performance appraisa. In a way, this is the reverse of the discussion surrounding oca managers appraising the performance of expatriates in terms of cutura bias. The difference, of course, is the impact that parent-company standards have on the performance management system and the degree to which ocaization is permitted in a standardized approach. 62 It may not be cuturay sensitive to use appraisa techniques such as 360-degree feedback, for instance. In practice, US mutinationas have often used the same appraisa form for HCNs as for their domestic empoyees. Sometimes the forms are transated from Engish; sometimes they

185 168 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT are not. Both approaches have drawbacks. As discussed above, whie some MNEs are deveoping information systems to assist in performance appraisa, the widespread use of computergenerated data is hampered by the ega constraints imposed by some host governments or by concerns about persona privacy. One aspect that is overooked in the imited iterature on this topic is the potentia for roe confict for those HCNs transferred into the parent s operations. 63 For that period, the HCN may be evauated according to roe behavior expectations communicated by roe senders that are physicay cose but psychoogicay distant, in an environment that is aso psychoogicay distant. The HCN is then transferred, usuay back into his or her home country, and may experience difficuties in readjusting roe behavior. In reation to performance appraisa generay, it seems that the process remains probematic, irrespective of cutura impacts. For exampe, a study by Gerringer et a. reported a common finding across ten countries/regions, which was the faiure of performance appraisa to fufi its deveopment purpose. The study formed part of the Best Practices in Internationa HRM project a mutipe-year, mutipe-researcher, muti-nationa project. 64 The ten countries/regions were Austraia, Canada, China, Indonesia, Japan, Korea, Latin America, Mexico, Taiwan and the USA. The researchers noted: It appears that the potentia of appraisa is not fuy reaized in current practice, not ony (as widey beieved) in the US, but aso in most other countries. 65 Reviews on goba performance management describe a more widespread use of performance management systems by mutinationa firms. Forma reviews tend to be annua or biannua, onine systems are sti in the minority (20 per cent of responding firms), but one-third of the firms stated they had pans to move to onine systems. Objective and subjective criteria are used, and training based on the resuts of the performance management process is growing. Systems capabiities reated to consistency within the far-fung system in the firm, integrating performance management into other HR activities (such as succession panning and compensation) and inking performance management to strategic panning whie incorporating the eadership of senior management are seen as critica if performance management is to contribute to the contro of MNEs. 66 The criticaity of baancing goba (parent) processes, practices, roes and norms with oca or regiona equivaents is of ongoing interest to students of goba performance management. Investigating the impact of high context cutures on seecting and vauing impicit, expicitsubjective or expicit-objective forms of performance criteria is the theme of some research in this area. Preiminary research has begun on operationaizing these kinds of dimensions and gathering cross-cutura empirica data most certainy a non-trivia task. 67 Research is aso ongoing in contrasting the standardized system of goba performance management as envisioned at MNE headquarters and the ocay or regionay customized systemsin-use as hoisticay practiced on site. 68 The effects of ega and reguatory contexts on the aforementioned processes, practices and norms, and the widening range of tasks and assignments required of empoyees in MNEs a combine to make performance management a compex, yet critica area of human resource management. SUMMARY Technica competence is a necessary but not sufficient condition for successfu internationa performance. Cross-cutura interpersona skis, sensitivity to foreign norms and vaues, and ease of adaptation to unfamiiar environments are just a few of the manageria characteristics most mutinationas seek when seecting internationa managers. The added chaenge is the effective management and appraisa of performance across a of the MNE s operations. In this chapter we have expored: The basic components of a performance management system that is conscious of and responds to the organizationa, nationa and internationa eements.

186 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 169 Mutinationa performance aspects: whoe (goba) versus part (subsidiary); non-comparabe data; the voatiity of the goba environment; the effect of distance; and the eve of maturity. Performance management as a contro mechanism was briefy discussed. Factors associated with expatriate performance: the compensation package; task and roe; eve of headquarters support; host-environment factors; and cutura adjustment. The performance management of non-expatriates and those on non-standard assignments. We used the virtua assignment as an iustration of some of the aspects that need to be considered in these non-traditiona assignment types. The issues reating to the performance appraisa of internationa empoyees. Appraisa of HCN managers and empoyees in subsidiary operations. Broadening out the discussion to the mutinationa eve, and addressing performance management and appraisa concerns reated to non-expatriates and those on non-standard assignments has been usefu to remind us that there are many dimensions to internationa business operations that need to be considered when designing an effective performance management system in the mutinationa context.

187 170 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT DISCUSSION QUESTIONS 1 In the section on the voatiity of the goba environment, severa word events were isted that have had profound impications for the goba and oca strategies of MNEs. Seect a recent word event, identify the specific HR impications that may arise from this, and devise poicies as to how these may be handed. 2 Discuss the major factors associated with appraisa of expatriate manageria performance. 3 One of the dangers of performance appraisa is that, because the focus is so much on a particuar individua, the teamwork aspect gets ost. In an internationa ocation, it is perhaps desirabe to focus more on how the PCN has setted in and is operating as part of a team rather than as an individua. 4 Why is it important to incude hard, soft and contextua goas when assessing manageria performance? 5 In what ways woud the roe of a manager working in a non-standard internationa assignment arrangement differ from that of a typica expatriate manager? FURTHER READING Cascio, W. (2006) Goba Performance Management Systems, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar), pp Enge, A., Dowing, P. and Festing, M. (2008) State of Origin: Research in Goba Performance Management, a Proposed Research Domain and Emerging Impications, European Journa of Internationa Management, 2 (2): Fey, C., Morguis, Y., Park. S., Hyeon, J. and Björkman, I. (2009) Opening the back box of the reationship between HRM practices and firm performance: A comparison of MNE subsidiaries in the USA, Finand and Russia, Journa of Internationa Business Studies 40: Miiman, J., Nason, S., Zhu, C. and De Cieri, H. (2002) An Exporatory Assessment of the Purposes of Performance Appraisas in North and Centra America and the Pacific Rim, Asia Pacific Journa of Human Resources, 40(1): Shay, J. P. and Baack, S. A. (2004) Expatriate Assignment, Adjustment and Effectiveness: An Empirica Examination of the Big Picture, Journa of Internationa Business Studies, 35: Shih, H., Chiang, Y. and Kim, I. (2005) Expatriate Performance Management from MNEs of Different Nationa Origins, Internationa Journa of Manpower, 26(2): NOTES AND REFERENCES 1. Exceent overviews of research in this area are provided by P. Caigiuri, Performance Measurement in a Cross-cutura Context, in W. Bennett, C. Launce and J. Woehr (eds) Performance Management: Current Perspectives and Future Chaenges (Mahwah, NJ: Lawrence Erbaum Associates, 2006), pp ; and W. Cascio, Goba Performance Management Systems, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp Cascio, Goba Performance Management Systems, p C. A. Bartett and S. Ghosha, Managing Across Borders: New Strategic Requirements, Soan Management Review (Summer, 1987), pp

188 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT V. Pucik, Strategic Human Resource Management in a Mutinationa Firm, in H. Y. Wortze and L. H. Wortze (eds) Strategic Management of Mutinationa Corporations: The Essentias (New York: John Wiey, 1985), pp. 429, J. Garand, R. N. Farmer and M. Tayor, Internationa Dimensions of Business Poicy and Strategy, 2nd edn (Boston, MA: PWS KENT, 1990), p Ibid. 7. Pucik, Strategic Human Resource Management in a Mutinationa Firm, p Ibid. 9. A. Enge, P. Dowing and M. Festing, State of Origin: A Proposed Research Domain and Emerging Impications, European Journa of Internationa Management, Vo. 2, No. 2 (2008), pp ; and B. Campbe, A. Peterson and J. Correa, Performance Management: Rewired for the Recovery, Workspan, Vo. 53, No. 7 (2010), pp Pucik, Strategic Human Resource Management in a Mutinationa Firm. 11. Garand, Farmer and Tayor, Internationa Dimensions of Business Poicy and Strategy, p Enge, Dowing and Festing, State of Origin: A Proposed Research Domain and Emerging Impications ; M. Fenwick, H. De Cieri and D. Wech, Cutura and Bureaucratic Contro in MNEs: The Roe of Expatriate Performance Management, Management Internationa Review, Vo. 39, Specia Issue No. 3 (1999), pp A. Varma, P. Budhwar and A. DeNisi (eds) Performance Management Systems: A Goba Perspective (New York: Routedge, 2008). 14. R. Hays, Expatriate Seection: Insuring Success and Avoiding Faiure, Journa of Internationa Business Studies, Vo. 5, No. 1 (1974), pp Tung appears to have based her initia studies on these categories (see R. Tung, Seection and Training of Personne for Overseas Assignments, Coumbia Journa of Word Business, Vo. 16, No. 1 (1981), pp ). 15. See L. Gomez-Mejia, P. Berrone and M. Franco-Santos, Compensation and Organizationa Performance: Theory, Research and Practice (London: M. E. Sharpe, 2010), particuary chapters four through seven; E. Lawer, Taent: Making Peope Your Competitive Advantage (San Francisco: Jossey-Bass, 2008), particuary chapters five and eight; M. Hib, New Corporate Governance: Successfu Board Management Toos, 2nd Ed. (Berin: Springer Pubishing, 2006); and F. Maik, Effective Top Management (Frankfurt: Wiey-VCH, 2006). 16. Caigiuri, Performance Measurement in a Cross-cutura Context. 17. For more on how the purposes and roes inherent in assignments may impact upon the characteristics of performance management systems see Enge, Dowing and Festing, State of Origin. 18. H. Mintzberg, The Nature of Manageria Work (Engewood Ciffs, NJ: Prentice-Ha, 1973), p. 54. Aso see W. Cascio and H. Aguinis, Appied Psychoogy in Human Resource Management, 7th Ed. (Upper Sadde River, N.J.: Prentice Ha-Pearson, 2011), particuary chapter 1 and pp J. S. Back and L. Porter, Manageria behaviors and Job Performance: A Successfu Manager in Los Angees May Not Succeed in Hong Kong, Journa of Internationa Business Studies, Vo. 22, No. 1 (1991), pp I. Torbiörn, The Structure of Manageria Roes in Cross- Cutura Settings, Internationa Studies of Management & Organization, Vo. 15, No. 1 (1985), pp , quote from p M. Janssens, Evauating Internationa Managers Performance: Parent Company Standards as Contro Mechanism, Internationa Journa of Human Resource Management, Vo. 5, No. 4 (1994), pp Aso see D. Briscoe and L. Caus, Empoyee Performance Management: Poicies and Practices in Mutinationa Enterprises. In A. Varma, P. Budhwar and A. DeNisi (eds) Performance Management: A Goba Perspective (London: Routedge, 2008), pp Janssens, Evauating Internationa Managers Performance. 23. H. B. Gregersen and J. S. Back, A Mutifaceted Approach to Expatriate Retention in Internationa Assignments, Group & Organization Studies, Vo. 15, No. 4 (1990), p Aso see I. Björkman, W. Barner-Rasmussen, M. Ehrnrooth and K. Makea, Performance Management Across Borders. In P. Sparrow (ed.) Handbook of Internationa Human Resource Management (New York: John Wiey and Sons, 2009) pp for a very ucid discussion of researching the tension of interests and oyaties inherent in ocay adopting or adjusting standardized goba performance management systems, processes and activities. 24. M. G. Birdseye and J. S. Hi, Individua, Organization/Work and Environmenta Infuences on Expatriate Turnover Tendencies: An Empirica Study, Journa of Internationa Business Studies, Vo. 26, No. 4 (1995), p D. C. Fedman and H. B. Tompson, Expatriation, Repatriation, and Domestic Geographica Reocation: An Empirica Investigation of Adjustment to New Job Assignments, Journa of Internationa Business Studies, Vo. 24, No. 3 (1993), pp P. Bhaskar-Shrinivas, M. Shaffer and D. Luk, Input-Based and Time-Based Modes of Internationa Adjustment: Meta- Anaytic Evidence and Theoretica Extensions, Academy of Management Journa, Vo. 48, No. 2 (2005), p Torbiörn, The Structure of Manageria Roes in Crosscutura Settings, p For exampe, in one of the few artices on this topic, Chadwick ooks at the TCN assignment in genera and does not specificay address performance. Rather, the focus is on fair treatment and equity regarding compensation. See W. Chadwick, TCN Expatriate Manager Poicies, in J. Semer (ed.) Expatriate Management: New Ideas for Internationa Business (Westport, CT: Quorum Books, 1995). 29. Cascio, Goba Performance Management Systems ; A. Enge, P. Dowing and M. Festing, State of Origin: A Proposed Research Domain and Emerging Impications.

189 172 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT 30. H. B. Gregersen, J. M. Hite and J. S. Back, Expatriate Performance Appraisa in US Mutinationa Firms, Journa of Internationa Business Studies, Vo. 27, No. 4 (1996), pp See C. Baiey and C. Fetcher, Internationa Performance Management and Appraisa: Research Perspectives, M. Harris (ed.) Handbook of Research in Internationa Human Resource Management (London: Lawrence Erbaum, 2008), pp ; and M. Festing, L. Knappert, P. Dowing and A. Enge, Country-Specific Profies in Goba Performance Management A Contribution to Baancing Goba Standardization and Loca Adaptation, Conference Proceedings of the 11th Conference on Internationa Human Resource Management, June, C. Barzantny and M. Festing, Performance Management in Germany and France, in A. Varma, P. Budhwar and A. DeNisi (eds) Performance Management Systems: A Goba Perspective (London: Routedge, 2008), pp ; and P. Gooderham, O. Nordhaug and K. Ringda, Institutiona and Rationa Determinants of Organizationa Practices: Human Resource Management in European Firms, Administrative Science Quartery, Vo. 44 (1999), pp Barzantny and Festing, Performance Management in Germany and France ; and M. Tahrvanainen and V. Suutari, Expatriate Performance Management in MNCs, in H. Scuion and M. Lineham (eds) Internationa HRM: A Critica Text (Basingstoke: Macmian, 2005), pp M. Dickmann, Impementing German HRM Abroad: Desired, Feasibe, Successfu? Internationa Journa of Human Resource Management, Vo. 34, No. 2 (2003), pp For more on Ango-Saxon approaches to performancebased pay see H. Aguinis, Performance Management (Upper Sadde River, NJ: Pearson Education, 2007), particuary Chapter 10. For more information reated to German performance management see Barzantny and Festing, Performance Management in Germany and France ; and M. Pudeko, A Comparison of HRM Systems in the USA, Japan and Germany in Their Socioeconomic Context, Human Resource Management Journa, Vo. 16, No. 2 (2006), pp M. Fenwick, On Internationa Assignment: Is Expatriation the Ony Way to Go?, Asia Pacific Journa of Human Resources, Vo. 42, No. 3 (2003), pp ; V. Suutari and C. Brewster, Beyond Expatriation: Different Forms of Internationa Empoyment. In P. Sparrow (ed.) Handbook of Internationa Human Resource Management (New York: John Wiey and Sons, 2009), pp M. Maznevski, S. Davison and K. Jonsen, Goba Virtua Team Dynamics and Effectiveness. In G. Stah and I. Bjorkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham, U.K.: Edward Egar, 2006), pp ; P. Caigiuri, Performance Measurement in a Cross-cutura Context. 38. See for exampe G. Desser, Human Resource Management, 12th Ed. (Upper Sadde River, N.J.: Prentice Ha, 2011), particuary chapter 9; C. Vance and Y. Paik, Managing a Goba Workforce (London: M. E. Sharpe, 2011). 39. P. Dowing, A. Enge, M. Festing and C. Barzantny, Proposing Processes of Goba Performance Management: An Anaysis of the Literature, Conference Proceedings of the IFSAM 2010 Word Congress, Paris, France, Juy, 2010; Cascio, Goba Performance Management Systems. 40. Tahvanainen, Expatriate Performance Management; Enge, Dowing and Festing, State of Origin. 41. Suutari and Brewster, Beyond Expatriation: Different Forms of Internationa Empoyment.; M. Tahvanainen, D. Wech and V. Worm, Impications of Short-term Internationa Assignments, European Management Journa, Vo. 23, No. 6 (2005), pp For a we-presented and far-reaching discussion of the reationship between strategic purpose and taent management, see J. Boudreau and P. Ramstad, Beyond HR: The New Science of Human Capita (Boston, MA: Harvard Business Schoo Press, 2007). S. Brutus Word Versus Numbers: A Theoretica Exporation of Giving and Receiving Narrative Comments in Performance Appraisa, Human Resource Management Review, Vo. 20, No. 2 (2010), provides a series of hypotheses in support of the contention that narrative comments in otherwise hard and standardized performance management systems may provide a rich source of information for practitioners and researchers aike. Ironicay, this potentiay usefu narrative may be more probematic to accuratey decipher across cutura boundaries. 43. Pucik, Strategic Human Resource Management. 44. Janssens, Evauating Internationa Managers Performance. 45. R. W. Beatty, Competitive Human Resource Advantages Through the Strategic Management of Performance, Human Resource Panning, Vo. 12, No. 3 (1989), pp Aso see Cascio, Goba Performance Management Systems. 46. K. F. Brickey, Corporate Crimina Liabiity: A Treatise on the Crimina Liabiity of Corporations, Their Officers and Agents, Cumuative suppement (Deerfied, IL: Cark Boardman Caaghan, 1992). Enacted in 1977, the FCPA addresses the probem of questionabe foreign payments by US mutinationas and their managers. The act was amended by Congress in 1988 to incude substantia increases in the authorized crimina fines for organizations and new civi sanctions for individuas vioating the FCPA. See (as accessed on October 28, 2010) for detais, amendments, interpretations and worksheets. 47. Tahvanainen, Expatriate Performance Management; and Gregersen, Hite and Back, Expatriate Performance Appraisa in U.S. Mutinationa Firms. 48. Harvey, Focusing the Internationa Personne Performance Appraisa Process. 49. Tahvanainen, Expatriate Performance Management.

190 CHAPTER 6 INTERNATIONAL PERFORMANCE MANAGEMENT E. Naumann, Organizationa Predictors of Expatriate Job Satisfaction, Journa of Internationa Business Studies, Vo. 24, No. 1 (1993), pp Gregersen, Hite and Back, Expatriate Performance Appraisa in US Mutinationa Firms. 52. Brookfied Goba Reocation Services, Goba reocation Trends: 2010 Survey report, page Gregersen, Hite and Back, Expatriate Performance Appraisa in US Mutinationa Firms, p It shoud be noted that these authors take a traditiona performance appraisa approach, rather than utiize the newer performance management iterature that we discuss in this chapter. It may be that the goa setting stressed in the performance management iterature wi assist standardization. 55. Cascio, Goba Performance Management Systems and Enge and Dowing, State of Origin. 56. See W. Cascio and S. Shurygaig, E-eadership in Virtua Firms, Organizationa Dynamics, Vo. 31 (2003), pp ; aso see M. Kavanaugh and M. Thite, Human Resource Information Systems (Thousand Oaks, CA: Sage, 2009), particuary pp J. Miiman, S. Tayor and A. Czapewski, Cross-Cutura Performance Feedback in Mutinationa Enterprises: Opportunity for Organizationa Learning, Human Resource Panning, Vo. 25, No. 3 (2002), pp See, for exampe, N. Ader and A. Gundersen, Internationa Dimensions of Organizationa behavior, 5th Ed. (Cincinnati, OH: South Western/Thomson, 2008); S. Schneider, Nationa vs. Corporate Cuture: Impications for Human Resource Management, Human Resource Management, Vo. 27 (1988), pp ; and G. R. Latham and N. K. Napier, Chinese Human Resource Management Practices in Hong Kong and Singapore: An Exporatory Study, in G. Ferris, K. Rowand and A. Nedd (eds) Research in Personne and Human Resource Management, Vo. 6 (Greenwich, CT: JAI, 1989). 59. J. V. Koivisto, Duaity and Japanese Management: A Cosmoogica View of Japanese Business Management, paper presented at the European Institute of Advanced Studies in Management Workshop, Managing in Different Cutures, Cergy Group Essec, France, November 23 24, Aso see M. Morishima, Performance Management in Japan, in A. Varma, P. Budhwar and A. DeNisi (eds) Performance Management Systems: A Goba Perspective (Abingdon, U.K.: Routedge, 2008), pp for an institutiona and historica review of this subject. 60. Caigiuri, Performance Measurement in a Cross-cutura Context, Dowing, Enge, Festing and Barzantny Proposed Processes and Enge, Dowing and Festing, State of Origin. 61. Torbiörn, The Structure of Manageria Roes in Cross- Cutura Settings. 62. Enge, Dowing and Festing, State of Origin aso Dowing, Enge, Festing and Barzantny, Proposing Processes of Goba Performance Management: An Anaysis of the Literature. 63. The performance appraisa of inpatriates is briefy covered in M. Harvey and M. Buckey, Managing Inpatriates: Buiding a Goba Core Competency, Journa of Word Business, Vo. 32, No. 1 (1997), pp For a more genera overview of the roe of inpatriates in contro processes for mutinationa firms, see M. Harvey and M. Novicevic, The Evoution from Repatriation of Managers in MNEs to Inpatriation in Goba Organizations, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp J. Gerringer, C. Frayne and J. Miiman, In Search of Best Practices in Internationa Human Resource Management: Research Design and Methodoogy, Asia Pacific Journa of Human Resources, Vo. 40, No. 1 (2002), pp J. Miiman, S. Nason, C. Zhu and H. De Cieri, An Exporatory Assessment of the Purposes of Performance Appraisas in North and Centra America and the Pacific Rim, Asia Pacific Journa of Human Resources, Vo. 40, No. 1 (2002), p For an aternative perspective, questioning the appicabiity of Western ogics to performance management processes in the Midde East, see A. Giangreco, A. Carugati, M. Piati and A. Sebastiano, Performance Appraisa Systems in the Midde East: Moving Beyond Western Logics, European Management Review, Vo. 7, No. 3 (2010), pp See Cascio s, Goba Performance Management Systems, discussion as we as a survey of 278 firms from 15 countries reported in P. Berntha, R. Rogers and A. Smith s, Managing Performance: Buiding Accountabiity for Organizationa Success (Pittsburgh, PA: Deveopment Dimensions Internationa, 2003). 67. Dowing, Enge, Festing and Barzantny, Proposing Processes of Goba Performance Management: An Anaysis of the Literature, Enge, Dowing and Festing, State of Origin: A Proposed Research Domain and Emerging Impications. 68. Björkman, Barner-Rasmussen, Ehrnrooth and Makea, Performance Management Across Borders, Dowing, Enge, Festing and Barzantny, Proposing Processes.

191 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS Chapter Objectives Training aims to improve empoyees current work skis and behavior, whereas deveopment aims to increase abiities in reation to some future position or job. In this chapter, we examine how the internationa assignment is a vehice for both training and deveopment, as refected in the reasons why internationa assignments continue to pay a strategic roe in internationa business operations. The roe of training in preparing and supporting personne on internationa assignments is aso considered. We examine the foowing issues: The roe of training in supporting expatriate adjustment and on-assignment performance. Components of effective pre-departure training programs such as cutura awareness, preiminary visits and anguage skis. Reocation assistance and training for trainers are aso addressed. The effectiveness of pre-departure training. The deveopmenta aspect of internationa assignments. Training and deveoping internationa management teams. Trends in internationa training and deveopment. 174

192 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 175 Refecting the genera iterature on this topic, the focus of the chapter is on the traditiona, expatriate assignment. However, where possibe we wi draw out training and deveopment aspects reating to short-term assignments, non-standard assignments and internationa business traveers. The chapter concudes with what coud be caed the post-assignment stage and its wider impact on the careers of empoyees who have been on an internationa assignment. Re-entry raises issues for both the expatriate and the MNE, some of which may be connected to events that occurred during the internationa assignment. We examine: The process of re-entry or repatriation. Job-reated issues. Socia factors, incuding famiy factors that affect re-entry and work adjustment. MNE responses to repatriate concerns. Staff avaiabiity and career issues. Return on investment (ROI) and knowedge transfer. Designing a repatriation program. Broader internationa career issues. INTRODUCTION In order to compete successfuy in a goba market, more firms are focusing on the roe of human resources as a critica part of their core competence and source of competitive advantage. As Kamoche 1 comments: the human resource refers to the accumuated stock of knowedge, skis, and abiities that the individuas possess, which the firm has buit up over time into an identifiabe expertise. Training and deveopment activities are part of the way in which the MNE buids its stock of human resources its human capita. An indication of the importance of this is the increasing number of MNEs that have estabished their own universities or schoos. Motoroa, McDonad s, Orace, and Disney universities are good exampes of these in-house training centers. Severa European, Japanese and Korean firms have simiar arrangements (e.g. the Lufthansa Schoo of Business). 2 The internationa assignment in itsef is an important training and deveopment too: Expatriates are trainers, as part of the transfer of knowedge and competence between the various units a major rationae for the use of internationa assignments. Whether impicity or expicity stated, they are expected to assist the MNE train and deveop HCNs that is, train their repacements. Expatriates are aso expected to ensure that systems and processes are adopted, and inevitaby they wi be engaged in showing how these systems and processes work, as we as monitoring the effective performance of HCNs. One of the reasons for internationa assignments is management deveopment. A move into another area internationay job rotation is a usefu way for empoyees to gain a broader perspective. It assists in deveoping capabe peope who form the required poo of goba operators, as discussed in earier chapters.

193 176 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS Therefore, the way in which an MNE anticipates and provides suitabe training for internationa assignments is an important first step. This is refected in the growth of interest in, and provision of, pre-departure training to prepare expatriates and accompanying famiy members for their internationa assignment. Figure 7.1 is a schematic representation of the internationa training and deveopment process. It shows the ink between internationa recruitment and seection, and training and deveopment activities. Most expatriates are interna hires, seected from within the MNE s existing operations. However, as indicated by the dotted arrow in Figure 7.1, some expatriates may be hired externay for an internationa assignment. We wi now consider the various eements reated to expatriate training and deveopment in the context of managing and supporting internationa assignments. FIGURE 7.1 Internationa training and deveopment Recruitment and seection Training Deveopment Internationa team Pre-departure training Internationa assignments The roe of expatriate training Given that the primary seection criterion for most MNEs is technica abiity of existing empoyees, 3 it is not surprising to find that most of the iterature on expatriate training is devoted to expatriate pre-departure training activities that are mainy concerned with deveoping cutura awareness. Therefore, once an empoyee has been seected for an expatriate position, pre-departure training is considered to be the next critica step in attempting to ensure the expatriate s effectiveness and success abroad, particuary where the destination country is considered cuturay tough. In Figure 7.1 pre-departure training is indicated as a subset of genera training. Effective cutura training, it is advocated, assists individuas to adjust more rapidy to the new cuture. As Earey 4 points out, a major objective of intercutura training is to hep peope cope with unexpected events in a new cuture. The imited, predominatey US-based, research into this area reveas that a arge number of US mutinationas have been reuctant to provide even a basic eve of pre-departure training, though this is now changing. Particuar interest in the area began with Tung s 5 study on expatriation practices, incuding the use of pre-departure training programs. Her resuts showed that US mutinationas tended to use training programs for expatriates ess frequenty than European and Japanese firms (32 per cent compared with 69 per cent and 57 per cent, respectivey). The US attitude to the provision of pre-departure training appeared to persist through the 1980s. For exampe, a 1984 study of one thousand US mutinationas found that ony 25 per cent offered extensive pre-departure training programs; 6 whie a 1989 study of US firms found that ony 13 per cent of respondents indicated that they woud offer expatriates a pre-departure program. 7 Among the various reasons cited by firms in these studies was that top management did not beieve pre-departure training was necessary or effective. 8 So, whie the potentia benefits of cutura awareness training are widey acknowedged, such training was downgraded or not offered by a arge number of US mutinationas. 9 A 1997 survey of European firms (incuding subsidiaries of non-european mutinationas) found that ony 13 per cent of responding firms aways provided expatriates with access to cutura awareness courses, though a further 47 per cent provided briefings for cuturay chaenging postings (compared with 21 per cent in a 1995 survey). 10

194 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 177 MNEs appear to be more positive about the provision of training over the ast few years, possiby in part due to the growth in numbers of providers of pre-departure training that mutinationas can access. Today we see different patterns emerging. For exampe, in 2011 Brookfied reports from a sampe of 118 MNEs that 74 per cent provided cross-cutura training (CCT), with 43 per cent offering preparation on some assignments and 31 per cent on a assignments (see source at Tabe 7.1). Furthermore, where cross-cutura preparation is offered ony on some assignments, 46 per cent make it avaiabe based on host ocation, 29 per cent based on the type of assignment and 25 per cent based on other criteria. Here we see that type of assignment and intended ocation have considerabe infuence on when cross-cutura training is offered. TABLE 7.1 Avaiabiity of cross-cutura training in MNEs Brookfied 2009 Brookfied 2011 CCT avaiabe: 81 per cent 74 per cent CCT attendance optiona Provided to: Empoyee ony 7 per cent 4 per cent Empoyee and spouse Whoe famiy Source: Brookfied Goba Reocation Services. Goba reocation trends survey reports, 2011 and Woodridge, IL. A Rights Reserved. Previousy, mutinationa firms paced ess priority on providing pre-departure training for the spouse and famiy. 11 However, perhaps due to increasing recognition of the interaction between expatriate performance and famiy adjustment, more mutinationas are now extending their pre-departure training programs to incude the spouse/partner and chidren. This is refected in the Brookfied data above, and in another survey the Mercer HR 2010 Internationa Assignments Survey. The atter reports that provision of pre-departure training for accompanying spouses and partners continues to increase, with two-thirds of MNEs providing anguage training to the spouse and 55 per cent providing cross-cutura training. ORC 12 reports simiar findings, with 38 per cent providing cross-cutura training to a famiy members, 19 per cent to the expatriate and spouse ony and 11 per cent to the expatriate ony. However, as Tabe 7.1 shows, the percentage of firms that make CCT optiona remains very high (74 per cent in 2011) so it is possibe that many expatriates sti receive very itte training. In a review of CCT, Littre and Saas suggest that a ack of synthesis in the area of CCT research has made it difficut for managers to impement CCT. Their review provides a number of research-based guideines as to how MNEs can enhance the success of their CCT programs. 13 It is aso important to note that the provision of pre-departure training appears to vary across industries: Mercer 14 reports that chemica, pharmaceutica, heathcare and consumer firms are overa the most generous in terms of pre-assignment support, whie IT firms are the east generous. For exampe, 56 per cent of chemica, pharmaceutica, heathcare and consumer firms provide anguage training to assignees chidren but ony 14 per cent of IT companies do. COMPONENTS OF EFFECTIVE PRE-DEPARTURE TRAINING PROGRAMS Studies indicate that the essentia components of pre-departure training programs that contribute to a smooth transition to a foreign ocation incude: cutura awareness training, preiminary

195 178 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS visits, anguage instruction, assistance with practica day-to-day matters and security briefings. 15 We wi ook at each of these in turn. Cutura awareness programs It is generay accepted that, to be effective, the expatriate empoyee must adapt to and not fee isoated from the host country. A we-designed, cutura awareness training program can be extremey beneficia, as it seeks to foster an appreciation of the host country s cuture so that expatriates can behave accordingy, or at east deveop appropriate coping patterns. Without an understanding (or at east an acceptance) of the host-country cuture in such a situation, the expatriate is ikey to face some difficuty during the internationa assignment. Therefore, cutura awareness training remains the most common form of pre-departure training. The components of cutura awareness programs vary according to country of assignment, duration, purpose of the transfer, and the provider of such programs. As part of her study of expatriate management, Tung 16 identified five categories of pre-departure training, based on different earning processes, type of job, country of assignment and the time avaiabe. These were: area studies programs that incude environmenta briefing and cutura orientation; cuture assimiators (a training device whereby various cutura encounters can be discussed and anayzed); anguage training; sensitivity training; and fied experiences. To understand possibe variations in expatriate training, Tung proposed a contingency framework for deciding the nature and eve of rigor of training. The two determining factors were the degree of interaction required in the host cuture and the simiarity between the individua s native cuture and the new cuture. The reated training eements in her framework invoved the content of the training and the rigor of the training. Essentiay, Tung argued that: If the expected interaction between the individua and members of the host cuture was ow, and the degree of dissimiarity between the individua s native cuture and the host cuture was ow, then training shoud focus on task- and job-reated issues rather than cuture-reated issues. The eve of rigor necessary for effective training shoud be reativey ow. If there was a high eve of expected interaction with host nationas and a arge dissimiarity between the cutures, then training shoud focus on cross-cutura ski deveopment as we as on the new task. The eve of rigor for such training shoud be moderate to high. Tung s mode specifies criteria for making training method decisions such as degree of expected interaction and cutura simiarity. One imitation of the mode is that it does not assist the user to determine which specific training methods to use or what might constitute more or ess rigorous training. More than a decade ater, Tung 17 revisited her earier work and reported that her origina recommendations hed, though with some changes: Training shoud be more orientated to ife-ong earning than one-shot programs with an areaspecific focus. There shoud be more emphasis on provision of foreign anguage training. There shoud be emphasis on the eves of communication competence, not just verba communication, so the person becomes bicutura and biingua, which enabes an easier transition between one cuture and another. Cross-cutura training assists in managing diversity. The preview of the expatriate position shoud be reaistic, as this faciitates effective performance.

196 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 179 Mendenha and Oddou extended Tung s mode and this was refined subsequenty by Mendenha, Dunbar and Oddou 18 who proposed three key dimensions in their cross-cutura training mode: 1 training methods; 2 eves of training rigor; 3 duration of the training reative to degree of interaction and cuture novety. This mode provides exceent guideines for managers to determine an appropriate program. For exampe, if the expected eve of interaction is ow and the degree of simiarity between the individua s home cuture and the host cuture is high, the ength of the training coud probaby be ess than a week to provide the appropriate eve of training rigor. 19 Training methods woud emphasize an information-giving approach. Exampes of such an approach woud be: area or cutura briefings; ectures, movies, or books; use of interpreters; surviva-eve anguage training. If the individua is to work in a foreign ocation for a period of 2 to 12 months and is expected to have some interaction with members of the host cuture, the eve of training rigor shoud be higher and the ength of training onger (at east 1 4þ weeks). Training methods woud emphasize an affective approach. Exampes of such an approach woud be: Roe-paying. Critica incidents. Cuture assimiator training. 20 Case studies. Stress reduction training. Moderate anguage training. If the individua is going to a fairy nove and different host cuture and the expected degree of interaction is high, the eve of cross-cutura training rigor shoud be high and training shoud be for two months or onger. Depending on the eve of fuency required for anguage training, some training programs may extend up to a year. Training methods woud emphasize an immersion approach. Exampes of such an approach woud be: Assessment center. Fied experiences. Simuations. Sensitivity training. Intercutura web-based workshop. Extensive anguage training. One obvious practica imitation of Back and Mendenha s mode is that there may be insufficient time for an expatriate to undertake cross-cutura training, which is often given as a reason

197 180 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS why MNEs do not provide pre-departure training or why the uptake for such training is ow. It woud therefore be difficut to deveop appropriate pre-departure training programs in such cases. Other contextua and situationa factors such as, cutura toughness, ength of assignment and the nature/type of the job may have a bearing on the content, method and processes invoved in the cutura awareness training program. More importanty, monitoring and feedback shoud be recognized as important components of individua ski deveopment, particuary as adjustment and performance are the desired outcomes of cutura awareness training. Preiminary visits One technique that can be very usefu in orienting internationa empoyees is to send them on a preiminary visit to the host country. A we-panned visit for the candidate and spouse provides a preview that aows them to assess their suitabiity for and interest in the assignment. Such a visit aso serves to introduce expatriate candidates to the business context in the host ocation and heps encourage more informed pre-departure preparation. It is essentia to note that such a visit must be reevant to the intended position that the internationa empoyee wi be taking up and not simpy a tourist experience. When used as part of a pre-departure training program, visits to the host ocation can assist in the initia adjustment process (for detais on expatriate adjustment see Chapter 5). ORC, 21 in its survey of 916 MNEs, reported that three-quarters provide a pre-assignment trip to expatriates to aow them to become famiiar with the new ocation, secure housing, chid education and other such items that are necessary for a successfu transition to the host country: 49 per cent offer a preiminary visit to the expatriate and spouse, 20 per cent for a famiy members, and 6 per cent for the expatriate ony. Furthermore, the majority of firms typicay provide four to six days for such a trip, with a actua expenses for hote, transportation, meas, and misceaneous expenses reimbursed. Obviousy, the prospective assignee may reject the assignment on the basis of the preiminary visit. As one firm in a 1997 European study 22 is reported to have admitted: We do not provide pre-assignment visits where conditions are so poor that nobody woud want to go. Most firms that utiize preiminary visits, though, weigh the cost of a preiminary visit against premature reca and under-performance risks. A potentia probem arises if the aim of the preiminary visit is twofod part of the seection decision and part of pre-departure training. For exampe, the MNE coud be sending mixed signas to the prospective assignee if it offers the preiminary visit as part of the seection process but upon arriva in the proposed country of assignment, the prospective assignee is expected to make decisions regarding suitabe housing and schoos. Such treatment coud be interpreted as accepting the preiminary visit equas accepting the assignment, thus negating its roe in the decision-making process. Where MNEs use the preiminary visit to aow the assignee (and spouse) to make a more informed decision about accepting the overseas assignment, it shoud be used soey for that purpose. Combined with cutura awareness training, the preiminary visit is a usefu component of a pre-departure program. Exposure to the expatriate community (if one exists in the proposed host ocation) can aso be a positive outcome. Brewster and Pickard 23 found that an expatriate community has an infuence on expatriate adjustment. Language training Language training is a seemingy obvious, desirabe component of a pre-departure program. However, it is consistenty ranked beow that of the desirabiity for cutura awareness training. In trying to understand why anguage skis are given a ower priority we shoud consider the foowing aspects reated to anguage abiity that needs to be recognized.

198 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 181 The roe of Engish as the anguage of word business. It is generay accepted that Engish is the anguage of word business, though the form of Engish is more internationa Engish than that spoken by native speakers of Engish. 24 India is an attractive ocation for foreign ca centers due, in part, to the avaiabiity of a arge oca Engish-speaking popuation from which to recruit empoyees. The wiingness of Chinese nationas to acquire Engish fuency is confirming the dominance of Engish. Mutinationas from the Ango-Saxon or Engish-speaking countries such as Britain, the USA, Canada, Austraia and New Zeaand often use the dominant roe of Engish as a reason for not considering anguage abiity in the seection process, and for not stressing anguage training as part of pre-departure programs. Tung 25 reports that a 12 country study of amost 3000 executives found that respondents from the USA the UK, Canada and Austraia a Engish-speaking countries deemed anguage skis as unimportant. This is in contrast to executives from Europe, Asia and South America, however, who considered knowedge of a foreign anguage as critica to success. A simiar attitude emerged from a study of US mutinationas foreign anguage needs. Fixman 26 found that foreign anguage skis were sedom incuded as part of cross-cutura understanding, and that anguage probems were argey viewed as mechanica and manageabe probems that coud easiy be soved. As Pucik 27 comments, an excusive reiance on Engish diminishes the MNE s inguistic capacity. The resutant ack of anguage competence has strategic and operationa impications as it imits the mutinationa s abiity to monitor competitors and process important information. For exampe, transation services, particuary those externa to the firm, cannot make strategic inferences and firm-specific interpretations of anguage specific data. Fixman 28 raises the question of protecting important technoogy in internationa joint venture activities: It woud seem that the ess one understands of a partner s anguage, the ess ikey one is to detect theft of technoogy. Perhaps more importanty, as Wright and Wright 29 in their study of British firms point out, to accept Engish as the de facto anguage of internationa business gives the advantage to the other person: The other speaker contros what is communicated and what is understood. The monoingua Engish speaker has ess room to maneuver, no possibiity of finding out more than he is given. His position forces him to be reactive rather than proactive in the reationship. What he says and understands is fitered through the other speaker s competence, over which he has no contro. Disregarding the importance of foreign anguage skis may refect a degree of ethnocentrism. A study by Ha and Gudykunst 30 has shown that the ower the eve of perceived ethnocentrism in an MNE, the more training it provides in cutura awareness and anguage training. It aso refects a degree of perhaps unconscious arrogance on the part of expatriates from Engishspeaking countries. However, more firms are incuding anguage training as evidenced by recent surveys. For exampe, the ORC Wordwide 2008 survey reveaed that provision of anguage training to spouses, partners and chidren, as part of pre-departure training programs, had markedy increased. A tota of 84 per cent of the responding firms provided anguage training to expatriates, of which 44 per cent provided it to a famiy members, 30 per cent to expatriates and partners ony, and 10 per cent ony to expatriates. In fact, it was the most common form of spousa assistance whie on assignment with 60 per cent of responding firms indicating provision of anguage training as part of their spousa assistance package. Host-Country anguage skis and adjustment. Ceary, the abiity to speak a foreign anguage can improve the expatriate s effectiveness and negotiating abiity, as we as improve the adjustment of famiy members. As Baiga and Baker 31 point out, it can improve managers access to information regarding the host country s economy, government and market. Of course, the degree of fuency required may depend on the eve and nature of the position that the expatriate hods in the foreign operation, the amount of interaction with externa stakehoders such as government officias, cients, trade officias, as we as with host-country nationas.

199 182 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS In a survey of 400 expatriates by Tung, 32 the importance of anguage skis was identified as a critica component in assignment performance. Respondents indicated that abiity to speak the oca anguage, regardess of how different the cuture was to their home country, was as important as cutura awareness in their abiity to adapt and perform on assignment. Knowedge of the host-country anguage can assist expatriates and famiy members gain access to new socia support structures outside of work and the expatriate community. For exampe, McNuty 33 found that earning the host country anguage was rated by 71 per cent of spouses as an important adjustment activity during internationa assignments, with one spouse suggesting that anguage proficiency is power. Language skis are therefore important in terms of task performance and cutura adjustment. Its continued omission from pre-departure training can be party expained by the ength of time it takes to acquire even a rudimentary eve of anguage competence. Hiring anguage competent staff to enarge the anguage poo from which potentia expatriates may be drawn is one answer, but its success depends on up-to-date information being kept on a empoyees, and frequent anguage auditing to see whether anguage skis are maintained. 34 Knowedge of the corporate anguage. As previousy mentioned, mutinationas tend to adopt (either deiberatey or by defaut) a common company anguage to faciitate reporting and other contro mechanisms. Given its pace in internationa business, quite often Engish becomes the common anguage within these mutinationas. Expatriates can become anguage nodes, performing as communication conduits between subsidiary and headquarters, due to their abiity to speak the corporate anguage. It aso can give added power to their position in the subsidiary, as expatriates particuary PCNs often have access to information that those not fuent in the corporate anguage are denied. An expatriate fuent in the parent-company anguage and the anguage of the host subsidiary can perform a gate-keeping roe, whatever the forma position the expatriate may hod. Most MNEs use staff transfers as part of a corporate training program, with HCN recruits spending time at corporate headquarters as inpatriates (see Chapter 5). These training programs wi normay be conducted in the corporate anguage. Fuency in the corporate anguage is, therefore, usuay a prerequisite for internationa training assignments and may constrain the abiity of subsidiary empoyees to attend and benefit from such training. An exception to this pattern woud be an exampe where key new ine managers from important emerging markets may be trained in their own anguage at the corporate headquarters a practice which the McDonad s Corporation foows at its corporate training faciity in Chicago. 35 Pre-departure training programs often may need to incude both the anguage of the host country and the corporate anguage. Practica assistance Another component of a pre-departure training program is that of providing information that assists in reocation. Practica assistance makes an important contribution toward the adaptation of the expatriate and his or her famiy to their new environment. McNuty, Hutchings and De Cieri, 36 in a study of 31 expatriates based in Asia, found that being eft to fend for onesef resuted in a short-term negative impact on overa return on investment, as we as a perceived breach of the psychoogica contract. One important probem identified in their study was poor HR support such as a ack of mobiity expertise and a poor attitude towards internationa assignees among ocay-trained (host-country) HR staff. Human Resources support was found to matter most in the first weeks or months because most stressors were reated to setting in rather than the new job. Aso probematic for expatriates was not having a centra area or person to go to for advice and information; seeking hep from a dozen or more different departments was considered time consuming and inefficient, and a distraction from doing their job adequatey.

200 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 183 Practica assistance incudes a manner of support both before and during an assignment. 37 For exampe, pre-departure practica support can incude preparing officia papers/visas, shipping assignee s goods to the host country, shipping additiona baggage by air, interim accommodation in the home and host country, additiona moving aowances to hep cover incidenta and out-of-pocket expenses otherwise not reimbursed or covered in the poicy (e.g., connection and instaation of appiances and utiities, purchase of sma eectrica appiances, repacement of non-fitting furniture or cothes), furniture storage in the home country, and consutations with a tax adviser and a reocation agent. On-assignment practica support can incude on-going anguage training, administrative support in fiing in tax and officia administration forms, assistance in opening a bank account, and finding and negotiating a housing ease. On-assignment practica support to hep expatriates sociay integrate is aso needed but ess common according to the Mercer 2010 survey, with ony 12 per cent of companies introducing assignees to other expatriates iving in the host ocation, 10 per cent providing membership to a sport/fitness cub, and 5 per cent to a private/socia cub. Many mutinationas now take advantage of reocation speciaists to provide this practica assistance, for exampe, in finding suitabe accommodation and schoos. 38 Usuay, during the assignment, host-country HR staff wi organize any further orientation programs and anguage training. However, as McNuty et a. show, it is important that corporate HRM staff act as a iaison to the sending ine manager as we as the HR department in the foreign ocation to ensure that adequate practica assistance is provided. Security briefings A reativey new type of pre-departure training is security briefings. This has become necessary as expatriates increasingy reocate to ocations where persona safety may be a concern, and therefore presents increased and unfamiiar threats to their heath, safety and security. Risks and threats to expatriates range from hostie poitica environments (terrorism, kidnapping, hijacking, coup, war), natura disasters, exposure to disease (pandemics), trave accidents and other common trave probems (scheduing deays, passport probems). ORC 39 reports that 21 per cent of companies now provide security briefings to expatriates dependent on the ocation of their assignment, with 43 per cent having estabished forma programs or broad guideines for security and 63 per cent having either a forma or informa program in the case of emergencies. Security pans incude evacuation procedures, assignment tracking systems, ongoing security briefings and continuous improvements in overa security in a at-risk ocations. In 19 per cent of participating companies, ORC reported that expatriates had been repatriated from ocations deemed unsafe. In these instances, particuary for medica evacuations, 64 per cent of companies used an emergency evacuation service (e.g. SOS Internationa), whie 15 per cent covered the costs on an ad-hoc basis. In the event of death or serious iness in the expatriate s famiy, 41 per cent of companies pay the fu cost of trave to the home country for the entire famiy. Interestingy, ORC found that in companies where expatriates were assigned to dangerous ocations, the overwheming majority (71 per cent) did not pay a danger pay aowance. Just 15 per cent offered this aowance, and a further 14 per cent handed it on a case-by-case basis. Training for the training roe Expatriates are often used for training because of a ack of suitaby trained staff in the host ocation. Consequenty, expatriates often find themseves training HCNs as their repacements. The obvious question is how are expatriates prepared for this training roe? There is itte research on this question. We do know from the cross-cutura management iterature that there are differences in the way peope approach tasks and probems, and that this can have an impact on the earning process. 40 The abiity to transfer knowedge and skis in a cuturay sensitive

201 184 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS manner perhaps shoud be an integra part of pre-departure training programs particuary if training is part of the expatriate s roe in the host country. One way that MNEs coud improve the quaity and content of the training offered to expatriates in their roe of training HCNs as their repacements woud be to better utiize the knowedge transfer process when expatriates are repatriated. A paper by Lazarova and Tarique 41 has examined this issue and argues that effective knowedge transfer occurs when there is a fit between individua readiness to transfer knowedge and organizationa receptivity to knowedge. Specificay they propose that: Organizations shoud try to match the eve of intensity of their knowedge transfer mechanisms to the type of knowedge gained abroad. Thus, highy intense extraction toos (e.g. assigning repatriates to strategic teams) shoud be used to acquire internationa knowedge with high tacitness and high specificity...such knowedge woud be transferred most effectivey through rich mechanisms invoving frequent communication between the repatriate and other organizationa members. Organizations can use ow intensity extraction toos (e.g. presentations, intranet) to acquire expicit internationa knowedge (e.g. information on banking aws and reguations in a particuar foreign market). TCN and HCN expatriate training Anecdota evidence suggests that in some firms pre-departure training may not be provided to TCNs being transferred to another subsidiary, and for HCNs (inpatriates) transferred into the parent country operations. Where it is provided, it may not be to the extent of that avaiabe to PCNs. This omission coud create perceptions of inequitabe treatment in situations where PCNs and TCNs work in the same foreign ocation, and affect adjustment to the internationa assignment. Not considering the need for HCNs transferred to the parent organization refects an ethnocentric attitude. 42 There may be a ink between the amount of training, particuary cross-cutura, and assignment ength. HCNs transferred to either headquarters or to another subsidiary are often short-term, project-based assignments or for management deveopment purposes. As such, they may not be regarded as genuine expatriate postings, thus faing outside the ambit of the HR function. In order to design and impement TCN and HCN pre-departure training, oca management, particuary those in the HR department, need to be conscious of the demands of an internationa assignment just as we have discussed in terms of corporate/headquarters HR staff. There perhaps needs aso to be recognition and encouragement of this from headquarters, and monitoring to ensure that sufficient subsidiary resources are aocated for such training. Provision of training for non-traditiona expatriate assignments In theory, a staff shoud be provided with the necessary eve of pre-departure training given the demands of the internationa assignment. Cutura adjustment is inherent in internationa staff transfers. Pre-departure training shoud aso be provided for empoyees on short-term assignments, on non-standard assignments such as commuting, and to internationa business traveers. However, there is a paucity of information regarding pre-departure training for nonstandard assignments. Short-term and non-standard assignments. Given the generay ow eve of provision of pre-departure training to traditiona expatriates, it is not surprising to find that those on short-term and non-standard assignments receive itte or no preparation before departure. The oversight may be due to ack of time, which is a standard reason for non-provision of pre-departure training.

202 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 185 This may be why mutinationas are increasingy using modern technoogy to overcome time and resource constraints. For exampe, Brookfied 43 reports that 32 per cent of companies now use media-based or web-based aternatives to face-to-face cross-cutura training, of which: 28 per cent used media or web-based programs as additiona forms of support for in-person programs; 28 per cent used it for portabiity (anytime, anywhere); 17 per cent as stand-aone aternatives; 9 per cent for time efficiency; 6 per cent for cost reasons. Internationa business traveers Non-expatriates tend to be a forgotten group, yet for many firms they may comprise the argest contingent of empoyees invoved in internationa business. Internationa business traveers are fying into and out of foreign operations performing a myriad of tasks, incuding training. For exampe, expaining new product deveopment, or service, or process, to HCN empoyees that wi invove demonstrations, seminar presentations and other methods of information dissemination. Such interna MNE interaction usuay wi invove the use of the corporate anguage. Therefore, non-expatriates need to be aware that HCNs wi differ in their eve of competence. It is easy to equate inteigence with anguage fuency: perceiving ack of fuency as a sign of stupidity. Interna MNE briefings and training sessions wi need to take into account oca variances in how peope conduct themseves in forma situations and approach the cassroom situation. Internationa business traveers may be providing new product information to foreign agents or distributors. These activities naturay invove cross-cutura interaction. Competence in the oca anguage or at east an abiity to work with and through interpreters may be required. The same appies to those conducting negotiations with host government officias, prospective cients, suppiers and subcontractors. A these activities are strategicay important yet there is itte in the iterature regarding the provision of training for these roes. From the imited, mainy anecdota, information avaiabe, it woud seem that non-expatriates earn on the job, and graduay acquire the knowedge and skis to function effectivey in various countries and situations. 44 For a review of the internationa business traveer iterature see Wech and Worm. 45 THE EFFECTIVENESS OF PRE-DEPARTURE TRAINING The objective of pre-departure training is to assist the expatriate to adjust to the demands of iving and working in a foreign ocation. The question is how effective is such training and what components have been considered to be essentia by those who have been provided predeparture training? The Brookfied surveys ask firms to indicate the vaue of cross-cutura preparation for expatriate success as shown in Tabe 7.2. For the 2011 survey, 79 per cent of companies report cross-cutura training as being of good or great vaue for expatriate success, with ony 2 per cent indicating it has itte or no vaue, and 19 per cent reporting a neutra vaue. However, it shoud be noted that information on how the responding firms evauated their training was not provided a common probem with many surveys of training utiization. Severa academic studies have attempted to assess the effectiveness of pre-departure training. Eschbach, Parker and Stoeber 46 report the resuts of a study of 79 US

203 186 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS TABLE 7.2 Perceived vaue of cross-cutura preparation of expatriates Vaue rating Brookfied 2011 Brookfied 2009 Of great vaue 25% 19% Of high vaue 64% 60% Of neutra vaue 11% 19% Of poor vaue 0% 2% Source: Brookfied Goba Reocation Trends, 2009 and LLC. A rights reserved. repatriates. They measured cognitive, affective and experientia cross-cutura training and anguage training, provided by the company or sef-initiated. The amount and type of training, based on the modes of Tung and Back et a. described earier in this chapter, was incuded. Expatriates with integrated cross-cutura training exhibited cutura proficiency earier, and appeared to have greater job satisfaction, than those with esser training. Repatriates commented that there was a need for accurate, up-to-date cutura and anguage training for expatriates and spouses and many considered that preiminary visits shoud be used. The second study was a meta-anaysis of the cross-cutura training iterature. 47 The concusion reached was that the effectiveness of cross-cutura training was somewhat weaker than expected due to: Limited data as few organizations systematicay evauate or vaidate the effectiveness of their training programs or make them avaiabe to the pubic. The use of a mixture of different training methods, making evauation of which method is most effective difficut to isoate. The arge diversity in cutures that expatriates face. The interaction between individua differences between expatriates and the work environment they face. What works for one person may not work for another. Thus, the effects of cross-cutura training can be as diverse as the countries to which expatriates are assigned. The authors add that traditiona training methods may underestimate the compexity of internationa business ife, where expatriate managers are required to perform compex jobs across mutipe cutura contexts, sometimes on the same day or even within the hour. Training programs that capture this reaity are difficut to find and many existing cross-cutura training programs have yet to prove their utiity. 48 DEVELOPING STAFF THROUGH INTERNATIONAL ASSIGNMENTS Internationa assignments have ong been recognized as an important mechanism for deveoping internationa expertise (see Chapter 5). The expected outcomes are: Management deveopment. Individuas gain internationa experience, which assists in career progression, whie the mutinationa gains through having a poo of experienced internationa operators on which to draw for future internationa assignments.

204 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 187 Organizationa deveopment. Internationa assignments aso provide a MNE with a way of accumuating a stock of knowedge, skis and abiities upon which it can base its future growth. A goba mindset is an important side benefit, as key personne take a broader view. Further, as discussed previousy, expatriates are agents of direct contro and sociaization and assist in the transfer of knowedge and competence. We sha now consider these outcomes, first from the perspective of the individua, and then from the mutinationa s viewpoint. Individua deveopment An internationa assignment can be compared to job rotation, a management deveopment too that seeks to provide certain empoyees with opportunities to enhance their abiities by exposing them to a range of jobs, tasks and chaenges. It is therefore not surprising to find an impicit assumption that an internationa assignment amost aways has management deveopment potentia. Aong with expected financia gain, perceived career advancement is often a primary motive for accepting internationa assignments. This is particuary the case in sma popuation advanced economies (e.g. Austria, The Netherands, Austraia, Finand, Sweden and New Zeaand) where the reativey sma oca economy is not big enough to generate growth and internationa activities provide the opportunity for ongoing revenue growth. 49 In such a situation, empoyees (particuary younger empoyees who are motivated to buid their careers) understand that internationa experience is often an essentia requirement for further career advancement. A recent review by Kerr, McNuty and Thorn 50 outining how Austraians and New Zeaanders pursue goba careers reports that expatriates from these countries not ony pursue company-assigned opportunities, but increasingy pursue sef-initiated opportunities as we. Overa, there is a paucity of research that demonstrates a ink between an internationa assignment and career advancement. There remains a need for research that estabishes career paths as a direct consequence of internationa assignments. There are two possibe expanations for this ack of interest in the career outcomes of internationa assignments: MNEs and researchers have been somewhat preoccupied with the process of expatriation from the organization s perspective. It is important to understand the roes payed by the various IHRM activities so that proper management and support for expatriates can be provided to reduce underperformance and improve cost-effectiveness. Surveys consistenty report that expatriates consider career progression as a primary motive for accepting internationa assignments. Such a consistency of response that is, career advancement as a reason for accepting an overseas assignment has masked the issue of whether these career expectations are, indeed, met. In other words, we know why peope accept internationa assignments, but we do not have a cear picture of when and how these expectations are met, and the consequences to both the individua and the mutinationa if the expected career outcomes are not met. McNuty, Hutchings, and De Cieri 51 provide some recent evidence that Asia-based expatriates are somewhat dissatisfied with their career progression as a resut of undertaking internationa assignments, showing that changing patterns of mobiity in the Asia Pacific region has contributed to a decrease in oyaty and commitment, with impications for MNEs in terms of expatriate retention and overa corporate ROI. Deveoping internationa teams Expatriates may gain individua management deveopment from the internationa assignment, as we have previousy discussed. The internationa assignment often is the training ground for the internationa cadre in Figure 7.2. For MNEs, this term usuay refers to a group of high

205 188 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS potentia empoyees who have been seected for speciaized management training to enabe the MNE to continue to expand its internationa operations. Internationa teams can be formed from those who have had internationa experience, though the internationa assignment itsef may be an assignment to an internationa team, or to form an internationa team. It is frequenty argued that mutinationas, especiay in networked organizations, woud benefit from using internationa teams as: A mechanism for fostering innovation, organizationa earning and the transfer of knowedge. A means of breaking down functiona and nationa boundaries, enhancing horizonta communication and information fows. A method for encouraging diverse inputs into decisions, probem soving and strategic assessments. An opportunity for deveoping a goba perspective. A technique for deveoping shared vaues, thus assisting in the use of informa, normative contro through sociaization. FIGURE 7.2 Deveoping internationa teams through internationa assignments Individua deveopment Internationa assignment Internationa cadre Internationa teams Virtua teams Organizationa deveopment Research and deveopment and internationa projects are common situations where teamwork is utiized and forms the basis of much of the iterature on mutinationa teams, a sub-set of which is the virtua team, where members are geographicay dispersed (see Figure 7.2). To a certain extent, internationa assignments achieve teambuiding by exposing empoyees to various parts of the goba organization. Consequenty, expatriates deveop oca networks that often persist after competion of the assignment. These predominanty informa networks can ater be activated for work situations, such as providing membership of project teams. 52 Not everyone wi wish to become part of an internationa cadre, but to create an effective goba poo of internationa operators, many MNEs are conscious that they need to provide internationa experience to many eves of managers, regardess of nationaity. A sma cadre comprised ony of PCNs may defeat the purpose of having a team of experienced empoyees who are capabe of operating in mutipe environments on various types of tasks and jobs. For exampe, Peterson 53 found that Western-based mutinationas operating in Centra and Eastern Europe were increasing the use of TCN and HCN expatriate transfers as a way of widening the corporate taent poo.

206 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 189 Whie the internationa assignment pays an important roe in both management and organizationa deveopment, its effectiveness depends on the individuas concerned, the type of mutinationa and contextua factors. For exampe, Caigiuri and Di Santo 54 argue that certain personaity characteristics that have been identified as expatriate predictors of success cannot be deveoped through internationa assignments. In other words, individua characteristics such as dogmatic or authoritarian tendencies are not ikey to be atered through an expatriate experience. However, Caigiuri and Di Santo do suggest that individuas can earn to be more sensitive to the chaenges of working in another country that is, to become more cuturay aware. This knowedge and experience woud prove vauabe when working in an internationa team comprised of coeagues from other countries. The MNE needs to be abe to provide the resources and support for those working in internationa teams such as R&D projects. Managers supervising internationa teams, for exampe, wi need to understand processes such as group dynamics, especiay how nationa cutures affect group functioning. Those who have previous experience of internationa assignments and teams wi be better paced than those who have not. Perhaps this is why some MNEs are pacing greater stress on the need for internationa experience and are prepared to use expatriates despite the cost and difficuties often associated with internationa assignments. For reviews of the iterature on deveoping internationa teams see Gibbs, 55 Maznevski et a. 56 and Caigiuri and Tarique. 57 TRENDS IN INTERNATIONAL TRAINING AND DEVELOPMENT There are a number of emerging and continuing trends in internationa training and deveopment. First, athough the pressure from gobaization continues to push MNEs towards a convergent approach to training and deveopment, there is a continuing pressure from many countries (particuary deveoping countries) for ocaization of training and deveopment initiatives of which MNEs must be mindfu. A-Dosary and Rahman 58 have reviewed the benefits and probems associated with ocaization of training and deveopment. Second, there is a growing reaization that athough gobaization is having a major impact on business processes and associated training and deveopment efforts in MNEs, there is evidence that for competence deveopment and earning, it is sti necessary to consider the impact and importance of the nationa context and institutions on such efforts (see Geppert). 59 Third, there is increasing awareness of the important roe of non-governmenta organizations (NGOs) in internationa training and deveopment (see Chang, and Brewster and Lee for reviews). 60 Fourth, with the rise of China as an economic superpower, there is increasing interest in a aspects of training and deveopment with a focus on China (see Wang et a., Zhao, Zhang et a., Zhu, and Wang and Wang for reviews). 61 Finay, there is a reaization in the training and deveopment iterature that the fied must address goba, comparative and nationa eve contexts for training and deveopment, just as the internationa HRM fied is beginning to do so (see Metcafe and Rees 62 for a review). RE-ENTRY AND CAREER ISSUES It is evident from the materia covered in this book that there have been considerabe advances in our understanding and knowedge of the issues surrounding the management and support of expatriates in terms of recruitment and seection, pre-departure training and compensation. As Figure 7.3 indicates, the expatriation process aso incudes repatriation: the activity of bringing the expatriate back to the home country. Whie it is now more widey recognized by managers and academics that repatriation needs carefu managing, attention to this aspect of internationa

207 190 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS assignments has been somewhat beated. In the past, the unpredictabe and incrementa nature of gobaization ed to reactive assignments, and re-entry to the firm was eft unspoken or deat with informay on an ad-hoc basis. As more expatriates competed their assignments, firms were faced with organizing these returns in a more panned pattern that aowed for a more strategic and compete use of the repatriate s newfound experiences and insights, whie at the same time easing the return to their home country and firm. 63 FIGURE 7.3 Expatriation incudes repatriation Recruitment and seection Pre-departure training On assignment Re-entry or reassignment Re-entry into the home country presents new chaenges. The repatriate is coping with what has been termed re-entry shock, or reverse cuture shock. Whie peope frequenty expect ife in a new country to be different, they may be ess prepared for the experience of returning home to present probems of adjustment. As a consequence, it can be a surprising and traumatic experience for some 64 perhaps more difficut than what was encountered in the foreign ocation. From the MNE s perspective, repatriation is frequenty considered as the fina stage in the expatriation process (as indicated in Figure 7.4), but it is important to note that the MNE s abiity to attract future expatriates is affected by the manner in which it handes repatriation. 65 FIGURE 7.4 Repatriation activities and practices Host focus Pre-departure During assignment Upon return 1. Sponsored assigned 2. Communication protocos estabished 3. Web and media contacts for context 4. Pre-departure training and orientation 1. Home eave 2. Work-reated information exchanges 3. Ongoing communication with sponsor 4. Systematic pre-return orientation 1. New assignment 2. Organizationa reconnection 3. Assistance with non-work factors 4. Rituas or ceremonies to share experience Cuture shock out Cuture shock back New baanced integrated goba perspective Home focus In this section, we focus on the key factors associated with re-entry incuding how the repatriation process is handed by the individua and the receiving work unit as we as famiy adjustment. We wi aso expore how repatriation affects the successfu cosure of the foreign assignment, its impact on future career paths within the MNE, and the effect on staff mobiity. The reasons for the internationa assignment and its outcomes are assessed that is, how the MNE recoups its investment in human capita, and the process of knowedge and competence transfer upon

208 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 191 re-entry. It shoud be noted that what is written about the re-entry process centers on the traditiona expatriate assignment, based predominanty on experiences of repatriated PCNs. THE REPATRIATION PROCESS Typicay, on competion of the internationa assignment the MNE brings the expatriate back to the home country, though not a internationa assignments end with a transfer home. Some expatriates may agree to become part of the mutinationa s internationa team of managers (as indicated by the dotted arrow in Figure 7.3) and thus have consecutive overseas assignments. In the event that one of these consecutive assignments invoves the expatriate returning to the home-country operations, it wi be treated as just another posting rather than re-entry or repatriation. For exampe, Wiiam Jones is moved from his home base in the US parent operations to Japan for two years. He then spends four years in China, foowed by one year in headquarters in the USA before moving on to another position in the British operations. That one-year period spent at headquarters is not treated as re-entry back into the home-country operations. In contrast, Mary Smith has spent three years working in China and is repatriated back to the USA into a defined position at headquarters. As outined in Figure 7.4, repatriation can be seen to encompass three phases. First, before the goba assignment, MNEs may act to assign home sponsors or mentors and hod them responsibe for keeping the expatriate in touch with changing conditions in the home country. Ideay, such sponsors might have reevant expatriate assignments as part of their own work history. Web-based indices of reevant nationa, regiona, industria or firm websites may be provided. These ongoing communication protocos may be forma or informa. 66 Mercer 67 reports that 22 per cent of companies have put in pace a mentoring program to assist assignees in the expatriation and repatriation process. But for over haf of these, the mentor system is appied ony in specific cases and not to the entire assignee popuation. By initiay creating this network of persona and media inks the expatriate may be abe to keep up with the changes in the home country, work unit, the arger firm as we as changes in the oca or regiona community whie on assignment. This more systematic updating may contribute to more reaistic expectations on the part of the expatriate, reducing cuture shock upon return. Second, during the assignment, home eave, work-reated information exchanges, sponsor communications and a systematic pre-return orientation process can a faciitate reaistic expectations and ease the return. Aowing for periodic returns to the home country wi hep the expatriate and her/his famiy to reconnect with firm empoyees, famiy and friends and catch up with changing business, economic and poitica conditions. Some MNEs aow their expatriates to use their hoidays to visit more exotic, once-in-a-ifetime ocations coser to the host country. 68 In some cases, this is not a wise poicy for the empoyer as by doing this, some expatriates ose their perspective of how things may be changing in their home country and may deveop a somewhat rose-coored view of ife back at home. The first author has over a number of years been given numerous exampes by managers with internationa experience of expatriate famiies spending their hoidays in other ocations rather than returning to their home country and subsequenty deveoping a rather unreaistic view of ife in their home country which ed to difficuties when the reaity of subsequent repatriation resuted in adjustment difficuties. For this reason, ORC 69 reports that 58 per cent of MNEs enforce a poicy whereby expatriates are required to take home eave in their home country. Work-reated information exchanges are part of any expatriate assignment. Through these reguar and ongoing task-reated communications, a considerabe amount of information about changes in home personne, power poitics, strategic deveopments and ess work-reated updates can be passed on to the expatriate. These activities may become more intense in the months or weeks immediatey prior to the return. Upon return, a series of immediatey practica and more ong-term activities combine during what is normay a very restricted time frame.

209 192 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS MNEs can be ess effective in their use of expatriates by either being too vague and unfocused about repatriates, or they can try to be too efficient by expecting the returning expatriate to jump back into the home assignment before the issues and processes reated to return are resoved iteray before their bags are unpacked. 70 Immediate practica issues upon return incude housing and schoos for chidren. Returning expatriates need to be assigned office space and given an orientation to the new job assignment and oca work group. On a broader scae, the repatriate must reconnect with the oca socia network of the MNE and persona and career dynamics may have to be adjusted in new and potentiay unpredictabe ways. 71 Changes and adjustments for societa, firm and job dynamics on the persona, famiy, job, organizationa and career eves are invoved in this fina stage. Note the two stages of cuture shock represented at the bottom in Figure 7.4. An overemphasis on the home focus, at the expense of a focus on the host assignment can ead to probems with performance whie on assignment and premature return. At the same time, an overemphasis on host activities, at the expense of some awareness of changes at home can ead to a second cuture shock upon return. The goa of any set of expatriation/repatriation practices shoud resut in the successfu integration of home and host experiences. Achieving this more baanced set of transitions is not aways easy. For exampe, Harzing 72 has conducted a comprehensive survey of 287 subsidiaries of neary 100 different mutinationas and reported that 52 per cent of samped firms experienced repatriate re-entry probems. IHRM in Action, Case 7.1 provides an exampe of some of these probems. Re-entry and repatriation probems The probems outined above and in the IHRM in Action Case 7.1 may ead to staff turnover, with repatriates opting to eave the organization. The GMAC-Goba Reocation Services 73 goba surveys (referred to in previous chapters) provide vauabe data on repatriate turnover. Firms in the 2011 survey indicated that the average annua turnover for a empoyees was 8 per cent [page 56 of report] ower than the historica average of 12 per cent. For expatriate attrition, respondents reported the foowing resuts for 2011: 22 per cent of expatriates eft the company during an assignment (historica average 21 per cent); 28 per cent eft within one year of returning from an assignment (historica average 31 per cent); 24 per cent eft between the first and second year of returning from an assignment (historica average 24 per cent); 26 per cent eft after two years of returning from an assignment (historica average 24 per cent). Overa, in 2011, 4 per cent of internationa assignments resuted in faiure. The eading causes of assignment faiure cited by respondent firms were: Spouse/partner dissatisfaction (18 per cent). Poor candidate choice (16 per cent). Poor job performance (13 per cent). Inabiity to adapt (12 per cent). Other famiy concerns (8 per cent). In terms of annua change in expatriate attrition rate, 67 per cent of firms reported no change, 19 per cent an increase and 14 per cent a decrease (the historica averages are 71 per cent, 16 per cent and 13 per cent for these categories).

210 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 193 IHRM in Action Case 7.1 Repatriation and oss prevention at ISCAM On his ast day of work at ISCAM, Wayne Buova wrote up his etter of resignation, took the five weeks of vacation he was due and waked through the February snow across the downtown Denver street to open his own safety and security consuting firm. Ony three years earier, Wayne had jumped at the chance to take the assignment as Loss Prevention and Safety Director at ISCAM s new regiona center in Peru. As a goba mining engineering firm with decades of internationa activities, ISCAM had done a very good job of preparing Wayne and his famiy for the differences between Lima and Denver. The chidren had quicky adjusted to the American schoo, surprisingy his Mexican born wife had enjoyed being invoved in both the expatriate community and the oca Peruvian church group associated with the Cathedra, and Wayne had immediatey enjoyed the increased responsibiities and centraity of his new roe. As an ex-us Army Ranger Captain, his security roe did provide occasiona adrenain rushes as he responded to Sendero Luminoso activities in mine sites around Huaneayo, but the evident success of the counterterrorism and security protocos he deveoped were gratifying. His return to Denver, some six months ago, was a different matter. He knew that things woud be different at home after the corporate restructuring that occurred a year into his expatriate assignment. His ong-time mentor and friend, Herman Bakin, had taken a reportedy very generous eary retirement package after a ong-simmering executive power strugge unpredictaby came to a head. Severa restructuring aftershocks reocated many of his coeagues outside of Coorado. During his assignment in Peru Wayne was more and more frustrated as his informa corporate inteigence network dissoved and the roe of his iaison was passed around among a series of increasingy junior, and to his mind cueess, executives. The assignment he was promised by the company president was rethought and when he returned six months ago he spent the better part of a month trying to get an office and understand his new job. Everyone he taked to had a different perspective on what he was being asked to do. He fet caustrophobic, and to make matters worse, the new counter-terrorism and security protocos he had deveoped and used, with great success, in Peru were either systematicay ignored or so modified by his supervisors that they were unrecognizabe. At a Bronco s footba game he shared his growing frustrations with Bakin. On the home front, the new house they had purchased upon return having sod their home at the advice of the HR director at the time of the internationa assignment was expensive, hard to heat and paced them in a city schoo district that the chidren were having probems with. He had ooked at private schoos, but the tuitions were astronomica and his saary was not much more than it had been three years ago. His wife had started to compain about Denver winters again. At work, Wayne fet as if he had returned to a totay different word. Bakin asked if ISCAM had asked Wayne to renew his executive non-competition agreement. Wayne repied that ISCAM had not. We, there you go, said Bakin, Let s do what we have taked about for years. With your technica expertise and my industry contacts, we can work for ourseves at east we wi know who our bosses are and what the job is. Source: Fictionaized synthesis from severa interviews. When asked to rate the effectiveness of ways to reduce expatriate turnover (in order of high, medium or ow effectiveness), Brookfied (formery GMAC Goba Reocation Services) survey respondent firms cited five methods: Opportunity to use experience (35 per cent). Position choices upon return (22 per cent). Recognition (16 per cent).

211 194 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS Repatriation career support (13 per cent). Improved performance evauation (9 per cent). Given the reasons why internationa assignments are used, the direct and indirect costs invoved, and the various roes that are assigned to expatriates, it seems important to understand why reentry is probematic yet of seemingy esser importance to researchers and managers than other stages of the internationa assignment. To this end, we now examine factors that may contribute to re-entry probems, considering the process first from the individua s perspective, and then the MNE s viewpoint. INDIVIDUAL REACTIONS TO RE-ENTRY As with cross-cutura adjustment, the re-entry process is a compex interaction of severa factors. It is possibe to group the major factors that have been identified as moderators of re-entry readjustment into two categories job-reated factors and socia factors as depicted in Figure 7.5, which we now discuss. Job-reated factors These factors center around future empoyment prospects as a consequence of the internationa assignment, the vaue being paced on the person s internationa experience, coping with new roe demands and the oss of status and financia benefits upon re-entry. We sha examine these factors in turn. Career anxiety. When surveyed, expatriates consistenty ist two motivators for accepting an internationa assignment: career advancement and financia gain. 74 The Brookfied 2010 Survey FIGURE 7.5 Factors infuencing repatriate adjustment Job-reated factors Career anxiety Loss of visibiity and isoation No post-assignment guarantee Workpace changes Work adjustment Re-entry position Empoyment reationship Devauing experience Coping with new roe demands Loss of status and pay Socia factors Famiy adjustment Socia networks Effect on partner s career Infuences repatriate adjustment

212 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 195 asked about the vaue of internationa experience to an empoyee s career and respondents gave the foowing responses: 33 per cent of respondents said that expats were promoted faster; 28 per cent beieved that expats obtained positions in the firm more easiy; 28 per cent of respondents noted that expats changed empoyers more often. It is not surprising then that a prime factor in re-entry is career anxiety. This can emerge prior to the physica reocation, even before Phase 1 in Figure 7.5, and can affect productivity during the ast few months of the internationa assignment as the person contempates the re-entry process. So, what prompts career anxiety? The causes range across the foowing and are often interreated: No post-assignment guarantee of empoyment. This is becoming the reaity for perhaps the majority of empoyees on internationa assignments. The Brookfied 2010 Survey asked respondents if their firm required a cear statement about what the expatriate woud do foowing an assignment. Ony 12 per cent of respondents indicated that they did. 75 Studies that break down genera trends into regions and countries revea some differences. The Tung-Arthur Andersen 1997 survey of 49 North American firms reported that the majority (amost 60 per cent) did not guarantee a position at home upon successfu competion of the overseas assignment. 76 In her study of internationa HR practices in German and UK firms, Marx 77 found that the majority of German firms offered a guaranteed job upon return from the foreign assignment, whereas the majority of UK firms admitted that they were not abe to offer jobs upon repatriation. Marx suggests that Continenta European firms may have to provide such guarantees in order to attract expatriates. Given this ack of job security, it is not surprising that career anxiety commences prior to homecoming, and acts as a readjustment moderator upon re-entry if career outcomes are not reaized. A fear that the period overseas has caused a oss of visibiity and isoation as captured in the phrase: out of sight, out of mind. 78 This fear can commence at any stage during an assignment and not just as the end of the posting draws near. A range of factors may infuence this process: (1) the amount of contact that the person has had with the home organization; (2) the seniority of the position; and (3) whether the expatriate knows in advance what re-entry position they wi take up when they return to their home country. The foowing expatriate expains this chaenge we: One very senior partner out in the region once joked the moment you get off the pane everybody starts thinking about what are they going to do when they go back. I remember aughing that off thinking I just got here, that doesn t make any sense at a. And then after a whie I went Oh I get it. You reay do constanty think about how does this a fit into the bigger picture... [so] I think what is expicity missing is there is no advanced career panning that woud incude the repatriation component prior to your depoyment. There is no mid-term and certainy no ong-term thinking around that. And where it needs to start is pre-trip... to start thinking to take advantage of the skis and network that the individua wi be abe to bring back. 79 Lack of information may increase the eve of anxiety eaving the person with a decided impression that the firm has not panned adequatey, or that a mediocre or makeshift job awaits. 80 If there is no post-assignment job guarantee, the anxiety eve may be understandaby high. Changes in the home workpace. Anxiety can be exacerbated by informa communication from home-based coeagues about organizationa changes. It may be that the MNE is in the process of a major restructuring, the aftermath of a merger or acquisition, or sae of divisions or business units. These changes are often accompanied by job shedding. Knowedge of such changes and potentia or rea job oss may add to the eve of anxiety particuary if the expatriate does not have a guaranteed job upon repatriation.

213 196 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS Another issue here is that restructuring can affect the host-country operations such as cosure of a pant, dissoving of a joint venture or merging of operations post-acquisition. This may eave the expatriate stranded, or force an eary, unpanned repatriation. 81 If simiar changes are aso occurring in the home country, then avaiabiity of suitabe positions may be reduced. One repatriate who was paced in such a position expains: The division I worked for was reorganized, and the subsidiary I worked for was paced under stringent cost-cutting guideines, which forced me to return earier than anticipated. My re-entry was very cod, with itte support in finding a job since previous management had been fired. 82 A of these factors combine to suggest that expatriates can be deepy affected by career anxiety. In a recent study examining expatriates views reating to the perceived benefits gained at the individua eve from internationa assignments, McNuty et a. found that 87 per cent of expatriates in an Asia Pacific study perceived career enhancement as increasing their marketabiity to other empoyers and not just their own. These views were argey based on inadequate career panning provided by MNEs. Specific benefits from internationa assignments incuded: being more visibe; it shoud open up doors to the future, exhibiting a broader mindset which shoud make me better suited for advancement and giving me oads of experience to bring back to [my home country]. 83 Work adjustment. Back, Gregersen and Mendenha 84 argue that work adjustment has an important impact on a person s intent to stay with the organization (see aso Chapter 5). Career anxiety is one moderating factor, but other factors may aso ead to readjustment probems: The empoyment reationship. An individua s career expectations may be based on cear messages sent by top management to the effect that an internationa assignment is a condition for career progression. That is, verba or written statements such as: We are an internationa company and we need internationay oriented peope who have worked in our overseas faciities. These pronouncements can be made in the context of the need for a goba orientation or mindset where a definite ink is made between internationa experience and goba managers. Perceptions regarding expected career outcomes aso are infuenced by comments made by HR or ine managers during the recruitment and seection stage. For exampe, the ine manager may suggest to a younger empoyee: You shoud vounteer for that internationa assignment. It woud be a smart career move at this stage in your ife. If others have been promoted upon repatriation, it may be perceived to be the norm, thus reinforcing the perception that internationa assignments ead to promotion upon re-entry. For these reasons, the person beieves promotion shoud foow based on successfu performance whie abroad and if the re-entry position does not eventuate within a reasonabe time frame, then career anxiety is justified. A study by Lazarova and Caigiuri 85 of 58 repatriates from four North American-based companies found that repatriation support practices are positivey reated to perceptions of organizationa support, and these affect repatriates intention to stay or eave the organization. The psychoogica contract is a moderator of re-entry readjustment as we as on-assignment adjustment and performance. The repatriate may beieve that the performance overseas warrants promotion: that signas were given by the organization that effective performance in the internationa assignment woud resut in career advancement. When the expected promotion does not eventuate, the repatriate may fee there is no option but to exit the organization. It is important to note that the psychoogica contract concerns perceptions and expectations, compicated by the fact that the MNE representative making statements about career outcomes prior to the internationa assignment is not necessariy the person who is responsibe for re-entry decisions about job pacement and promotion.

214 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 197 Re-entry position. It woud seem for some that promotion is a primary issue as the foowing comment from a repatriate reveas: 86 Get a promotion before the return! You are forgotten whie overseas, and you start a over on the return. The promotions go to peope who have been in a position for extended periods; nothing done overseas counts in this company. Fears surrounding future empoyment and career deveopment can materiaize. Peers are promoted ahead of the repatriated manager, and the repatriate sometimes is paced in a position that is, in effect, a demotion. The situation may be exacerbated if the repatriate had hed a senior position in the foreign ocation and now finds himsef (or hersef) at a ess senior eve. As a consequence, the re-entry position is frequenty judged by whether it matches the repatriate s career expectation, particuary when the internationa assignment has caused considerabe famiy disruption; such as a forced break in the career of the accompanying partner, or difficuties experienced with the education of the chidren invoved. Put simpy, the repatriate wants the end to justify the means, so that the famiy unit is fuy compensated for the sacrifices it has made in expectation of career advancement. Suutari and Brewster, in their study of Finnish expatriates, report that most repatriates eft ony after they fet that they had given the firm sufficient time to find more suitabe positions. These authors identified an externa pu factor : externa recruiters were activey head-hunting repatriates either during the assignment or upon return. 87 A question put to responding firms in the GMAC GRS surveys concerned the career impact of internationa experience. Firms were asked to compare the careers of expatriates with those of empoyees without internationa experience. Tabe 7.3 provides the foowing resuts: It seems cear from the resuts in Tabe 7.3 that the vaue to empoyees of remaining with their firm after an internationa assignment is not particuary compeing, but it may we be that empoyees beieve that their internationa experience may increase their marketabiity to other empoyers. Stroh 88 found that the best predictors of repatriate turnover were whether the company had a career deveopment pan; and whether the company was undergoing turbuence, such as downsizing. She argues that ower rates of repatriate turnover are more ikey in organizations that panned for the repatriation of their empoyees and provided career deveopment panning for them. Devauing the overseas experience. Career progression is important but to be promoted upon reentry signifies that internationa experience is important and vaued by the organization. However, the re-entry position may be a ess chaenging job with reduced responsibiity and status than that hed either during the internationa assignment, or prior to the period overseas, in hoding positions such as a task force or project team, or in temporary positions engaged in duties that do not appear to expoit their newy gained internationa expertise. 89 For some, the return position is frequenty a atera move rather than a promotion. 90 The positions do not seem to be reated, nor draw upon, experiences and skis the person may have acquired during the internationa assignment that is, giving the impression that such experience is devaued. TABLE 7.3 Career impacts of internationa assignments 2011 survey 2005 survey 2004 survey Expatriates were promoted faster 33 per cent 37 per cent 34 per cent Expatriates obtained new positions in the company more easiy 38 per cent 36 per cent 35 per cent Expatriates changed empoyers more often 18 per cent 24 per cent 23 per cent Source: GMAC GRS Surveys, 2004, 2005, 2011.

215 198 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS Coping with new roe demands. Aong with career issues, a mismatch of expectations can affect the repatriate s perception of the roe associated with a new position. A roe is the organized set of behaviors that are assigned to a particuar position. Athough an individua may affect how a roe is interpreted and performed, the roe itsef is predetermined, usuay defined in the job description. 91 Effective roe behavior is an interaction between the concept of the roe, the interpretation of expectations, the person s ambitions and the norms inherent in the roe. Readjustment probems may occur because, athough the repatriate is attempting to function back in the home country, his or her roe conception remains infuenced by the experience of the foreign assignment. Torbiörn 92 contends that as ong as the repatriate s identity and basic vaues are sti bound up in the cuture of the home country, the strain of adjusting to conditions at home wi be sight. However, whie the repatriate may retain the roe conception, and the cutura norms regarding behavior appropriate to that roe, the foreign subsidiary s infuence may inger, and what is communicated to the home company, in the form of roe behavior, may not fuy conform to the home firm s expectations. Socia factors The famiiar surrounds of the home environment may ease the transition, or at east the cutura adjustment wi not be as demanding as that confronted in the foreign country. However, the internationa experience can distance the repatriate, and his or her famiy, sociay and psychoogicay. If the expatriate position gave the person a higher profie, invoving interaction with the oca nationa socia and economic eite, the return home may bring with it some measure of socia disappointment. The financia oss of the compensation premium, housing subsidy and reated benefits may aso exacerbate these feeings. Famiy adjustment. It must be stressed here that, where spouses, partners and chidren are invoved, each famiy member is experiencing his or her own readjustment probems. 93 For some returnees, re-entry is a shock. It is as if they had pressed the pause button as they few out of the country, and expected ife at home to remain in the freeze frame. Re-entry reminds them that ife is not static. Others may have, as a coping behavior in the foreign ocation, gamorized ife back home, and now have to come to terms with reaity; to accept the negative as we as the positive aspects of home. For exampe, the foreign country may have appeared more expensive in reative terms, but upon repatriation, the famiy is confronted with a higher eve of infation in the home country than was previousy the case. Conversey, ife at home may now seem du and unexciting in contrast, and the famiy unit may begin to gamorize the ife they eft behind in the foreign ocation. These reactions can be compounded if the famiy income has been reduced upon repatriation. Of course, the income eve depends on whether spouses/partners worked whie in the foreign ocation, and how quicky they find suitabe jobs upon repatriation. Socia networks. In the past, impressions generated about changes in the home country may have depended on how effectivey the famiy was abe to keep up to date with events back home. In the 21st century this is much ess of a probem as the coverage by sateite teevision news channes such as CNN and BBC Word, wide-spread access to the internet, emai, socia media, mobie phone technoogy, the ow cost of communication via Skype and goba-oriented newspapers such as the Internationa Herad Tribune, make it significanty easier for expatriates to foow events in their home country and stay in touch with their extended famiy. This in turn assists with re-estabishing socia networks which can be difficut, especiay if the famiy has been repatriated to a different state or town in the home country. Chidren may aso find re-entry difficut. Coming back to schoo, attempting to regain acceptance into peer groups and being out-of-touch with current sport and fashion can cause some difficuties. One can specuate that the more difficut the re-entry process for the chidren, the greater the spi-over effect for the repatriate.

216 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 199 Effect on partner s career. Partners encounter difficuties in re-entering the workforce, particuary if the partner has not been abe to work outside the home prior to, or during, the foreign assignment, but now desires to find outside empoyment; either as part of a re-entry coping strategy, or due to atered famiy circumstances. Negative experiences during the job search may affect the partner s sef-worth, compounding the readjustment process and even causing tension in the reationship. For those who hed positions prior to the overseas assignment, difficuties in re-entering the workforce may depend on occupation, 94 ength of time abroad, unempoyment eves in the home country and persona characteristics such as age and gender. 95 There is imited research into the effects of the foreign assignment and repatriation upon the partner s career, and many questions surrounding this issue remain unexpored: Do new empoyers consider the vaue of the time overseas to compensate for the forced career disruption? Have those partners who were abe to work during the foreign assignment found empoyment in career-reated jobs, and been abe to progress upon repatriation? What effect does not working during an assignment have on partners sef-esteem and confidence to re-enter the workforce upon repatriation? McNuty 96 found that expatriate partners were quite distressed during assignments when they were unabe to work, often eading to serious consequences: I know for a fact a number of the femae partners of my husband s mae coeagues who have a reocated here have had serious probems adjusting due to their inabiity to work and make friends in this ocation. Many wish to return home, others are reay stressed, and two are potentia suicide cases... shoud I not be abe to obtain work after a reasonabe amount of time, I wi seriousy consider breaking the contract because I can think of a haf dozen expat wives who are on anti-depressants because of it and I won t be joining them. Do mae traiing partners face different chaenges upon repatriation than do femaes? In one of the few reported studies into dua-career expatriates, Harvey 97 found a difference between femae expatriate managers expectations prior to and after expatriation, exposing the need for support for the mae traiing partner. The overseas assignment was the focus of Harvey s study, but one coud assume that the same resuts woud hod true upon repatriation. More recenty, Linehan and Scuion 98 ooked at the repatriation process of femae expatriates working in various European companies but did not consider the career aspect of the accompanying spouse/partner. Readjustment of the expatriate, whether mae-ed or femae-ed, may be inked with concerns about the effect that the foreign assignment might have on the partner s career. Given that duacareer coupes are on the increase, and that more femaes expect overseas assignments, the issue of the partner s career is ikey to become a major factor determining staff avaiabiity for future overseas assignments. Yet ORC 99 reported that whie pre-assignment and on-assignment assistance to spouses was reativey good, the ikeihood of mutipe types of support was smaer upon repatriation. Our anaysis has reveaed how various factors infuence re-entry and readjustment at the individua eve. These moderating factors can combine in hard to predict ways, creating a voatie situation that may ead to the repatriate s unforeseen and debiitating exit from the mutinationa. RESPONSES BY THE MNE The above sections have considered the re-entry and career issues from the perspective of the individua repatriate. We sha now examine the issues from the viewpoint of the mutinationa

217 200 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS enterprise. Eary studies into the issue of repatriation indicated that it was somewhat negected by MNEs. For exampe, Mendenha, Dunbar and Oddou 100 concuded that US human resource professionas may be unaware of the chaenges facing repatriated managers. Commenting on the resuts of his 1989 study Harvey 101 noted that: Even though many executives have experienced difficuties upon repatriation, [US] mutinationas have seemingy not addressed the issues reated to repatriation with the same eve of interest as preparing executives for expatriation. However, it appears that there has been some recent progress on this issue. For exampe, the Brookfied data shows that in 2011, 95 per cent of responding firms hed re-entry discussions, compared with a historica average of 92 per cent. The timing and formaity of these re-entry discussions varies. For exampe, 23 per cent of respondents discussed repatriation before eaving on the assignment, 25 per cent did so at east six months before return and 47 per cent discussed repatriation ess than six months before assignment competion. The Brookfied surveys do not report on spousa or famiy invovement in reentry discussions, but these aspects were raised in the ORC Wordwide 2005 report on dua-careers which reported job search assistance, résumé preparation and career counseing as the most common forms of assistance. However, the report does not indicate if this was negotiated before or during the internationa assignment or upon re-entry, and if it was part of a re-entry discussion. Managing the process of repatriation shoud be of concern to MNEs that desire to maximize the benefits of internationa assignments and create a arge interna abor market. A wedesigned repatriation process is important in achieving these objectives, for three main reasons: staff avaiabiity, return on investment and knowedge transfer. These are now discussed. Staff avaiabiity and career expectations The way a mutinationa enterprise handes repatriation has an impact on staff avaiabiity for current and future needs, as indicated in Figure 7.6. Re-entry positions signa the importance given to internationa experience. If the repatriate is promoted or given a position that obviousy capitaizes on internationa experience, other managers interpret this as evidence that internationa assignments are a positive career move. On the other hand, if a MNE does not reward expatriate performance, toerates a high turnover among repatriates, or is seen to terminate a repatriate s empoyment upon re-entry, then it is ikey that younger managers wi concude that acceptance of an internationa assignment is a reativey high-risk decision in terms of future career progression within the organization. The MNE s abiity to attract high-caiber staff for internationa assignments is thereby essened, and this can have a negative effect on the firm s internationa activities in the ong term. FIGURE 7.6 Linking repatriation process to outcomes Vaue paced on internationa experience Repatriate experience Management of repatriation process Staff avaiabiity and retention Empoyment reationship Organizationa commitment Knowedge sharing

218 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 201 Recenty, there has been some discussion in the management iterature about internationa assignments and boundaryess careers. The term boundaryess career appears to have been coined in recognition of shifts occurring in the empoyment reationship, particuary in Western countries. The traditiona hierarchica career path, with definabe stages (such as junior, midde and senior manager), assumed ong-term empoyment within one organization the so-caed job-for-ife where one cimbed the corporate adder. Empoyees now tend to switch jobs more frequenty, either vountariy or invountariy due to economic changes or organizationa restructuring. The boundaryess careerist is the highy quaified mobie professiona who buids his or her career competencies and abor market vaue through transfers across boundaries. 102 Careers are becoming discontinuous in the sense that individuas move between organizations and may have periods of contract work, sef-empoyment or unempoyment interspersed with more traditiona empoyment arrangements. Internationa assignments, particuary for career expatriates or goba managers, are sometimes regarded as boundaryess in that the assignment paces the person in another organization, most commony a subsidiary or an internationa joint venture. Accompanying this view is the notion that the individua rather than the organization is responsibe for career management: the term protean (after the Greek god Proteus who coud change into any form) 103 is sometimes used to refect the idea of a sefdirected career with continuous earning. Mutinationas are reinforcing the notion of protean and boundaryess careers when they do not guarantee repatriates positions upon re-entry. As Stah et a. 104 found in their arge study of 494 German managers posted to 59 countries: the vast majority of expatriates viewed their internationa assignment as an opportunity for ski deveopment and future career advancement, even though it may not be with their current company, [which] supports the notion of boundaryess careers. The McNuty et a. study cited earier dispays simiar findings in their study of 31 Asia-based expatriates, where 87 per cent perceived that undertaking an internationa assignment woud benefit their ong-term career prospects but not necessariy their continued empoyment with their firm. In such cases, commitment and oyaty to the organization is instead repaced by commitment and oyaty to one s career, i.e., a free agent mentaity. Such a change may restrict the abiity of the organization to retain high-caiber individuas to successfuy compete internationa assignments, thus affecting the quaity as we as the quantity of suitabe candidates and the deveopment of a cadre of goba operators. Simiar resuts were found in a study of German and Singaporean expatriates. Both of these groups reported concerns with their firms abiity to faciitate their careers upon return from internationa assignments, provide further opportunities to use the new knowedge and skis they had gained during their internationa assignments, or provide them with new positions having the responsibiity, autonomy and compensation at eves that met their expectations. They did fee as if these internationa assignments enhanced their opportunities among other possibe empoyers and faciitated the deveopment of their own intercutura and professiona or manageria skis. 105 In some instances MNEs may choose to seect internationa itinerants, that is, professiona managers who over their careers are empoyed for their abiity, by at east two business organizations that are not reated to each other, in at east two different countries, 106 instead of seecting in-house candidates who wi have to be repatriated to the MNE. By seecting these individuas in ieu of interna candidates, overa costs may be reduced, ongoing support costs can be managed, and germane to our discussion repatriation activities can be eiminated. The two main disadvantages of using of these types of assignees reate to a ack of in-depth firm knowedge by the itinerants and probems the MNE may have in seecting and controing itinerants. 107 Much of the iterature on boundaryess careers has focused on domestic business, particuary in the United States. Some researchers suggest that expatriate careers sti correspond very much to the traditiona mode of the organizationa career, especiay in the case of a goba corporate phiosophy that paces some emphasis on the deveopment of goba eaders. 108 Festing and Müer 109 found in a study of 168 aumni of a European business schoo that in cases where

219 202 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS internationa assignments had an important strategic vaue for the MNE and were accompanied by a high eve of IHRM activity, expatriates had rather traditiona career expectations aiming at a ong-term empoyment reationship with their empoyer. In these cases the retention rates of internationa managers after the internationa assignment were high. This indicates that the organizationa context at east party infuences the emergence of expatriate career patterns and confirms the reationships outined in Figure 7.5, i.e. that IHRM measures such as repatriation programs infuence the outcomes in terms of the empoyment reationship in genera and specificay empoyee retention rates and commitment. How activey an MNE manages an internationa assignee s career may vary substantiay, with decisions made on the basis of strategy or simpy reaction to circumstances. Career management is conceptuaized in an anaysis of 194 UK-based firms by Baruch and Peiper as being more or ess sophisticated and with more or ess invovement by the firm in an empoyee s career. Basic and forma practices, comprised of ess sophisticated career practices and ow eves of invovement, are characterized by practices such as common career paths, written persona career panning, job posting and atera moves. More sophisticated practices with higher eves of firm invovement in an empoyee s career are described as mutidirectiona and active panning forms of career management. These modes are characterized by practices such as in-depth career counseing, succession panning, a strong ink between performance management systems and career panning, peer appraisas and upward appraisa processes. 110 Surprisingy itte is known about the factors that determine how much time, energy and effort returning expatriates and executives in MNEs wi put into career practices designed to maintain existing work reationships, as opposed to simpy accepting repatriation turnover as an inevitabe cost of doing business gobay. Return on investment (ROI) Expatriates are expensive, especiay expatriates from first-word advanced economies. Where possibe, mutinationas try to ocaize positions through the empoyment of HCNs, but not a positions can or shoud be ocaized. Simiary, MNEs are increasingy using oca-pus compensation for PCNs or TCNs as a way to reduce costs. 111 One aternative, which more MNEs are utiizing or experimenting with, is a short-term or non-standard assignment to repace the traditiona expatriate assignment. Cost containment is the driver here aong with staff immobiity. For exampe, 79 per cent of firms in a 2005 goba survey by Price-WaterhouseCoopers 112 identified cost reduction as important or very important in the evoution of internationa assignment practices, and the Brookfied surveys continue to indicate that cost containment drives assignment trends. However, faced with the business reaity that expatriates wi aways be with us, the question is how to ensure the organization reaps the benefits of internationa assignments regardess of duration and form. Back and Gregersen 113 cacuated that a US mutinationa spends around one miion doars on each expatriate over the duration of a foreign assignment. They argue that, if approximatey one in four repatriates exits the firm within a year of repatriation: It represents a substantia financia and human capita oss to the firm, especiay if the skis, knowedge, and experience that the individua gains are important to the firm and scarce in the interna or externa abor markets. Getting a return on this investment woud appear to be an important objective, but not easy to achieve. First, there is a matter of definition. Respondents in the Brookfied surveys have shown wavering agreement as to how ROI shoud be defined e.g., accompishing the assignment objectives at the expected cost with agreement ranging from 96 per cent in 2002 to 10 per cent in 2004, and 70 per cent in In one of the few artices that considered ROI on internationa assignments, McNuty and Tharenou 114 recognize that a meaningfu definition shoud incude a cost-benefit anaysis of financia and non-financia data, measured against the purpose of the assignment. Identifying direct costs is reativey easy as reocation expenses, an itemized compensation package and other internationa assignee entitements are accessibe. The indirect,

220 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 203 intangibe, non-financia costs are more probematica. These incude the non-direct costs of expatriate faiure or under-performance and the opportunity cost of not using a HCN. Pacing monetary vaue on the benefits of the internationa assignment is aso a chaenge as the intangibes (e.g. knowedge and skis transfer, management deveopment and reationship/ network buiding) are somewhat invisibe, often tacit and person-bound. It is difficut to measure inteectua, socia and human capita gains 115 improvements in the stock of knowedge and competence that resut from a successfu repatriation process. ROI anaysis aso focuses on the internationa assignment period, and can be an exercise to justify cost reduction measures (such as repacing expatriates with HCNs) rather than considering gains that accrue to the organization through repatriated staff. Athough firms participating in the Brookfied surveys tracked assignment costs, ony 25 per cent of respondents in the 2011 survey compared estimated with actua costs, the owest in the history of the 16-year report. Difficuties encountered in attempts to measure ROI were: Not being sure how to measure ROI (50 per cent). Lack of importance of ROI to organizationa goas (not required) (16 per cent). No time to measure (14 per cent). More importanty, when asked to rate their firm s internationa assignments in terms of ROI, no firm rated ROI as exceent or very good, with 67 per cent rating it as good and 33 per cent as fair. As Brookfied stated: This was the owest sef-rating of ROI for internationa assignments in the history of the report. Further, empoyees wi perform their own ROI cacuations (what McNuty et a. ca individua ROI) based on perceived and actua costs and benefits, and these cacuations wi infuence their wiingness to accept an internationa assignment (or repeat the experience) either with their current firm or another empoyer. Aigning corporate objectives with individua expectations is not an easy task, and compounds attempts to baance costs and benefits for both parties. 116 Knowedge transfer A common theme in current internationa business that is stressed by managers is the need for cross-fertiization of ideas and practices that assist in deveoping and maintaining competitive advantage. Internationa assignments are a primary method of achieving this objective. As the Economist Inteigence Unit report concudes: If gobaization is seen as inexorabe then companies, to a greater or esser extent, wi need a gobay mobie workforce tasked with administering their far-fung but rapidy growing operations... but getting the right peope in the right pace for the right ength of time to execute that internationa strategy is no simpe matter. The expatriate experience provides a vauabe insight into gobaization s big trends, whie touching many of the business operationa diemmas that companies encounter when investing abroad. Given the roes payed by expatriates, aong with their cost, it is reasonabe to expect that MNEs woud endeavor to retain key staff and to extract and buid upon their internationa experience. However, as we have seen in our examination of re-entry and career issues, a reativey high turnover of repatriate staff seems acceptabe, confirming what one Brookfied respondent stated in an eary report: There is a high eve of investment with a ow vaue on the experience. 118 More teing is the continuing trend not to guarantee postassignment positions so that the organization has greater fexibiity over empoyment eves. We can draw severa concusions regarding repatriate attrition rates. First, despite the rhetoric, knowedge transfer is treated as a one-way activity. Expatriates are sent on internationa assignments and effectiveness is determined on the performance of their ascribed

221 204 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS roes and work responsibiities. Any transfer of knowedge and competence occurs in the host ocation and remains there. Expatriates return to their home base and are reassigned or resign. Recent surveys reinforce this view. There is no mention about an internationa assignment being part of transferring knowedge and competence around the organization, or even as a two-way process. The point here is that whie performing their tasks in the host ocation, expatriates deveop skis and gain experience, knowedge and network reationships that can then be used upon repatriation in some way or another. For exampe, a project manager working in Russia can report, on re-entry to his UK home base, technica probems encountered and soutions that were deveoped to overcome these probems, thus sharing the experience. However, not a of the knowedge about that project is expicit. Much wi remain tacit and person-bound. What is codified and made expicit often is retained within the project team, even though some of the information and knowedge coud be appicabe to other projects or types of business concerning Russia, such as important contacts, management styes and some technica soutions. In addition, internationa assignments vary in terms of purpose, duration, ocation and nature and these differences affect the acquisition and transfer of knowedge and skis. HCNs transferred to headquarters for deveopmenta reasons, for exampe, may benefit through such exposure but the experience wi remain person-bound if the home unit does not aow the repatriated HCN opportunities to share knowedge and information. Contacts at headquarters can be used for persona advantage. A simiar case can be made for TCNs transferred from another subsidiary. The aims of cross-fertiization of ideas and best practices given to justify cross-border movement of staff require the right environment to faciitate sharing of information and knowedge. The not-invented-here mindset (or xenophobia) can operate to devaue repatriate contributions. What knowedge and skis are acquired through a typica internationa assignment? A study of 19 Austrian repatriates provides some answers. Based on in-depth interviews, Fink et a. 119 cassified repatriate knowedge into five categories: Market specific knowedge. Loca system (poitica, socia, economic), oca anguage and oca customs. Persona skis. Inter-cutura knowedge, sef-confidence (that is, abiity to make quick decisions), fexibiity, toerance. Job-reated management skis. Communication, project management, probem soving. Network knowedge. Meeting diverse peope cients, suppiers, subsidiary personne, other expatriates. Genera management capacity. An enarged job description, broader job responsibiities, exposure to other parts of the organization. The range of knowedge and skis isted comprise both tacit and expicit knowedge. The authors consider that the first four categories are usefu for the sending organization, whie the ast (genera management capacity) is most beneficia to the individua. Fink et a. concude that repatriate knowedge may be usefu in enhancing a firm s competitiveness, but acknowedge the difficuties in capitaizing on this, particuary if repatriates exit before such knowedge has been transferred. They aso point out that the size of the firm, and its stage in the internationaization process, is a critica factor. The Austrian firms in their sampe were SMEs that did not have need for a arge number of genera managers and thus were unabe to meet repatriate expectations based on their newy acquired skis and knowedge. The trend towards not providing a post-assignment position guarantee suggests that mutinationas accept oss of experience, knowedge and competence; that repatriates effectivey forced to eave the organization wi take with them what coud be vita and vauabe, aowing competing

222 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 205 firms to reap the benefits of a substantia investment in human capita. Those who remain in the organization may not be motivated to share. 120 Perhaps this seemingy downgrading of the repatriate experience is party due to the fact that many firms are unaware of the benefits of the internationa assignment to both the firm and the individua as ROI cacuations, ceary inked to the nature and purpose of the assignment, are not performed. As Downes and Thomas 121 found, MNEs that vaued internationa experience were rewarded by oya empoyees who contributed to the inteectua capita base of their firms. Unfortunatey, the finding that repatriates become an under-utiized resource has been a consistent resut in studies and surveys examining repatriation. 122 Bakeney, Oddou and Osand recommend that HR practitioners in mutinationa firms take a wider, more systemic view of the expatriate-repatriate cyce, and focus on: (1) identifying the critica, impicity hed knowedge assets inherent in expatriation/repatriation, and (2) reducing the sources of resistance to knowedge transfer inherent in the motivation and capabiities of the repatriate as we as the structura and cutura impediments inherent in the receiving unit at home. This can be done by buiding trust and enhancing the shared sense of socia identity between the repatriate and the receiving unit. 123 Practicay speaking, HR practices that combine a unified expatriation/repatriation cyce that expicity emphasizes knowedge transference in each stage of the process (i.e., in seection, pre-departure and in-country training, mentoring or coaching, designing the internationa assignment, re-entry training, returnee job assignment and seection as we as the training of the returnee s own manager) woud ceary assist in the successfu transfer of knowedge. More forma activities, incuding seminars by repatriates as post-assignment action earning exercises and the deveopment of knowedge disseminating teams and databases made up to index the expertise of repatriates, can faciitate progress. 124 Empirica research by Tung points out the potentia for patterns of internationa careers, in this case careers in MNEs moving back and forth between China and North America, to contribute to outward foreign direct investment strategies for MNEs. 125 These human capita fows are ony now being documented and a rudimentary understanding of the compex reationships between government poicies, cutura soidarity in the face of diasporas, and persona career ambition is beginning to emerge. DESIGNING A REPATRIATION PROGRAM Whie there is no simpe, quick soution, preparing the repatriate and famiy for re-entry appears to have some vaue. The potentia for mismatch of expectations regarding the future may be addressed as part of re-entry training before the return, and discussed during re-entry counseing sessions (sometimes referred to as debriefing) between the receiving organization in the home country and the repatriate. In common parance, such sessions woud enabe both parties to take a reaity check. What shoud be covered in forma repatriation programs? Tabe 7.4 is an amagam of the ists suggested by respondents in the various surveys referred to above. TABLE 7.4 Topics covered by a repatriation program Preparation, physica reocation and transition information (what the MNE wi hep with). Financia and tax assistance (incuding benefit and tax changes; oss of overseas aowance). Re-entry position and career path assistance. Reverse cuture shock (incuding famiy disorientation). Schoo systems and chidren s education, and adaptation. Workpace changes (such as corporate cuture, structure, decentraization). Stress management, communication-reated training. Estabishing networking opportunities. Hep in forming new socia contacts.

223 206 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS Some MNEs assign the expatriate a mentor (aso referred to as a sponsor). The mentor is usuay in a more senior position than the expatriate, from the sending work unit, and often knows the expatriate personay. The rationae behind the use of a mentor is to aeviate the outof-sight, out-of-mind feeing discussed earier through the provision of information (such as, workpace changes) on a reguar basis, so that the expatriate is more prepared for conditions faced upon re-entry. A mentor shoud aso ensure that the expatriate is not forgotten when important decisions are made regarding positions and promotions. Linehan and Scuion 126 found that 40 of the 50 femaes in their study had experienced mentoring reationships, and beieved that their management positions were partiay due to that reationship. The mentors provided contact and support from the home organization that aso faciitated re-entry and reduced the out-of-sight, out-of-mind syndrome. Their experiences ed them to adopt mentoring roes in their new domestic positions. It is reasonabe to suggest that the practice of mentoring, to be effective, has to be managed. For exampe, what happens when the mentor retires or eaves the firm? Who monitors the mentor s performance? Recent surveys have not specificay covered the practice of mentoring, but 22 per cent of responding firms in the 2008 ORC survey indicated they used mentors. Firms in a 1997/98 Price Waterhouse survey 127 defined mentoring duties to incude: Maintaining contact with the expatriate throughout the assignment. Ensuring expatriates are kept up to date with deveopments in the home country. Ensuring expatriates are retained in existing management deveopment programs. Being responsibe for assisting expatriates with the repatriation process, incuding assisting them to obtain a repatriation position. It may be that having a mentor assists the expatriate to adjust during the foreign assignment but, by itsef, does not necessariy hep re-entry. Stroh 128 concudes that her study: did not show that having a mentoring program woud make an independent contribution to the repatriate retention rate, but there was a suggested ink between assignment of a mentor, career deveopment and repatriate retention. In other words, an effective mentor is ikey to aert the firm with regard to the imminent return of the repatriate and this infuences the provision of a suitabe reentry position; or the mentor roe is part of a managed repatriation program. Caigiuri and Lazarova 129 recommend a number of proactive strategies to maximize the ikeihood that the professiona, financia and emotiona issues faced by repatriates and their famiies wi be deat with and repatriates wi be abe to return with an integrated and baanced set of experiences which wi be avaiabe to the MNE (see the right-hand box of Figure 7.4). These proactive strategies incude: Managing expectations via pre-departure briefings on what can be expected during the assignment and upon return. Mutipe career panning sessions focusing on career objectives and performance indicators, carried out by HR managers or a purpose-buit team of past repatriates and reevant executives. Written repatriate agreements when feasibe to carify the types of assignments avaiabe upon return. Mentoring programs that continue on into the repatriate s post-assignment career. This practice may act to notify the firm of any post-assignment dissonance and reduce turnover. Extended home visits to keep up with socia, famiy and organizationa changes. Reorientation programs to provide the repatriate with a briefing on changes in strategy, poicies and organization.

224 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 207 Personaized reorientation by the MNE so the repatriate and her/his famiy may dea with the emotionay-charged issues of socia readjustment, schoos, famiy dynamics and ifestye changes inherent in return. Personaized financia and tax advice as we as access to interim financia benefits such as shortterm oans. Providing some kind of an adjustment period upon return that may or may not incude a vacation or reduced workoad. Visibe and concrete expressions of the repatriate s vaue to the firm (in the form of promotion, pubic ceremonies or a competion bonus) wi be required to sea and reinforce this new, more gobay encompassing reationship between the MNE and the repatriate. In terms of empirica evidence of practices, ORC 130 reports that ess than one-third of respondents provide expatriates three to six months advanced notice prior to repatriation, with just under haf not offering guarantees of a job on repatriation. Yet, 44 per cent of companies fet that the company handed the repatriation process either very we or we. This is despite Brookfied reporting in that ony 14 per cent of companies had a forma repatriation strategy in pace that was inked to career management and retention. Additionay, the most important repatriation issue facing companies was reported by ORC as career panning for returning assignees; for Japanese companies the number one issue is succession panning for the assignee s job abroad. The east important issue varies by region: in Asia Pacific it is cutura readjustment of the expatriate and famiy; in EMEA (Europe, the Midde East and Africa) and the Americas it is the expatriate s oss of technica knowedge during the assignment, and in Japan it is retaining assignees after repatriation. To hep the expatriate with repatriation, 66 per cent of ORC respondents offer at east some kind of assistance primariy networking and home eave visits during the assignment but there is no evidence that this assistance produces the desired outcomes. Whie recognition of the importance of repatriation programs is increasing, and MNEs are experimenting with other measures such as mentors, other avenues coud be expored, such as using repatriates as an important information source. Inviting repatriates to assist in deveoping repatriation programs may contribute to reevant and effective poicies. It may aso have a desirabe side-effect upon readjustment, simpy by giving participating repatriates a sense that they are not an under-utiized resource, and that the MNE recognizes they can make a vauabe contribution to the expatriation process. It is, naturay, important that wherever possibe the mutinationa ensures equity of treatment between PCN, TCN and HCN expatriates. SUMMARY This chapter has concentrated on the issues reating to training and deveoping expatriates for internationa assignments and the repatriation process. With regard to training and deveopment we have discussed: The roe of expatriate training in supporting adjustment and on-assignment performance. The components of effective pre-departure training programs such as cutura awareness, preiminary visits, anguage skis, reocation assistance and training for trainers. How cutura awareness training appears to assist in adjustment and performance and therefore shoud be made avaiabe to a categories of staff seected for overseas postings, regardess of duration and ocation. The need for anguage training for the host country and in the reevant corporate anguage.

225 208 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS The impact that an internationa assignment may have on an individua s career. The internationa assignment as an important way of training internationa operators and deveoping the internationa cadre. In this sense, an internationa assignment is both training (gaining internationa experience and competence) and manageria and organizationa deveopment. With regard to the repatriation process we have discussed: The overa process of repatriation. With re-entry, the broader socio-cutura context of the home country takes a backstage position unike in the expatriation adjustment phase, where the foreign cuture can be overwheming. For the majority of repatriates, coming home to the famiiar cuture may assist in readjustment. Given the more profound effect that job-reated factors appear to have, re-entry shock is perhaps a more accurate term to describe the readjustment process experienced upon repatriation. Career issues upon re-entry are of particuar importance to repatriates. Factors that affect career anxiety are: no post-assignment guarantee of empoyment; fear that the period overseas had caused a oss of visibiity; changes in the home workpace that affect re-entry positions; and the empoyment reationship. The re-entry position is an important indicator of future career progression and the vaue paced on internationa experience. Coping with new roe demands is another factor in readjustment, aong with oss of status and pay. Socia factors can incude oss of socia standing and the accompanying oss of the expatriate ifestye. Famiy readjustment is aso important. A specific aspect is the effect of the internationa assignment upon the spouse/partner s career, such as being re-empoyed and having internationa experience recognized. MNE responses to repatriates concerns focus on re-entry procedures. Issues covered incude how repatriation affected staff avaiabiity, whether companies were measuring and obtaining a return on investment through internationa assignments, and the contribution of repatriates to knowedge transfer. The concepts of protean and boundaryess careers were introduced in terms of the internationa assignment and career outcomes. Designing effective repatriation programs, incuding the use of mentors and avaiabe forms of technoogy. Viewing repatriation as part of the expatriation process, as suggested in Figure 7.4, shoud remind those responsibe for expatriation management of the need to prepare repatriates for re-entry and to recognize the vaue of the internationa experience to both parties.

226 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 209 DISCUSSION QUESTIONS 1 Summarize the key chaenges faced in training expatriate managers. 2 Assume you are the HR director for a SME that has begun to use internationa assignments. You are considering using an externa consuting firm to provide pre-departure training for empoyees, as you do not have the resources to provide this inhouse. What components wi you need covered? How wi you measure the effectiveness of the predeparture training program provided by this externa consutant? 3 How does an internationa assignment assist in deveoping a cadre of internationa operators? Why is it necessary to have such a cadre? 4 Why do some MNEs appear reuctant to provide basic pre-departure training? 5 What factors contribute to re-entry shock? 6 What are the objectives of a good mentoring system for internationa assignees? 7 Pacing vaue on the internationa assignment assists repatriate retention. Discuss this statement. 8 Why is it important to measure return on investment for internationa assignments? Which indicators can be used? FURTHER READING Caigiuri, P. and Tarique, I. (2006) Internationa Assignee Seection and Cross-cutura Training and Deveopment, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar), pp Dickmann, M. and Baruch, Y., Goba Careers (New York: Routedge, 2011). Littre, L. N. and Saas, E. (2005) A Review of Cross-cutura Training: Best Practices, Guideines, and Research Needs, Human Resource Deveopment Review, 4(3): McDonne, A., Gunnige, P. and Lavee, J. (2010) Learning transfer in mutinationa companies: Expaining interorganization variation, Human Resource Management Journa, 20 (1): Tharenou, P. and Caufied, N. (2010) Wi I stay or wi I go? Expaining Repatriation by Sef-Initiated Expatriates, Academy of Management Journa, 53 (5): Van Den Buke, D., Verbeke, A. and Yuan, W. (eds) Handbook on Sma Nations in the Goba Economy: The contribution of mutinationa enterprises to nationa economic success (Chetenham: Edward Egar, 2009). NOTES AND REFERENCES 1. K. Kamoche, Strategic Human Resource Management with a Resource-Capabiity View of the Firm, Journa of Management Studies, Vo. 33, No. 2 (1996), p en/lh-schoo-of-business.pdf. 3. See Brookfied Goba Reocation Services Goba reocation trends survey report. Woodridge, IL. 4. P. C. Earey, Intercutura Training for Managers: A Comparison, Academy of Management Journa, Vo. 30, No. 4 (1987), p R. Tung, Seection and Training Procedures of US, European, and Japanese Mutinationas, Caifornia Management Review, Vo. 25, No. 1 (1982), pp Tung aso asked those respondents who reported no

227 210 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS forma training programs to give reasons for omitting these programs. Again, differences were found between the three regions. The US companies cited a trend toward empoyment of oca nationas (45 per cent); the temporary nature of such assignments (28 per cent); the doubtfu effectiveness of such training programs (20 per cent); and ack of time (4 per cent). The reasons given by European mutinationas were the temporary nature of such assignments (30 per cent); ack of time (30 per cent); a trend toward empoyment of oca nationas (20 per cent); and the doubtfu effectiveness of such programs. Responses from the Japanese companies were ack of time (63 per cent) and doubtfu effectiveness of such programs (37 per cent). 6. J. C. Baker, Foreign Language and Departure Training in US Mutinationa Firms, Personne Administrator, Juy (1984), pp D. Fedman, Reocation Practices, Personne, Vo. 66, No. 11 (1989), pp See aso J. McEnery and G. DesHarnais, Cuture Shock, Training and Deveopment Journa, Apri (1990), pp M. Mendenha and G. Oddou, The Dimensions of Expatriate Accuturation, Academy of Management Review, Vo. 10, No. 1 (1985), pp ; and Y. Zeira, Overooked Personne Probems in Mutinationa Corporations, Coumbia Journa of Word Business, Vo. 10, No. 2 (1975), pp J. S. Back and M. Mendenha, Cross-Cutura Training Effectiveness: A Review and a Theoretica Framework for Future Research, Academy of Management Review, Vo. 15, No. 1 (1990), pp Price Waterhouse, Internationa Assignments: European Poicy and Practice (London: Price Waterhouse, 1997/ 1998). 11. K. Barham and M. Devine, The Quest for the Internationa Manager: A Survey of Goba Human Resource Strategies, Ashridge Management Research Group, Specia Report No (London: The Economist Inteigence Unit 1990). See aso, D. Wech, Determinants of Internationa Human Resource Management Approaches and Activities: A Suggested Framework, Journa of Management Studies, Vo. 31, No. 2 (1994), pp ORC, 2008 Wordwide Survey of Internationa Assignment Poicies and Practices. 13. I. Littre and E. Saas, A Review of Cross-Cutura Training: Best Practices, Guideines, and Research Needs, Human Resource Deveopment Review, Vo. 4, No. 3 (2005), pp Mercer HR, 2010 Internationa Assignments Survey, Geneva. 15. See, for exampe, M. Mendenha and G. Oddou, Accuturation Profies of Expatriate Managers: Impications for Cross-Cutura Training Programs, Coumbia Journa of Word Business, Winter (1986), pp For a more recent and updated discussion, see G. Stah, M. Mendenha, and G. Oddou (eds) Readings and Cases in Internationa Human Resource Management and Organizationa Behavior, 5th Ed. (New York: Routedge Pubishing, 2012). 16. R. Tung, Seecting and Training of Personne for Overseas Assignments, Coumbia Journa of Word Business, Vo. 16 (1981), pp R. Tung, A Contingency Framework of Seection and Training of Expatriates Revisited, Human Resource Management Review, Vo. 8, No. 1 (1998), pp M. Mendenha and G. Oddou, Accuturation Profies of Expatriate Managers ; M. Mendenha, E. Dunbar and G. Oddou, Expatriate Seection, Training and Career- Pathing: A Review and Critique, Human Resource Management, Vo. 26 (1987), pp Earey advocates the use of both documentary and interpersona methods to prepare managers for intercutura assignments (see P. Earey, Internationa Training for Managers: A Comparison of Documentary and Interpersona Methods, Academy of Management Journa, Vo. 30, No. 4 (1987), pp Baiga and Baker suggest that the expatriates receive training that concentrates on the assigned region s cuture, history, poitics, economy, reigion and socia and business practices. They argue that ony with precise knowedge of the varied components of their host cuture can the expatriate and famiy grasp how and why peope behave and react as they do (see G. Baiga and J. C. Baker, Mutinationa Corporate Poicies for Expatriate Managers: Seection, Training, and Evauation, Advanced Management Journa, Autumn (1985), pp. 31 8). 20. For further information on the use of cutura assimiators, see R. Brisin, A Cuture Genera Assimiator: Preparation for Various Types of Sojourns, Internationa Journa of Intercutura Reations, Vo. 10 (1986), pp ; and K. Cushner, Assessing the Impact of a Cuture Genera Assimiator, Internationa Journa of Intercutura Reations, Vo. 13 (1989), pp ORC, 2008 Wordwide Survey of Internationa Assignment Poicies and Practices, New York. 22. Price Waterhouse, Internationa Assignments: European Poicy and Practice, p C. Brewster and J. Pickard, Evauating Expatriate Training, Internationa Studies of Management and Organization, Vo. 24, No. 3 (1994), pp For a more abstract discussion on the impact of community on an expatriate s goba capabiities, see K.-Y. Ng, M. Tan and S. Ang, Goba Cutura Capita and Cosmopoitan Human Capita. In A. Burton-Jones and J.-C. Spender (eds) The Oxford Handbook of Human Capita (Oxford: Oxford University Press, 2011), pp C. Wright and S. Wright, Do Languages Reay Matter? The Reationship between Internationa Business Success and a Commitment to Foreign Language Use, Journa of Industria Affairs, Vo. 3, No. 1 (1994) pp These authors suggest that internationa Engish is perhaps a better term than poor or broken Engish.

228 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS Tung, A Contingency Framework of Seection and Training of Expatriates Revisited. 26. C. Fixman, The Foreign Language Needs of US-Based Corporations, Annas, AAPSS, 511 (September 1990). 27. V. Pucik, Strategic Human Resource Management in a Mutinationa Firm, in H. V. Wortze and L. H. Wortze (eds) Strategic Management of Mutinationa Corporations: The Essentias (New York: John Wiey, 1985). 28. C. Fixman, The Foreign Language Needs of US-Based Corporations, p Wright and Wright, Do Languages Reay Matter? (Endnote 24), p P. Hepner Ha and W. B. Gudykunst, The Reationship of Perceived Ethnocentrism in Corporate Cutures to the Seection, Training, and Success of Internationa Empoyees, Internationa Journa of Intercutura Reations, Vo. 13 (1989), pp Baiga and Baker, Mutinationa Corporate Poicies. 32. R. Tung and Arthur Andersen, Exporing Internationa Assignees Viewpoints: A Study of the Expatriation/ Repatriation Process (Chicago, IL: Arthur Andersen, Internationa Executive Services, 1997). 33. Y. McNuty. Being dumped in to sink or swim : An empirica study of organizationa support for the traiing spouse. Human Resource Deveopment Internationa, Vo. 15, No. 4 (2012), pp R. Marschan, D. Wech and L. Wech, Language: The Forgotten Factor in Mutinationa Management, European Management Journa, Vo. 15, No. 5 (1997), pp ; see aso Fixman, The Foreign Language Needs of US- Based Corporations. 35. The first author had the opportunity a number of years ago to visit McDonad s Hamburger University in Chicago and observe training for new store managers from a number of deveoping markets such as countries from Eastern Europe and Russia. The training faciity was abe to conduct a number of simutaneous training programs with fu simutaneous transation into the native anguage of the participants. 36. Y. McNuty, H. De Cieri and K. Hutchings (under review) Expatriate return on investment in Asia Pacific: An empirica study of individua ROI versus Corporate ROI, Journa of Word Business. 37. Mercer HR, 2010 Internationa Assignments Survey, Geneva. 38. Reocation speciaist companies incude Cartus, Brookfied and Pricoa-Prudentia, among others. 39. ORC, 2008 Wordwide Survey of Internationa Assignment Poicies and Practices, New York. 40. See for exampe, H. Park, S. D. Hwang and J. K. Harrison, Sources and Consequences of Communication Probems in Foreign Subsidiaries: The Case of United States Firms in South Korea, Internationa Business Review, Vo. 5, No. 1 (1996), pp ; and A. Rao and K. Hashimoto, Intercutura Infuence: A Study of Japanese Expatriate Managers in Canada, Journa of Internationa Business Studies, Vo. 27, No. 3 (1996), pp M. Lazarova and I. Tarique, Knowedge Transfer Upon Repatriation, Journa of Word Business, Vo. 40 (2005), pp , quotation from p M. Harvey, Inpatriation Training: The Next Chaenge for Internationa Human Resource Management, Internationa Journa of Intercutura Reations, Vo. 21, No. 3 (1997), pp Brookfied Goba Reocation Services 2011, Goba reocation trends survey report, Woodridge, IL. 44. An exception is an artice by R. DeFrank, R. Konopaske and J. M. Ivancevich, Executive Trave Stress: Peris of the Road Warrior, Academy of Management Executive, Vo. 14, No. 2 (2000), pp However, the authors ony devote one paragraph to host cuture issues. 45. D. Wech and V. Worm, Internationa Business Traveers: A Chaenge for IHRM, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp D. Eschbach, G. Parker and P. Stoeber, American Repatriate Empoyees Retrospective Assessments of the Effects of Cross-Cutura Training on their Adaptation to Internationa Assignments, Internationa Journa of Human Resource Management, Vo. 12, No. 2 (2001), pp M. Morris and C. Robie, A Meta-Anaysis of the Effects of Cross-Cutura Training on Expatriate Performance and Adjustment, Internationa Journa of Training and Deveopment, Vo. 5, No. 2 (2001), pp The authors define meta-anaysis as a method deveoped in the ate 1970s to summarize and integrate research findings from mutipe artices...to resove conficting findings of mutipe studies on the same topic by combining their resuts in a systematic fashion, pp J. Semer, I. Torbiön and C. de Leon, Sequentia Cross- Cutura Training for Expatriate Business Managers: Predeparture and Post-arriva, Internationa Journa of Human Resource Management, Vo. 9, No. 5 (1998), pp See Sma nations in the goba economy: an overview. In D. Van Den Buke, A. Verbeke and W. Yuan (eds) Handbook on Sma Nations in the Goba Economy: The contribution of mutinationa enterprises to nationa economic success (Chetenham: Edward Egar, 2009). 50. K. Inkson, Y. McNuty and K. Thorn, The goba careers of Austraians and New Zeaanders. In Y. Baruch and C. Reis (eds) Careers Without Borders (UK: Routedge, 2013). 51. Y. McNuty, H. De Cieri and K. Hutchings (under review) Expatriate return on investment in Asia Pacific: An empirica study of individua ROI versus Corporate ROI, Journa of Word Business. 52. See P. Evans, Management Deveopment as Gue Technoogy, Human Resource Panning, Vo. 14: 4.

229 212 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 53. R. Peterson, The Use of Expatriates and Inpatriates in Centra and Eastern Europe Since the Wa Came Down, Journa of Word Business, Vo. 38 (2003), pp P. Caigiuri and V. Di Santo, Goba Competence: What is It, and Can It be Deveoped Through Goba Assignments?, Human Resource Panning, Vo. 24, No. 3 (2001), pp J. Gibbs, Decouping and Couping in Goba Teams: Impications for Human Resource Management, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp M. Maznevski, S. Davison and K. Jonsen, Goba Virtua Team Dynamics and Effectiveness, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp P. Caigiuri and I. Tarique, Internationa Assignee Seection and Cross cutura Training and Deveopment, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp A. A-Dosary and S. Rahman, Saudization (Locaization) A Critica Review, Human Resource Deveopment Internationa, Vo. 8, No. 4 (2005), pp M. Geppert, Competence Deveopment and Learning in British and German Subsidiaries of MNCs: Why and How Nationa Institutions Sti Matter, Personne Review, Vo. 34, No. 2 (2005), pp W. Chang, Expatriate Training in Internationa Nongovernmenta Organizations: A Mode for Research, Human Resource Deveopment Review, Vo. 4, No. 4 (2005), pp ; C. Brewster and S. Lee, HRM in Not-for-profit Internationa Organizations: Different, But Aso Aike, in H. Larsen and W Mayrhofer (eds) European Human Resource Management (London: Routedge, 2006). 61. J. Wang, G. Wang, W. Ruona and J. Rojewski, Confucian Vaues and the Impications for Internationa HRD, Human Resource Deveopment Internationa, Vo. 8, No. 3 (2005), pp ; C. Zhao, Management of Corporate Cuture through Loca Managers Training in Foreign Companies in China: A Quaitative Anaysis, Internationa Journa of Training and Deveopment, Vo. 9, No. 4 (2005), pp ; D. Zhang, Z. Zhang and B. Yang, Learning Organization in Mainand China: Empirica Research on its Appication to Chinese State-owned Enterprises, Internationa Journa of Training and Deveopment, Vo. 8, No. 4 (2004), pp ; C. Zhu, Human Resource Management in China: Past, Current and Future HR Practices in the Industria Sector (London: Routedge, 2004); J. Wang and G. Wang, Exporing Nationa Human Resource Deveopment: A Case of China Management Deveopment in a Transitioning Context, Human Resource Deveopment Review, Vo. 5, No. 2 (2006), pp B. Metcafe and C. Rees, Theorizing Advances in Internationa Human Resource Deveopment, Human Resource Deveopment Internationa, Vo. 8, No. 4. (2005), pp See L. Stroh, J. S. Back, M. Mendenha and H. Gregersen, Internationa Assignments: An Integration of Strategy, Research and Practice (Mahiwah, NJ: Lawrence Erbaum, 2005); M. Harvey and M. Novicevic, The Evoution from Repatriation of Managers in MNEs to Patriation in Goba Organizations, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp R. Moran, Coping with Re-entry Shock, Internationa Management (December 1989), p. 67; M. G. Harvey, Repatriation of Corporate Executives: An Empirica Study, Journa of Internationa Business Studies, Vo. 20, No. 1 (Spring 1989), pp Stroh, et a. Internationa Assignments; (Endnote 63) Harvey, Repatriation of Corporate Executives. 66. Y. Paik, B. Segand and C. Mainowski, How to Improve Repatriation Management: Are Motivations and Expectations Congruent Between the Company and Expatriates?, Internationa Journa of Management, Vo. 23 (2002), pp ; Stroh, et a. Internationa Assignments. 67. Mercer HR Internationa Assignments Survey, Geneva. 68. J. S. Back, H. Gregersen and M. Mendenha, Towards a Theoretica Framework for Repatriation Adjustment, Journa of Internationa Business Studies, Vo. 23 (1992), pp ORC, 2008 Wordwide Survey of Internationa Assignment Poicies and Practices, New York. 70. Stroh, et a., Internationa Assignments, pp W. Mayrhofer, M. Meyer, A. Leatchitch and M. Schiffinger, Careers and Human Resource Management: A. European Perspective, Human Resource Management Review, Vo. 14 (2004), pp ; Stroh, et a. Internationa Assignments, pp A.-W. Harzing, Environment, Strategy, Structure, Contro Mechanisms, and Human Resource Management in Mutinationa Companies, Company Report (Limburg, The Netherands: University of Limburg, 1996). 73. GMAC-Goba Reocation Services, US Nationa Foreign Trade Counci and SHRM Goba Forum, Goba Reocation Trends 2002 Survey Report (2002); 2004 Survey Report; and 2006 Survey Report. These reports are avaiabe from the GMAC Goba Reocation Services website: survey.htm. 74. R. Tung and Arthur Andersen, Exporing Internationa Assignees Viewpoints: A Study of the Expatriation/ Repatriation Process (Chicago, IL: Arthur Andersen, Internationa Executive Services, 1997); D. Fedman and D. Thomas, Career Issues Facing Expatriate Managers,

230 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 213 Journa of Internationa Business Studies, Vo. 23, No. 2 (1992), pp Brookfied 2010 Survey, p Tung and Arthur Andersen, Exporing Internationa Assignees Viewpoints. 77. E. Marx, Internationa Human Resource Practices in Britain and Germany (London: Ango-German Foundation for the Study of Industria Society, 1996). 78. Harzing, Environment, Strategy, Structure, Contro Mechanisms; D. Osborn, The Internationa Mobiity of French Managers, European Management Journa, Vo. 15, No. 5 (1997), pp Y. McNuty, H. De Cieri and K. Hutchings, Expatriate return on investment in Asia Pacific: An empirica study of individua ROI versus corporate ROI. Journa of Word Business, Vo. 48, No. 2, (2012). [ /j.jwb ]. 80. S. Back and H. Gregersen, When Yankee Comes Home: Factors Reated to Expatriate and Spouse Repatriation Adjustment, Journa of Internationa Business Studies, Vo. 22, No. 4 (1991), pp M. Boino and D. Fedman, Increasing the Ski Utiization of Expatriates, Human Resource Management, Vo. 39, No. 4 (2000), pp L. Stroh, H. Gregersen and J. Back, Cosing the Gap: Expectations Versus Reaity Among Repatriates, Journa of Word Business, Vo. 33, No. 2 (1998), p Y. McNuty, H. De Cieri and K. Hutchings (under review) Expatriate return on investment in Asia Pacific: An empirica study of individua ROI versus Corporate ROI, Journa of Word Business. 84. J. Back, H. Gregersen and M. Mendenha, Toward a Theoretica Framework of Repatriation Adjustment, Journa of Internationa Business Studies, Vo. 23, No. 4 (1992), pp M. Lazarova and P. Caigiuri, Retaining Repatriates: The Roe of Organizationa Support Practices, Journa of Word Business, Vo. 36, No. 4 (2001), pp Stroh, Gregersen and Back, Cosing the Gap, p V. Suutari and C. Brewster, Repatriation: Empirica Evidence from a Longitudina Study of Careers and Expectations among Finnish Expatriates, Internationa Journa of Human Resource Management, Vo. 14, No. 7 (2003), pp L. Stroh, Predicting Turnover among Repatriates: Can Organizations Affect Retention Rates?, Internationa Journa of Human Resource Management, Vo. 6, No. 2 (1995), p Stroh, Gregersen and Back, Cosing the Gap. See aso R. L. Tung, Career Issues in Internationa Assignments, Academy of Management Executive, Vo. 2, No. 3 (1988), pp ; and H. Gregersen, Commitments to a Parent Company and a Loca Work Unit during Repatriation, Personne Psychoogy, Vo. 45, No. 1 (Spring 1992), pp ; R. Tung, A Contingency Framework Revisited, Human Resource Management Review, Vo. 8, No. 1 (1998), pp R. Tung and E. Mier, Managing in the Twenty-first Century: The Need for Goba Orientation, Management Internationa Review, Vo. 30, No. 1 (1990), pp. 5 18; D. Aen and S. Avarez, Empowering Expatriates and Organizations to Improve Repatriation Effectiveness, Human Resource Panning, Vo. 21, No. 4 (1998), pp H. Mintzberg, The Nature of Manageria Work (Engewood Ciffs, NJ: Prentice-Ha, 1973), p I. Torbiörn, The Structure of Manageria Roes in Crosscutura Settings, Internationa Studies of Management & Organization, Vo. 15, No. 1 (1985), p For an exceent, if not somewhat irreverent iustration of spouse repatriation chaenges, see Robin Pascoe s book Homeward Bound: A Spouse s Guide to Repatriation (Vancouver: Expatriate Press, 2000) 94. G. Stevens and S. Back, The Impact of Spouse s Career-Orientation on Managers During Internationa Transfers, Journa of Management Studies, Vo. 28, No. 4 (1991), pp Back and Gregersen, When Yankee Comes Home. 96. Y. McNuty. Being dumped in to sink or swim : An empirica study of organizationa support for the traiing spouse. Human Resource Deveopment Internationa, Vo. 15, No. 4 (2012), pp M. Harvey, Dua-Career Expatriates: Expectations, Adjustment and Satisfaction with Internationa Reocation, Journa of Internationa Business Studies, Vo. 28, No. 3 (1997), pp M. Linehan and H. Scuion (2002) Repatriation of European femae corporate executives: An empirica study, Internationa Journa of Human Resource Management 13(2): ORC, 2005 Dua Careers and Internationa Assignments Survey, New York M. Mendenha, E. Dunbar and G. Oddou, Expatriate Seection, Training and Career-pathing: A Review and a Critique, Human Resource Panning, Vo. 26, No. 3 (1987), pp Harvey, The Other Side of Foreign Assignments D. Thomas, M. Lazarova, and K. Inkson, Goba Careers: New Phenomenon or New Perspectives?, Journa of Word Business, Vo. 40, No. 4 (2005), p See for exampe, J. Mezias and T. Scandura, A Needs Driven Approach to Expatriate Adjustment and Career Deveopment: A Mutipe Mentoring Perspective, Journa of Internationa Business Studies, Vo. 36, No. 5 (2005), pp G. Stah, E. Mier and R. Tung, Toward the Boundaryess Career: A Coser Look at the Expatriate Career Concept and the Perceived Impications of an Internationa Assignment, Journa of Word Business, Vo. 37 (2002), p. 222.

231 214 CHAPTER 7 INTERNATIONAL TRAINING, DEVELOPMENT AND CAREERS 105. See G. Stah and C. Chua, Goba Assignments and Boundaryess Careers: What Drives and Frustrates Internationa Assignees?, in M. Morey N. Heraty and D. Coins (eds) Internationa Human Resource Management and Internationa Assignments (Basingstoke: Pagrave Macmian, 2006), pp M. Bana and W. Harry, Boundaryess Goba Careers: The Internationa Itinerants, in M. Morey, N. Heraty and D. Coins (eds) Internationa Human Resource Management and Internationa Assignments (Basingstoke: Pagrave Macmian, 2006), pp , especiay p Ibid Y. Baruch and Y. Atman, Expatriation and Repatriation in MNCs: A Taxonomy, Human Resource Management, Vo. 41, No. 2 (2002), pp M. Festing and B. Müer, Expatriate Careers and the Psychoogica Contract An Empirica Study on the Impact of Internationa Human Resource Management. In M. Festing, and S. Royer (eds) Current Issues in Internationa Human Resource Management and Strategy Research: München and Mering: Hampp For more on the sophistication and commitment to career management, see Y. Baruch and M. Peiper, Career Management Practices: An Empirica Survey and Impications, Human Resource Management, Vo. 39, No. 4 (2000), pp ; J. Richardson and M. Maon, Career Interrupted: The Case of the Sef-Directed Expatriate, Journa of Word Business, Vo. 40, No. 4 (2005), pp ; and D. Thomas, M. Lazarova and K. Inkson, Goba Careers: New Phenomenon or New Perspectives?, Journa of Word Business, Vo. 40 (2005), pp P. Staney, Loca-pus Packages for Expatriates in Asia: A Viabe Aternative, Internationa Human Resource Journa Vo. 3, pp PriceWaterhouseCoopers, Internationa Assignments: Goba Poicy and Practice Key Trends, Back and Gregersen, When Yankee Comes Home Y. McNuty and P. Tharenou, Expatriate Return on Investment, Internationa Studies of Management & Organization, Vo. 34, No. 3 (2004), pp See D. Wech, A. Steen and M. Tahvanainen, A Pain, Litte Gain? Reframing the Vaue of Internationa Assignments, Internationa Journa of Human Resource Management, Vo. 20, No.6, pp McNuty, Hutchings and De Cieri, How Expatriates in Asia View Expatriate Return on Investment: An Empirica Study of Individua ROI versus Corporate ROI D. Bochover, 2010 Up or out: Next moves for the modern expatriate, London, UK: Economist Inteigence Unit GMAC Survey 2002, p G. Fink, S. Meierewert and U. Rohr, The Use of Repatriate Knowedge in Organizations, Human Resource Panning, Vo. 28, No. 4 (2005), pp M. Lazarova and I. Tarique, Knowedge Transfer upon Repatriation, Journa of Word Business, Vo. 40, No. 4 (2005), pp M. Downes and A. Thomas, Managing Overseas Assignments to Buid Organizationa Knowedge, Human Resource Panning, Vo. 22, No. 4 (1999), pp See for exampe, R. Tung and Arthur Andersen, Exporing Internationa Assignees Viewpoints; Price Waterhouse Europe, Internationa Assignments: European Poicy and Practice ; Lazarova and Caigiuri, Retaining Repatriates R. Bakeney, G. Oddou and J. Osand, Repatriate Assets: Factors Impacting Knowedge Transfer, in M. Morey, N. Heraty and D. Coins (eds) Internationa Human Resource Management and Internationa Assignments (Basingstoke: Pagrave Macmian, 2006), pp As reported by Bakeney et a., Repatriate Assets. Cogate-Pamoive deveoped a database of repatriate skis, as the company saw the vaue of having information on each manager s knowedge/experience with particuar cutures and disseminating knowedge about oca markets throughout its goba operations, p For a more in-depth discussion of potentia reationships between knowedge mapping processes, career deveopment and strategic activities in transnationa firms, see A. Enge, P Dowing and M. Mendenha, Transnationa Trajectories: Emergent Strategies of Gobaization and a New Context for Strategic HRM in MNEs (working paper, 2007) R. Tung, The Human Resource Chaenge to Outward Foreign Direct Investment Aspirations from Emerging Economies: The Case of China, Internationa Journa of Human Resource Management, May, Vo. 18, Issue 5 (2007), pp Linehan and Scuion, Repatriation of European Femae Corporate Executives Price Waterhouse Europe, Internationa Assignments, p Stroh, Predicting Turnover among Repatriates, p P. Caigiuri and M. Lazarova, Strategic Repatriation Poicies to Enhance Goba Leadership Deveopment, in M. Mendenha, T Kuhmann and G. Stah (eds) Deveoping Goba eaders: Poicies, Processes and Innovations (Westport, CT: Quorum Books, 2001), pp ORC, 2008 Wordwide Survey of Internationa Assignment Poicies and Practices, New York Brookfied Goba Reocation Services, 2011, Goba reocation trends survey report, Woodridge, IL.

232 CHAPTER 8 INTERNATIONAL COMPENSATION Chapter Objectives In the introductory chapter we described internationa HR managers as grapping with compex issues. Internationa managers must: (1) manage more activities from a broader perspective, (2) be more invoved in the ives of their far-fung empoyees, (3) baance the needs of PCNs, HCNs and TCNs, (4) contro exposure to financia and poitica risks, and (5) be increasingy aware of and responsive to host country and regiona infuences. A of these issues and concerns are highighted in stark contrast in a discussion of compensation issues. In this chapter we: Examine the compexities that arise when firms move from compensation at the domestic eve to compensation in an internationa context. Detai the key components of an internationa compensation program. Outine the two main approaches to internationa compensation (Going Rate and Baance Sheet Approach) and the advantages and disadvantages of each approach. Introduce a third emerging approach to internationa compensation: Loca Pus. Examine the specia probem areas of taxation, vaid internationa iving cost data and the probem of managing TCN compensation. Examine recent deveopments and goba compensation issues. 215

233 216 CHAPTER 8 INTERNATIONAL COMPENSATION INTRODUCTION Goba compensation practices have recenty moved far beyond the origina domain of expatriate pay. Compensation is increasingy seen as: a mechanism to deveop and reinforce a goba corporate cuture, 1 a primary source of corporate contro, expicity inking performance outcomes with associated costs, 2 and the nexus of increasingy strident, sophisticated and pubic discourses on centra issues of corporate governance in an internationa context. 3 Increased compexities in goba pay incude the growing use of outsourced activities and subsequent abor pricing needs, 4 baancing centraization and decentraization of incentives, benefits and pensions, given the technica capabiities of web-based human resource information systems (HRIS), 5 and baancing the need for more accurate and detaied performance metrics on internationa assignees with the reaities of a cost-sensitive environment resuting from maturing goba competitiveness. 6 Increasingy, domestic pay practices of ong standing have been questioned as firms move into the goba arena. These overt chaenges to deepy hed nationa and corporate vaues and pay systems incude chaenges to the universa appicabiity of incentive pay programs 7 and what some critics view as out of contro executive compensation programs, often driven by USbased mutinationa pay systems. 8 Critiques of US-based MNE pay for executives have recenty expanded to incude chaenges to the effectiveness of ega and institutiona forms of corporate governance and the roes, responsibiities and pay practices of corporate boards, compensation committees and the use of executive pay consutants. 9 Greater choice, the growing abiity to systematicay identify and impement heretofore nove or unrecognized pay practices, may be seen to resut from increases in the transparency of pay practices around the word due to increased goba media attention and reach, changes in corporate reporting reguations, the sheer number of assignments across borders, as we as the impact of the Word Wide Web. 10 It remains to be seen if this increased choice wi transate into a predictabe set of goba pay practices. These compexities, chaenges and choices facing managers invoved in goba compensation decisions do not change two primary areas of focus. These individuas must manage highy compex and turbuent oca detais whie concurrenty buiding and maintaining a unified, strategic pattern of compensation poicies, practices and vaues. For MNEs to successfuy manage compensation and benefits requires knowedge of empoyment and taxation aw, customs, environment and empoyment practices of many foreign countries; famiiarity with currency fuctuations and the effect of infation on compensation; and an understanding of why and when specia aowances must be suppied and which aowances are necessary in what countries a within the context of shifting poitica, economic and socia conditions. The eve of oca knowedge needed in many of these areas requires speciaist advice and many mutinationas retain the services of consuting firms that may offer a broad range of services or provide highy speciaized services reevant to HRM in a mutinationa context. 11 Because of its compexity and expense, much of the discussion in this chapter addresses PCN compensation. However, issues reevant to TCNs and HCNs are aso described because they are becoming more important to the success of many MNEs. 12 Indeed, expatriate compensation ong the preoccupation of goba HR executives is increasingy seen more as a component of a more baanced, abeit compex, system of wordwide pay. 13 Nationa and regiona differences in the meaning, practice and tradition of pay remain significant sources of variation in the internationa firm. Yet these contextua sources of compexity must be baanced with strategic intent and administrative economy. 14 Rather than seeing pay as an ethnocentric extension of an essentiay domestic strategy, pay systems are increasingy becoming truy goba with truy goba objectives. 15

234 Objectives of internationa compensation CHAPTER 8 INTERNATIONAL COMPENSATION 217 When deveoping internationa compensation poicies, an MNE seeks to satisfy severa objectives. First, the poicy shoud be consistent with the overa strategy, structure and business needs of the mutinationa. Second, the poicy must work to attract and retain staff in the areas where the MNE has the greatest needs and opportunities. Thus, the poicy must be competitive and recognize factors such as incentive for foreign service, tax equaization and reimbursement for reasonabe costs. Third, the poicy shoud faciitate the transfer of internationa empoyees in the most cost-effective manner for the firm. Fourth, the poicy must give due consideration to equity and ease of administration. The internationa empoyee wi aso have a number of objectives that need to be achieved from the firm s compensation poicy. First, the empoyee wi expect the poicy to offer financia protection in terms of benefits, socia security and iving costs in the foreign ocation. Second, the empoyee wi expect a foreign assignment to offer opportunities for financia advancement through income and/or savings. Third, the empoyee wi expect issues such as the cost of housing, education of chidren, and home eave to be addressed in the poicy. If we contrast the objectives of the MNE and the empoyee, we of course see the potentia for many compexities and possibe probems, as some of these objectives cannot be maximized on both sides. The war stories about probems in internationa compensation that we see in HR practitioner magazines is testimony to these compexities and probems. McNuty et a. aso aude to these probems in their studies of expatriation, particuary in the Asia Pacific region. 16 However, if we take away the speciaist jargon and aow for the internationa context, are the competing objectives of the firm and the empoyee fundamentay different from that which exists in a domestic environment? We think not. We agree with the broad thrust of an infuentia artice by Mikovich and Boom 17 which argues that firms must rethink the traditiona view that oca conditions dominate internationa compensation strategy. This is again another appication of the ongoing baancing act between goba standardization and oca customization. We wi return to these issues at the end of the chapter after we have covered some of the technica aspects and compexities of compensation in an internationa context. KEY COMPONENTS OF AN INTERNATIONAL COMPENSATION PROGRAM FOR EXPATRIATES The area of internationa compensation is compex primariy because mutinationas must cater to three categories of empoyees: PCNs, TCNs and HCNs. In this section, we discuss key components of internationa compensation as foows. Base saary The term base saary acquires a somewhat different meaning when empoyees go abroad. In a domestic context, base saary denotes the amount of cash compensation serving as a benchmark for other compensation eements (such as bonuses and benefits). For expatriates, it is the primary component of a package of aowances, many of which are directy reated to base saary (e.g. foreign service premium, cost-of-iving aowance, housing aowance) as we as the basis for in-service benefits and pension contributions. It may be paid in home or oca country currency or a combination of both. The base saary is the foundation bock for internationa compensation whether the empoyee is a PCN or TCN. Major differences can occur in the empoyee s package depending on whether the base saary is inked to the home country of the PCN or TCN, or whether an internationa rate is paid. (We wi return to this issue ater in the chapter.)

235 218 CHAPTER 8 INTERNATIONAL COMPENSATION Foreign service inducement and hardship premium Parent-country nationas often receive a saary premium as an inducement to accept a foreign assignment, as we as a hardship premium to compensate for chaenging ocations. Under such circumstances, the definition of hardship, eigibiity for the premium, and amount and timing of payment must be addressed. For exampe, where a host country s work week may be onger than that of the home country, a differentia payment may be made in ieu of overtime, which is not normay paid to PCNs or TCNs. In cases in which hardship is determined, US firms often refer to the US Department of State s Hardship Post Differentias Guideines to determine an appropriate eve of payment. As a number of researchers in this fied have noted over many decades 18 making internationa comparisons of the cost of iving is probematic. It is important to note, though, that these payments are more commony paid to PCNs than TCNs. Foreign service inducements, if used, are usuay made in the form of a percentage of saary, usuay 5 to 40 per cent of base pay, but are aso sometimes offered as a ump-sum incentive (i.e. as a one-off payment made at some point during an assignment). Such payments vary, depending upon the assignment ocation, tax consequences, and ength of assignment. Aowances Issues concerning aowances can be very chaenging to a firm estabishing an overa compensation poicy, party because of the various forms of aowances that exist. In this section we wi discuss the six most common aowances. Cost-of-iving aowance. The cost-of-iving aowance (COLA), which typicay receives the most attention, invoves a payment to compensate for differences in expenditures between the home country and the foreign country. COLA payments are intended to compensate for cost differentias between an expatriate s home and host country, for exampe, the costs of transportation, furniture and appiances, medica, acoho and tobacco, automobie maintenance and domestic hep. Famiy size is the predominant method for determining COLA payments, with increments provided for each chid. Often this aowance is difficut to determine, so companies may use the services of organizations such as Mercer (a US-based firm) 19 or ECA Internationa (based in Britain). 20 These firms speciaize in providing COLA information on a goba basis, reguary updated, to their cients. The COLA may aso incude payments for housing and utiities, and discretionary items. 21 Various COLA indices exist, which, for exampe, aow an American to ive ike an American in Paris or which presume that the American wi adapt to the assignment ocation by adjusting to the oca ife stye and internationa iving costs. Housing aowance. The provision of a housing aowance impies that empoyees shoud be entited to maintain their home-country iving standards (or, in some cases, receive accommodation that is equivaent to that provided for simiar foreign empoyees and peers). The amount of housing aowance is determined predominanty by famiy size, and to some extent job eve. Other aternatives incude company-provided housing (either mandatory or optiona); a fixed housing aowance across a particuar job eve, with the expatriate topping up according to persona preferences; or assessment of a portion of income, out of which actua housing costs are paid. Housing issues are often addressed on a case-by-case basis, but as a firm internationaizes, forma poicies become more necessary and efficient. Financia assistance and/or protection in connection with the easing of an expatriate s former residence is offered by many MNEs, but ess so for seing a house as many MNEs encourage their empoyees to retain a presence in their home country rea estate market. Those in the banking and finance industry tend to be the most generous, offering assistance in sae and easing, payment of cosing costs, payment of easing management fees, rent protection and equity protection. Generay, TCNs tend to receive these benefits ess frequenty than PCNs.

236 CHAPTER 8 INTERNATIONAL COMPENSATION 219 Home eave aowances. Many MNEs aso have a provision for home eave aowances where empoyers cover the expense of one or more trips back to the home country each year. The primary purpose of paying for such trips is to give expatriates the opportunity to renew famiy and business ties, thereby heping them to minimize adjustment probems when they are repatriated. Athough firms traditionay have restricted the use of eave aowances to trave home, some firms give expatriates the option of appying home eave to foreign trave rather than returning home. Firms aowing use of home eave aowances for foreign trave need to be aware that expatriate empoyees with imited internationa experience who opt for foreign trave rather than returning home may become more homesick than other expatriates who return home for a reaity check with feow empoyees and friends. Without the benefit of returning home to mix with empoyees and friends it is possibe to ideaize what they remember of their experience at work and home and fai to come to a measured judgment of what is good and bad in both their host and home environments. Overa, it woud seem prudent for MNEs to take the view that home eave aowances shoud normay be used for the purpose they are provided to give empoyees and their famiies the opportunity to renew famiy and business ties, thereby increasing the probabiity of reduced adjustment probems when they are repatriated. Education aowances. The provision of education aowances for the chidren of expatriates is frequenty an integra part of an internationa compensation poicy. Aowances for education can cover items such as tuition (incuding anguage casses), appication and enroment fees, books and suppies, meas, transportation, excursions and extra-curricuar activities, parent association fees, schoo uniforms and, if appicabe, room and board. Athough schoo uniforms are not common in the USA, it is common practice (and in many countries compusory) for schoo chidren to wear uniforms, particuary in internationa schoos. PCNs and TCNs usuay receive simiar treatment concerning educationa expenses, but the eve of education provided for and the adequacy of oca pubic schoos versus internationa schoos may present probems for mutinationas. Internationa schoos (e.g. United Word Coege of South East Asia, British Internationa Schoo Shanghai) are far more expensive than oca pubic schoos but are preferred by many expatriates because these schoos foow the home-country curricuum and cater to a gobay diverse student body more capabe of supporting third cuture kids. The cost of oca and internationa schoos for dependent chidren from kindergarten through to high schoo are typicay covered by the empoyer ORC reports that 95 per cent of MNEs contribute to the educationa expenses of expatriate chidren. 22 However, there may be restrictions depending on the age of chidren (pre-schoo, day care and university are typicay not covered), avaiabiity of schoo paces, and their fees. In a number of countries attendance at schoos in the host ocation may be seen as unsuitabe and the MNE may cover (or contribute towards) the costs of chidren attending a private boarding schoo esewhere (e.g. the costs of room and board as we as other transportation costs to cover parenta visits and schoo hoiday trave). 23 The costs of attendance at a university may aso be provided for by mutinationas, when deemed necessary, but this is rare. Reocation aowances. Items typicay covered by reocation aowances incude moving, shipping and storage charges; temporary iving expenses; subsidies regarding appiance or car purchases (or saes); and down payments or ease-reated charges. Aowances regarding perquisites (cars, drivers, cub memberships, servants 24 and so on) may aso need to be considered (usuay for more senior positions, but this varies according to ocation). These aowances are often contingent upon tax-equaization poicies and practices in both the home and the host countries. For exampe, in most Western countries a driver is considered a uxury, ony avaiabe to very senior managers. In deveoping economies a driver is economica in terms of cost, effectiveness and safety. Apart from the expectation that managers use drivers, parking is frequenty chaotic in deveoping countries (especiay in arge cities) and the driver aso performs the function of a parking attendant. In some deveoping countries it is quite common for the poice to

237 220 CHAPTER 8 INTERNATIONAL COMPENSATION arrest drivers invoved in traffic accidents and eave them in detention whie responsibiity and damages are assessed. Such a risk is unacceptabe to many MNEs which do not aow their expatriate empoyees to drive at a in specific deveoping countries and provide oca drivers for both the expatriate and spouse. Spouse assistance. Increasingy, many MNEs are aso offering spouse assistance to hep guard against or offset income ost by an expatriate s spouse as a resut of reocating abroad. Payments, on average, are capped at US$7000 per famiy but vary according to region. Athough some MNEs may pay a one-time aowance to make up for a spouse s ost income (averaging US$ per famiy according to ORC 25 ), US mutinationas are beginning to focus on providing spouses with empoyment opportunities abroad, either by offering jobsearch assistance, career counseing, cutura orientation, resume/cv preparation, work permit assistance and anguage tuition, or in more unusua cases empoyment in the MNE s foreign business (subject of course to a work visa being approved by the host country government for this purpose). To summarize, MNEs generay pay aowances in order to encourage empoyees to take internationa assignments and to keep empoyees whoe (i.e. reativey comparabe) to home standards. We wi present more about this concept ater in the chapter. Benefits The compexity inherent in internationa benefits often brings more difficuties than when deaing with compensation. Expatriate benefits incudes heath care, pension pans/socia security, ife insurance, chid aowances and profit sharing/stock option pans. Pension pans are very difficut to dea with country-to-country as nationa practices vary consideraby. Transportabiity of pension pans/socia security and medica coverage benefits are very difficut to normaize. Therefore, MNEs need to address many issues when considering benefits, incuding: Whether or not to maintain expatriates in home-country programs, particuary if the mutinationa does not receive a tax deduction for it. Whether MNEs have the option of enroing expatriates in host-country benefit programs and/or making up any difference in coverage. Whether expatriates shoud receive home-country or are eigibe to receive host-country socia security benefits. Most US PCNs typicay remain under their home-country benefit pan, with the exception of medica benefits: more than haf of the MNEs surveyed by ORC assign their expatriates to an internationa heathcare pan. In some countries, expatriates cannot opt out of oca socia security programs. In such circumstances, the firm normay pays for these additiona costs. European PCNs and TCNs enjoy portabe socia security benefits within the European Union. Laws governing private benefit practices differ from country to country, and firm practices aso vary. Not surprisingy, mutinationas have generay done a good job of panning for the retirement needs of their PCN empoyees, but this is generay ess the case for TCNs. 26 There are many reasons for this: TCNs may have itte or no home-country socia security coverage; they may have spent many years in countries that do not permit currency transfers of accrued benefit payments; or they may spend their fina year or two of empoyment in a country where fina average saary is in a currency that reates unfavoraby to their home-country currency. How their benefits are cacuated and what type of retirement pan appies to them may make the difference between a comfortabe retirement in a country of their choice or a forced and financiay ess comfortabe retirement esewhere.

238 CHAPTER 8 INTERNATIONAL COMPENSATION 221 In addition to the aready discussed benefits, mutinationas aso provide vacations and specia eave. Incuded as part of the empoyee s reguar vacation, annua home eave usuay provides airfares for famiies to return to their home countries. Rest and rehabiitation eave is aso frequenty avaiabe if the conditions of the host country are ceary beow the standards of the home country. Typicay, rest and rehabiitation eave provides the empoyee s famiy with paid airfares to a more comfortabe ocation near the host country. In addition to rest and rehabiitation eave, emergency provisions are avaiabe in case of a death or iness in the famiy. Empoyees in hardship ocations generay receive additiona eave expense payments and rest and rehabiitation periods. APPROACHES TO INTERNATIONAL COMPENSATION OF EXPATRIATES There are two main options in the area of internationa compensation the Going Rate Approach (aso referred to as the Market Rate Approach) and the Baance Sheet Approach (sometimes known as the Buid-up Approach). In this section we describe each approach and discuss the advantages and disadvantages inherent in each approach. 27 The going rate approach The key characteristics of this approach are summarized in Tabe 8.1. With this approach, the base saary for the internationa transfer is inked to the saary structure in the host country. The mutinationa usuay obtains information from oca compensation surveys and must decide whether oca nationas (HCNs), expatriates of the same nationaity or expatriates of a nationaities wi be the reference point in terms of benchmarking. For exampe, a Japanese bank operating in New York woud need to decide whether its reference point woud be oca US saaries, other Japanese competitors in New York, or a foreign banks operating in New York. With the Going Rate Approach, if the ocation is in a ow-pay county, the mutinationa usuay suppements base pay with additiona benefits and payments. TABLE 8.1 Going rate approach Based on oca market rates Reies on survey comparisons among: Loca nationas (HCNs) Expatriates of same nationaity Expatriates of a nationaities Compensation based on the seected survey comparison Base pay and benefits may be suppemented by additiona payments for ow-pay countries There are advantages and disadvantages of the Going Rate Approach, summarized in Tabe 8.2. The advantages are: there is equaity with oca nationas (very effective in attracting PCNs or TCNs to a ocation that pays higher saaries than those received in the home country); the approach is simpe and easy for expatriates to understand; expatriates are abe to identify with the host country; and there is often equity among expatriates of different nationaities.

239 222 CHAPTER 8 INTERNATIONAL COMPENSATION TABLE 8.2 Advantages and disadvantages of the going rate approach Advantages Equaity with oca nationas Simpicity Identification with host country Equity among different nationaities Disadvantages Variation between assignments for same empoyee Variation between expatriates of same nationaity in different countries Potentia re-entry probems The disadvantages of the Going Rate Approach incude: First, there can be variation between assignments for the same empoyee. This is most obvious when we compare an assignment in an advanced economy with one in a deveoping country, but aso between assignments in various advanced economies where differences in manageria saaries and the effect of oca taxation can significanty infuence an empoyee s compensation eve using the Going Rate Approach. Not surprisingy, individua empoyees are very sensitive to this issue. Second, there can be variation between expatriates of the same nationaity in different ocations. A strict interpretation of the Going Rate Approach can ead to rivary for assignments to ocations that are financiay attractive and itte interest in ocations considered financiay unattractive. Finay, the Going Rate Approach can pose probems upon repatriation when the empoyee s saary reverts to a homecountry eve that is beow that of the host-country. This is not ony a probem for firms in deveoping countries, but aso for MNEs from many countries where oca manageria saaries are we beow that of the USA, which has ong been the word market eader in manageria saaries, athough the gap between US and some European saaries has been narrowing. 28 The baance sheet approach The key characteristics of this approach (which is the most widey used approach for internationa compensation) are summarized in Tabe 8.3. The basic objective is to keep the expatriate whoe (that is, maintaining reativity to PCN coeagues and compensating for the costs of an internationa assignment 29 ) through maintenance of home-country iving standard pus a financia inducement to make the package attractive. This approach inks the base saary for expatriates to the saary structure of the reevant home country. For exampe, a US executive taking up an internationa position woud have his or her compensation package buit upon the US basesaary eve rather than that appicabe to the host country. The key assumption of this approach is that foreign assignees shoud not suffer a materia oss due to their transfer, and this is accompished through the utiization of what is generay referred to as the Baance Sheet Approach. According to Reynods: The baance sheet approach to internationa compensation is a system designed to equaize the purchasing power of empoyees at comparabe position eves iving overseas and in the home-country and to provide incentives to offset quaitative differences between assignment ocations. 30 TABLE 8.3 The baance sheet approach Basic objective is maintenance of home-country iving standard pus financia inducement Home-country pay and benefits are the foundations of this approach Adjustments to home package to baance additiona expenditure in host country Financia incentives (expatriate/hardship premium) added to make the package attractive Most common system in usage by mutinationa firms

240 CHAPTER 8 INTERNATIONAL COMPENSATION 223 There are four major categories of outays incurred by expatriates that are incorporated in the Baance Sheet Approach: 1 Goods and services home-country outays for items such as food, persona care, cothing, househod furnishings, recreation, transportation and medica care. 2 Housing the major costs associated with housing in the host country. 3 Income taxes parent-country and host-country income taxes. 4 Reserve contributions to savings, payments for benefits, pension contributions, investments, education expenses, socia security taxes, etc. Where costs associated with the host-country assignment exceed equivaent costs in the parent country, these costs are met by both the MNE and the expatriate to ensure that parent-country equivaent purchasing power is achieved. Tabe 8.4 shows a typica spreadsheet for an expatriate assignment using the Baance Sheet Approach. In this exampe, an Austraian expatriate is assigned to a hypothetica country caed New Euphoria which has a Cost-of-Living-Index of 150 reative to Austraia and an exchange rate of 1.5 reative to the Austraian doar. In addition to a foreign service premium, a hardship aowance is aso payabe for this ocation. Housing is provided by the MNE, and a notiona cost for this is recognized by a 7 per cent deduction from the package, aong with a notiona tax deduction (we discuss taxation ater in the chapter). The expatriate can see from this spreadsheet what components are offered in the package and how the package wi be spit between Austraian currency and New Euphoria currency. TABLE 8.4 Expatriate compensation worksheet Empoyee: Position: Country: Reason for change: Brian Smith Marketing Manager New Euphoria New Assignment Effective date of change 1 February 2013 Item Amount A$ PA Paid in Austraian doars A$ PA Paid in oca currency NE$ PA Base saary Cost of iving aowance Overseas service premium (20%) Hardship aowance (20%) Housing deduction (7%) Tax deduction TOTAL COLA Index ¼ 150 There are advantages and disadvantages of the Baance Sheet Approach, summarized in Tabe 8.5. There are three main advantages. First, the Baance Sheet Approach provides equity between a foreign assignments and between expatriates of the same nationaity. Second, repatriation of expatriates is faciitated by this emphasis on equity with the parent country as expatriate compensation remains anchored to the compensation system in the parent country. Third, this approach is easy to communicate, as Tabe 8.4 iustrates.

241 224 CHAPTER 8 INTERNATIONAL COMPENSATION TABLE 8.5 Advantages and disadvantages of the baance sheet approach Advantages Equity Between assignments Between expatriates of the same nationaity Faciitates expatriate re-entry Easy to communicate to empoyees Disadvantages Can resut in great disparities Between expatriates of different nationaities Between expatriates and oca nationas Can be quite compex to administer There are two main disadvantages of the Baance Sheet Approach. First, this approach can resut in considerabe disparities both between expatriates of different nationaities and between PCNs and HCNs. Probems arise when internationa staff are paid different amounts for performing the same (or very simiar) job in the same host ocation, according to their different home base saary. For exampe, in the Singapore regiona headquarters of a US bank, a US PCN and a New Zeaand TCN may perform the same (or simiar) banking duties but the American wi receive a higher saary than the New Zeaander because of the differences in US and New Zeaand base-saary eves. As noted above, differences in base-saary eves can aso cause difficuties between expatriates and HCNs. Traditionay, this has referred to the probem of highy paid PCNs being resented by oca HCN empoyees because these foreigners are perceived as being excessivey compensated (and because they are bocking career opportunities for ocas). However, feeings of resentment and inequity can aso run in the other direction. For instance, as indicated above, the USA has the highest eve of manageria compensation in the word. Thus, a mutinationa that estabishes a subsidiary in the USA (or acquires a US business) may find that if it uses a Baance Sheet Approach, its expatriates may be substantiay underpaid compared to oca American empoyees. Whie the ogic of the baance sheet states that being tied to the home country assists in repatriation because the expatriate identifies with the home country, research in equity theory 31 suggests that empoyees do not aways assess compensation issues in a detached way. The issue of base saary differences is aso a concern for US empoyees working for foreign firms operating in the USA. Many non-us mutinationas are reuctant to pay high US saaries to US empoyees who are offered internationa assignments (as HCNs into the firm s homecountry operations, or as TCNs in a regiona subsidiary). US empoyees are equay reuctant to accept the ower saaries paid in the firm s home country. Thus, the Baance Sheet Approach can produce disparities and may aso act as a barrier to staff acceptance of internationa assignments. A second probem with the Baance Sheet Approach is that whie this approach is both eegant and simpe as a concept, it can become quite compex to administer. Compexities particuary arise in the areas of tighty integrated private and government fund transfers (e.g. taxes and pensions). A third emerging approach to internationa compensation: Loca Pus Over the past decade, a third approach to internationa compensation, summarized in Tabe 8.6, and caed Loca Pus has begun to emerge, particuary in the Asia Pacific region. A Loca Pus approach is one in which expatriate empoyees are paid according to the prevaiing saary eves, structure, and administration guideines of the host ocation, pus provided expatriatetype benefits such as assistance with transportation, housing, and dependents education in recognition of the empoyee s foreign status. Benefits may be paid in-kind (directy by the MNE) or as add-ons to oca saary eves at a grossed-up rate to account for host taxes. Loca Pus

242 CHAPTER 8 INTERNATIONAL COMPENSATION 225 compensation does not typicay incude tax equaization, COLA, mobiity premiums, hardship aowances, famiiarization visits, home eave, cross-cutura training and other pre-departure programs, or spouse assistance. Pension benefits are optiona depending on the nature of the assignment and whether the transfer is temporary or permanent. The driving force behind a Loca Pus approach for many MNEs is to reduce their internationa assignment costs. Deveoping ow-cost aternative saary packages, such as Loca Pus, is one way to achieve this. With many companies aso seeing an increase in the number of deveopmenta assignees, 32 many expatriates (especiay junior and midde management staff) are often wiing to accept a reduced package such as Loca Pus in return for the internationa experience that wi enhance their future careers. Typicay, Loca Pus is used for ong-term assignments, permanent transfers, intra-regiona transfers (e.g. such as in Asia Pacific), and for assignments from ow to high wage ocations. In many respects, Loca Pus compensation is a hybrid version of both the Baance Sheet (home based) and Going Rate (host based) Approaches, often containing the optimum benefits of both. As such, it is a compensation approach that can frequenty sove some of the probems encountered in more traditiona compensation approaches and therefore has some unique benefits. For exampe, because the expatriate benefits of a Loca Pus package are not fixed as in the Baance Sheet Approach, there is considerabe fexibiity to taior each pus component (i.e. add or a remove a benefit) according to a variety of individua and corporate objectives. This is advantageous for a number of reasons. First, if we take the Baance Sheet Approach, this is based on the notion that expatriate empoyees can identify a home country, but with more expatriates undertaking mutipe assignments, often back to back, and frequenty over a decade or more (some with no intention to return or retire there), identifying home is becoming increasingy difficut. Using a Baance Sheet approach under these circumstances does not make sense, but a Loca Pus approach does. Second, companies that recruit empoyees from ocations where it has no presence (e.g. TCNs) and therefore no payro faciities wi find it very difficut to administer either a home or host based approached. Again, a Loca Pus approach wi sove this probem by offering pus benefits based on what is appropriate given the empoyee s experience and skis rather than where they come from or where they are going to. The benefits of the Loca Pus approach can be seen in the increasing use of this type of compensation in Asia Pacific. 33 AIRINC reports that companies headquartered in Asia are more ikey to have a forma Loca Pus poicy in pace, and have more assignees on a Loca Pus poicy, than in any other region in the word. 34 This may be due in arge part to Asia s economic growth over the past decade that is fueing the demand for a more gobaized workforce; 35 as such, MNEs must entice hundreds of thousands of expatriates to the region whie aso faciitating the transfer of internationa empoyees in the most cost-effective manner. Athough the benefits of Loca Pus compensation are numerous, there are aso some disadvantages for firms that use the approach. In a recent study of expatriates views about internationa assignments across five regions, McNuty and coeagues found that Loca Pus compensation tends to shift the power baance in the empoyment reationship in expatriates favor. 36 This is because, by its nature, Loca Pus compensation has a more normaizing effect on how expatriates ive in a host-country in comparison to expatriates on more generous saary packages. It means that the ifestye of expatriates on Loca Pus compensation is generay more cosey aigned with the ifestye and socio-economic habits of ocas in the host-country, i.e., the disparity in purchasing power between themseves and HCNs is margina given that the choices they make about their standard of iving (where to ive, which schoos to attend) are determined ess by the MNE. As a resut of their greater sacrifice and being forced to rey ess on the organization to support some of their fundamenta empoyment needs, which is often not compensated for in other non-financia ways (e.g. through improved career management support), Loca Pus compensation can impact on expatriates job embeddedness in terms of commitment and oyaty. In sum, Loca Pus compensation tends to decrease the ties that bind expatriates to their firm. The shift in power in the empoyment reationship in favor of expatriates can have significant impications for MNEs. The most significant probem is expatriate retention. For instance, if

243 226 CHAPTER 8 INTERNATIONAL COMPENSATION Loca Pus compensation is ideay suited to expatriates wiing to accept a reduced saary package in exchange for the opportunity to acquire vauabe internationa skis, it is necessary to aso consider that once these skis have been acquired, empoyees marketabiity on the internationa abor market wi ikey increase. As Loca Pus expatriates are ess reiant on firms to fund their expatriate ifestye, and because they are iving a argey oca ifestye to begin with, their wiingness to consider other job offers that may afford them even an incrementa increase in their current saary is higher. This may be because they fee pushed to find better empoyment opportunities, or because they have (or are deveoping) a sef-initiated career orientation (i.e., pursuing a protean, goba or boundaryess career as discussed in chapter 7) that prompted them to initiay accept a oca-pus package. Either way, there is an increased risk of osing expatriates to competitors, particuary during an internationa assignment, which can have a devastating effort on MNEs broader goba staffing objectives. See Tabe 8.6 for a comparison of some ong-term assignment options we have discussed. TABLE 8.6 Compensation approaches and strategies for ong-term internationa assignments Poicy Name Strategy Description of Poicy Purpose Used For Fu Internationa Deveopment based on baance sheet (home) approach fu bes and whistes, i.e. generous remuneration (incuding bonus and incentives) and benefits (incuding cost of iving aowance, housing, education, spousa aowance, car, home eave, and cub memberships) designed to ensure empoyee s ifestye not disadvantaged as resut of internationa reocation Expat Lite Skis/ Secondment based on reduced baance sheet (home) approach reduced version of fu bes and whistes, i.e. generous remuneration with/without bonus and incentives, and incusion of some benefits (e.g. housing, education, car, home eave) but not others (e.g. cub memberships, spousa aowance, cost of iving) targeted at executives for career deveopment or on internationa track who possess universa skis and considered high potentia often used for cadre approach to deveop careers of eite group of high performers whose permanent mobiity is ong-term strategic goa mainy used for retention purposes where goa is to repatriate to corporate headquarters or business group headquarters used sparingy and as reward for key individuas expatriates with deep technica skis or competencies needed in another ocation specific goa is to transfer skis and knowedge for duration of assignment ony (no more than 2 years) expatriate reocates for fixed period and repatriates with no intention to reocate again uness a specific ski need arises often used to service cients in ocation where oca skis not avaiabe (Continued)

244 CHAPTER 8 INTERNATIONAL COMPENSATION 227 (Continued ) Poicy Name Strategy Description of Poicy Purpose Used For Loca Pus Cost savings based on going rate (host) approach provides some benefits of deveopmenta poicy but on greaty reduced basis expatriates often ocaized with some additiona benefits provided to sustain retention no ongoing aowances (e.g. cost of iving) initia aowances typicay phased out over period of assignment (100% benefit year one, 50% benefit year two, 20% benefit year three) Locaization One-Way Internationa Cost savings, functiona turnover & retention Sef-initiated transfers based on going rate (host) approach initia aowances from any of above strategies phased out over period of assignment (100% benefit year one, 50% benefit year two, 20% benefit year three) to achieve fu oca remuneration based on going rate (host) approach one way reocation package to hostdestination saary, incentives and benefits paid from oca payro combination of deveopmenta and skis/secondment expatriates, but generay targeted at midde management executives who are speciaized, functiona peope, or broad business managers and/or generaists who move between variety of different positions (and ocations) throughout their career typicay offered to managers initiating reocation or indicating wiingness to reocate typicay offered to managers initiating a reocation or indicating wiingness to reocate, and ong-term assignees who have exceeded term of contract (i.e. beyond initia 3 or 5 year assignment) but who wish to remain in ocation or firm does not wish to repatriate sef-initiated/empoyee-initiated reocation Source: Tabe 8.6 was created by the author team specificay for this textbook. Taxation Taxation is probaby the one aspect of internationa compensation that causes the most concern to HR practitioners and expatriates because taxation generay evokes emotiona responses. 37 No one enjoys paying taxes, and this issue can be very time consuming for both the MNE and the expatriate. To iustrate the potentia probems, an assignment abroad for a US expatriate may resut in being taxed in the country of assignment and in the USA. This dua tax cost, combined with a of the other expatriate costs, makes some US mutinationas think twice about making use of expatriates. It is important to note that Section 911 of the US Interna Revenue Service Code contains provisions permitting a substantia deduction on foreign-earned income, but US expatriates must fie with the IRS and usuay aso with the host-country tax office during their period of foreign service. This requirement is more onerous than for citizens of some other OECD countries who are not required to decare their tota goba income to their home-country taxation authority.

245 228 CHAPTER 8 INTERNATIONAL COMPENSATION Mutinationas generay seect one of the foowing approaches to handing internationa taxation: Tax equaization. Firms withhod an amount equa to the home-country tax obigation of the expatriate, and pay a taxes in the host country Tax protection. The empoyee pays up to the amount of taxes he or she woud pay on compensation in the home country. In such a situation, the empoyee is entited to any windfa received if tota taxes are ess in the foreign country than in the home country. In her cassic review of goba compensation, Stuart 38 adds two other approaches: (1) ad hoc (each expatriate is handed differenty, depending upon the individua package agreed to with the MNE); and (2) aissez-faire (empoyees are on their own in conforming to host-country and home-country taxation aws and practices). However, neither of these approaches are recommended and we sha focus on tax equaization and tax protection, as these are the most common approaches. Tax equaization is by far the more common taxation poicy used by mutinationas. 39 Thus, for an expatriate, tax payments equa to the iabiity of a home-country taxpayer with the same income and famiy status are imposed on the empoyee s saary and bonus. Any additiona premiums or aowances are paid by the firm, tax-free to the empoyee. As mutinationas operate in more and more countries, they are subject to widey discrepant income tax rates. For exampe, if we ook at seected maximum federa margina tax rates (see Tabe 8.7) the top five highest taxation countries are The Netherands, Begium, Germany, Austraia and Itay. The USA is significanty beow the rates for these five countries. 40 TABLE 8.7 Maximum margina federa tax rates Country Maximum margina rate (%) Austraia Begium Canada Chie Denmark France Germany Itay Japan Korea Mexico Netherands New Zeaand Poand Spain Sweden Switzerand Turkey United Kingdom United States Source: Adapted from the Organization for Economic Cooperation and Deveopment (OECD). Tabe 1.1 Persona Income Tax Rates, Reproduced with permission. 41

246 CHAPTER 8 INTERNATIONAL COMPENSATION 229 Many MNEs have responded to this compexity and diversity across countries by retaining the services of internationa accounting firms to provide advice and prepare host-country and home-country tax returns for their expatriates. Increasingy, mutinationas are aso outsourcing the provisions of further aspects of the tota expatriate compensation packages incuding a variety of destination services in ieu of providing payment in a package. 42 When mutinationas pan compensation packages, they need to consider to what extent specific practices can be modified in each country to provide the most tax-effective, appropriate rewards for PCNs, HCNs and TCNs within the framework of the overa compensation poicy of the MNE. As one internationa HRM manager noted some years ago, the difficuties in internationa compensation are not compensation so much as benefits. Pension pans are very difficut to compare or equaize across nations, as cutura practices vary consideraby. Transportabiity of pension pans, medica coverage and socia security benefits are very difficut to normaize. 43 This observation remains reevant today and MNEs need to activey monitor a range of issues when considering benefits, incuding: Whether or not to maintain expatriates in home-country programs, particuary if the MNE does not receive a tax deduction for it. Whether MNEs have the option of enroing expatriates in host-country benefit programs and/or making up any difference in coverage. Whether host-country egisation regarding termination affects benefit entitement. Whether expatriates shoud receive home-country or host-country socia security benefits. Whether benefits shoud be maintained on a home-country or host-country basis, who is responsibe for the cost, whether other benefits shoud be used to offset any shortfa in coverage, and whether home-country benefit programs shoud be exported to oca nationas in foreign countries. Differences in nationa sovereignty are aso at work in the area of mandated pubic and private pension schemes, what many nations refer to as socia security programs. Tabe 8.8 highights the differences in mandated degree of contribution (ranging from a ow of 0 per cent to a high of over 60 per cent) as we as the mix of empoyer-empoyee contribution. For many internationa firms, expatriate assignments are ikey to increase in distance, number and duration over an empoyee s career, and more and more firms may create cadres of permanent internationa assignees caed gobas by some firms. The inherent compexity and dynamism of cuturay embedded and poiticay voatie nationa tax and pension processes promise to tax the resources, time and attention of internationa human resource managers for the foreseeabe future. Seamess networks of goba firms, their speciaist consutants and oca and regiona pubic and private interests are a goa rather than a reaity. Internationa iving costs data Obtaining up-to-date information on internationa iving costs is a constant issue for mutinationas. As we noted at the beginning of this chapter, the eve of oca knowedge required in many areas of IHRM requires speciaist advice. Consequenty, many MNEs retain the services of consuting firms that may offer a broad range of services or provide highy speciaized services reevant to HRM in a mutinationa context. With regard to internationa iving costs, a number of consuting firms offer reguar surveys cacuating a cost-of-iving index that can be updated in terms of currency exchange rates. A recent survey of iving costs 45 in seected cities ranked the ten most expensive cities (incuding rent) as New York, Oso, Geneva, Zurich, Tokyo, Dubai, Copenhagen, Singapore, Toronto and London. The first US city in the index was New York,

247 230 CHAPTER 8 INTERNATIONAL COMPENSATION TABLE 8.8 Socia security contributions by empoyers and empoyees Country Empoyer contribution rate (%) Empoyee contribution rate (%) Austraia Tota contribution rate (%) Begium Canada Chie France 40.8** 21.46** Germany Itay 32.08** 10.49** 42.57** Japan Korea Mexico 7.64** 1.65** 9.29** Netherands Poand Singapore 0.00* 0.00* 0.00* Spain Sweden Switzerand Turkey United Kingdom United States *When the contributions are at zero, they are funded out of the Genera Tax Revenue and range from zero to very high vaues **Varies idiosyncraticay. Source: Adapted from the Organization for Economic Cooperation and Deveopment (OECD). Tabe 3.1 and 3.2 Socia Security Contribution Tabes, Reproduced with permission. 44 ranked as the most expensive city incuding rent costs, but ony the sixth most expensive city if you excude rent costs. The east expensive city was Mumbai in India (formery known as Bombay). Price differentias between Eastern and Western Europe cosed in 2009 to an average of 26 per cent higher prices in Western Europe. MNEs using the baance sheet approach must constanty update compensation packages with new data on iving costs which is an ongoing administrative requirement. This is a very important issue to expatriate empoyees and forms the basis of many compaints if updating substantiay ags behind any rise in iving costs. Mutinationas must aso be abe to respond to unexpected events such as the currency and stock market crash that suddeny unfoded in a number of Asian countries in ate Some countries such as Indonesia faced a devauation of their currency (the Ruphiah) by over 50 per cent against the US doar in a matter of weeks. This event had a dramatic impact on prices, the cost of iving and the cost of servicing debt for Indonesian firms with oans denominated in a foreign currency such as the US doar. There is aso much debate about what shoud be in the basket of goods which consuting firms use as the basis for cacuating iving costs around the word. For exampe, the Swiss Bank UBS uses the Big Mac Index to measure iving costs around the word. 46 According to Tabe 8.9, it takes amost three hours for the average worker in Nairobi to earn enough for a Big Mac. In Los Angees, Chicago and Hong Kong, the goba burger can be bought for ess than 15 minutes effort. 47

248 CHAPTER 8 INTERNATIONAL COMPENSATION 231 TABLE 8.9 Range of working times required to buy one Big Mac City 1 Big Mac in min Chicago, Tokyo, Toronto 12 London, Los Angees, Miami 13 Hong Kong, New York, Sydney 14 Dubin, Frankfurt, Luxembourg, Montrea, Zurich 15 Copenhagen, Geneva, Vienna 17 Dubai, Nicosia 18 Amsterdam, Auckand, Berin, Brusses 19 Lyon, Munich, Paris, Stockhom, Taipei 20 Barceona, Moscow, Oso 21 Lisbon 23 Te Aviv 24 Manama 25 Johannesburg 26 Hesinki, Madrid, Mian, Rome, Seou 27 Athens, Shanghai, Tainn 30 Warsaw, Doha 31 Ljubjana 34 Singapore 36 Prague 38 São Pauo 40 Kuaa Lumpur, Vinius 41 Bucharest, Riga 42 Beijing 44 Bangkok, Kiev 45 Istanbu 48 Dehi 49 Rio de Janeiro 51 Sofia 56 Buenos Aires 57 Bogotá,Lima 58 Budapest 59 Mumbai 61 Bratisava 62 Santiago de Chie 69 Cairo 82 Mania 88 Caracas 126 Mexico City 129 Jakarta 136 Nairobi 158 Notes: Price of one Big Mac divided by weighted average houry pay across 14 professions Source: UBS, Prices and Earning

249 232 CHAPTER 8 INTERNATIONAL COMPENSATION It is aso possibe to take a wider view and focus on business costs rather than iving costs for expatriates, because the mutinationa firm is interested in the overa cost of doing business in a particuar country as we as the more micro issue of expatriate iving costs. The Economist Inteigence Unit 49 cacuates such indices, which measure the reative costs of doing business in different economies by compiing statistics reating to wages, costs for expatriate staff, air trave and subsistence, corporation taxes, perceived corruption eves, office and industria rents and road transport. Generay the deveoped countries tend to rank as more expensive than deveoping countries because their wage costs are higher. Differentiating between PCNs and TCNs As we have indicated, one of the outcomes of the baance sheet approach is to produce differentiation between expatriate empoyees of different nationaities because of the use of nationaity to determine the reevant home-country base saary. In effect, this is a differentiation between PCNs and TCNs. Many TCNs have a great dea of internationa experience because they often move from country to country in the empoy of one mutinationa (or severa) headquartered in a country other than their own (for exampe, an Indian banker may work in the Singapore branch of a US bank). As Reynods 50 ong ago observed, there is no doubt that paying TCNs according to their home-country base saary can be ess expensive than paying a expatriates on a PCN scae particuary if the mutinationa is headquartered in a country which has both high manageria saaries and a strong currency. However, justifying these differences to TCNs can be difficut. Ceary, many MNEs take the view that a significant reduction in expenses outweighs the difficuty of justifying any negative pay differentias. However, as MNEs expand and internationa revenue becomes more significant, TCN empoyees often become more vauabe. A focus on retaining taented TCNs often requires rethinking the existing approach to compensating TCNs. As a starting point, mutinationas need to match their compensation poicies with their staffing poicies and genera HR phiosophy. If, for exampe, an MNE has an ethnocentric staffing poicy, its compensation poicy shoud be one of keeping the expatriate whoe (that is, maintaining reativity to PCN coeagues pus compensating for the costs of internationa service). If, however, the staffing poicy foows a geocentric approach (that is, staffing a position with the best person, regardess of nationaity), there may be no cear home for the TCN, and the mutinationa wi need to consider estabishing a system of internationa base pay for key managers, regardess of nationaity, that is paid in a major reserve currency such as the US doar or the Euro. This system aows MNEs to dea with considerabe variations in base saaries for managers. TENTATIVE CONCLUSIONS: PATTERNS IN COMPLEXITY, CHALLENGES AND CHOICES Whie so far, some of this chapter has concentrated on expatriate compensation we wi now draw concusions for the arger group of (internationa) managers in MNEs. As outined at the opening of the chapter, internationa compensation administration may be more compex than its domestic counterpart, but is ony sowy and fitfuy evoving from a dominant domestic state of origin. 51 Domestic pay patterns that is norms and assumptions, pay strategies and practices, as we as pay forms and administration are increasingy chaenged as executives in MNEs are exposed to aternative pay forms, varying ega and institutiona contexts and the rapidy changing reaities of goba competitiveness.

250 CHAPTER 8 INTERNATIONAL COMPENSATION 233 Recent deveopments in the study of goba pay issues may be seen to operate at three distinct vertica eves: the basic eve of cutura vaues and assumptions; the intermediate eve of pay strategy, practices and systems design; and the surface (artifact) eve of pay administration and form 52 see Figure 8.1. On a second, horizonta eve, firms must individuay determine how to strike a baance between traditiona, internay based modes and expanations of pay and those more externay focused modes and expanations of pay that comprise a goba chaenge to the status quo. 53 Gobaizing firms must individuay choose between internay and externay focused assumptions, strategies and practices. This combined choice is the compex context of pay for any given mutinationa. Pay context is the pivota center coumn in Figure 8.1. On the eve of basic expanations, firms can choose to emphasize firm-specific theories of job worth (such as resource-based views of the firm, 54 behaviora theory 55 or new institutiona economics modes) 56 or they may emphasize firm externa theories of job worth (such as cutura and institutiona perspectives). 57 These theories may be impicit and not articuated by pay practitioners, and yet these assumptions may indirecty drive a other pay processes. On the more expicit, and more widey investigated, eve of norms and vaues, pay strategy may be seen as some combination of interna, corporate norms (derived from and consistent FIGURE 8.1 Compexity, chaenges and choices in goba pay. LEVEL 3 Artefacts LEVEL 2 Norms and vaues LEVEL 1 Basic expanations Research paradigms Interna context Pay context Externa context Visibe firm-interna variabes Exampes: Size Organizationa/ Product Life Cyce Leve of internationaization Organizationa structure Firm-interna variabes refecting norms & vaues Exampes: Corporate/ business unit strategy Corporate cuture HR Strategy Empoyment reationships (ong-term vs. shortterm empoyment reationships) Mainy firm-interna perspectives Exampes: Resource-based view Resource Dependence Theory Behaviora Theory New Institutiona Economics Universaist Practices in goba pay Pay mix Pay eve Standardization vs. ocaization of pay practices Pay strategy Possibe Basis for pay: Job vs. Ski Performance vs. Seniority Individua vs. Group Performance Short vs. Long Term Orientation Risk Aversion vs. Risk Taking Corporate vs. Division Performance Hierarchica vs. Egaitarian Quaitative vs. Quantitative Performance Measures Interna vs. Externa Equity Visibe firm-externa variabes Exampes: Industry Loca product market conditions Loca abor market conditions Lega environment Unions Firm-externa variabes refecting norms & vaues Exampes: Institutiona forces (e.g. industria reations system, educationa systems) Cutura norms and vaues Mainy firm-externa perspectives Exampes: Cutura perspectives Institutiona perspective Contextuaist

251 234 CHAPTER 8 INTERNATIONAL COMPENSATION with pay strategy, IHRM strategy and traditiona empoyment reationships practiced psychoogica contracts ) and externa, environmenta norms (derived from abor unions, educationa systems, and oca or regiona institutiona sources) that may vary significanty by geographic region. Pay strategy may be defined in terms of a series of interocking strategic choices on: basis of pay (job versus ski, performance versus seniority), 58 unit of aggregation (paying individuas, groups, organizations, short- versus ong-term orientation to pay), 59 patterns of variation in pay (variabiity or risk in pay, hierarchica versus egaitarian pay orientation), 60 and an overa focus on interna equity as captured by job evauation systems as opposed to externa equity as captured by market surveys. 61 Universa pay systems may be preferred by corporate pay panners rather than having to dea with myriad oca systems. Ease of administration and the standardization of practices are attractive and can contribute to simpicity in goba assignments, resoving disputes reated to perceived inequities or poicy inconsistencies, etc. However, oca or regiona host contexts and/or MNE strategy may infuence senior managers to compromise these goba preferences and strategicay aign pay practices more or ess in conformance with oca or regiona requirements. 62 Strategic necessity and contextua requirements may incrementay grudgingy move pay practices away from a universaized and toward a more ocaized character. 63 It shoud be noted that in the center coumn of Figure 8.1, under possibe basis for pay, a number of eves of anaysis have emerged to suppement or augment traditiona job-based pay. Firms may provide an individua empoyee with persona choice in pay and pay for his/her skis or competencies. 64 Aternatey, a firm may pay at the traditiona job eve, reaizing that even standard jobs may vary tremendousy across geographic regions. Firms may aso pay at the task group or pant eve of aggregation. 65 Finay, firms may provide customized pay at the nationa eve, or provide standardized core pay for a empoyees in the goba firm. 66 Increasingy, we may combine pay packages across these vertica eves of anaysis and pay for a combination of persona, job, group, nationa or corporate purposes. 67 These composite pay systems are more compex, but they are aso more fexibe and responsive to diverse empoyee demands and changing goba business conditions. MNEs face goba chaenges to executive compensation practices and forms of corporate governance. 68 These chaenges may be seen as an ongoing debate between advocates of pay systems that vaue competitive individuaism and resut in hierarchica pay systems with arge pay differentias for executives, market sensitive professions and other critica empoyee groups 69 and the advocates of pay systems that vaue cooperative coectivism and resut in more egaitarian pay systems with smaer pay differentias and more shared group or firm-wide reward practices. 70 Increasingy, mutinationas that vioate corporate or oca norms in one ocation in order to respond to oca norms in a second ocation do so at their own risk. 71 At the fina eve of pay form and administration (artifacts) MNEs may determine that pay practices such as pay mix (between base pay, the nature and extent of benefits, use of ong-term and short-term incentives, etc.), overa eve of pay, and the degree to which pay is standardized across a units or customized to oca conditions shoud be the resut of interna or externa infuences. 72 Firm specific reaities (such as operating in a monopoistic industry, a ow degree of internationaization, and simpe organizationa design) may mitigate for standardized pay practices. Conversey, strongy hed oca vaues, institutions and reguations, an advanced eve of internationaization and decentraized organizationa designs may mitigate for more fexibe, ocaized pay practices. 73

252 CHAPTER 8 INTERNATIONAL COMPENSATION 235 SUMMARY In this chapter, we have examined the compexities that arise when firms move from compensation at the domestic eve to compensation in an internationa context. It is evident from our review that compensation poicy becomes a much ess precise process than is the case in the domestic HR context. To demonstrate this compexity, we have: Detaied the key components of an internationa compensation program. Outined the two main approaches to internationa compensation (the Going Rate and the Baance Sheet) and introduced a third new approach to compensation Loca Pus and expained components as we as its advantages and disadvantages. Outined specia probem areas such as taxation, obtaining vaid internationa iving costs data and the probems of managing TCN compensation. Presented a mode of goba pay that highights the compexity and yet famiiarity of pay practices in the goba context. It is this combination of pay decisions based on strategic goba standardization and sensitivity to changing oca and regiona conditions that characterizes the state of internationa pay practices. Posited that a strategic yet sensitive baance can ony be achieved by creating and maintaining professiona networks, comprised of home office and oca affiiate HR practitioners, outsourcing seected activities through speciaist consutants, and a cose cooperation with oca and regiona governments and other key oca institutions.

253 236 CHAPTER 8 INTERNATIONAL COMPENSATION DISCUSSION QUESTIONS 1 What shoud be the main objectives for a mutinationa with regard to its compensation poicies? 2 Describe the main differences in the Going Rate and Baance Sheet Approaches to internationa compensation. 3 What are the key differences in saary compensation for PCNs and TCNs? Do these differences matter? 4 Describe Loca Pus compensation and expain the major chaenges MNEs face when using the approach. 5 What are the main points that MNEs must consider when deciding how to provide benefits? 6 Why is it important for MNEs to understand the compensation practices of other countries? 7 Expain how baancing the interests of goba and oca, occupationa and functiona perspectives might pay out in a compensation decision scenario. FURTHER READING Bonache, J., The Compensation of Expatriates: A Review and a Future Research Agenda, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp Festing, M., Internationa Human Resource Management and Economic Theories of the Firm, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp Festing, M. and Perkins, S., Rewards for internationay mobie empoyees. In M. Dickmann, C. Brewster and Sparrow, P. (eds) Internationa Human Resource Management: A European Perspective, 2nd Ed. (London: Routedge, 2008), pp Festing, M., Enge, A., Dowing, P. and Sahakiants, I., HRM Activities: Pay and Rewards, Chapter 7 in C. Brewster and W. Mayrhofer (eds) Handbook of Research in Comparative Human Resource Management (Chetenham, UK: Edward Egar, 2012). Festing, M., Eidems, J. and Royer, S. (2007) Strategic Issues and Loca Constraints in Transnationa Compensation Strategies: An Anaysis of Cutura, Institutiona and Poitica Infuences, European Management Journa, Apri, Vo. 25, Issue 2: Gerhart, B., Compensation and Nationa Cuture, in L. Gomez-Mejia and S. Werner (eds) Goba Compensation: Foundations and Perspectives, (New York: Routedge, 2008), pp NOTES AND REFERENCES 1. See J. Kerr and J. Socum, Managing Corporate Cuture Through Reward Systems, Academy of Management Executive, Vo. 19, No. 4 (2005), pp ; and P. Evans, V. Pucik and I. Björkman, The Goba Chaenge: Internationa Human Resource Management, 2nd ed. (New York: McGraw Hi, 2011), particuary pp E. Locke, Linking Goas to Monetary Incentives, Academy of Management Executive, Vo. 18, No. 4 (2004), pp ; W. Mannering and D. Fischetti, Engaging Empoyees Through Performance Markets, WordatWork Journa, Vo. 18, No.4 (2009), pp ; and A. Pomeroy, Executive Briefing: Goba Pay for Performance, HR Magazine, Vo. 51, No. 4, Apri (2006), p. 18.

254 CHAPTER 8 INTERNATIONAL COMPENSATION Martin Hib presents a we-written and thorough introduction to this interesting topic area in New Corporate Governance: Successfu Board Management Toos, 2nd Ed. (Berin: Springer Pubishing, 2006); a fascinating critique of contemporary executive pay and governance is provided by L. Bebchuck and J. Fried, in Pay Without Performance: The Unfufied Promise of Executive Compensation (Cambridge, MA: Harvard University Press, 2004). 4. F. Cooke and P. Budhwar, HR Offshoring and Outsourcing: Research Issues for IHRM. In P. Sparrow (ed.) Handbook of Internationa Human Resource Management (Chichester, UK: John Wiey and Sons, 2009), pp M. Kavanagh and J. Miche, Internationa Human Resource Management. In M. Kavanagh and M. Thite (eds) Human Resource Information Systems (Thousand Oaks, Caifornia: Sage Pubications 2009), pp ; D. Robb, Unifying Your Enterprise With a Goba HR Porta, HR Magazine, Vo. 51, No. 3, March (2006), pp K. Chou and H. Risher, Point/Counterpoint: Pay for Performance, Workspan, Vo. 48, No. 9, September (2005), pp ; S. Troutman and S. Ross, Rationaizing Goba Incentive Pay Pans: Look At the Big Picture, Part One, Workspan, Vo. 48, No. 8, August (2005), pp , Part Two, Workspan, Vo. 48, No. 9, September (2005), pp. 52 6, Part Three, Workspan, Vo. 48, No. 10, October (2005), pp Aso see E. Kre, Evauating Returns on Expatriates, HRMagazine, Vo. 50, No. 3, March (2005), pp. 60 5, and S. Nurney, The Long and The Short of It: When Transitioning From Short-term to Long-term Expatriate Assignments, Consider the Financia Impications, HRMagazine, Vo. 50, No. 3, March (2005), pp Chou and Risher, Point/Counterpoint ; D. Green, In the Goba Reward Environment One Size Doesn t Fit A, Workspan, Vo. 48, No. 10, October (2005), pp. 34 8; and P Gooderham, M. Morey, C. Brewster and W. Mayrhofer, Human Resource Management: A Universa Concept?, in C. Brewster, W. Mayrhofer and M. Morey (eds) Human Resource Management in Europe: Evidence of Convergence? (Oxford: Esevier Butterworth-Heinemann, 2004), pp See Hib, New Corporate Governance; Bebchuck and Fried, Pay Without Performance; as we as A. Pomeroy, Executive Briefing: With Executive Comp Go Your Own Way, HRMagazine, Vo. 50, No. 1, November (2005), p. 14; E. Poutsma, P. Ligthart and R. Schouteten, Empoyee Share Schemes in Europe The Infuence of US Mutinationa, Management Revue, Vo. 16, No. 1 (2005), pp ; E. E. Lawer, Taent: Making Peope Your Competitive Advantage (San Francisco: Jossey-Bass, 2008), particuary Chapter 4 Managing Taent and Chapter 8 Governing Corporations. M. Hope s An Interview with Geert Hofstede, Academy of Management Executive, Vo. 18, No. 1 (2004), pp incudes the provocative quote from Hofstede: A present fad is the myth of the magica powers of top executives. The importance of management in genera, and top management in particuar, is overrated and top managers are overpaid. In many cases top managers have been brought in who turn out to be parasites on their corporation rather than assets to its rea success. The importance of the peope who do the work is underrated, athough this trend differs between countries and parts of the word (p. 78). Chaenges indeed. 9. See Hib, New Corporate Governance, as we as S. Tyson and F. Bournois (eds) Top Pay and Performance: Internationa and Strategic Approach (Oxford: Esevier Butterworth-Heinemann, 2005); New Ideas-Compensation: US CEO and Director Pay On the Rise, wwwconferenceboard.org, in Workspan, Vo. 49, No. 1, January (2006), p. 14; M. Thompson, Investors Ca For Better Discosure of Executive Compensation in Canada, Workspan Focus: Canada, suppement to Workspan, February (2006), pp. 4 6; B. Forin, K. Haock and D. Webber, Executive Pay and Firm Performance: Methodoogica Considerations and Future Directions. (Posted at digita commons@ilr. digitacommons.ir.corne.edu/cri/15 Compensation Research Initiative 2010.) 10. For a ongoing discussion of transparency in pay see L. Gomez-Mejia, P. Berrone and M. Franco-Santos, Compensation and Organizationa Performance: Theory, Research and Practice (London: M.E. Sharpe, 2010), particuary Chapter 5 on the Determinants and Consequences of Executive Pay and A. Enge and P. Dowing, Goba Rewards: Strategic Patterns in Compexity, Conference Proceedings of the Internationa Conference of Human Resource Management in a Knowedge Based Economy Ljubjana, Sovenia, June, For exampe, speciaized firms such as P-E Internationa in Britain provide a survey of Wordwide Living Costs whie Price Waterhouse offers a wordwide consuting service caed Goba Human Resource Soutions, which covers a broad range of internationa HR issues. Aso see Mercer s widey used Expatriate Cacuator at defaut.aspx?page¼home&contentid¼ J. Dunning and S. Lundan, Mutinationa Enterprises and the Goba Economy, 2nd Ed. (Northampton, Mass.: Edward Egar, 2008). 13. U. Krudewagen and S. Eandi, Designing Empoyee Poicies for an Internationa Workforce, Workspan, Vo. 53, No. 6 (2010), pp. 74 8; Y.-S. Hsu, Expatriate Compensation: Aternative Approaches and Chaenges, WordatWork Journa, Vo. 16, No. 1 (2007), pp See K. Lowe, J. Miiman, H. DeCeiri and P. Dowing, Internationa Compensation Practices: A Ten-Country Comparative Anaysis, Human Resource Management, Vo. 41, No. 1, Spring (2002), pp ; S. Overman, In Sync: Harmonizing Your Goba Compensation Pans May Be Done More In Spirit Than to the Letter, HR Magazine, Vo. 45, No. 3, March (2000), pp ; and E. Scott and R. Burke, Taming the Beast: Aigning Goba Saes Incentives, Workspan, Vo. 50, No. 3, March (2007), pp M. Boom and G. T. Mikovich, A SHRM Perspective on Internationa Compensation and Reward Systems Research

255 238 CHAPTER 8 INTERNATIONAL COMPENSATION in Personne and Human Resource Management Suppement 4, (Greenwich, CT: JAI Press, 1999), pp ; M. Festing, A. Enge, P. Dowing and I. Sahakiants, HRM Activities: Pay and Rewards, in C. Brewster and W. Mayrhofer (eds) Handbook of Research in Comparative Human Resource Management, (Chetenham, UK: Edward Egar, 2012), pp Y. McNuty, H. De Cieri, et a. (2009). Do Goba Firms Measure Expatriate Return on Investment? An Empirica Examination of Measures, Barriers and Variabes Infuencing Goba Staffing Practices. Internationa Journa of Human Resource Management 20(6): Aso see Y. McNuty, K. Hutchings, et a. (2011) How Expatriate Empoyees View Expatriate Return on Investment, Proceedings of the Academy of Internationa Business Annua Meeting, Nagoya, Japan. 17. G. T. Mikovich and M. Boom, Rethinking Internationa Compensation, Compensation and Benefits Review, Vo. 30, No. 1 (1998), pp H. J. Ruff and G. I. Jackson, Methodoogica Probems in Internationa Comparisons of the Cost of Living, Journa of Internationa Business Studies, Vo. 5, No. 2 (1974), pp For a more recent discussion of the compexities of this issue, see G. T. Mikovich, J. Newman and B. Gerhart, Compensation 10th Ed. (New York: McGraw-Hi, 2011), particuary pp Acquired by Mercer in Juy 2010, see the web page For specifics on the eve of detai of avaiabe cost of iving services provided by goba consuting firms (for a fee) see products/2010/cost of iving.aspx#co 20. To view the web page of ECA Internationa, see internationa.com/ 21. Ibid 22. Boarding schoos are reativey common in Britain, former British coonies and a number of European countries. See for exampe, the Association of Boarding Schoos, ORC Wordwide, Wordwide Survey of Internationa Assignment Poicies and Practices (New York: ORC Wordwide, 2008). 24. It is common in Asia and many deveoping countries in other regions for expatriates and oca business peope to empoy maids and cooks in their houses. As stated in an earier note when discussing empoyment of drivers, it may be expected that an expatriate woud empoy servants and to not do so woud be judged negativey as this woud be depriving oca peope of empoyment. Not surprisingy, this is one benefit which expatriate spouses miss when they return to their home country. 25. ORC Wordwide, Dua Career Coupes and Internationa Assignments Survey (New York: ORC Wordwide, 2005). 26. Extensive comparisons of internationa benefits components, oca ega requirements, and traditiona practices can be made by nation and region. For exampe see Goba Benefits and Empoyment Terms and Conditions Reports series, fee accessibe, as described in the 2010/2011 Goba Cataog of Compensation, Benefits, and Poicies and Practices Survey Reports, Towers Watson Data Service, Rochee Park, New Jersey. For a more genera discussion of the compexities of benefits and pension issues in internationa mergers and acquisitions, see A. Rosenberg and N. Lasker, Beyond Borders: Mastering Pension and Benefit Issues in Goba M&A Transactions, WordatWork Journa, Vo. 17, No. 4, (2008), pp The need to provide this coverage and sti be cost sensitive given the new economic reaities of the 21st century is discussed in a web artice by WordatWork Companies Jugge Cost Cutting With Maintaining Competitive Benefits for Internationa Assignees, accessed September 29, 2010 from adimcomment?id¼42613&id¼wsw The materia in the tabes describing the two main approaches to internationa compensation is based on various sources the research and consuting experience of the first author and various discussions on this topic with a range of HR managers and consutants in Austraia and the USA. 28. See C. Mestre, A. Rossier-Renaud and M. Berger, Better Benchmarks for Goba Mobiity, Workspan, Vo. 52, No. 4 (2009), pp. 72 7; as we as D. Bakin, Expaining CEO Pay in a Goba Context: An Institutiona Perspective, in L. Gomez-Mejia and S. Werner (eds) Goba Compensation: Foundations and Perspectives (New York: Routedge, 2008), pp In interviews conducted a number of years ago by the first author with senior management of Austraian firms operating internationay, repatriation difficuties were one of the major reasons cited for not foowing a Going Rate Approach with Austraian expatriates. 29. See B. W. Teague, Compensating Key Personne Overseas (New York: The Conference Board, 1972), and J. J. Martoccho, Strategic Compensation, 6th Ed. (Upper Sadde River, NJ: Pearson/Prentice-Ha, 2011), particuary chapter 14, for a more detaied discussions of the concept of keeping the expatriate whoe. 30. This discussion of the Baance Sheet Approach foows the presentation in Chapter 5 of the 2000 Guide to Goba Compensation and Benefits, ed. C. Reynods (San Diego, CA: Harcourt Professiona Pubishing, 2000). 31. See Chapter 8 of J. Martocchio, Strategic Compensation, 6th Ed. (Upper Sadde River, N.J.: Pearson/Prentice Ha, 2011) for a review of equity theory appied to compensation. 32. M. Neijzen, and S. De Bruyker, Diverse Expatriate Popuations: Aternative Remuneration Packages (New York: AIRINC, 2010). 33. See ORC Wordwide (2008) Survey on oca-pus packages in Hong Kong and Singapore, New York; ORC Wordwide (2009) Survey on oca-pus packages for expatriates in China, New York. 34. AIRINC (2011) Mobiity Outook Survey, New York, AIRINC. 35. D. Bochover, (2010) Up Or Out: Next Moves for the Modern Expatriate, London, UK: Economist Inteigence Unit. 36. Y. McNuty, K. Hutchings, et a. How Expatriate Empoyees View Expatriate Return on Investment, Proceedings of the

256 CHAPTER 8 INTERNATIONAL COMPENSATION 239 Academy of Internationa Business, Nagoya, Japan, June R. Cui, Internationa Compensation: The Importance of Acting Gobay, WordatWork Journa, Vo. 15, No. 4 (2006), pp ; R. Herod, Goba Compensation and Benefits: Deveoping Poicies for Loca Nationas (Aexandria, Va.: Society for Human Resource Management, 2008). 38. P. Stuart, Goba Payro A Taxing Probem, Personne Journa, October (1991), pp For a discussion of the comparative internationa tax status of incentive eements of pay, see J. George, Do Performance Awards Work Outside the US? Workspan, Vo. 53, No. 1, 2010, pp Ibid.; tax equaization can become a potentia area of famiia contention and more compex when dua career famiies seek tandem internationa assignments, as presented by G. Adred in Dua Career Support: Strategies for Designing and Providing Career Support for Internationa Assignee Partners, GMAC Strategic Advisor, 2, 6, February 2006, pp. 1 4 ( No fewer than 78 per cent of surveyed MNEs appied a tax equaization poicy according to the Brookfied Survey Organization for Economic Co-operation and Deveopment, See under OECD Tax Database for a compete isting of tax rates and other fisca poicy comparisons for member nations. 41. Ibid. 42. Brookfied Goba Reocation Trends 2010 Survey (2010) Brookfied GMAC Goba Reocation Services, R. Schuer and P. Dowing, Survey of SHRM Members (New York: Stern Schoo of Business, New York University, 1988). 44. Organization for Economic Co-operation and Deveopment. 45. UBS Prices and Earnings, Weath Management Research, August, 2010 A Goba Purchasing Power Comparison. Accessed October 3, 2010 from: The arcane compexities of attempting to forecast exchange rates can be found in an interesting artice by K. Cements and Y. Lan, A New Approach to Forecasting Exchange Rates, Journa of Internationa Finance, Vo. 29 (2010), pp Price and Earnings: A Comparison of Purchasing Power Around the Gobe (Zurich: UBS AG, Weath Management Research, 2005). 47. See Accessed from: Weath Management Research, Prices and Earnings 2009, PDF document, page 11. Accessed on October 15, See for The Economist Inteigence Unit website. 50. C. Reynods, Cost-Effective Compensation, Topics in Tota Compensation, Vo. 2, No. 1 (1988), p G. Mikovich, J. Newman and B. Gerhart, Compensation, 10th Ed. (Boston, MA: McGraw-Hi/Irwin Pub., 2011), Chapter See E. Schein, Organizationa Cuture and eadership (San Francisco, CA: Jossey-Bass Pub., 1985). For a specific regiona discussion of this issue, see M. Festing and I. Sahakiants (2010) Compensation Practices in Centra and Eastern European EU Member States An Anaytic Framework Based on Institutiona Perspectives, Path Dependencies and Efficiency Considerations, Thunderbird Internationa Business Review, Vo. 52, No. 3, pp See M. Festing, A. Enge, P. Dowing and I. Sahakiants, HRM Activities: Pay and Rewards ; P. Dowing, A. Enge, M. Festing and B. Mueer, Compexity in Goba Pay: A Meta-Framework, Conference Proceedings of the 8th Conference on Internationa Human Resource Management, Cairns, Austraia, June, 2005, CD-ROM indexed by tite and first author s name; C. Brewster, Comparing HRM Poicies and Practices Across Geographica Borders, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham, U.K.: Edward Egar, 2006), pp J. Barney, Firm Performance and Sustained Competitive Advantage, Journa of Management, Vo. 17, No. 1 (1991), pp See J. G. March and H. A. Simon, Organizations (New York: Wiey and Sons, Inc., 1958). 56. O. Wiiamson, Efficient Labor Organization, in F. Stephens (ed.) Firms, Organization and Labor (London: MacMian, 1984), pp ; G. Marin, The Infuence of Institutiona and Cutura factors on Compensation Practices Around the Word. In L. Gomez Mejia and S. Werner (eds) Goba Compensation: Foundations and Perspectives (New York: Routedge, 2008), pp Aso see M. Festing and I. Sahakiants, Compensation Practices in Centra and Eastern EU Member States An Anaytica Framework Based on Institutiona Perspectives, Path Dependencies and Efficiency Considerations, Thunderbird Internationa Business Review, Vo. 53, No. 3 (2010), pp As in M. Armstrong and H. Muris, Reward Management: A Handbook of Remuneration Strategy and Practice (London: Kogan Page Limited, 1991). Aso see G. T. Mikovich and M. Boom, Rethinking Internationa Compensation, Compensation and Benefits Review, Vo. 30, No. 1 (1998), pp ; M. Festing, J. Eidems and S. Royer, Strategic Issues and Loca Constraints in Transnationa Compensation Strategies: An Anaysis of Cutura, Institutiona and Poitica Infuences, European Management Journa, Vo. 25, No. 2 (2007), pp A. Enge and M. Mendenha, Transnationa Roes, Transnationa Rewards: Goba Integration in Compensation, Empoyee Reations, Vo. 26, No. 6 (2004), pp For a more basic discussion of competency based rewards, see P. Zingheim and J. Schuster, Competencies repacing Jobs as the Compensation/HR Foundation, WordatWork Journa, Vo. 18, No. 3 (2009), pp For an North American based empirica review of skis based pay systems and their impact on workforce fexibiity, empoyee membership behaviors and productivity, see A. Mitra, N. Gupta and J. Shaw (2011) A Comparative

257 240 CHAPTER 8 INTERNATIONAL COMPENSATION Examination of Traditiona and Skis-based Pay Pans, Journa of Manageria Psychoogy, Vo. 26, No. 4, pp L. Gomez-Mejia and T. Webourne, Compensation Strategies In a Goba Context, Human Resource Panning, Vo. 14, No. 1 (1991), pp ; R. Heneman, C. von Hippe, D. Eskew and D. Greenberger, Aternative Rewards in Unionized Environments, in R. Heneman (ed.) Strategic Reward Management (Greenwich, CT: Information Age Pub., 2002), pp Gomez-Mejia and Webourne, Compensation Strategies in a Goba Context ; M. Boom and G. T. Mikovich, A SHRM Perspective on Internationa Compensation and Reward Systems, Research in Personne and Human Resource Management, Suppement 4 (Greenwich, CT: JAI Press, 1991), pp For a review of efforts by the Chartered Institute of Personne and Deveopment (CIPD) in the United Kingdom to more systematicay assess the potentia cost and financia iabiity inherent in empoyee incentive schemes in the ight of a widespread perception that risky executive incentives ed to dysfunctiona decisions in the period see C. Cotton and J. Chapman, Rewards in the U.K.: Top 10 Risks, Workspan, Vo. 53, No. 1, (2010), pp Mikovich and Newman, A SHRM Perspective on Internationa Compensation and Reward Systems. 62. M. Festing, J. Eidems and S. Royer, Strategic Issues and Loca Constraints in Transnationa Compensation Strategies: An Anaysis of Cutura, Institutiona and Poitica Infuences, An earier version of this was presented by Marion Festing, Aen D. Enge, Peter Dowing and Bernadette Muer in the Conference Proceedings of the 8th Conference on Internationa Human Resource Management, Cairns, Austraia, For more on the tension between standardization and gobaization, see M. Festing, A. Enge, P. Dowing, and I. Sahakiants, HRM Activities: Pay and Rewards. 63. M. Festing and A. Enge, Contextuaism in Rewards: Constructs, Measures and the Discretion of Mutinationa Enterprises, in C. Brewster and W. Mayrhofer, Comparative Human Resource Management Current Status and Future Deveopment, Professiona Deveopment Workshop, HR Division, Academy of Management, Montrea, August, 2010; M. Boom, G. T. Mikovich and A. Mitra, Internationa Compensation: Learning From How Managers Respond to Variations in Loca Host Contexts, Internationa Journa of Human Resource Management, Vo. 14 (2003), pp Aso see A. Mitra, M. Boom and G. T Mikovich, Crossing a Raging River: Seeking Far-Reaching Soutions to Goba Pay Chaenges, WordatWork Journa, Vo. 11, No. 2 (2002), pp For a ucid argument that internationa schoars may have overestimated the forces associated with ocaization of rewards, see B. Gerhart, Compensation and Nationa Cuture, in L. Gomez-Mejia and S. Werner (eds) Goba Compensation: Foundations and Perspectives (New York: Routedge, 2008), pp J. Boudreau, P. Ramstad and P. Dowing, Goba Taentship: Toward a Decision Science Connecting Taent to Goba Strategic Success, in W. H. Mobey and P. W. Dorfman (eds) Advances in Goba Leadership, Vo. 3 (Oxford: Esevier Science, 2003), pp Aso see A. Enge, M. Mendenha, R. Powers and Y. Stedham, Conceptuaizing the Goba Competency Cube: A Transnationa Mode of Human Resource, Journa of European Industria Training, Vo. 25, No. 7 (2001), pp E. E. Lawer III, Rewarding Exceence (San Francisco, CA: Jossey-Bass Pub., 2000); C. Garvey, Steer Teams With the Right Pay, HR Magazine, Vo. 47, No. 5, May (2002), pp G. T. Mikovich and M. Boom, Rethinking Internationa Compensation, Compensation and Benefits Review, Vo. 30, No. 1 (1998), pp G. T. Mikovich and M. Boom, Rethinking Internationa Compensation. Aso see A. Enge and M. Mendenha, Transnationa Roes and Transnationa Rewards: Goba Integration in Compensation, Empoyee Reations, Vo. 26, No. 6 (2004), pp For an interesting and rather compete cross cutura review of corporate governance roes, processes and activities, organized by geographic regions, see the Handbook on Internationa Corporate Governance: Country Anayses, 2nd Ed. (2011), edited by C. Main, Chetenham, U.K.: Edward Egar Pubishers. 69. Mikovich, Newman and Gerhart, Compensation, pp. 71 9, Aso see R. Greene, Rewarding Performance: Guiding Principes; Custom Strategies (New York: Routedge, 2010), particuary the discussion on Chapter 10 on goba rewards and nationa and regiona cutura custers and norms, a discussion based on Fons Trompennars Managing Peope Across Cutures (Chichester, UK: John Wiey and Sons, 2004) research on the patterns to vaues and preferences of various regions of the word. 70. Ibid. 71. Post hoc home country executive financia iabiities for questionabe activities that may or may not have been ocay de rigueur are an interesting appication of this greater question of vaues across very different cutures. See M. Bartiromo, Siemen s CEO Loscheer ooks to the Future, Business Week, October 19, 2009, pp For a we written introduction to the issue of convergence or divergence in pay practices that may be associated with increasing transparency in pay practices around the word, see C. Fay, The Goba Convergence of Compensation Practices, In L. Gomez-Mejia and S. Werner (eds) Goba Compensation: Foundations and Perspectives (New York: Routedge, 2008), pp A. Katsoudas, S. Osen and P. Weems, New Trends in Goba Equity Rewards, Workspan, Vo. 50, No. 3 (2007), pp See Dowing, Enge, Festing and Mueer, Compexity in Goba Pay ; Boom, Mikovich and Mitra, Internationa Compensation.

258 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT Chapter Objectives In this chapter we: Discuss the key issues in internationa industria reations and the poicies and practices of MNEs. Examine the potentia constraints that trade unions may have on MNEs. Outine key concerns that trade unions have with regard to the activities of MNEs. Discuss recent trends and issues in the goba workforce context. 241

259 242 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT Discuss the formation of regiona economic zones such as the European Union and the impact of opponents to gobaization. Present issues of codes of conduct and nongovernmenta organizations as MNEs. Discuss HR impications of offshoring strategies. INTRODUCTION In this chapter we wi use the more traditiona term industria reations to describe the broad fied of study that ooks at wider issues of work and empoyment. We recognize that newer terms such as empoyee reations and empoyment reations are aso used in the iterature but prefer to use the traditiona term in the goba context because this is consistent with internationa organizations such as the Internationa Organization of Empoyers and the Internationa Labor Organization. 1 Before we examine the key issues in industria reations as they reate to MNEs, we need to consider some genera points about the fied of internationa industria reations. 2 First, it is important to reaize that it is difficut to compare industria reations systems and behavior across nationa boundaries; an industria reations concept may change consideraby when transated from one industria reations context to another. 3 The concept of coective bargaining, for exampe, in the USA is understood to mean negotiations between a oca trade union and management; in Sweden and Germany the term refers to negotiations between an empoyers organization which represents the major firms in a particuar industry and the trade union covering empoyees in that industry. Cross-nationa differences aso emerge as to the objectives of the coective bargaining process and the enforceabiity of coective agreements. Many European unions continue to view the coective bargaining process as an ongoing cass strugge between abor and capita, whereas in the USA union eaders take a very pragmatic economic view of coective bargaining rather than an ideoogica view. Second, it is very important to recognize in the internationa industria reations fied that no industria reations system can be understood without an appreciation of its historica origin. 4 As Schrege 5 has observed: A comparative study of industria reations shows that industria reations phenomena are a very faithfu expression of the society in which they operate, of its characteristic features and of the power reationships between different interest groups. Industria reations cannot be understood without an understanding of the way in which rues are estabished and impemented and decisions are made in the society concerned. An interesting exampe of the effect of historica differences may be seen in the structure of trade unions in various countries. Pooe 6 has identified severa factors that may underie these historica differences: The mode of technoogy and industria organization at critica stages of union deveopment. Methods of union reguation by government. Ideoogica divisions within the trade union movement. The infuence of reigious organizations on trade union deveopment. Manageria strategies for abor reations in arge corporations.

260 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 243 Pooe notes that because of these historica differences, union structures differ consideraby among Western countries. These incude industria unions in Germany and other European countries, which represent a grades of empoyees in an industry; craft unions in Europe, Austraia and the United States which are based on skied occupationa groupings across industries; congomerate unions in the United States, Canada and The Netherands which represent members in more than one industry; and genera unions in Austraia and Europe which are open to amost a empoyees in a given country. These differences in union structures have had a major infuence on the coective bargaining process in Western countries. Some changes in union structure are evident over time; for exampe, enterprise unions are increasingy evident in industriaized nations. Enterprise unions are common in Asia Pacific nations (especiay in Japan), athough there are nationa variations in their functions, and in the proportion of enterprise unions to tota unions. The ess we know about how a structure came to deveop in a distinctive way, the ess ikey we are to understand it. As Prahaad and Doz 7 note, the ack of famiiarity of mutinationa managers with oca industria and poitica conditions has sometimes needessy worsened a confict that a oca firm woud have been ikey to resove. Increasingy, MNEs are recognizing this shortcoming and admitting that industria reations poicies must be fexibe enough to adapt to oca requirements. This is evidenty an enduring approach, even in firms that foow a non-union abor reations strategy where possibe, as IHRM in Action Case 9.1 points out. Athough the case is reativey od, the key points made remain reevant to current internationa industria reations. KEY ISSUES IN INTERNATIONAL INDUSTRIAL RELATIONS The focus of this chapter is on the industria reations strategies adopted by mutinationas rather than the more genera topic of comparative industria reations. 8 Later in this chapter we wi cover the emerging topic of offshoring of abor, but first we examine the centra question for industria reations in an internationa context, which concerns the orientation of MNEs to organized abor. Industria reations poicies and practices of mutinationa firms Because nationa differences in economic, poitica and ega systems produce markedy different industria reations systems across countries, MNEs generay deegate the management of industria reations to their foreign subsidiaries. However, a poicy of decentraization does not keep corporate headquarters from exercising some coordination over industria reations strategy. Generay, corporate headquarters wi become invoved in or oversee abor agreements made by foreign subsidiaries because these agreements may affect the internationa pans of the firm and/or create precedents for negotiations in other countries. Further, Marginson et a. 9 found that the majority of the firms in their study monitored abor performance across units in different countries. Comparison of performance data across nationa units of the firm creates the potentia for decisions on issues such as unit ocation, capita investment and rationaization of production capacity. The use of comparisons woud be expected to be greatest where units in different countries undertake simiar operations. For reviews of the iterature in this area, see the work of Gunnige and his coeagues. 10 Much of the iterature on the industria reations practices of MNEs tends to be at a more cross-nationa or comparative eve. There is, however, some research on industria reations practices at the firm eve. Empirica research has identified a number of differences in mutinationa approaches to industria reations. Indeed, a number of studies have examined differences in the propensity of mutinationa headquarters to intervene in, or to centraize contro over,

261 244 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT IHRM in Action Case 9.1 Advice for companies going goba The key to successfuy expanding overseas is to become one with the cuture of the ocation, even if it means unionization of empoyees, Michae R. Quinan, chairman and chief executive officer of McDonad s Corp., tes conferees at a meeting of the Human Resources Management Association of Chicago. After opening fast-food restaurants in 53 nations, McDonad s has earned that it must foow the estabished practices of a foreign country to succeed there, Quinan says. For exampe, a number of European countries and Austraia have very strict unionization standards, and operations there are unionized as a condition of doing business. Acknowedging that McDonad s has had some horribe union fights around the word, Quinan advises empoyers considering expansion into other nations to do it their way, not your way. The main impication of deaing with unions is the increased cost of wages and benefits, according to Quinan. Sti, he adds that he does not fee unionization has interfered with empoyees oyaty to McDonad s, or to the company s phiosophy of service and empoyee motivation. Decaring that unions do not bring much to the equation of the empoyee/empoyer reationship, Quinan says McDonad s is basicay a non-union Company and intends to stay that way. Another source of difficuty for McDonad s in its expansion overseas ies in the fact that fast-food restaurants are unfamiiar in most nations. Opening the first McDonad s inside the Communist-boc, in Yugosavia, took 12 years, Quinan notes. He aso points out that the company s poicy is to staff its restaurants, from crew through management, ony with nationas for the 3300 foreign outets, the corporation empoys ony 35 expatriate US citizens, and its goa is to have 100 per cent oca empoyees within five years. Source: Reproduced with permission from Buetin to Management, 42 BTM 66 (Mar. 7, 1991). Copyright 1991 by The Bureau of Nationa Affairs, Inc. ( ) matters such as industria reations in host ocations. Mutinationa headquarters invovement in industria reations is infuenced by severa factors, as detaied beow. The degree of inter-subsidiary production integration. According to Hami, 11 a high degree of integration was found to be the most important factor eading to the centraization of the industria reations function within the firms studied. Industria reations throughout a system become of direct importance to corporate headquarters when transnationa sourcing patterns have been deveoped, that is, when a subsidiary in one country reies on another foreign subsidiary as a source of components or as a user of its output. 12 In this context, a coordinated industria reations poicy is one of the key factors in a successfu goba production strategy. 13 One eary exampe of the deveopment of an internationa poicy for industria reations can be seen in the introduction of empoyee invovement across Ford s operations. 14 Nationaity of ownership of the subsidiary. There is evidence of differences between European and US firms in terms of headquarters invovement in industria reations. 15 A number of studies have reveaed that US firms tend to exercise greater centraized contro over abor reations than do British or other European firms. 16 US firms tend to pace greater emphasis on forma management contros and a cose reporting system (particuary within the area of financia contro) to ensure that panning targets are met. In his review of empirica research of this area, Bean 17 showed that foreign-owned mutinationas in Britain prefer singe-empoyer bargaining (rather than invoving an empoyer association), and are more ikey than British firms to assert

262 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 245 manageria prerogative on matters of abor utiization. Further, Hami 18 found US-owned subsidiaries to be much more centraized in abor reations decision-making than British-owned. Hami attributed this difference in management procedures to the more integrated nature of US firms, the greater divergence between British and US abor reations systems than between British and other European systems, and the more ethnocentric manageria stye of US firms. Internationa human resource management approach. In earier chapters, we discussed the various internationa human resource management approaches utiized by mutinationas; these have impications for internationa industria reations. Interestingy, an ethnocentric predisposition is more ikey to be associated with various forms of industria reations confict. 19 Conversey, it has been shown that more geocentric firms wi bear more infuence on host-country industria reations systems, due to their greater propensity to participate in oca events. 20 MNE prior experience in industria reations. European firms have tended to dea with industria unions at industry eve (frequenty via empoyer associations) rather than at firm eve. The opposite is more typica for US firms. In the USA, empoyer associations have not payed a key roe in the industria reations system, and firm-based industria reations poicies tend to be the norm. 21 Subsidiary characteristics. Research has identified a number of subsidiary characteristics to be reevant to centraization of industria reations. First, subsidiaries that are formed through acquisition of we-estabished indigenous firms tend to be given much more autonomy over industria reations than are greenfied sites set up by a mutinationa firm. 22 Second, according to Enderwick, greater intervention woud be expected when the subsidiary is of key strategic importance to the firm and the subsidiary is young. 23 Third, where the parent firm is a significant source of operating or investment funds for the subsidiary, that is, where the subsidiary is more dependent on headquarters for resources, there wi tend to be increased corporate invovement in industria reations and human resource management. 24 Finay, poor subsidiary performance tends to be accompanied by increased corporate invovement in industria reations. Where poor performance is due to industria reations probems, mutinationas tend to attempt to introduce parent-country industria reations practices aimed at reducing industria unrest or increasing productivity. 25 Characteristics of the home product market. An important factor is the extent of the home product market 26 anissuethatwasdiscussedinchapter1.ifdomesticsaesareargereativeto overseas operations (as is the case with many US firms), it is more ikey that overseas operations wi be regarded by the parent firm as an extension of domestic operations. This is not the case for many European firms, whose internationa operations represent the major part of their business. Lack of a arge home market is a strong incentive to adapt to host-country institutions and norms. There is evidence of change in the European context: since the impementation of the singe European market in 1993, there has been growth in arge European-scaecompanies(formedviaacquisitionorjointventures) that centraize management organization and strategic decision-making. However, processes of operationa decentraization with regard toindustriareationsareasoevident. 27 Management attitudes towards unions. An additiona important factor is that of management attitudes or ideoogy concerning unions. 28 Knowedge of management attitudes concerning unions may provide a more compete expanation of mutinationa industria reations behavior than coud be obtained by reying soey on a rationa economic mode. Thus, management attitudes shoud aso be considered in any expanation of manageria behavior aong with such factors as market forces and strategic choices. This is of particuar reevance to US firms, since union avoidance appears to be deepy rooted in the vaue systems of American

263 246 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT managers. 29 Commenting on abor reations in the US, the noted Harvard abor aw schoar, Derek Bok, has observed that: A ook at the forces that shape our abor aws does te us something about our own society or at east it brings some od truths into sharper focus. Consider the individuaism, the pragmatism and the decentraization that pervades our system of abor reations. These quaities have been much praised and doubtess contribute much to abor reations in America. They permit great fexibiity in a diverse country and provide abundant opportunities for initiative... At the same time, these nationa traits have aso produced a system of abor aw that is uniquey hard on the weak, the uneducated, the unorganized and the unucky. (p. 1459) 30 OECD data on trade union density of 24 deveoped economies from 2005 to 2010 indicates that Finand, Sweden, Denmark, Norway and Begium have the highest eves of union membership whie France, the USA and Korea have ow eves of union density. Thus, managers from these countries may be ess ikey to have extensive experience with unions than managers in many other countries. Overa, OECD data shows that union density has sighty decined in the period with the OECD average decining from 18.8 in 2005 to 18.1 in This decine in union density in many countries may been expained by economic factors such as reduced pubic-sector empoyment, reduced empoyment in manufacturing industries as a share in tota empoyment, and increased competition; it is aso suggested to be associated with decentraization of industria reations to business unit eve, changes in governance and egisative changes. Union membership decine is aso inked to the introduction of new forms of work organization, gobaization of production and changes in workforce structure. 31 Athough there are severa probems inherent in data coection for a cross-nationa comparison of union density rates, severa theories have been suggested to expain the variations among countries. Such theories consider economic factors such as wages, prices and unempoyment eves; socia factors such as pubic support for unions; and poitica factors. In addition, studies indicate that the strategies utiized by abor, management and governments are particuary important. 32 Another key issue in internationa industria reations is industria disputes. Hami 33 examined strike-proneness of mutinationa subsidiaries and indigenous firms in Britain across three industries. Strike-proneness was measured via three variabes strike frequency, strike size and strike duration. There was no difference across the two groups of firms with regard to strike frequency, but mutinationa subsidiaries did experience arger and onger strikes than oca firms. Hami suggests that this difference indicates that foreign-owned firms may be under ess financia pressure to sette a strike quicky than oca firms possiby because they can switch production out of the country. Overa, it is evident that internationa industria reations are infuenced by a broad range of factors. Commenting on the overa resuts of his research, Hami 34 concuded that: genera statements cannot be appied to the organization of the abor reations function within MNEs. Rather, different MNEs adopt different abor reations strategies in reation to the environmenta factors pecuiar to each firm. In other words, it is the type of mutinationa under consideration which is important rather than mutinationaity itsef. TRADE UNIONS AND INTERNATIONAL INDUSTRIAL RELATIONS Trade unions may imit the strategic choices of mutinationas in three ways: (1) by infuencing wage eves to the extent that cost structures may become uncompetitive; (2) by constraining the abiity of mutinationas to vary empoyment eves at wi; and (3) by hindering or preventing

264 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 247 goba integration of the operations of mutinationas. 35 We sha briefy examine each of these potentia constraints. Infuencing wage eves Athough the importance of abor costs reative to other costs is decreasing, abor costs sti pay an important part in determining cost competitiveness in most industries. The infuence of unions on wage eves is therefore, important. Mutinationas that fai to successfuy manage their wage eves wi suffer abor cost disadvantages that may narrow their strategic options. Constraining the abiity of mutinationas to vary empoyment eves at wi For many mutinationas operating in Western Europe, Japan and Austraia, the inabiity to vary empoyment eves at wi may be a more serious probem than wage eves. Many countries now have egisation that imits consideraby the abiity of firms to carry out pant cosure, redundancy or ayoff programs uness it can be shown that structura conditions make these empoyment osses unavoidabe. Frequenty, the process of showing the need for these programs is ong and drawn-out. Pant cosure or redundancy egisation in many countries aso frequenty specifies that firms must compensate redundant empoyees through specified formuae such as two week s pay for each year of service. In many countries, payments for invountary terminations are quite substantia, especiay in comparison to those in the USA. Trade unions may infuence this process in two ways: by obbying their own nationa governments to introduce redundancy egisation; and by encouraging reguation of mutinationas by internationa organizations such as the Organization for Economic Cooperation and Deveopment (OECD). (Later in this chapter we describe the Badger case, which forced Raytheon to finay accept responsibiity for severance payments to empoyees made redundant by the cosing down of its Begian subsidiary.) Mutinationa managers who do not take these restrictions into account in their strategic panning may we find their options to be consideraby imited. Hindering or preventing goba integration of the operations of MNEs In recognition of these constraints (which can vary by industry), some mutinationas make a conscious decision not to integrate and rationaize their operations to the most efficient degree, because to do so coud cause industria and poitica probems. Prahaad and Doz 36 cite Genera Motors as an exampe of this sub-optimization of integration. GM was aeged in the eary 1980s to have undertaken substantia investments in Germany (matching its new investments in Austria and Spain) at the demand of the German metaworkers union (one of the argest industria unions in the Western word) in order to foster good industria reations in Germany. One observer of the word auto industry suggested that car manufacturers were sub-optimizing their manufacturing networks party to pacate trade unions and party to provide a redundancy in sources to prevent ocaized industria reations probems from parayzing their network. This sub-optimization ed to unit manufacturing costs in Europe that were 15 per cent higher, on average, than an economicay optima network woud have achieved. Prahaad and Doz 37 drew the foowing concusion from this exampe: Union infuence thus not ony deays the rationaization and integration of MNEs manufacturing networks and increases the cost of such adjustments (not so much in the visibe severance payments and goden handshake provisions as through the economic osses incurred in the meantime), but

265 248 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT aso, at east in such industries as automobies, permanenty reduces the efficiency of the integrated MNC network. Therefore, treating abor reations as incidenta and reegating them to the speciaists in the various countries is inappropriate. In the same way as government poicies need to be integrated into strategic choices, so do abor reations. THE RESPONSE OF TRADE UNIONS TO MNEs Trade union eaders have ong seen the growth of mutinationas as a threat to the bargaining power of abor because of the considerabe power and infuence of arge mutinationa firms. Whie it is recognized that mutinationas are neither uniformy anti-union nor omnipotent and monoithic bureaucracies, 38 their potentia for obbying power and fexibiity across nationa borders creates difficuties for empoyees and trade unions endeavoring to deveop countervaiing power. There are severa ways in which mutinationas have an impact upon trade union and empoyee interests. Kennedy 39 has identified the foowing seven characteristics of MNEs as the source of trade union concern about mutinationas: Formidabe financia resources. This incudes the abiity to absorb osses in a particuar foreign subsidiary that is in dispute with a nationa union and sti show an overa profit on wordwide operations. Union bargaining power may be threatened or weakened by the broader financia resources of a mutinationa. This is particuary evident where a mutinationa has adopted a practice of transnationa sourcing and cross-subsidization of products or components across different countries. The economic pressure which a nationay based union can exert upon a mutinationa is certainy ess than woud be the case if the company s operations were confined to one country. 40 Aternative sources of suppy. This may take the form of an expicit dua sourcing poicy to reduce the vunerabiity of the mutinationa to a strike by any nationa union. Aso, temporary switching of production in order to defeat industria action has been utiized to some extent, for exampe, in the automotive industry. 41 The abiity to move production faciities to other countries. A reported concern of empoyees and trade unions is that job security may be threatened if a mutinationa seeks to produce abroad what coud have, or previousy has, been manufactured domesticay. Nationa reative advantages provide MNEs with choice as to ocation of units. Within the EU, for exampe, evidence suggests that MNEs ocate ski-intensive activities in countries with nationa poicies promoting training and with reativey high abor costs. Conversey, semi-skied, routinized activities are being ocated in countries with ower abor costs. 42 Threats by mutinationas, whether rea or perceived, to reorganize production factors internationay with the accompanying risk of pant cosure or rationaization, wi have an impact on management-abor negotiations at a nationa eve. However, technica and economic investments may reduce a mutinationa s propensity to reocate faciities. A remote ocus of authority (i.e. the corporate head office management of a mutinationa firm). Whie many MNEs report decentraization and oca responsiveness of HRM and industria reations, trade unions and works councis have reported that the mutinationa decision-making structure is opaque and the division of authority obscured. Further, empoyee representatives may not be adequatey aware of the overa MNE organizationa strategy and activities. 43 Production faciities in many industries. As Vernon 44 has noted, many mutinationas operate mutipe product ines across a range of industries. Superior knowedge and expertise in industria reations. The capacity to stage an investment strike, whereby the mutinationa refuses to invest any additiona funds in a pant, thus ensuring that the pant wi become obsoete and economicay noncompetitive.

266 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 249 Many of the points made by Kennedy woud now be recognized as characteristics of the process described as offshoring, as presented ater in this chapter. This topic wi remain a key issue within the broader debate concerning gobaization and the empoyment consequences of gobaization. For reviews of offshoring, see Auer et a., 45 Cooke, 46 and Pyndt and Pedersen. 47 Another issue reported by trade unions is their caim that they have difficuty accessing decision-makers ocated outside the host country and obtaining financia information. For exampe, according to Martinez Lucio and Weston: Misinformation has been centra to the management strategy of using potentia investment or disinvestment in seeking changes in certain organizations... For exampe, in companies such as Heinz, Ford, Giette and Genera Motors, workers have estabished that they had on occasions been misinformed by management as to the nature of working practices in other pants. 48 The response of abor unions to mutinationas has been threefod: to form internationa trade secretariats (ITSs); to obby for restrictive nationa egisation; and finay, to try and achieve reguation of mutinationas by internationa organizations. Internationa trade secretariats (ITSs) ITSs function as oose confederations to provide wordwide inks for the nationa unions in a particuar trade or industry (e.g., metas, transport and chemicas). The secretariats have mainy operated to faciitate the exchange of information. 49 The ong-term goa of each ITS is to achieve transnationa bargaining with each of the mutinationas in its industry. Each ITS has foowed a simiar program to achieve the goa of transnationa bargaining. 50 The eements of this program are: (1) research and information, (2) caing company conferences, (3) estabishing company councis, (4) companywide union management discussions, and (5) coordinated bargaining. Overa, the ITSs have met with imited success, the reasons for which Northrup 51 attributes to: (1) the generay good wages and working conditions offered by mutinationas, (2) strong resistance from mutinationa firm management, (3) conficts within the abor movement, and (4) differing aws and customs in the industria reations fied. Lobbying for restrictive nationa egisation On a poitica eve, trade unions have for many years obbied for restrictive nationa egisation in the USA and Europe. The motivation for trade unions to pursue restrictive nationa egisation is based on a desire to prevent the export of jobs via mutinationa investment poicies. For exampe, in the USA, the AFL CIO has in the past obbied strongy in this area. 52 A major difficuty for unions when pursuing this strategy is the reaity of conficting nationa economic interests. In times of economic downturn, this factor may become an insurmountabe barrier for trade union officias. To date, these attempts have been argey unsuccessfu, and, with the increasing internationaization of business, it is difficut to see how governments wi be persuaded to egisate in this area. Reguation of mutinationas by internationa organizations Attempts by trade unions to exert infuence over mutinationas via internationa organizations have met with some success. Through trade union federations such as the European Trade Union Confederation (ETUC) the abor movement has been abe to obby the Internationa Labor Organization (ILO), the United Nations Conference on Trade and Deveopment (UNCTAD), 53 the Organization for Economic Cooperation and Deveopment (OECD) and the European Union (EU). The ILO has identified a number of workpace-reated principes that

267 250 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT shoud be respected by a nations: freedom of association; the right to organize and coectivey bargain, aboition of forced abor and non-discrimination in empoyment. In 1977 the ILO adopted a code of conduct for mutinationas (Tripartite Decaration of Principes Concerning MNEs and Socia Poicy). 54 The ILO code of conduct, which was originay proposed in 1975, was infuentia in the drafting of the OECD guideines for mutinationas, which were approved in These vountary guideines cover discosure of information, competition, financing, taxation, empoyment and industria reations, and science and technoogy. 55 A key section of these guideines is the umbrea or chapeau cause (the atter is the more common term in the iterature) that precedes the guideines themseves. The purpose of a chapeau cause is to serve as a summary or ead-in statement for guideines or agreements. For the OECD guideines this cause states that mutinationas shoud adhere to the guideines: within the framework of aw, reguations and prevaiing abor reations and empoyment practices, in each of the countries in which they operate. Campbe and Rowan 56 state that: empoyers have understood the chapeau cause to mean compiance with oca aw supersedes the guideines whie abor unions have interpreted this cause to mean that the guideines are a suppement to nationa aw. The impication of this atter interpretation is significant: a firm coud sti be in vioation of the OECD guideines even though its activities have compied with nationa aw and practice. Given the ambiguity of the chapeau cause and the fact that the OECD guideines are vountary, it is ikey that this issue wi continue to be controversia. There is aso some controversy in the iterature as to the effectiveness of the OECD guideines in reguating mutinationa behavior. 57 This ack of agreement centers on assessments of the various chaenges to the guideines. The best known of these chaenges is the Badger case. The Badger Company was a subsidiary of Raytheon, a US-based mutinationa. In 1976 the Badger Company decided to cose its Begian subsidiary, and a dispute arose concerning termination payments. 58 Since Badger (Begium) NV had fied for bankruptcy, the Begian abor unions argued that Raytheon shoud assume the subsidiary s financia obigations. Raytheon refused, and the case was brought before the OECD by the Begian government and the Internationa Federation of Commercia, Cerica, Professiona and Technica Empoyees (FIET), an internationa trade secretariat. The Committee on Internationa Investments and MNEs (CIIME) of the OECD indicated that paragraph six of the guideines (concerned with pant cosures) impied a shared responsibiity by the subsidiary and the parent in the event of a pant cosing. Foowing this carification by the CIIME and a scaing down of initia demands, Badger executives and Begian government officias negotiated a settement of this case. Banpain 59 concudes that the Badger case made cear the responsibiity of the parent company for the financia iabiity of its subsidiary, but that this responsibiity is not unquaified. As to whether the Badger case proved the effectiveness of the OECD guideines, Jain 60 and Campbe and Rowan 61 point out that the Begian unions devoted considerabe resources to make this a test case and had assistance from both American unions (which, through the AFL CIO, obbied the US Department of State) and the Begian government in their negotiations with the OECD and Badger executives. Liebhaberg 62 is more specific in his assessment: Despite an outcome which those in favor of supervision consider to be positive, the Badger Case is a cear demonstration of one of the weaknesses in the OECD s instrument, namey that it does not represent any sort of forma undertaking on the part of the twenty-four member states which are signatories to it. The socia forces of each separate country must appy pressure on their respective governments if they want the guideines appied.

268 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 251 A recent deveopment with the OECD guideines has been the foow-up procedures. The system of Nationa Contact Points promotes observance of the guideines by MNEs operating in or from the governments territories. It appears that this system is now having some infuence on MNE behavior in the industria reations area. In May 2011 Ministers from OECD and deveoping economies agreed on new guideines to promote more responsibe business conduct by mutinationa enterprises, and a second set of guidance designed to combat the iicit trade in mineras that finance armed confict. The OECD statement noted that: Forty-two countries wi commit to new, tougher standards of corporate behavior in the updated Guideines for Mutinationa Enterprises: the 34 OECD countries pus Argentina, Brazi, Egypt, Latvia, Lithuania, Morocco, Peru and Romania. The updated Guideines incude new recommendations on human rights abuse and company responsibiity for their suppy chains, making them the first intergovernmenta agreement in this area. The Guideines estabish that firms shoud respect human rights in every country in which they operate. Companies shoud aso respect environmenta and abor standards, for exampe, and have appropriate due diigence processes in pace to ensure this happens. These incude issues such as paying decent wages, combating bribe soicitation and extortion, and the promotion of sustainabe consumption. 63 Recognizing the imitations of vountary codes of conduct, European trade unions continue to obby the Commission of the European Union to reguate the activities of mutinationas. 64 Unike the OECD, the Commission of the EU can transate guideines into aw, and has deveoped a number of proposas concerning discosure of information to make mutinationas more transparent. These are discussed in more detai in the next section. REGIONAL INTEGRATION: THE EUROPEAN UNION (EU) Regiona integration such as the deveopment of the European Union (EU) has brought significant impications for industria reations. 65 In the Treaty of Rome (1957), some consideration was given to socia poicy issues reated to the creation of the European Community. In the EU, the terms socia poicy or socia dimension are used to cover a number of issues incuding in particuar abor aw and working conditions, aspects of empoyment and vocationa training, socia security and pensions. There have been a number of significant deveopments in EU socia poicy over the past four decades. The Socia Charter of the Counci of Europe came into effect in In 1987, the major objective of the impementation of the Singe European Act was to estabish the Singe European Market (SEM) on 31 December 1992, in order to enhance the free movement of goods, money and peope within the SEM. The socia dimension aims to achieve a arge abor market by eiminating the barriers that restrict the freedom of movement and the right of domicie within the SEM. The European Community Charter of the Fundamenta Socia Rights of Workers (often referred to simpy as the Socia Charter) was introduced in 1989, and has guided the deveopment of socia poicy in the 1990s. 66 Naturay, the socia dimension has been the subject of much debate: proponents defend the socia dimension as a means of achieving socia justice and equa treatment for EU citizens, whie critics see it as a kind of socia engineering. 67 The current treaty for the EU is the Treaty of Lisbon which came into force in December The Treaty of Lisbon guarantees the enforcement of a Charter of Fundamenta Rights that covers civi, poitica, economic and socia rights, which are egay binding not ony on the EU and its institutions, but aso on the member states as regards the impementation of EU aw. It aso reaffirms important steps to outaw discrimination on the grounds of gender, race and coor and mentions socia rights appied within companies, e.g. workers rights to be informed, to negotiate and take coective action in other words, the right to strike. The European Commission

269 252 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT department responsibe for socia poicy is the Directorate-Genera for Empoyment, Socia Affairs and Incusion. 69 For many firms, whether non-european MNEs with businesses operating within the EU or smaer European firms, the ega compexity of operating within the EU increases the utiity of beonging to an empoyer association such as the Federation of European Empoyers ( to faciitate the chaenge of managing across European nationa boundaries and accessing reevant information. The issue of socia dumping One of the eary concerns reated to the formation of the European Union was its impact on jobs. There was aarm that those member states that have reativey ow socia security costs woud have a competitive edge and that firms woud ocate in those member states that have ower abor costs. The counter-aarm was that states with ow-cost abor woud have to increase their abor costs, to the detriment of their competitiveness. There are two industria reations issues here: the movement of work from one region to another and its effect on empoyment eves; and the need for trade union soidarity to prevent workers in one region from accepting pay cuts to attract investment, at the expense of workers in another region. With the expansion of the EU in 2004 to incude ten new members (most reativey owincome states, some of whom are sti working to overcome the heritage of state sociaist economic systems and imited recent experience with pariamentary democracy) there has been an increased sensitivity to the probem of socia dumping. 70 This is particuary so since the goba financia crisis in An internet search using the term socia dumping wi turn up webpages refecting concerns from mutipe perspectives trade union, societa and business. We examine these mutipe perspectives in the next section of this chapter where we ook at the issue of monitoring goba HR practices. CODES OF CONDUCT MONITORING HRM PRACTICES AROUND THE WORLD An issue that has been somewhat overooked in the IHRM iterature is the need to monitor the HRM practices used in a variety of socia, ega and reguatory contexts. This is of particuar reevance to MNEs invoved in cross-border aiances in industries such as textie, cothing and footwear (TCF) and other consumer goods industries such as eectrica goods where MNEs do not estabish their own manufacturing operations. A critica issue in the management of the internationa suppy chain is ensuring that quaity standards are met. This has been probematic for some MNEs with goba brands such as Nike, Levi Strauss, Benetton, Reebok and Adidas. A major management chaenge for these firms has been the reaction of Western consumers to aegations of unfair empoyment practices used by their subcontractors in countries such as India, China, Turkey, Indonesia, E Savador, Honduras, the Dominican Repubic and the Phiippines. Various MNEs have been accused of condoning work practices such as the use of chid abor, ong working hours for minima pay and unsafe working environments conditions that woud not be permitted in the home countries of eading Western MNEs. Pubic uproar in the 1990s resuted in various actions by governments, the United Nations and non-government organizations (NGOs) to try to enforce codes of conduct aso for subcontractors through their mutinationa partners. 71 Some mutinationas, with corporate reputations and vauabe brands at stake, quicky introduced their own codes of conduct. 72 These codes of conduct incuded, for exampe, acceptabe working conditions, no chid abor and minimum wages. There is now a universa standard, simiar to the ISO 9000 quaity standard, caed the Socia Accountabiity 8000, whose principes are drawn from the UN human rights conventions. 73

270 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 253 Whie the code of conduct approach initiay appeared to hande the pubic reations issue, ongoing enforcement has proven difficut. The roe of HRM reated to a goba code of conduct may incude the foowing: Drawing up and reviewing codes of conduct. Conducting a cost-benefit anaysis to oversee compiance of empoyees and reevant aiance partners. Championing the need to train empoyees and aiance partners in eements of the code of conduct. Checking that performance and rewards systems take into consideration compiance to codes of conduct. IHRM in Action Case 9.2 iustrates one exampe of a firm that has estabished a goba code of conduct. On the basis of this case, you can discuss what interna and externa effects such a code of conduct may have for the MNE. Non government organizations (NGOs) The gobaization of trade and business has provoked a vigorous debate within nationa states, and often is expressed in anti-gobaization raies and protests. The activities of environmenta groups such as Greenpeace highight how these organizations have aso become internationaized. They tend to have nationa managers in various countries, and variations of structura forms for coordination and accountabiity. Aid agencies such as the Red Cross, the Red Crescent, Word Vision and Médecins Sans Frontieres (Doctors without Borders) are prominent exampes of NGOs. They may utiize different organizationa structures and have members who may internaize to a greater degree the shared vaues and beiefs due to the nature of the organization s mission and activities, than may be found in a for-profit mutinationa. Nonetheess, in terms of goba contro and operations, there may be simiar manageria concerns to those of, for instance, oi companies. Physica risk such as the danger of staff being taken hostage, and of having property damaged is common to firms operating in hostie contexts. As Fenwick 74 identifies, non-profit organizations have been argey ignored in IHRM research, possiby because IHRM refects the traditiona management ethos of effectiveness and efficiency rather than the non-profit ethos of vaues-driven, charitabe and phianthropic ideas. 75 It woud seem that the need to broaden the focus of the IHRM fied to incude NGOs wi be necessary, as the impact and infuence of NGOs is more than ikey to continue we into the twenty-first century. For an exceent review of the roe of NGOs in internationa business, see the paper by Lambe et a. (2008) in the Further Reading ist at the end of this chapter. MANAGING HUMAN RESOURCES IN OFFSHORING COUNTRIES The concept of offshoring and its strategic importance Even given goba economic irreguarities, offshoring continues to be an important trend for reaching competitive advantage in the gobaized economy. 76 In this section we wi give specia emphasis to the context of host countries, which are typica recipients for offshoring activities of MNEs. For these offshoring countries we wi discuss HRM impications, 77 because this trend eads to a revoution in the goba division of abor. New interfaces emerge that need to be managed. 78

271 254 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT IHRM in Action Case 9.2 Degussa s goba code of conduct The firm Degussa group is a mutinationa corporation with a market eadership position in the sector of speciaty chemistry. The group is represented wordwide on a five continents and based in more than 300 ocations. The cornerstone for Degussa was paced in 1843 in Frankfurt, Germany; after severa acquisitions, today empoyees work for this company wordwide. Since June 2004, the Degussa group has been a 100 per cent subsidiary of Rag AG. Due to its important size and ong history as we as its broad internationa experience, Degussa operates reativey independenty from the parent company. Key production faciities, saes and marketing offices of Degussa can be found in around 60 countries, whereas the business activity focuses on Europe, North America and Asia. In 2005, Degussa generated saes of EUR 11.8 biion; amost three-quarters of this saes voume were generated outside of Germany. The organization Degussa has a decentraized organization within a goba business framework. This is achieved through business units, which have fu accountabiity for oca operations. However, to maintain strategic contro of its internationa business, strategic management decisions are mainy made in the headquarters this phiosophy is aso refected in the structure of the management board which consists soey of German managers. To foster a corporate strategy and a new corporate cuture known as Bue Spirit, a set of supporting principes incuding Degussa s Goba Socia Poicy, guiding missions which are incorporated in management practices (e.g. a bonus system for executives inked to corporate goas) as we as a Goba Code of Conduct were deveoped. The aim is to bring together severa different corporate cutures and to create one company in which every empoyee at every site fees as though he or she is part of a common whoe. The Goba Code of Conduct The Goba Code of Conduct aims at supporting the empoyees in their daiy work and providing them with reference points. In the course of growing gobaization, the variety of reevant markets and cutures has increased. The expectations of empoyees as we as customers are becoming more compex and different nationa and cutura backgrounds gain importance in the day-to-day work in this mutinationa company. The Code of Conduct is binding for every Degussa staff member and is appied in a subsidiaries as we as in the parent company. In addition, the code incudes guideines which contro interactions with the corporate environment as we as with the pubic and governmenta agencies or institutions. Even in countries (ike for exampe India) where oca rues and aws have other standards, the Goba Code of Conduct is enforced. In case regiona requirements go beyond the Degussa Code, the firm is forced to adapt to these conditions and has to incude respective deviations within the Code. Every empoyee wordwide is expected to compy with the Goba Code of Conduct. Degussa has appointed various compiance officers in different units to ensure that the rues are respected. In addition, these officers might answer any reated questions to assist empoyees in compying with these rues. Beyond this, oca HR departments offer training sessions, information and pubications to ensure that a empoyees are famiiar with the Code. A empoyees are encouraged to name strengths and weaknesses and to activey participate in the continuing further deveopment of this Goba Code of Conduct. Content of the Goba Code of Conduct: compiance rues for the Degussa group 1 Scope and objectives 2 Business conduct (Continued)

272 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 255 (Continued) 2.1 Managing business transactions 2.2 Business reations 2.3 Conficts of interest 2.4 Insider trading 2.5 Maintaining the confidentiaity of interna information 2.6 Poitica invovement and contributions 2.7 Ethics 3 Technica issues 3.1 Competition and antitrust aw 3.2 Foreign trade, export and terrorism contros 3.3 Tax aw 3.4 Environmenta protection, safety, occupationa heath and quaity 3.5 Data protection 3.6 IT security 4 Practica impementation of compiance rues Source: Based on information obtained from Degussa s website, and Consut Kienbaum Kundenmagazin, Kienbaum Human Resources Management Consuting, 1/2007, pp Unfortunatey, there is no common or gobay-accepted definition for the term offshoring. Frequenty, it is used as a subcategory of outsourcing, which can be defined as the act of transferring some of a company s recurring interva activities and decision rights to outside providers, as set in a contract. 79 Depending on whether these offshoring activities are equity-based or not we can differentiate between captive offshoring, i.e., invoving an affiiated firm, and outsourcing with a non-affiiated firm. Whie offshoring has a ong tradition, for exampe, in the automobie industry, it has recenty gained importance in the service industry and especiay in the information technoogy (IT) sector. 80 The main ocations for service offshoring activities of European companies are the United Kingdom, Ireand, Spain and Portuga in Western Europe and Poand, Hungary and Romania in Eastern Europe. Neary haf of the projects go to Asia. 81 In India the deveopment of offshoring was a resut of strong support by the government to hep the country meet those requirements that have an impact on the choice of the ocation for offshored activities. This choice depends on costs (abor and trade costs), the quaity of institutions (particuary egisation) and infrastructure (particuary teecommunications), the tax and investment regime and the skis of the empoyees (particuary anguage and computer skis). 82 A prominent exampe for offshoring activities are internationa ca-centers. However, offshoring of services aso incudes more sophisticated, high vaue-added activities, such as accounting, biing, financia anaysis, software deveopment, architectura design, testing, and research and deveopment. 83 As mentioned previousy, in this chapter we wi concentrate on the two most important countries for future foreign operations, India and China. Athough it is beyond the scope of this chapter to deiver an encompassing description and anaysis of the empoyment reations systems and approaches to HRM, we wi anayze the situation with respect to offshoring and draw impications for HRM in each country. Finay, emerging issues for HRM in offshoring countries wi be discussed.

273 256 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT Offshoring and HRM in India India has deveoped a fourishing business process outsourcing (BPO) industry 84 and respective competencies. The technoogica infrastructure and the quaification as we as the motivation of the empoyees are perceived as benefits by Western investors and partners. Furthermore, each year 3.1 miion graduates enter the workforce and 20 per cent of the popuation speaks Engish. 85 Indian graduates are prepared to work for saaries which are ower than those of their Western counterparts. To capitaize on this cost advantage, US firms such as IBM, Hewett-Packard and Eectronic Data Systems have outsourced software deveopment to Indian suppiers. 86 Other mutinationas, such as Genera Eectric, have used the avaiabiity of a highy educated yet reativey cheap abor force to estabish their ca centers in various parts of India. Loca staff empoyed in these ca centers are trained to speak Engish compete with particuar accent and use of appropriate idiom, so that US, UK and Austraian customers are often unaware that their oca ca has been diverted to a ca center in India. However, probems have aso been reported from Indian BPOs and many of them are associated with HRM issues. For exampe, annua personne turnover rates range from 20 to 80 per cent and a shortage exists considering the high demand for a skied workforce, especiay in midde management. As some HR managers have reported, ony haf of the candidates even show up for a job interview. 87 This shortage and the high demand for skied workers have ed to an annua increase in saaries of between 10 and 20 per cent. Consequenty, the significant cost advantages of offshoring to India are in danger. Additiona issues are the probems of worker dissatisfaction and conficts caused by stress as we as cases of reported sexua and racia abuse. 88 A of these factors can ead to a decrease in productivity and thus, to further financia osses. 89 These findings are confirmed by the resuts of an empirica study conducted by Mehta et a., who concuded that HRM issues are perceived as a major weakness in BPO firms. 90 This represents a chaenge to the HRM of BPO firms. As reported by Sparrow and Budhwar, 91 the Indian HRM poicies and practices are sti very much infuenced by the caste system, socia reationships and poitics: At times, seection, promotion and transfer are based on ascribed status and socia and poitica connections, so there is a strong emphasis on coectivism famiy and group attainments take precedence over work outcomes... Motivationa toos are more ikey to be socia, interpersona and even spiritua. In such conditions, the empoyee s orientation emphasizes personaized reationships rather than performance. 92 These issues ead to a HRM system, which is characterized by informaities and ess rationaity. 93 This might contradict the previousy discussed attempts for a goba standardization of HRM poicies and practices by MNEs. 94 However, a study conducted in 51 BPO companies situated cose to New Dehi reveaed that the work settings were designed to guarantee maximum customer satisfaction. Furthermore, the authors discovered a more forma, structura and rationa approach to HRM simiar to those in deveoped countries. Nevertheess, with respect to HRM practices and their effects on the empoyees, weaknesses have aso been identified. The emphasis on career deveopment and training was ower than in Western firms. Further HRM issues to be addressed in the future incuded: increasing attrition rates, the prevention of psychoogica and stress-reated probems, more fexibiity in the workpace (part-time jobs do not currenty exist), and the creation of a more interesting work environment to hep buid ong-term reationships with we-quaified empoyees. 95 Ony if the empoyees needs are met by HRM measures is retention possibe. 96 Offshoring and HRM in China China is one of the fastest growing economies in the word. It is a country we-known for inexpensive manufacturing, athough costs in this sector are reported to be rising. 97 Currenty,

274 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 257 saaries in China are even ower than in India. However, the tota number of graduates is ony haf that which India produces, and the percentage of Engish-speaking graduates is aso much ower. 98 Whie Chinese universities produce a high number of science and technoogy graduates, students come from an educationa system in which they were rarey encouraged to take initiative and deiver creative soutions athough these are major requirements by MNEs. 99 Consequenty, the Chinese economy suffers from a skis shortage simiar to that in India, especiay for those jobs which require both technica as we as management know-how. 100 Simiar turnover rates and the same tendency of increasing saaries for highy skied empoyees can aso be observed in China. 101 Reported probems or barriers to working with oca entities not ony incude difficuties of staff recruitment and retention, but aso probems in cross-cutura communication, poor working practices in suppier firms and corrupt staff behavior. 102 For Western MNEs who are panning to offshore activities to China, it is important to understand the roe payed by network connections caed guanxi: dyadicpersonareationships between peope. Tung and Worm 103 expain that whie these reationships bear simiarities to the Western practice of networking, there are differences: guanxi reationships are contingent upon conditions such as asymmetry, reciprocity and necessity. The authors stress the importance of guanxi for successfu business operations in China but recognize the difficuties this poses for Western managers. They suggest that hiring practices for key positions shoud take into account prospective Chinese empoyees guanxi. The difficuty is being abe to assess the extent to which prospective empoyees have guanxi that woud be vauabe in their enterprise. Mutinationas find that they need to invest in training so that empoyees earn how to propery use equipment, operate systems and the ike. What actions can these firms take to gain the benefits of this investment in human capita? Obviousy it is not easy to prevent empoyees from eaving the operation. The poaching of skied empoyees is a significant probem for MNEs in China. Shanghai Be was an eary entrant into the Chinese market and became the academy for the industry, experiencing high staff turnover to both Chinese and foreign-owned competitors. 104 In post-reform China, empoyees tend to change jobs frequenty in pursuit of higher wages, and not in an effort to deveop their skis. 105 To a certain extent, this may be traced back to the empoyment system that existed prior to reforms associated with the transition to a market economy. Guaranteed continuation of empoyment, aong with various wefare and benefits offered to empoyees, such as accommodation, medica treatment, chidcare and pensions, has been referred to as the iron rice bow. 106 In exchange for job security, empoyees had itte freedom to move to another work unit that is, they were unabe to quit or transfer jobs and were ocked into a dependency reationship with their enterprises. Respectivey, managers were deprived of their right to fire or ay off unquaified or nonproductive empoyees. 107 Whie companies operating in China are endeavoring to reduce their attrition rates, through the provision of additiona benefits and staff deveopment programs, Chinese empoyees are beginning to recognize compensation differentias and that is having an impact upon job attitudes. A fair environment and good management practices are emerging as the essentia toos for retaining Chinese empoyees, rather than above-market compensation aone. Gooda and Roberts, 108 in their study of a European oi company operating in China, cite the exampe of one empoyee who found that being part of a wider organizationa network was incentive enough to stay with the mutinationa. The above-mentioned recruitment, quaification and retention probems require HRM practices which meet the needs of highy skied human resources sociaized in the Chinese context. However, HRM in China has ony recenty evoved and is chaenging the former administrative system. 109 The transition is difficut because of the previous strong infuence of the state and a current highy competitive situation: 110 Unti quite recenty, the personne function in SOEs [state-owned enterprises] was confined to job aocation, personne record fiing, and the provision of wefare benefits. The primary task for personne

275 258 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT management was to keep the empoyees poiticay and ideoogicay sound. Many of the HR practices which are famiiar to their western counterparts were beyond the experience of personne staff in China. 111 From this anaysis Cooke derives key features that describe the current state of HRM in China: 112 There is no systematic approach for inking HRM with the business strategy. Despite a surpus of abor, many companies face recruiting and retention probems. There is no systematic ink between performance management, reward and ong-term motivation. There is a ack in coherence and continuity of enterprise training. However, research aso shows differences between different types of enterprises. 113 Venter 114 points out that resource-rich companies, often characterized by foreign ownership, have a more encompassing approach to HRM, which incudes forma education as a seection mechanism seecting the educationa eite and continuing to deveop them through extensive training programs. To cope with the probem of high turnover rates it is suggested that procedura justice as we as measures for increasing commitment within the organization may be hepfu. 115 To sum up, empoyee needs must be met by respective HRM practices and the creation of a satisfying work environment. Summarizing emerging issues From this brief anaysis of the situation in offshore countries, important issues emerge with respect to the roe of HRM as we as ski shortages and the resuting consequences. A possibe roe for HRM. As we have seen from the discussion above, offshoring activities can fai. Common reasons for this incude the unsatisfactory quaity of products or services, probems of management contro, the rapid turnover of oca staff and anguage probems. A CIPD survey on Offshoring and the Roe of HR conducted in more than 600 British companies reveaed that the invovement of the HR department in offshoring decisions and processes was imited. Based on the survey resuts CIPD identified the foowing roes for HRM: 116 Consutation with unions/empoyee representatives. Manpower panning, considering the scope for empoyee redepoyment. 117 Contributing to the interna communication strategy. Identifying training needs. Designing new jobs which stem from offshoring operations. Highighting potentia risks, such as the impications of empoyment reguation both in the home country and in foreign ocations. This discussion ceary shows that there are sti starting points for strengthening the oca HRM systems in Indian and Chinese firms. This measure woud be further supported if HRM payed a more important roe in offshoring decisions and processes. Ski shortages and the resuting consequences in a broader regiona context. Ski shortages represent a major probem in the offshoring countries of India and China. According to a widey pubicized PriceWaterhouseCoopers survey per cent of 153 respondents from a over

276 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 259 the word have reported probems in recruiting technica taent in emerging countries. Even more companies (47 per cent) find it difficut to retain we-quaified staff. However, this is not a phenomenon that ony exists in these countries. For a ong time, ski shortage has aso been the focus of discussion in the context of deveoped Westerncountries exampesincudeireand 119 and Canada. 120 Coping with ski shortages: The roe of returning HCNs. Another important issue that might be addressed when discussing ski shortages in emerging countries points to a group of peope who originate from these countries, have studied abroad and return back to their home countries. These individuas have been described as ex-host-country nationas (EHCNs) by Tung and Lazarova 121 in an empirica study of EHCNs in Centra and Eastern Europe. They state that especiay in these transitiona economies where there is a significant shortage of oca taent... EHCNs appear to be a good source of suppy for much needed competencies and skis to enabe these countries to survive and thrive in the goba economy. 122 This is confirmed by Saxenian: She states that if those highy skied empoyees decide to return home they are acceerating the technoogica deveopments in their home countries. 123 In her research, she discusses the cases of China and India. In an empirica investigation of Chinese university students in Canada, Tung found that the majority was receptive to the idea of returning to China. 124 However, in their study of Eastern European EHCNs Tung and Lazarova report re-adaptation probems when EHCNs return to their home countries. This indicates that there is a risk whether the EHCNs wi stay in their countries of origin and whether they wi be as effective and successfu as they are supposed to be. If they decide not to return to their home country after their studies there is a danger of brain drain. 125 This is critica in a situation of ski shortage in an emerging country. 126 The findings by Tung and Lazarova of reintegration probems for EHCNs have important impications for HRM practitioners because they indicate that EHCNs might expect to be treated in a simiar way to expatriates with carefu reintegration into their countries of origin. According to Tung and Lazarova, returning HCNs can be regarded as a brain gain and represent a vauabe measure to cope with the chaenge of ski shortages in host-country ocations. SUMMARY In this chapter we have covered a range of institutiona issues that confront MNEs in the goba environment in which they conduct their business. In terms of internationa industria reations, the discussion surrounding the formation of regiona economic zones such as the European Union and the Asia Pacific Economic Cooperation (APEC) 127 supports the concusion that transnationa coective bargaining has yet to be attained by trade unions. 128 As Enderwick 129 has noted: The internationa operations of MNEs do create considerabe impediments in effectivey segmenting abor groups by nationa boundaries and stratifying groups within and between nations. Combining recognition of the overt segmentation effects of internationa business with an understanding of the dynamics of direct investment yieds the concusion that genera mutinationa coective bargaining is ikey to remain a remote possibiity. Enderwick argues that trade unions shoud opt for ess ambitious strategies in deaing with mutinationas, such as: (1) strengthening nationa union invovement in pant-based and companybased bargaining; (2) supporting research on the vunerabiity of seective mutinationas; and (3) consoidating the activities of company-based ITSs. Despite setbacks, especiay with the regiona economic integration issues discussed in this chapter, it is ikey that trade unions and the ILO wi pursue these strategies and continue to obby where possibe for the reguation of mutinationas via the European Commission and the United Nations. It is aso ikey that opponents of gobaization wi continue to attempt to infuence pubic opinion in the deveoped economies with campaigns against seected MNEs with industria

277 260 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT reations poicies and practices being a particuar target. The campaign against Wa-Mart, utiizing the documentary fim Wa-Mart: The High Cost of Low Price is an exampe of such a campaign. One of the key points made in the fim is that Wa-Mart empoyees have either poor medica coverage or none at a. However, as the business magazine Fortune 130 notes: In a gobaized economy, American companies can t continue paying the word s highest heath-care costs. Don t bame Wa-Mart; bame America s inabiity to devise a nationa heath care pan that takes the burden off empoyers. With gobaization, what was once a domestic issue has now become in part an internationa issue and in turn raises pubic poicy questions as to what heath-care costs can US firms be expected to fund in a gobaized economy. 131 With continuing change impacting on MNEs due to gobaization and the pressure to reduce costs by offshoring, the risks to corporate reputation inherent in faiure to compy with interna and externa codes of conduct are unikey to diminish and these factors wi be ongoing issues in the foreseeabe future.

278 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 261 DISCUSSION QUESTIONS 1 Why is it important to understand the historica origins of nationa industria reations systems? 2 In what ways can trade unions constrain the strategic choices of mutinationas? 3 Identify four characteristics of MNEs that give trade unions cause for concern. 4 How have trade unions responded to MNEs? Have these responses been successfu? 5 What evidence is there to show that corporate codes of conduct are effective? 6 Compare the industria deveopment quaities of India and China from a goba HR director s perspective. FURTHER READING Bamber, G., Lansbury, R. and Waies, N. (eds) Internationa and Comparative Empoyment Reations, 5th Ed. (London: Sage, 2011). Binder, A. (2009) How many US jobs might be offshorabe?, Word Economics, 10(2): Coings, D. (2008) Mutinationa corporations and industria reations: A road ess traveed, Internationa Journa of Management Reviews, 10(2): Cooke, W., Mutinationa Companies and Goba Human Resource Strategy, in P. Boxa, J. Purce and R. Wright (eds) Oxford Handbook of Human Resource Management (Oxford: Oxford University Press, 2006), pp Harzing, A-W. and Pinnington, A. (eds) Internationa Human Resource Management, 3rd Ed. (London: Sage, 2011). Lambe, R., Ramia, G., Nyand, C. and Micheotti, M. (2008) NGOs and internationa business research: Progress, prospects and probems, Internationa Journa of Management Reviews, 10(1): Zhu, Y., Warner, M. and Feng, T. (2011) Empoyment reations with Chinese characteristics : The roe of trade unions in China, Internationa Labor Review, 150 (1 2): NOTES AND REFERENCES 1. See for the Internationa Organization of Empoyers and for the Internationa Labor Organization. 2. These introductory comments are drawn from J. Schrege, Comparative Industria Reations: Pitfas and Potentia, Internationa Labor Review, Vo. 120, No. 1 (1981), pp For a sense of the compexity and fuidity of comparative industria reations efforts, see B. Kaufman, The Theoretica Foundations of Industria Reations and Its Impications for Labor Economics and Human Resource Management, Industria and Labor Reations, Vo. 64, No. 6 (2010), pp ; for an interesting anaysis of shades of unionization see M. Mironi Reframing the Representation Debate: Going Beyond Union and Non Union Options, Industria and Labor Reations, Vo. 63, No. 3 (2009), pp This point is aso referred to as the emic-etic probem. See Chapter 1 for a detaied discussion of this point. 4. O. Kahn-Freund, Labor Reations: Heritage and Adjustment (Oxford: Oxford University Press, 1979). Aso see R. B. Peterson and J. Sargent, Union and Empoyer Confederation Views on Current Labor Reations in 21 Industriaized Nations, Reations Industriees, Vo. 52, No. (1997), pp Interestingy, these nationa patterns specificay in the area of pay dispersion and a premium paid for union status continue in even what many consider the fattened high technoogy ca center industry, see R. Batt and H. Nohara, How Institutions and Business Strategies Affect Wages: A Cross-Nationa Study of Ca

279 262 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT Centers, Industria and Labor Reations Review, Vo. 62, No. 4 (2009), pp J. Schrege, Comparative Industria Reations, p M. Pooe, Industria Reations: Origins and Patterns of Nationa Diversity (London: Routedge, 1986). 7. C. Prahaad and Y. Doz, The Mutinationa Mission: Baancing Loca Demands and Goba Vision (New York: The Free Press, 1987). 8. For genera reviews of the comparative industria reations iterature, see P. Byton, N. Bacon, J. Fiorito and E. Heery (eds) The SAGE Handbook of Industria Reations (London: Sage, 2008); R. Bean, Comparative Industria Reations: An Introduction to Cross-Nationa Perspectives, rev. ed. (London: Routedge, 1994); Pooe, Industria Reations; G. Bamber, R. Lansbury and N. Waies (eds) Internationa and Comparative Empoyment Reations, 5th Ed. (London: Sage, 2011). 9. P. Marginson, P. Armstrong, P. Edwards and J. Purce, Extending Beyond Borders: Mutinationa Companies and the Internationa Management of Labor, Internationa Journa of Human Resource Management, Vo. 6, No. 3 (1995), pp ; aso see M. Martinez Lucio and S. Weston, New Management Practices in a Mutinationa Corporation: The Restructuring of Worker Representation and Rights, Industria Reations Journa, Vo. 25, (1994), pp See the foowing pubications by Gunnige and his coeagues: P. Gunnige, D. Coings and M. Morey, Accommodating Goba Capitaism: Industria Reations in American MNCs in Ireand, in A. Ferner, J. Quintania and C. Sanchez-Runde (eds) Mutinationas and the Construction of Transnationa Practices: Convergence and Diversity in the Goba Economy (London: Pagrave Macmian, 2006); P. Gunnige, D. Coings and M. Morey, Exporing the Dynamics of Industria Reations in US Mutinationa: Evidence from the Repubic of Ireand, Industria Reations Journa, Vo. 36, No. 3 (2005), pp ; P. Amond, T. Edwards, T. Coing, A. Ferner, P. Gunnige, M. Muer-Camen, J. Quintania and H. Waechter, Unraveing Home and Host Country Effects: An Investigation of the HR Poicies of an American Mutinationa in Four European Countries, Industria Reations, Vo. 44, No. 2 (2005), pp ; I. Cark, R. Amond, P. Gunnige and H. Waechter, The Americanization of the European business system?, Industria Reations Journa, Vo. 36, No. 6 (2005), pp J. Hami, Labor Reations Decision-making within Mutinationa Corporations, Industria Reations Journa, Vo. 15, No. 2 (1984), pp S. Robock and K. Simmonds, Internationa Business and Mutinationa Enterprises, 4th Ed. (Homewood, IL: Irwin, 1989); Marginson, Armstrong, Edwards and Purce, Extending Beyond Borders. 13. D. Hefer, Goba Sourcing: Offshore Investment Strategy for the 1980s, Journa of Business Strategy, Vo. 2, No. 1 (1981), pp. 7 12; D. Grimshaw, J. Rubery and P. Amond, Mutinationa companies and the host country environment, in A.-W. Harzing and A. Pinnington (eds) Internationa Human Resource Management, 3rd Ed. (London: Sage, 2011), pp K. Starkey and A. McKinay, Strategy and the Human Resource: Ford and the Search for Competitive Advantage (Oxford: Backwe, 1993). 15. B. Roberts and J. May, The Response of Mutinationa Enterprises to Internationa Trade Union Pressures, British Journa of Industria Reations, Vo. 12 (1974), pp See J. La Paombara and S. Bank, Mutinationa Corporations and Nationa Eites: A Study of Tensions (New York: The Conference Board, 1976); A. Sim, Decentraized Management of Subsidiaries and Their Performance: A Comparative Study of American, British and Japanese Subsidiaries in Maaysia, Management Internationa Review, Vo. 17, No. 2 (1977), pp ; and Y. Shetty, Managing the Mutinationa Corporation: European and American Styes, Management Internationa Review, Vo. 19, No. 3 (1979), pp Bean, Comparative Industria Reations. 18. Hami, Labor Reations Decision-making. 19. See P. Marginson, European Integration and Transnationa Management Union Reations in the Enterprise, British Journa of Industria Reations, Vo. 30, No. 4 (1992), pp Martinez Lucio and Weston, New Management Practices in a Mutinationa Corporation. 21. See Bean, Comparative Industria Reations; H. Katz and A. Covin, Empoyment Reations in the United States, in G. Bamber, R. Lansbury and N. Waies (eds) Internationa and Comparative Empoyment Reations, 5th Ed. (London: Sage, 2011), pp ; and L. Aonso and M. Martinez Lucio (eds) Empoyment Reations in a Changing Society (London: Pagrave, 2006). 22. Hami, Labor Reations Decision-making. 23. P. Enderwick, The Labor Utiization Practices of Mutinationas and Obstaces to Mutinationa Coective Bargaining, Journa of Industria Reations, Vo. 26, No. 3 (1984), pp P. M. Rosenzweig and N. Nohria, Infuences on Human Resource Management Practices in Mutinationa Corporations, Journa of Internationa Business Studies, Vo. 25, No. 2 (1994), pp Hami, Labor Reations Decision-making. 26. Aso see Bean, Comparative Industria Reations. 27. P. Marginson and K. Sisson, The Structure of Transnationa Capita in Europe: The Emerging Euro- Company and its Impications for Industria Reations, in R. Hyman and A. Ferner (eds) New Frontiers in European Industria Reations (Oxford: Backwe, 1994); K. Wiiams and M. Geppert, The German Mode of Empoyee Reations on Tria: Negotiated and Uniateray Imposed Change in Muti-nationa Companies, Industria Reations Journa, Vo. 37, No. 1 (2006), pp

280 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT For an interesting discussion of the importance of understanding ideoogy, see G. C. Lodge, Ideoogica Impications of Changes in Human Resource Management, in D. Waton and P. R. Lawrence, HRM Trends and Chaenges (Boston, MA: Harvard Business Schoo Press, 1985). Aso see G. Bamber et a., Internationa and Comparative Empoyment Reations, chapter See Katz and Covin, Empoyment Reations in the United States ; aso T. Kochan, R. McKersie and P. Cappei, Strategic Choice and Industria Reations Theory, Industria Reations, Vo. 23, No. 1 (1984), pp D. Bok, 1971, Refections on the distinctive character of American abor aws, Harvard Law Review, Vo. 84. pp See V. Frazee, Trade Union Membership is Decining Gobay, Workforce, Vo. 3, No. 2 (1998), p. 8; Word Labor Report : Industria Reations, Democracy and Socia Stabiity (Geneva: ILO, 1997); W. Groot and A. van den Berg, Why Union Density has Decined, European Journa of Poitica Economy, Vo. 10, No. 4 (1994), pp For an interesting micro view of factors associated with empoyee commitment to union membership in Poand, see P. Zientara and G. Kuczynski, Empoyees Desire to Join or Leave a Union: Evidence From Poand, Industria Reations, Vo. 48, No. 1 (2009), pp See Bean, Comparative Industria Reations; Pooe, Industria Reations; and J. Visser, Trade Unionism in Western Europe: Present Situation and Prospects, Labor and Society, Vo. 13, No. 2 (1988), pp J. Hami, Mutinationa Corporations and Industria Reations in the UK, Empoyee Reations, Vo. 6, No. 5 (1984), pp Hami, Labor Reations Decision-making, p This section is based in part on Chapter 5, The Impact of Organized Labor, in Prahaad and Doz, The Mutinationa Mission. 36. Prahaad and Doz, The Mutinationa Mission. 37. Ibid., p M. Aen, Wordy Wisdom, New Statesman and Society, Vo. 6 (1993), pp. xii. 39. Kennedy, European Labor Reations. 40. Bean, Comparative Industria Reations, p Ibid. 42. Marginson, Armstrong, Edwards and Purce, Extending Beyond Borders. 43. B. Mahnkopf and E. Atvater, Transmission Bets of Transnationa Competition? Trade Unions and Coective Bargaining in the Context of European Integration, European Journa of Industria Reations, Vo. 1, No. 1 (1995), pp R. Vernon, Storm over the Mutinationas: The Rea Issues (Cambridge, MA: Harvard University Press, 1977). 45. P. Auer, G. Besse and D. Meda (eds) Offshoring and the Internationaization of Empoyment: A Chaenge for a Fair Gobaization? (Geneva: Internationa Labor Organization, 2006). 46. W. Cooke, Exercising Power in a Prisoner s Diemma: Transnationa Coective Bargaining in an Era of Corporate Gobaization?, Industria Reations Journa, Vo. 36, No. 4 (2005), pp J. Pyndt and T. Pedersen, Managing Goba Offshoring Strategies (Copenhagen: Copenhagen Business Schoo Press, 2006). 48. M. Martinez Lucio and S. Weston, Trade Unions and Networking in the Context of Change: Evauating the Outcomes of Decentraization in Industria Reations, Economic and Industria Democracy, Vo. 16 (1995), p For a detaied anaysis of ITSs, see R. Neuhaus, Internationa Trade Secretariats: Objectives, Organization, Activities, 2nd Ed. (Bonn: Friedrich-EbertStiftung, 1982). For an overview of internationa abor poitics and organizations, see T. Boswe and D. Stevis, Gobaization and Internationa Labor Organizing: A Word-System Perspective, Work and Occupations, Vo. 24, No. 3 (1997), pp N. Wiatt, Mutinationa Unions (London: Financia Times, 1974). Aso see K. Fatehi, Managing Internationay (Thousand Oaks, Ca.: Sage, 2008), chapter 12, particuary pp H. Northrup, Why Mutinationa Bargaining Neither Exists Nor Is Desirabe, Labor Law Journa, Vo. 29, No. 6 (1978), pp Aso see J. Gaagher, Soidarity Forever, New Statesman & Society (1997), p See Kennedy, European Labor Reations; and R. Hefgott, American Unions and Mutinationa Enterprises: A Case of Mispaced Emphasis, Coumbia Journa of Word Business, Vo. 18, No. 2 (1983), pp Up unti 1993 there was a speciaized UN agency known as the United Nations Center on Transnationa Corporations (UNCTC), which had pubished a number of reports on MNEs (see for exampe, Transborder Data Fows: Transnationa Corporations and Remote-sensing Data (New York: UNCTC, 1984); and Transnationa Corporations and Internationa Trade: Seected Issues (New York: UNCTC, 1985). Since 1993, the responsibiities of the UNCTC have been assigned to UNCTAD. For further information, see the UNCTAD website at StartPage.asp?intItemID¼2068. See Boswe and Stevis, Gobaisation and Internationa Labor Organizing, for more information on these internationa organizations. 54. See en/index.htm as we as B. Leonard, An Interview with Anthony Freeman of the ILO, HRMagazine, Vo. 42, No. 8 (August 1997), pp Aso see R. N. Bock, K. Roberts, C. Ozeki and M. J. Roomkin, Modes of Internationa Labor Standards, Industria Reations, Vo. 40, No. 2 (Apri 2001), pp ; and A. W. Harzing, and A. Pinnington, (eds) Internationa Human Resource Management, 3rd Ed. (London: Sage, 2011), pp

281 264 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 55. For a detaied description and anaysis of the OECD Guideines for Mutinationa Enterprises, see D. Campbe and R. Rowan, Mutinationa Enterprises and the OECD Industria Reations Guideines, Industria Research Unit (Phiadephia, PA: The Wharton Schoo, University of Pennsyvania, 1983); and R. Banpain, The OECD Guideines for Mutinationa Enterprises and Labor Reations, : Experiences and Review (Deventer, The Netherands: Kuwer, 1985). See 0,3355,en_2649_34889_1_1_1_1_1,00.htm for the atest version of the Guideines for MNEs. 56. Campbe and Rowan, Mutinationa Enterprises and OECD. For another exampe of an internationa chapeau cause reated to the Word Trade Organization, see envt_rues_exceptions_e.htm See aso, J. Murray, A New Phase in the Reguation of Mutinationa Enterprises: The Roe of the OECD, Industria Law Journa, Vo. 30, No. 3 (2001), pp J. Rojot, The 1984 Revision of the OECD Guideines for Mutinationa Enterprises, British Journa of Industria Reations, Vo. 23, No. 3 (1985), pp For a detaied account of this case see R. Banpain, The Badger Case and the OECD Guideines for Mutinationa Enterprises (Deventer, The Netherands: Kuwer, 1977). 59. R. Banpain, The OECD Guideines for Mutinationa Enterprises and Labor Reations, : Experience and Review (Deventer, The Netherands: Kuwer, 1979). 60. H. C. Jain, Disinvestment and the Mutinationa Empoyer: A Case History from Begium, Personne Journa, Vo. 59, No. 3 (1980), pp Campbe and Rowan, Mutinationa Enterprises and OECD. 62. B. Liebhaberg, Industria Reations and Mutinationa Corporations in Europe (London: Cower, 1980), p New OECD Guideines to Mutinationa Enterprises May 2011: See en_ _ _ _1_1_1_1,00.htm 64. C. Jensen, J. Madsen and J. Due, A Roe for a Pan- European Trade Union Movement? Possibiities in European IR-reguation, Industria Reations Journa, Vo. 26, No. 1 (1995), pp. 4 18; Mahnkopf and Atvater, Transmission Bets of Transnationa Competition?. 65. See, for exampe, P. Teague, EC Socia Poicy and European Human Resource Management, in C. Brewster and A. Hegewisch (eds) Poicy and Practice in European Human Resource Management (London: Routedge, 1994); and L. Uman, B. Eichengreen and W. T. Dickens (eds) Labor and an Integrated Europe (Washington, DC: The Brookings Institution, 1993) for an eary anaysis of integration issues and abor practices. For current information on EU Empoyment and Socia poicies, see Commission of the European Communities, Community Charter of the Fundamenta Socia Rights of Workers (Luxembourg: Office for Officia Pubications of the European Communities, 1990). 67. For eary exampes of these concerns, see J. Lodge, Socia Europe: Fostering a Peope s Europe?, in ed. J. Lodge (ed.) European Community and the Chaenge of the Future (London: Pinter, 1989); J. Addison and S. Siebert, The Socia Charter of the European Community: Evoution and Controversies, Industria and Labor Reations Review, Vo. 44, No. 4 (1991), pp ; and M. Ha, Industria Reations and the Socia Dimension of European Integration: Before and After Maastricht, in R. Hyman and A. Ferner (eds) New Frontiers in European Industria Reations (Oxford: Backwe, 1994). 68. For information on the Treaty of Lisbon see: europa.eu/abc/treaties/index_en.htm To access a copy of the Charter of Fundamenta Rights, see isbon_treaty/gance/rights_vaues/index_en.htm For matters reated to the European Pariament, see See See M. Morey, N. Heraty and S. Michaiova (eds) Managing Human Resources in Centra and Eastern Europe (Abingdon, U.K.: Routedge, 2009); M. Ingham, H. Ingham, H. Bicak and M. Atinay, The Impact of (More) Enargement on the European Empoyment Strategy, Industria Reations Journa, Vo. 36, No. 6 (2005), pp ; P. Marginson and G. Meardi, European Union Enargement and the Foreign Direct Investment Channe of Industria Reations Transfer, Industria Reations Journa, Vo. 37, No. 2 (2006), pp T. Hidy, J. Doh and S. Vachani, The Importance of Nongovernmenta Organization (NGOS) in Goba Governance and Vaue Creation: An Internationa Business Research Agenda, Journa of Internationa Business Studies, Vo. 35, No. 6 (2004), pp J. Sajhau, Business Ethics in the Textie, Cothing and Footwear (TCF) Industries: Codes of Conduct, Working Paper (Geneva: Internationa Labor Office, Sectora Activities Programme, 1997). For a broader and more conceptua treatment of codes of conduct, see D. Ardagh, The Ethica Basis for HRM Professionaism and Codes of Conduct, in A. Pinnington, R. Mackin and T. Campbe (eds) Human Resource Management: Ethics and Empoyment (Oxford: Oxford University Press, 2007) pp For standards for codes of conduct refer aso to L. Paine, R. Deshpande, J. Margois and K. Bettcher, Up to Code: Does Your Company s Conduct Meet Word-cass Standards?, Harvard Business Review, Vo. 83, No. 12 (2005), pp See aso Assessment-and-certification-services/Managementsystems/Standards-and-schemes/SA-8000/ 74. M. Fenwick, Extending Strategic Internationa Human Resource Management Research and Pedagogy to the Non-Profit Mutinationa, Internationa Journa of Human

282 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 265 Resource Management, Vo. 16, No. 4 (2005), pp Aso see M. Fenwick and M.-A. McLean, IHRM in Non-Governmenta Organizations: Chaenges and Issues. In P. Sparrow (ed.) Handbook of Internationa Human Resource Management, Chichester (U.K.: John Wiey and Co, 2009), pp M. Fenwick, Extending Strategic Internationa Human Resource Management Research and Pedagogy to the Non Profit Mutinationa, p UNCTAD (ed.) Word Investment Report 2010 (New York and Geneva: United Nations, 2010). 77. For a genera discussion on entry mode choice incuding offshoring refer to WTO (ed.) Word Trade Report 2005, III Thematic Essays, C Offshoring Services: Recent Deveopments and Prospects (Geneva: Word Trade Organization, 2005). For a more systematic, if academic, review of offshoring and wages, see H. Brucker. Offshoring and Labor Demand: Questions, Research Strategies and Data Sources, WTO/ILO Workshop on Goba Trade and Empoyment, August 31, brucker_e.pdf 78. UNCTAD, Word Investment Report See as we S. Schmid and M. Daub, Service Offshoring Subsidiaries Towards a Typoogy, Working Paper No. 12 (Berin: ESCP-EAP European Schoo of Management, 2005). 79. WTO (ed.) Word Trade Report 2005, III Thematic Essays, C Offshoring Services: Recent Deveopments and Prospects (Geneva: Word Trade Organization, 2005), p Ibid., p See as we S. Schmid and M. Daub, Service Offshoring Subsidiaries Towards a Typoogy. 81. UNCTAD (ed.) Service Offshoring Takes Off in Europe, issued jointy by UNCTAD and Roand Berger Strategy Consutants (Geneva and New York: UNCTAD, 2004). 82. UNCTAD, Service Offshoring Takes Off in Europe. 83. UNCTAD (ed.) Offshoring At the Tipping Point? (Geneva and New York: UNCTAD, 2004). Aso see UNCTAD (ed.) Information Economy Report 2009: Trends and Outooks in Turbuent Times, (Geneva and New York: UNCTAD, 2009) for a presentation of the growth of broad banding and IT enabed outsourcing. 84. For different types of outsourcing in India see S. Bhowmik, Work in a Gobaizing Economy: Refections on Outsourcing in India, Labor Capita and Society, Vo. 37, No. 1 (2004), pp I. Hunter, The Indian Offshore Advantage: How Offshoring is Changing the Face of HR (Adershot: Gower Pubishing, 2006). 86. See P. Budhwar and A. Varma (eds) Doing Business in India: Buiding Research-Based Practice (London: Routedge, 2011); D. Saini and P. Budhwar, HRM in India in P. Budhwar (ed.) Managing Human Resources in Asia Pacific (London: Routedge, 2004) pp Financia Times (London, Engand), Juy 20 (2006). 88. With these exampes, the importance of the goba codes of conduct mentioned earier in this chapter is supported. 89. P. Budhwar, H. Luthar and J. Bhatnagar, The Dynamics of HRM Systems in Indian BPO Firms, Journa of Labor Research, Vo. 27, No. 3 (2006), pp A. Mehta, A. Armenakis, N. Mehta and F. Irani, Chaenges and Opportunities of Business Process Outsourcing in India, Journa of Labor Research, Vo. 27, No. 3 (2006), pp P. Sparrow and P. Budhwar, Competition and Change: Mapping the Indian HRM Recipe Against Word Wide Patterns, Journa of Word Business, Vo. 32 (1997), pp See aso: Saini and Budhwar, HRM in India. 92. Budhwar, Luthar and Bhatnagar, The Dynamics of HRM Systems in Indian BPO Firms, p For further information about the Indian HRM systems refer to Saini and Budhwar, HRM in India. 94. I. Björkman, Transfer of HRM to MNC Affiiates in Asia Pacific, in P. Budhwar (ed.) Managing Human Resources in Asia Pacific (London: Routedge, 2004), pp For a recent review of Indian performance appraisa practices and management vaues see T. Sharma, P. Budhwar and A. Varma, Performance Management in India in A. Varma, P. Budhwar and A. DeNisi (eds) Performance Management systems, A Goba Perspective (London: Routedge, 2008), pp ; As-Saber, Dowing and Liesch, The Roe of Human Resource Management in Internationa Joint Ventures. 95. Budhwar, Luthar and Bhatnagar, The Dynamics of HRM Systems in Indian BPO firms. 96. PriceWaterhouseCoopers, Technoogy Executive Connections: Successfu Strategies for Taent Management, p The Daiy Star, January 25 (2011), Rising China Labour Costs Coud Create New Infation Headache for the West. 98. Budhwar, Luthar and Bhatnagar, The Dynamics of HRM Systems in Indian BPO firms. 99. B. Einhorn, A Dragon in R&D: China s Labs May Soon Riva its Powerhouse Factories and Mutinationas are Focking in for Tech Innovation, Business Week, October 26 (2006); B. Brockie, China Leaves the Word in its Wake as it is Transformed into a Science Superpower, The Dominion Post, retrieved February 28, 2011, PriceWaterhouseCoopers, Technoogy Executive Connections: Successfu Strategies for Taent Management; Financia Times (London, Engand), Juy 20 (2006) Internationa Herad Tribune, Apri 20 (2005) B. Wikinson, M. Eberhardt, J. McLaren and A. Miington, Human Resource Barriers to Partnership Sourcing in China, Internationa Journa of Human Resource Management, Vo. 16, No. 10 (2005), pp

283 266 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT 103. R. Tung and V. Worm, Network Capitaism: The Roe of Human Resources in Penetrating the China Market, Internationa Journa of Human Resource Management, Vo. 12, No. 4 (2001), pp P. Buckey, J. Cegg and H. Tan, The Art of Knowedge Transfer: Secondary and Reverse Transfer in China s Teecommunications Manufacturing Industry, Management Internationa Review, Vo. 43, No. 1 (2003), pp C. J. Zhu, Human Resource Deveopment in China During the Transition to a New Economic System, Asia Pacific Journa of Human Resources, Vo. 35, No. 3 (1997), pp See R. Tung Brain Circuation, Diaspora, and Internationa Competitiveness, European Management Journa, Vo. 26, No. 5 (2008), pp , and P. Dowing and A. Enge Transnationa Thermas : A Discussion of the Interaction of the Combined Effects of Outward FDI Via Chinese SOEs and the Chinese Diaspora to the United States and Other Advanced Economies, Conference Proceedings of the Second Annua Conference of the Chinese Economic Association Europe, Oxford University, Oxford, UK, Juy, The same is true in other Asian countries, as reported by N. Kathri, C. T Fern and P. Budhwar, Expaining Empoyee Turnover in an Asian Context, Human Resource Management Journa, Vo. 11, No. 1 (2001), pp C. J. Zhu and P. Dowing, The impact of the economic system upon human resource management practices in China, Human Resource Panning, Vo. 17, No. 4 (1994): 1 21; M. Warner, Human Resource Management in China Revisited: Introduction, Internationa Journa of Human Resource Management, Vo. 15, No. 4 (2004), pp C. Zhu and P. Dowing, Staffing Practices in Transition: Some Empirica Evidence from China, Internationa Journa of Human Resource Management, Vo. 13, No. 4 (2002), pp K. Gooda and J. Roberts, Ony Connect: Teamwork in the Mutinationa, Journa of Word Business, Vo. 38, No. 2 (2003), pp F. Cooke, HRM in China, in P. Budhwar (ed.), Managing Human Resources in Asia Pacific (London: Routedge, 2004), pp Zhu and Dowing, Staffing practices in transition Cooke, HRM in China, p Cooke, HRM in China. This is confirmed by an empirica study by Gover and Siu. These authors have discussed the need for a better quaity management initiative in China. In their study they found poor standards of training, dissatisfaction with the pay eve and inadequate communication structures. L. Gover and N. Siu, The Human Resource Barriers to Managing Quaity in China, Internationa Journa of Human Resource Management, Vo. 11, No. 5 (2000), pp For a recent review of the deveopment, chaenges and compexities of Chinese HRM, from a taent management perspective, see F. Cooke, Taent Management in China, in H. Scuion and D. Coins (eds) Taent Management (London: Routedge, 2011), pp See, for exampe, F. Cooke, Foreign Firms in China: Modeing HRM in a Toy Manufacturing Corporation, Human Resource Management Journa, Vo. 14, No. 3 (2004), pp Aso see Ding, Gooda and Warner, The End of the Iron Rice-bow K. Venter, Buiding on Forma Education: Empoyers Approaches to the Training and Deveopment of New Recruits in the Peope s Repubic of China, Internationa Journa of Training and Deveopment, Vo. 7, No. 3 (2003), pp N. Khatri, C. Fern and P. Budhwar, Expaining Empoyee Turnover in an Asian Context, Human Resource Management Journa, Vo. 11, No. 1 (2001), pp Empirica evidence of some fexibiity in unionization approaches appied by the A China Federation of Trade Unions (ACFTU) is provided by M. Liu in Union Organizing in China: Sti a Monoithic Labor Movement? Industria and Labor Reations Review, Vo. 64, No. 1 (2010), pp Survey report: Offshoring and the Roe of HR. CIPD Survey: retrieved February 28, Both strategic decisions taken at corporate headquarters such as pant rationaization can resut in the cosure of host-country operations, as mutinationas divest and withdraw, as we as more tactica reaocations of products, functions and processes in dynamic, gobay dispersed vaue chains PriceWaterhouseCoopers, Technoogy Executive Connections: Successfu Strategies for Taent Management. The survey generated responses from senior executives based in five principa regions: 30 per cent Asia, 41 per cent Europe, 23 per cent North America, 5 per cent Midde East and Africa and 1 per cent Latin America. More recenty see Scuion and Coins, Goba Taent Management S. McGuiness and J. Bennett, Examining the Link between Ski Shortages, Training Composition and Productivity Leves in the Construction Industry: Evidence from Northern Ireand, Internationa Journa of Human Resource Management, Vo. 17, No. 2 (2006), pp R. Burke and E. Ng, The Changing Nature of Work and Organizations: Impications for Human Resource Management, Human Resource Management Review, Vo. 16, No. 1 (2006), pp R. Tung and M. Lazarova, Brain Drain versus Brain Gain: An Exporatory Study of Ex-host Country Nationas in Centra and Eastern Europe, Internationa Journa of Human Resource Management, Vo. 17, No. 11 (2006), pp Ibid., p A. Saxenian, From Brain Drain to Brain Circuation: Transnationa Communities and Regiona Upgrading in India and China, Studies in Comparative Internationa Deveopment, Vo. 40, No. 2 (2005), pp

284 CHAPTER 9 INTERNATIONAL INDUSTRIAL RELATIONS AND THE GLOBAL INSTITUTIONAL CONTEXT R. Tung, The Human Resource Chaenge to Outward Foreign Direct Investment Aspirations from Emerging Economies: The Case of China, Internationa Journa of Human Resource Management, Vo. 18, No. 5 (2007), pp Y. Baruch, P. Budhwar and N. Kathri, Brain Drain: Incination to Stay Abroad After Studies, Journa of Word Business, Vo. 42, No. 1 (2007), p For a critica view on the topic of brain drain, see S. Carr, K. Inkson and K. Thorn, From Goba Careers to Taent Fow: Reinterpreting Brain Drain, Journa of Word Business, Vo. 40, No. 4 (2005), pp However, as ski shortages exist in many countries, Carr et a. repace the term brain drain by describing taent fows across borders and Tung and Lazarova at east see a positive notion of brain gain. Carr, Inkson and Thorn, From Goba Careers to Taent Fow; Tung and Lazarova, Brain Drain versus Brain Gain M. Zanko, Change and Diversity: HRM Issues and Trends in the Asia Pacific Region, Asia Pacific Journa of Human Resources, Vo. 41, No. 1 (2003), pp See H. Ramsey, Soidarity At Last? Internationa Trade Unionism Approaching The Mienium, Economic and Industria Democracy, Vo. 18, No. 4 (1997), pp ; and Jensen, Madsen and Due, A Roe for a Pan European Trade Union Movement? Enderwick, The Labor Utiization Practices of Mutinationas, p G. Covin, Don t Bame Wa-Mart: The Giant Retaier Isn t Evi Just Caught Up in the Goba Economy, Fortune, November 28 (2005), p See heathcare-costs-us-competitiveness/p13325 for a discussion of this issue by the (US) Counci on Foreign Reations; see aso J. Pfeffer, 2010, Buiding sustainabe organizations: The human factor, Academy of Management Perspectives, 24 (1),

285 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES Chapter Objectives In this fina chapter, we identify and comment on observed trends and future directions regarding: Internationa business ethics and HRM. Mode of operation and IHRM. Ownership issues reating to IHRM requirements of organizations other than the arge mutinationa, such as non-government organizations (NGOs). Safety, security and terrorism issues. 268

286 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES 269 INTRODUCTION In this book, we have expored the IHRM issues reating to managing peope gobay. To that end, we have focused on the impications that the process of internationaization has for the activities and poicies of HRM. We now turn our attention to deveopments that have not previousy been emphasized in the genera IHRM iterature and the chaenges they present to IHRM: internationa business ethics, mode of operation, nongovernment organizations (NGOs), and the deveoping roe of IHRM in contributing to safety, security and deaing with goba terrorism. In a sense, a number of these topics refect what some Japanese MNEs refer to as the genera affairs aspect of IHRM in Japan it is common to use the term Human Resources and Genera Affairs for the HR function 1 because there is an expectation that the human resource function wi be the first ine of defense in deaing with unpredictabe and emergent issues from the many and varied environments and constituency groups that make up the compexity of MNEs. In the sections that foow we return to a discussion of some issues that distinguish HRM in MNEs and revisit the framework of strategic HRM in MNEs presented in Chapter 1 see Figure These topics incude issues associated with externa factors and organizationa factors that impact on the HR function and practices as these issues reate to strategic HRM in the MNE. FIGURE 10.1 A mode of strategic HRM in mutinationa enterprises Externa Factors PESTLE Organizationa inks with other MNEs and with nationa goverments Asymmetric events Environmenta dynamics Organizationa Factors MNE baance of goba integration and oca responsiveness MNE structure Firm size and maturity MNE Strategy Corporate governance Headquarter s internationa orientation MNE cuture HR Function Goba corporate HR roe HR practices Crisis management and coordination MNE Performance Financia performance Socia performance Enterprise resiience Source: De Cieri, H. and Dowing, P..J Strategic human resource management in mutinationa enterprises: Deveopments and directions, In G. Stah, I. Björkman and S. Morris (eds) Handbook of Research in Internationa Human Resource Management, 2nd Ed. (Chetenham, UK: Edward Egar). Reproduced with permission from Heen De Cieri and Peter J Dowing. Externa factors: Internationa business ethics and HRM Goba business organizations face a key chaenge: shoud they appy their own vaues everywhere they do business, irrespective of the cutura context and standard of oca practices? To appreciate the diemma, take the situation of a mutinationa that has assigned a PCN to manage its operations in a host country where bribery is commony practiced, chid abor is used and workpace safety is inadequate by Western standards. Whose standards shoud prevai? Shoud they be the standards of the MNE s parent country or the host country?

287 270 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES There are three main responses to this question. The first invoves ethica reativism, the second ethica absoutism and the third, ethica universaism. For the ethica reativist, there are no universa or internationa rights and wrongs, it a depends on a particuar cuture s vaues and beiefs. For the ethica reativist, when in Rome, one shoud do as the Romans do. Unike the reativist, the ethica absoutist beieves that when in Rome, one shoud do what one woud do at home, regardess of what the Romans do. This view of ethics gives primacy to one s own cutura vaues. Opponents of this view argue that ethica absoutists are intoerant individuas who confuse respect for oca traditions with ethica reativism. It must be noted that whie some behaviors are wrong wherever they are practiced (e.g. bribery of government officias), other behaviors may be toerated in their cutura context (e.g. the practice of routine gift giving between Japanese business peope). In contrast to the ethica reativist, the ethica universaist beieves there are fundamenta principes of right and wrong which transcend cutura boundaries, and that MNEs must adhere to these fundamenta principes or goba vaues. The existence of universa ethica principes can aso be seen in the agreements that exist among nations that are signatories to the United Nations Decaration of Human Rights and a number of internationa accords such as the Guideines for Mutinationa Enterprises adopted by the Organization of Economic Cooperation and Deveopment (OECD). The need for internationa accords and corporate codes of conduct has grown commensuratey with the spread of internationa business and the considerabe growth of offshoring (as noted in Chapter 9), but transating ethica principes and vaues into practice in the internationa business domain is an enormous task in the absence of a supranationa egisative authority. Efforts to make progress in this area have centered on reguation, the deveopment of internationa accords and the use of education and training programs. New goba deveopments on the criminaization of bribery Bribery and corruption tend to top the ist of the most frequent ethica probems encountered by internationa managers. 2 Bribery invoves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage. Bribery can be distinguished from so-caed gifts and faciitating or grease payments. The atter are payments to motivate agents to compete a task they woud routiney do in the norma course of their duties. Whie most peope do not openy condone bribery many argue for a enient approach based on the view that bribery is necessary to do business (the ethica reativist s argument). However, it is now generay agreed that bribery undermines equity, efficiency and integrity in the pubic service; undercuts pubic confidence in markets and aid programs; adds to the cost of products; and may affect the safety and economic we-being of the genera pubic. For these reasons, there has been an internationa movement to criminaize the practice of bribery. In 1977 the United States enacted the Foreign Corrupt Practices Act (FCPA) to prohibit US-based firms and US nationas from making bribery payments to foreign government officias. In addition, payments to agents vioate the Act if it is known that the agent wi use those payments to bribe a government officia. The Act was amended in 1988 to permit faciitating payments but mandates record-keeping provisions to hep ensure that iega payments are not disguised as entertainment or business expenses. The FCPA has in the past been criticized for pacing US firms at a competitive disadvantage since European and Asian firms did not face crimina prosecution for paying bribes to foreign officias 3 but the evidence on the competitive disadvantage of the FCPA is mixed. The FCPA has aso been criticized by some for being ethnocentric whie others see this aw as evidence of mora eadership on the part of the USA. 4 In the absence of adequate internationa sef-reguation to contro bribery and corruption, the US has obbied other nation-states over many years to enact uniform domestic government reguation to provide a eve paying fied. These efforts met with some success in December 1996 when the United Nations adopted the Decaration Against Corruption and Bribery in Internationa Commercia Transactions which committed UN members to criminaize bribery

288 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES 271 and deny tax deductibiity for bribes. A year ater, the Decaration was endorsed by 30 OECD member nations and four non-member nations with the adoption of the Convention on Combating Bribery of Foreign Pubic Officias in Internationa Business Transactions (OECD Convention). Under the OECD Convention members agreed to estabish domestic egisation by the end of 1998 criminaizing the bribing of foreign pubic officias on an extraterritoria basis. The OECD Convention came into force in February 1999 and as of 2009 had been ratified by 38 countries. Each member state is required to undergo a peer review and to provide a report reviewing its impementation of the Convention. Country reports are avaiabe on the OECD website. The OECD Convention requires sanctions to be commensurate with domestic penaties appicabe to bribery of pubic officias. Given the seriousness of offences and penaties in the OECD Convention, it is imperative that enterprises invoved in goba business take active steps to manage their potentia exposure. Aso, athough the OECD Convention currenty addresses the suppy side of corruption in the pubic sector, it is ikey that the scope of the Convention wi be expanded to incude bribery in the private sector as we as the demand side of bribery. HR professionas have an important roe to pay in instituting a strategic pan for ega compiance and deveoping corporate codes for vountary compiance. They can aso provide training in understanding the difference between corrupt bribery payments, gifts, and aowabe faciitation payments and the deveopment of negotiation skis to hande probem situations that may arise in sensitive geographica regions and industries. The debate over payments to foreign officias is ikey to continue for many years to come. 5 The Berin-based non-government obby group, Transparency Internationa (TI) pubishes an annua Corruption Perceptions Index. The index measures perceptions, not actua eves of corruption for over 50 countries and is based on internationa surveys of business peope and financia journaists. Each country is scored from 10 (highy cean) to 0 (highy corrupt). Tabe 10.1 shows the country rank of the top 20 east corrupt countries in descending order from the 2010 index. Denmark, New Zeaand and Singapore (a sma popuation advanced economies) are the top equa-ranked three east corrupt countries. The countries perceived to be most corrupt are Guinea, Iraq, Myanmar and Haiti which are ranked at the bottom of the ist of 163 countries. 6 The pubic and financia consequences of a bribery scanda can be significant for an MNE. The IHRM in Action Case 10.1 provides a sense of the actua and reputationa costs of unethica conduct for a MNE. This case was first made pubic in ate 2006 and in December 2008 US authorities fined Siemens a record US$800 miion and German authorities issued a fine for 395 miion Euros over the faiure of its former board to fufi its supervisory duties. The tota cost of this case for Siemens was 2.5 biion Euros. Action was aso taken against individua Siemens managers by German authorities in eary 2010 when two former managers were given suspended prison sentences and arge fines for their roes in this corruption scanda. 7 Recenty, The Economist magazine entered into the debate on internationa bribery and corruption, noting that Firms are increasingy fed up with the way America s Foreign Corrupt Practices Act (FCPA) is written (confusingy) and appied (vigorousy). 8 Comparing the FCPA to the recent British Bribery Act passed in 2010 which covers both domestic and internationa bribery cases, The Economist stated that athough the British aw makes no aowance for faciitation payments, it does aow a compiance defense that aows a firm to avoid the harshest penaties if the wrongdoer is a junior empoyee and the firm otherwise has a strict anti-bribery poicy that is ceary communicated to empoyees and effectivey administered. Ethics-reated chaenges for the HR function of the mutinationa enterprise Managers invoved in internationa business activities face many of the same ethica issues as those in domestic business, but the issues are made more compex because of the different socia, economic, poitica, cutura and ega environments in which MNEs operate. Firms which opt

289 272 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES TABLE 10.1 Transparency internationa corruption perceptions index 2010 Country rank Country/territory 2010 CPI score* 1 Denmark 9.3 New Zeaand 9.3 Singapore Finand 9.2 Sweden Canada Netherands Austraia 8.7 Switzerand Norway Iceand 8.5 Luxembourg Hong Kong Ireand Austria 7.9 Germany Barbados 7.8 Japan Qatar United Kingdom 7.6 *The 2010 Corruption Perceptions Index measures the perceived eves of pubic sector corruption in 178 countries around the word. It scores countries on a scae from 10 (very cean) to 0 (highy corrupt). Source: Adapted from Corruptions Perceptions Index at Copyright 2011 Transparency Internationa: the goba coaition against corruption. Used with permission. For more information, visit consciousy or by defaut to eave ethica considerations up to individua empoyees not ony contribute to the pressures of operating in a foreign environment (and perhaps contribute to poor performance or eary reca of the expatriate), but aso aow interna inconsistencies that affect tota goba performance. When MNEs seect internationa assignees, their abiity to manage with integrity coud be a job-reevant criterion and any pre-departure training or orientation program shoud incude an ethics component that incudes discussion of ethica diemmas that expatriates may encounter. In designing training programs to meet the chaenges of mutinationa business, the HR function shoud not ony raise the issue of cutura reativities but aso the extent to which mora imperatives transcend nationa and cutura boundaries. To avoid the temptation to cut ethica corners, expatriates shoud not be paced under unreasonabe pressure to deiver good financia resuts and they must be given feedback and reinforcement. Performance appraisas, compensation programs and reguar trips home are important instruments in deveoping and maintaining ethica cutures. The difficuties invoved when massive, highy standardized firms attempt to be sensitive to oca customs and vaues whie becoming more internationa, is personified by Wa-Mart, the giant US retaier. The highy successfu ow-cost strategy (with its attendant standardization, scae and scope economies) that characterizes this woud-be MNE has become a magnet for concerns, protests and socia commentary a over the word. Issues reated to offshoring

290 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES 273 IHRM in Action Case 10.1 Too Litte Too Late? Siemens beatedy wakes up to reputation risk Dateine: Frankfurt It is a dense, dramatic account of poice raids, arrests and the investigation into aegations that at east 200 miion Euros ($265m) was siphoned out of secret bank accounts in Liechtenstein, Austria and Switzerand. A page-turning airport thrier? No, the 20-F fiing submitted by Siemens, a German congomerate, to the Securities and Exchange Commission in Washington, DC on 11 December. At the same time, the firm restated its earnings to take account of uncertainties over transactions being investigated by state prosecutors in at east three countries. The purpose of these murky deaings remains uncear: was it a case of sef-enrichment by crooked empoyees or something more sinister carefuy aundered bribes to win Siemens business in some of the 190 countries in which it operates? Siemens insists that it was a victim of crime not an accessory to it. It is investigating 420 miion Euros of suspicious payments to consutants over the past seven years. Meanwhie, six present and former empoyees, incuding one former board member arrested on 12 December, are in custody. In the fow of adverse pubicity since poice raided 30 of its offices a month ago, Siemens has tried to show that it is taking appropriate action. It announced the formation of a task force to carify and standardize its empoyees business practices. It aso appointed an ombudsman to encourage interna whistebowing. But for Transparency Internationa (T), an anti-corruption campaign group, this was not enough. It had aready suspended Siemens s membership of its German chapter in 2004 because of the company s reuctance to be transparent about an unresoved bribery case in Itay. (The case was setted ast month without admission of guit.) Siemens s suggish reaction to investigations in Liechtenstein triggered a etter ast month from T warning that the firm s membership woud be iabe for termination after 15 December. At an emergency board meeting this week Siemens announced new measures to show how determined it is to change its cuture. It appointed a aw firm to investigate the company s compiance and contro systems. And it appointed Michae Hershman, an anti-corruption expert and one of the founders of T (a nice touch), to review anticorruption contros and training at Siemens. Some of Siemens probems stem from the 1990s, before Germany and other nations signed the OECD s anti-bribery convention in Yet the Itaian case post-dates the convention and another case in Greece concerns preparations for the 2004 Oympics. Siemens and the Munich prosecutors point to evidence that in the atest shenanigans the suspects banded together to defraud the firm. There is ony so much one can do, sighs a Siemens spokesman, against crimina energy. But even poor supervision and contro, rather than connivance with bribery, are bad enough. It cannot hep appearances that Heinrich von Pierer, who was chief executive of Siemens in the 1990s before bribery was outawed, sti heads the supervisory board. He was supposed to steer the company through its transition to OECD anti-bribery rues and compiance with America s Sarbanes-Oxey Act, which requires greater discosure and persona responsibiity from executives. Worst of a for Germany s reputation as export champion of the word is the suspicion that it may owe some of its prowess to secret bank accounts and sush funds. Source: Update based on Economist, 16 December 2006, Vo. 381, Issue 8508, pp ª The Economist, London, 16 December procurement (especiay from China) are increasingy generating probems in terms of highy pubicized product recas that indicate muti-faceted probems that are not imited to one functiona management area such as suppy chain management. For an exceent anaysis of the interconnection of suppy chain management issues with other functiona areas of management, see Lyes et a. 9 The consequences of a reentess ow-cost strategy on direct empoyee and

291 274 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES contractor wages, heath-care benefits, working conditions and job security, and the competitive impact of Wa-Mart s super-stores on traditiona oca retai estabishments, city center infrastructure and sma-popuation communities have initiated a wordwide discussion of the economic, socia and poitica consequences of goba business. 10 Litte is presenty known about the evoving roes and responsibiities for HRM in baancing the economic imperatives of cost contro and goba standardization with the socia and institutiona reaities of citizenship in a widening range of diverse contexts particuary in terms of the deveopment of abor sourcing, compensation and empoyee reations strategies. 11 However, it seems cear that these are ikey to remain dominant issues in internationa business in the twenty-first century particuary with regard to the compex issue of evauating the overa performance of foreign subsidiaries and their senior management team. 12 Organizationa factors: Structure, strategy and IHRM We have stressed the need to broaden the scope of IHRM beyond that of subsidiary operations. Whie not downpaying its importance, for many MNEs, managing and staffing subsidiary units is ony one aspect of internationa business operations, though the weighting given to subsidiary management wi vary significanty according to the nature of internationa activities and the size of the internationaizing firm (see Chapters 1 and 3). The fact that externa parties are invoved in contractua modes, joint ventures and strategic aiances imposes management and HR constraints that are not usuay present in whoy owned operations. Whie the HR impications of internationa joint ventures have received considerabe attention in the iterature, 13 there remains a need for studies that consider the HR impications of contractua modes where the firm is operating at arm s-ength. Training, for instance, is often an important part of contractua modes, paying a key roe in the transfer of technoogy and systems, incucation of company cuture, and acting as a screening process (for exampe, in seecting suitabe franchisees). As a resut, staff may be primariy invoved in short-term assignments to deiver training in foreign ocations, rather than as traditiona expatriates. 14 Non-government organizations (NGOs) We have aready identified the importance of NGOs in Chapter 9 when discussing the importance of the institutiona context in infuencing the strategies and decisions of MNEs. We noted that the gobaization of trade and business has provoked a vigorous debate within nationa states with events such as anti-gobaization raies and protests. The activities of environmenta groups iustrate how these organizations have aso become internationaized and interact with the key MNEs in a range of goba industries. For exampe, a visit to the home page of Greenpeace Internationa iustrates the range of issues and industries that this NGO is focusing on and the key MNEs in various goba industries that Greenpeace is seeking to infuence. Recenty, the importance of NGOs was recognized by The Goba Journa ( which reeased its inaugura Top 100 NGOs ist. The top 10 NGOs in this ist contain some we-known NGOs such as The Wikimedia Foundation (#1), Oxfam (#3) and Care Internationa (#7) but it aso contains NGOs that are ess famiiar such as BRAC (formery known as the Bangadesh Rura Advancement Committee) which is now a goba organization with over 110 miion beneficiaries. This diversity of activities and focus across a range of industries further iustrates the impact and infuence of NGOs which wi continue to be of importance to the activities of MNEs.

292 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES 275 Externa factors: Chaenges in an uncertain word: Safety, security and counterterrorism 15 Traditionay, many domestic and internationa human resource managers have been responsibe for ega compiance and training issues reated to safety in the workpace. 16 As nationa and internationa reguations reated to workpace safety expanded, specific professiona standards of practice, reporting mechanisms and roes were specified in the area of corporate risk management. 17 Risk categories associated with natura disaster protocos, emergency and disaster preparedness pans for MNE pant and faciities, workpace vioence poicies, industria theft and sabotage protocos, and hardening individua faciities to enhance in-house security have emerged and a growing body of professiona and academic iterature exists. Less cear are the particuar roes, expectations and portfoios of responsibiities that IHRM managers and directors have been caed upon to incorporate into their existing responsibiities. Intuitivey, in smaer MNEs operating in ess sensitive industries and ess turbuent markets the IHRM generaists wi be caed on to incorporate these protocos by outsourcing technica security systems and personne as required. 18 In arger organizations, particuary MNEs operating in more pubic and sensitive industries and/ or more sociay and poiticay turbuent regions of the word, significant investment in deveoping integrated, coordinated and speciaized risk management practices within the HR function is warranted. Many MNEs have deveoped their own idiosyncratic systems and processes in response to a history of critica incidents which the firm has experienced over years or even decades e.g. the kidnapping of an executive, a natura disaster impacting a key faciity, or an airine or private aircraft disaster that decimated the executive cadre of the MNE. Not surprisingy, executives in most MNEs are unwiing to discuss the protocos, processes, systems and structures in pace in this sensitive area. More recenty emerging risk categories reate to cyber-terrorism, poitica terrorist groups targeting specific firms and industries and the risks inherent in pandemics, such as SARS, avian fu and airborne contaminants (as discussed in Chapter 1). For a recent overview of the area of confict, security and poitica risk in internationa business, see the Specia Issue of Journa of Internationa Business Studies edited by Henisz, Mansfied and Von Ginow. 19 As a working set of corporate risk assessment categories, a starting point for a MNE-specific audit, woud incude the foowing five areas: In-faciity emergency and disaster preparedness incuding being in compiance with oca safety aws and standards (e.g. occupationa safety and heath administration rues in the USA), creating a command center and triage area, protocos for transport-evacuation and the systematic ocation of empoyees, iaison with pubic-sector emergency workers and media reations. In-faciity security comprised of perimeter security, search protocos into and out of faciities (truck inspections, deiveries, etc.), interna search protocos (ockers, etc.), bomb threat procedures, risk contro for vioence in the faciity and threats to management (incuding training on warning signs, protection of property and equipment and safeguarding executives), protection and ighting in parking areas and the use of cameras in the workpace. Industria espionage, theft and sabotage activities to secure interna communications (emais, teephones, etc.), open records protection, empoyee privacy reguations, ceary defined physica inspections and search processes. Cyber-terrorism hardware, software and human systems to dea with hacking, information theft, interna sabotage, the sabotage of software systems and the deveopment and maintenance of an architecture of back-up systems and mutipe independent operations for information systems. Out-of-faciity fire and trave risks providing traveing managers with portabe five-minute air packs, trave poicies prohibiting empoyees staying in hote rooms above the seventh foor (most aeria adders on fire trucks ony reach to the sixth foor), poicies prohibiting top-eve managers from traveing on the same airine fight/private aircraft, hote evacuation training if traveing teams of empoyees are staying at the same hote. 20

293 276 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES According to Czinkota et a., anayticay, IHRM managers may be abe to assess the potentia risk from terrorist threats at three eves of anaysis: primary at the eve of the individua person and firm ; at the micro eve specific regions, industries or eves in internationa vaue chains ; and at the macro eve the effect of a terrorist attack on the goba environment... the word economy, consumer demand for goods and services, and reactions by supranationa organizations such as the United Nations. 21 As an exampe of micro-eve risk anaysis, the trave/hospitaity industry is particuary sensitive to terrorist events or natura disasters that may inhibit trave in genera, trave to a certain region or country, or to specific trave destinations. 22 On the primary and micro eves: It is usefu to distinguish the most vunerabe inks in firm s vaue chains. From the individua [firm s] perspective, it is more usefu to view terrorism at the micro eve wherein input sourcing, manufacturing, distribution, and shipping and ogistics are ikey to be the most vunerabe areas. 23 There is itte doubt that terrorism is perceived to be a significant threat by MNEs. The Word Economic Forum Goba Risks Landscape 2011 report rated the perceived ikeihood of terrorism as Very ikey and the perceived financia impact was approximatey US200 Biion. 24 A Dephi study in 2008 by Czinkota and Ronkainen found that the five business functions within MNEs that wi have the most infuence on goba business in the future wi be: 1. Logistics; 2. Marketing; 3. Human Resources; 4. Finance; 5. Communications. 25 By systematicay anayzing peope and processes, IHRM professionas may contribute to stabiizing risk 26 through recommendations that harden processes in the vaue chain, recruit peope with capabiities and skis reevant for these kinds of processes and train empoyees in these processes and systems. In a simiar vein, Giingham presents risk anaysis in terms of partitioning security risk into an externa environmenta dimension (geographic region of operation) and an interna firm dimension (industry, firm media profie, nationa affiiation associated with the MNE). Low-risk firms in ow-risk environments do not need to invest as heaviy in security systems and protocos. High-risk firms in ow-risk environments shoud foow security strategies that focus on hardening individua sites. Low-risk firms in high-risk environments can foow security strategies that disperse activities across the region and buid redundant infrastructure, so that vaue chain activities in the high-risk region can be provided by out of region units. High-risk firms in high-risk environments must invest much more in quite eaborate risk management strategies. 27 Much remains to be understood in this rapidy evoving area, and the expectations, standards and practices of IHRM executives and professionas as they reate to safety and security are in fux. According to Czinkota et a.: In depth case studies on firms directy affected by terrorism wi aso serve to provide grounded information as to the nature of the reationships between types of terrorism and their specific effects, and faciitate the deveopment of modes and theory. 28 A simiar concusion can be reached in terms of the need for a better understanding of these chaenges facing IHRM in MNEs. The evoving fied of IHRM The fied of IHRM has been criticized as being sow to deveop as a rigorous body of theory. There are a number of reasons for this. One reason is that compared to studies in one nationa context, there are major methodoogica probems invoved in the area of internationa management and IHRM. These probems greaty increase the compexity of doing internationa research and, as Ader 29 noted some years ago, it is often quite difficut to sove these probems with the rigor usuay required of within-cuture studies by journa editors and reviewers.

294 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES 277 A second reason why IHRM has deveoped rather sowy as a fied of study is that unti reativey recenty, many management and HR researchers have regarded the IHRM fied as a margina academic area. This attitude was refected in the reativey sma number of courses in IHRM in business schoo curricua a situation which is now changing, particuary in business schoos in Europe and the Asia-Pacific. A strong positive deveopment was the estabishment of a dedicated journa in the fied (Internationa Journa of Human Resource Management) in 1990 by the ate Professor Michae Pooe at Cardiff University in the United Kingdom. This journa has had a significant impact on the deveopment of research in the fied of IHRM. A more recent very positive deveopment has been the decision of the Human Resources Division of the Academy of Management to offer an Internationa HRM Schoary Research Award. 30 An increasing number of books which have focused on HRM in particuar regions such as Latin America, 31 Centra and Eastern Europe, 32 the Midde-East, 33 Europe, 34 Africa 35 and the Asia Pacific region 36 have aso made a vauabe contribution to the IHRM iterature. The evoving roe of the HRM function in MNEs As presented in Chapter 1, the sheer compexity of the HRM function in MNEs has ed to a fundamenta re-examination of the purposes, actors, roes and reationships between ine managers and staff HR speciaists, between subsidiary HR staff and corporate HR speciaists, between MNE empoyees and outsourced contractors, and between the various HR actors within the MNE hierarchy (e.g. HR managers on the Board of Directors, at Vice President eve or reporting directy to a board member). 37 Ceary, disentanging the compex reationships between those institutiona, industria and historica contingencies that may contribute to the pattern of IHRM phiosophies, strategies, poicies, practices and capabiities of an MNE, industry or nation remains a rich area for future research. It does appear very ikey that the chaenges of internationa business wi continue and IHRM issues wi remain high on the probems ist of senior managers of MNEs. A recent McKinsey survey of forces reshaping the goba economy noted that sourcing taented empoyees was a major concern. Asked where they woud find the taent they need, respondents most often mentioned recruiting taent from emerging markets to work there (44 per cent), new taent entering deveoped abor markets (41 per cent) and taent from deveoped markets depoyed to emerging markets (35 per cent). More than a other respondents, North American respondents were counting on sourcing taent in deveoped economies. 38 SUMMARY AND CONCLUDING REMARKS Throughout this book, we have endeavored to highight the chaenges faced by firms as they confront human resource management concerns reated to internationa business operations. This chapter has been concerned with identified trends and future chaenges both manageria and academic that are ikey to have an impact on IHRM, as a function and as a scientific fied of study. We specificay addressed: Internationa business ethics and HRM. Modes of operation other than whoy owned subsidiaries, and the IHRM activities that are required, such as training for contractua and project operations. Ownership issues reating to famiy-owned firms, and non-government organizations (NGOs) and the IHRM chaenges specific to these organizations as they grow internationay that have remained reativey under-identified, despite their continuing importance in internationa business and goba activities.

295 278 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES The compex assessment and panning activities reated to safety, security and counterterrorist efforts. Research issues in IHRM, and deveopments that are endeavoring to assist in understanding the intricacies and interreationships between the IHRM function and IHRM activities, firm internationaization and strategic directions and goas. A consistent theme throughout this book has been the way in which IHRM requires a broader perspective of what operating internationay invoves, and a cear recognition of the range of issues pertaining to a categories of staff operating in different functiona, task, and manageria capacities is essentia. As Pooe 39 stated in his editoria in the first issue of the Internationa Journa of Human Resource Management in 1990: internationa human resource management archetypicay invoves the word-wide management of peope in the mutinationa enterprise. This sixth edition marks over 20 years since the pubication of the first edition of this textbook in Since such a period of time is often recognized as a miestone into aduthood in Western societies, IHRM researchers and academics shoud indeed ceebrate the coming of age of this discipine area. Peope issues in MNEs have never been as strategicay, economicay, sociay and environmentay critica as they are today. Practitioners both speciaists and executives have a vast array of technica, conceptua and programmatic resources at their fingertips. Massive governmenta and consuting systems may be tapped. Academics may pursue in their research and teaching activities any one of a number of functionaities in IHRM, across cutures, regions, institutiona contexts, eves of economic deveopment and industries. The number of choices is indeed daunting. Given this period of time we shoud both ceebrate the success of the discipine area and be wary of the dangers of prematurey deciding that we have uncovered the ast word on what IHRM is or presume we have discovered the utimate mode of IHRM. It may be that for now an open, systematic, comprehensive, curious and engaged state of mind (those quaities many researchers have associated with successfu internationa careers in industry) is more critica to the continued effective deveopment of the discipine area of IHRM than any singe mode, research stream or perspective. 40 In Chapter One we stated that IHRM came out of three areas cross cutura management, comparative industria reations and HRM and HRM in mutinationa firms. Just as a rivers have one or more headwaters streams or creeks that begin the river so IHRM has a number of potentia points of origin. In the nineteenth century there was a great rush to discover the source of the Nie River. What the scientists, exporers and adventurers did at the end of their search was to come to grips with a vast, compex and changing ecosystem. What started out as a journey to a specific, unknown destination became an increasingy sophisticated geographica odyssey that continues in Africa to this day. The ongoing process of discovery, a mapping of the compexities of IHRM, the chaenges to our existing corporate and academic systems and modes of peope processes resuting from internationa activities, and the difficut choices practitioners must make every day in order to pursue MNE goas make up the ony reasonabe concusions we can draw about this fascinating and compeing academic fied after over 20 years of observation.

296 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES 279 DISCUSSION QUESTIONS 1 What is your view of internationa initiatives to criminaize foreign bribery? 2 Identify a number of HRM probems that typicay arise with expatriate assignments. In what ways might the core ethica vaues and guideines identified in this chapter appy to them? 3 Beyond checkists and systemic anaysis, what actions can MNEs take to reduce risks reated to terrorism? What roes can HRM take in these processes? 4 What IHRM activities woud be pertinent to the sending, by Médecins Sans Frontieres, of a medica team into a country such as Bangadesh? FURTHER READING Burke, R. and Coopers, C. (eds) Internationa Terrorism and Threats to Security: Manageria and Organizationa Chaenges (Chetenham, U.K.: Edward Egar Pubishing, 2008). Cross Cutura Management: An Internationa Journa, Specia Issue (2011) Theme: Expatriation Od Issues, New Insights, Voume 18, (2). Guest Editors: Jan Semer and Vesa Suutari. Fortanier, F., Kok, A. and Pinkse, J. (2011) Harmonization in CSR Reporting: MNEs and Goba CSR Standards, Management Internationa Review, 51 (5): Lundby, K. and Joton, J. (eds) Going Goba: Practica Appications and Recommendations for HR and OD Professionas in the Goba Workspace (San Francisco, USA: Jossey-Bass, 2010). Morris, S. S., Wright, P. M., Trevor, J., Sties, P., Stah, G. K., Sne, S., Paauwe, J. and Farndae, E. (2009) Goba Chaenges to Repicating HR: The Roe of Peope, Processes, and Systems, Human Resource Management, 48 (6), Wernick, D. and Von Ginow, M. (2012), Refections on the Evoving Terrorist Threat to Luxury Hotes: A Case Study on Marriott Internationa, Thunderbird Internationa Business Review, 54 (5): NOTES AND REFERENCES 1. See T. Jackson, Internationa HRM: A Cross-cutura Approach, Chapter 5, The Motivating Organization: The Japanese Mode (London: Sage Pubications, 2002), pp ; E. Ikegami, The Taming of the Samurai: Honorific Individuaism and the Making of Modern Japan (Cambridge, MA: Harvard University Press, 1995); and J. Abeggen and G. Stak, Kaisha: The Japanese Corporation (New York: Basic Books, 1985). 2. See 0,3355,en_2649_34855_1_1_1_1_1,00.htm for a comprehensive ist of resources offered by the OECD on bribery in internationa business. 3. L. Carson, Bribery Extortion, and the Foreign Corrupt Practices Act, Phiosophy and Pubic Affairs (1984) pp See aso fcpa/ for up-to-date information on the FCPA. For a recent review of ethics programs as a training topic and the potentia responsibiities of IHRM staff in creating and maintaining such programs, see A. Vadera and R. Aguiera, The Roe of IHRM in the Formuation and Impementation of Ethics Programs in Mutinationa Enterprises in P. Sparrow (ed.) Handbook of Internationa Human Resource Management (Chichester, U.K.: John Wiey and Sons, 2009) pp

297 280 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES 4. W. Bottigieri, M. Marder and E. Paderon, The Foreign Corrupt Practices Act: Discosure Requirements and Management Integrity, SAM Advanced Journa, Winter (1991), pp For an interesting recent empirica paper on bribery see S. H. Lee, K. Oh, and L. Eden, Why do Firms Bribe?: Insights from Residua Contro Theory into Firms Exposure and Vunerabiity to Corruption, Management Internationa Review, Vo. 50, No.6 (2010), pp ). 6. For the most up-to-date TI Corruption Index consut the Internet at 7. The Guardian 16 Dec, 2008; Deutsche Wee, 21 Apri, The Economist, 17 September, 2011, Bribery Abroad: A Tae of Two Laws. 9. For an exceent anaysis of the interconnection of suppy chain management issues with other functiona areas of management, see M. Lyes, B. Fynn, and M. Frohich, A Suppy Chains Don t Fow Through: Understanding Suppy Chain Issues in Product Recas, Management and Organization Review, Vo. 4, No.2 (2008), pp W. Cascio, The High Cost of Low Wages, Harvard Business Review, Vo. 84, Issue 12 (2006), p. 23; W. Cascio, Decency Means More Than Aways Low Prices : A Comparison of Costco to Wa-Mart s Sam s Cub, Academy of Management Perspectives, Vo. 20, No. 3 (2006), pp ; R. Ghemawat, Business, Society and the Wa-Mart Effect, Academy of Management Perspectives, Vo. 20, No. 3 (2006), pp. 41 3; A. Harrison and M. McMian, Dispeing Some Myths About Offshoring, Academy of Management Perspectives, Vo. 20, No. 4 (2006), pp. 6 22; and D. Farre, M. Laboissiere and J. Rosenfed, Sizing the Emerging Goba Labor Market, Academy of Management Perspectives, Vo. 20, No. 4 (2006), pp See aso websites such as and which are highy critica of Wa-Mart and where Wa-Mart responds to this criticism. 11. H. De Cieri and P. Dowing, Strategic Internationa Human Resource Management in Mutinationa Enterprises: Deveopments and Directions, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Edgar, 2006), pp ; P. Rosenzweig, The Dua Logics Behind Internationa Human Resource Management: Pressures for Goba Integration and Loca Responsiveness, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp ; and P. Sties and J. Trevor, The Human Resource Department: Roes, Coordination and Infuence, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp S. Schmidt and K. Kretschmer, Performance Evauation of Foreign Subsidiaries: A Review of the Literature and a Contingency Framework, Internationa Journa of Management Reviews, Vo. 12, No. 3 (2010), pp R. Schuer and I. Tarique, Internationa Joint Venture System Compexity and Human Resource Management, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham: Edward Egar, 2006), pp See R. Schuer and I. Tarique, Internationa Joint Venture System Compexity and Human Resource Management, in G. Stah and I. Björkman (eds) Handbook of Research in Internationa Human Resource Management (Chetenham, UK: Edward Egar, 2006), pp and K. Lundby and J. Joton (eds) Going Goba: Practica Appications and Recommendations for HR and OD Professionas in the Goba Workspace (San Francisco, USA: Jossey-Bass, 2010). 15. The authors woud ike to acknowedge the assistance of Tom Schneid, Professor of Loss Prevention and Safety, and Larry Coins, Associate Professor of Loss Prevention and Safety and Chair of the Department of Loss Prevention and Safety in the Coege of Justice and Safety at Eastern Kentucky University in Richmond, Kentucky, USA in the preparation of this section of Chapter Athough much of this materia is specific to nationa or industry reguations, see R. Mathis and J. Jackson, Human Resource Management, 12th Ed. (Mason, OH: South-Western/Thomson, 2008), Chapter 15 for a U.S. perspective. 17. M. Schumann and T. Schneid, Lega Liabiity: A Guide for Safety and Loss Prevention Professionas (Gaithersburg, MD: Aspen Pubishers, 1997). 18. For a review of the range of services avaiabe to firms, see 2007 Loss Prevention Resource Guide, Loss Prevention: The Magazine for LP Professionas, Vo. 6, No. 1 (2007), pp W. Henisz, E. Mansfied and M. A. Von Ginow, Confict, Security and Poitica Risk: Internationa Business in Chaenging Times, Journa of Internationa Business Studies, Vo. 41, No. 5 (2010), pp Persona correspondence and interview with Tom Schneid, 12 February Aso see T. Schneid and L. Coins, Disaster Management and Preparedness (Boca Raton, FA: Lewis Pubishers/CRC Press, 2001). For a very simiar discussion on the dimensions of risk management practices and the degree to which mutinationa enterprises are viewing security and terrorism as critica strategic issues, panning for these forms of risks and aocating resources for training and protoco enhancements, see D. Wernick, Terror Incognito: Internationa Business in an Era of Heightened Geopoitica Risk, in G. Suder (ed.) Corporate Strategies Under Internationa Terrorism and Adversity (Chetenham: Edward Egar, 2006), pp as we as R. Burke, Internationa Terrorism and Threats to Security: Impications for Organizations and Management, in R. Burke and C. Cooper (eds) Internationa Terrorism and Threats to Security: Manageria and Organizationa Chaenges (Chetenham, U.K.: Edward Egar, 2008), pp

298 CHAPTER 10 IHRM TRENDS AND FUTURE CHALLENGES M. Czinkota, G. Knight and P. Liesch, Terrorism and Internationa Business: Conceptua Foundations, in G. Suder (ed.) Terrorism and the Internationa Business Environment: The Security-Business Nexus (Chetenham: Edward Edgar, 2004), p. 48. See aso M. Czinkota, G. Knight, P. Liesch and J. Steen, Terrorism and Internationa Business: A Research Agenda, Journa of Internationa Business Studies, Vo. 41, No.5, (2010), pp F. Dimanche, The Tourism Sector, in G. Suder (ed.) Terrorism and the Internationa Business Environment: The Security-Business Nexus (Chetenham: Edward Egar, 2004), pp Czinkota et a., Terrorism and Internationa Business: Conceptua Foundations, p. 55. For a very simiar anaysis specific to SARS, see W. J. Tan and P. Enderwick, Managing Threats in the Goba Era: The Impact and Responses to SARS, Thunderbird Internationa Business Review, Vo. 48, No. 4 (2006), pp J. Mcntyre and E. Travis provide a thorough abeit genera discussion of MNE practices reated to hardening goba suppy chains in Goba Suppy Chain Under Conditions of Uncertainty: Economic Impacts, Corporate Responses and Strategic Lessons, in G. Suder (ed.) Corporate Strategies under Internationa Terrorism and Adversity (Chetenham: Edward Egar, 2006), pp Goba Risks 2011, 6th Ed. (Geneva: Word Economic Forum, 2011). 25. M. Czinkota and I. Ronkainen, Trends and Indications in Internationa Business: Topics for Future Research, Management Internationa Review, Vo. 49, No. 2 (2009), pp Czinkota et a., Terrorism and Internationa Business, p D. Giingham, Managing in an Era of Terrorism, in G. Suder (ed.) Corporate Strategies Under Internationa Terrorism and Adversity (Chetenham: Edward Egar, 2006), pp , particuary Tabe 1.2, p For a highy detaied and integrated ook at measuring and assessing security risks, see A. Jaquith, Security Metrics: Repacing Fear, Uncertainty, and Doubt (Upper Sadde River, N.J.: Addison-Wesey, 2007). 28. Czinkota et a., Terrorism and Internationa Business, pp N. Ader, Cross Cutura Management Research: The Ostrich and the Trend, Academy of Management Review, Vo. 8, No. 2 (1983), pp See for information on this award and recent winners. 31. M. Evira and A. Davia (eds) Managing Human Resources in Latin America (London: Routedge, 2005). 32. M. Morey, N. Heraty and S. Michaiova (eds) Managing Human Resources in Centra and Eastern Europe (London: Routedge, 2007). 33. P. Budhwar and K. Meahi (eds) Managing Human Resources in the Midde-East (London: Routedge, 2006). 34. H. Larsen and W. Mayrhofer (eds) Managing Human Resources in Europe (London: Routedge, 2006). 35. K. Kamoche, Y. Debrah, F. Horwitz and G. Nkombo Muuka (eds) Managing Human Resources in Africa (London: Routedge, 2003). 36. P. Budhwar (ed.) Managing Human Resources in Asia- Pacific (London: Routedge, 2004); P. Budhwar and J. Bhatnagar (eds) The Changing Face of Peope Management in India (Abingdon, U.K.: Routedge, 2009). 37. See P. Sparrow, Integrating Peope, Process and Context Issues in the Fied of IHRM, in P. Sparrow (ed.) Handbook of Internationa Human Resource Management (Chichester, UK: Wiey, 2009); S. Morris, P. Wright, J. Trevor, P. Sties, G. Stah, S. Sne, J. Paauwe and E. Farndae, Repicating HR: The roe of Peope, Processes and Systems, Human Resource Management, Vo. 48, No. 6 (2009), pp ; E. Farndae, J. Paauwe, S. Morris, G. Stah, P. Sties, J. Trevor and P. Wright, Context-Bound Configurations of Corporate HR Functions in Mutinationa Corporations, Human Resource Management, Vo. 49, No. 1 (2010), pp For recent research that focuses on the roe of MNE headquarters see the Specia Issue guest edited by B. Ambos and V. Mahnke, How Do MNC Headquarters Add Vaue?, Management Internationa Review, Vo. 50, No. 4 (2010); and U. Andersson and U. Hom (eds) Managing the Contemporary Mutinationa: The Roe of Headquarters, (Chetenham, UK: Edward Egar, 2010). 38. McKinsey Goba Survey Resuts: Five Forces Reshaping the Goba Economy, 2010, pp M. Pooe, Editoria: Human Resource Management in an Internationa Perspective, Internationa Journa of Human Resource Management, Vo. 1, No. 1 (1990), pp See E. Lawer, A. Mohrman, S. Mohrman, G. Ledford and T. Cummins (eds) Doing Research That is Usefu for Theory and Practice (San Francisco: Jossey-Bass, 1985); J. Campbe, R. Daft and C. Huin, What to Study: Generating and Deveoping Research Questions (Bevery His, CA.: Sage Pubications, 1982); and J. McGrath, J. Martin and R. Kuka, Judgment Cas in Research (Bevery His, CA.: Sage Pubications, 1982).

299

300 CASES Case 1 Spanning the Gobe, p. 284 Case 2 Quaity Compiance at the Hawthorn Arms, p. 287 Case 3 Case 4 Case 5 Case 6 Case 7 Case 8 Wofgang s Baancing Act: Rewarding Heathcare Executives in a Dispersed Yet Integrated Firm, p. 289 Strategic Forecasts and Staffing Formuation: Executive and Manageria Panning for Bosch-Kazakhstan, p. 298 Loca and Internationa? Managing Compex Empoyment Expectations, p. 305 Expatriate Compensation at Robert Bosch GmbH: Coping With Modern Mobiity Chaenges, p. 312 Baancing Vaues An Indian Perspective on Corporate Vaues from Scandinavia, p. 319 Just Another Move to China? The Impact of Internationa Assignments on Expatriate Famiies, p. 328

301 284 CASE 1 SPANNING THE GLOBE CASE 1 SPANNING THE GLOBE By Aen D. Enge, Sr. Eric Christopher, Associate Director for Goba HR Deveopment at Tex-Mark, was sitting in his car in an eary-morning traffic jam. He had thought that by eaving his home at 7:00 a.m. he woud have been ahead of the heavy commuter traffic into San Antonio s city center. The expanation for the ong queue was announced by the radio traffic service. A arge, portabe crane, used to set up concrete barriers around road works, had overturned, and inbound and outbound traffic woud be at a dead stop for at east an hour. Eric had ended up at Tex-Mark, a computer inputoutput manufacturer and suppier, through an indirect career route. Brought up in the Hi Country Viage district of San Antonio, Eric had graduated from Churchi High Schoo and Bayor University in Waco, Texas with a major in History and a minor in Spanish. His materna grandmother ived in Tennessee, but was born and grew up in Edinburgh, Scotand and Eric had spent severa summers whie in high schoo and at university backpacking around Europe. His faciity for anguages was impressive and he had an exceent working use of Spanish, French, Itaian and German. He coud converse in Cantonese, as the resut of working in a noode restaurant during university and had started a tutoria course in Mandarin ast fa. Upon graduation, Eric backpacked around Europe and South America unti his money ran out. Returning to Daas he took a ticketing job with SouthWest Airines and was quicky moved to the training unit. After four successfu years at SouthWest, he was contacted by a headhunter about a position as Goba Deveopment Assistant with Tex-Mark. The promised combination of goba trave, more money and a return to San Antonio proved irresistibe, and Eric had been with Tex-Mark for five years now. His career progress to date was outstanding, despite the extra workoad sefimposed by undertaking MBA studies at UT, San Antonio as a part-time student. Tex-Mark had started out as a spin off firm from IME Computers in the ate 1970s. Patents combined with an exceence in engineering, an outstanding institutiona saes staff, cost-sensitive production and pricing, a combined to make Tex-Mark a major force in the printer and optica scanner industry. Tex-Mark inherited a production faciity in San Antonio from IME, but the company aso had internationa production faciities operating in three countries: Monterrey, Mexico, Leith, Scotand, and more recenty in Jaipur, India. A major new faciity going was paned to start production in Wuhu, China ate next year. Research and new product deveopment activities were spit between the home offices in San Antonio, a printer center in Durham, North Caroina and an optica research center of exceence in Edinburgh, Scotand. Major saes, distribution and customer service centers had recenty expanded into Asia and are now ocated in Rheims in France; in Memphis, Tennessee; in Sydney, Austraia; in Rio de Janeiro, Brazi; in Hong Kong and in Te Aviv, Israe. Faced with the ong deay, Eric turned the radio voume down, turned up the air conditioning, and teephoned his office on his hands-free car phone to advise them of his situation. Fortunatey, his persona assistant was aready at work so Eric was abe to rearrange his schedue. He asked that the 10:30 meeting with Fred Banks, a Pant Engineer recenty repatriated from Jaipur, be pushed back an hour. His major concern was a teeconference meeting at 2:00 with his Director who was currenty visiting the saes center in Memphis, and the other four members of executive career deveopment team in San Antonio. The genera topic was a review and evauation of training and deveopment strategies for expatriate professionas and managers resuting from Tex- Mark s growth and the new production shift to Asia. Eric had indirecty heard that Juanita Roberto, the Vice President for HR wanted costs cut and her deegates on the team woud be pushing for streamined (Eric had mentay transated that as cheaper) training programs, shorter expatriate assignments and a faster appointment of HCNs whenever possibe.

302 CASE 1 SPANNING THE GLOBE 285 Whie Eric had prepared for this crucia meeting, he needed incorporate some information from his office fies. The radio announcer broke into Eric s thoughts, commented that overextension or carrying too much weight probaby caused the crane to overturn. I can identify with that, Eric thought to himsef. Eric s meeting with Fred Banks had not gone we. Fred was one of the ast of the IME egacies, an IME engineer that had stayed on with Tex-Mark after the spin off in Fred had been a bright and promising young engineer back then, and was one of the first peope chosen to go to Scotand in He was so successfu in bringing that faciity on ine in an eevenmonth assignment that he was made ead engineer of the team that went into Mexico in The threeyear Mexican project did not go as smoothy. Certainy there were many unavoidabe economic uncertainties during that period. Reviewing the fies, Eric fet a arge part of the probem was that Fred s team did not reate we to their Mexican counterparts. Furthermore, the Tex-Mark team did not treat the oca and nationa government agencies with enough respect and sensitivity. Eric noted that permits and authorizations that shoud have taken weeks instead took six months or more. After the Mexican project Fred stayed in San Antonio with occasiona trips to Durham, North Caroina. His assignment to India in 1999 was by sheer chance, as a ast minute repacement for another engineer whose father was diagnosed with a serious cancer some two weeks before the famiy was to set off on assignment. Eric had heped design the pre-departure training program for the origina candidate and had even incuded a one-week visit for the candidate and his wife. Today Fred was angry and disappointed that an 18-month assignment in India had turned into a 3-year assignment, and that a research position in Durham promised to him by a previous V.P. (two V.P.s ago) was fied by a younger Durham resident empoyee. Eric bunty countered that the 18-month assignment had become a 3-year assignment argey due to Fred s unwiingness to train and hand over responsibiities to oca engineers and his inabiity to work constructivey with district and federa reguators in India. The conversation took a hostie turn and athough Eric did not ose his temper, he was troubed by Fred s fina comment: If this is how you treat the peope wiing to go abroad, you never get your best engineers to eave San Antonio. Preparing for the 2:00 meeting, Eric reviewed the unofficia, yet standard expatriate training program he had been instrumenta in deveoping over the ast three years (See Exhibit A). Though Eric recommended that a pre-departure activities shoud be undertaken, it was not compusory. With the Chinese operation adding to the number of expatriate destinations, Eric reaized Tex-Mark shoud have a more forma poicy regarding internationa assignments. Feedback regarding the interviews and conversations with Tex-Mark empoyees with country experiences was mixed. Some had deveoped into onger term mentoring arrangements but other expatriates had found it not usefu. Sti, it was a ow cost way of providing information. Language courses were probematica. On too many occasions, there was not the time empoyees eft the country midway through their anguage courses. He recaed the idea of more extensive assignments requiring more compete and rigorous preparation from an MBA course he took ast year. Obviousy, China is a more chaenging and difficut assignment than France, but can we differentiate treatment on the grounds of cutura difficuty? More importanty, Eric asked himsef, how can I suggest we make our training more rigorous given Juanita Roberto s focus on cost? Even if I win on this point, what wi I answer when asked what methods or activities make up more rigorous training? Finay, what is the roe of anguage training? Eric knew not everyone took to anguages the way he did and that Mandarin is not Spanish. Finay, is now the time to raise the issue of repatriation? The meeting with Fred had been disturbing. Eric knew that the current debriefing and counseing sessions had a reputation for being more te and se than a meaningfu exchange of ideas and insights. Top management had recenty signaed this as a growing probem. Eric had panned to gather data on repatriate turnover. Perhaps this shoud be given a higher priority. After a, how coud Tex-Mark decide to pan for internationa assignments, invoving more TCN movements, and the transfer of HCNs into its U.S. operations for training and deveopment, without considering repatriation?

303 286 CASE 1 SPANNING THE GLOBE EXHIBIT A Tex-Mark Corporation Poicy for Expatriate Preparation and On-Assignment Support Pre-departure Activities: 1 Country briefings. Outsourced to a consuting firm in San Antonio that had experience deaing with the countries in which Tex-Mark operated. Tex-Mark was prepared to pay for four sessions each asting one hour. 2 Reading Assignments. Three to four books (depending on region of assignment) on nationa or regiona cuture and/or doing business in the foca region. Accompanying spouses/partners had access to a simiar ibrary. 3 Interviews and conversations with Tex-Mark empoyees with country experiences. 4 Language courses. Attendance at eective surviva eve anguage casses. These courses ast from 8 to 12 weeks, with 3 course meetings a week. Tex-Mark wi pay for spouses/partners as we. In Country Training and Deveopment: Upon arriva, Tex-Mark staff in the oca operation wi assist the accompanying spouse/partner with job search activities. They wi assist with finding chidren acceptabe schooing situations. Where possibe, Tex- Mark staff wi endeavour to provide a socia support network. Repatriation: Upon return a expatriates are required to go through a debriefing and career counseing session with HR staff. This shoud be hed within two months of the person s re-entry to the home ocation. In the roe of Eric: 1 Summarize your thoughts on the probems at hand, aternative soutions and your strategy on how to proceed at the forthcoming meeting. 2 How wi your proposa sove the probems you have defined? 3 How can you defend your soution from budgetary concerns? In what way is your approach both a soution to the probems of expatriates at Tex-Mark and a good economic investment? Step back out of roe and answer the foowing: 1 Does Eric s persona background assist in his assessment of the probems he faces? 2 Woud you have approached this situation differenty? If so, what benefits woud your different approach provide for Tex-Mark?

304 CASE 2 QUALITY COMPLIANCE AT THE HAWTHORN ARMS 287 CASE 2 QUALITY COMPLIANCE AT THE HAWTHORN ARMS By Aen D. Enge, Sr. Sitting in his room at the Hawthorn Arms Hote in Shannon, Ireand, waiting for a morning fight to London and then on to Marseies, Aistair Mackay refects on how uninspiring hote rooms are. He had just competed a series of meetings with Irish officias in Limerick, concuding with a debriefing session over a Guinness with his Irish coeagues to pan their next move. Negotiations over a potentia contract were proceeding we but there woud be abor impications that woud require a forma response. Consequenty, Aistair had missed the ast evening fight out to London. Another night away from the famiy. Thank goodness I am not missing our wedding anniversary tomorrow. I must remember to find something reay specia in the duty-free shop. Six months ago, Aistair was appointed Director of Personne Deveopment, European Division, for Trianon, an Ango-French avionics firm. Trianon had begun as a subcontractor for the Concorde, and graduay had gained a reputation in the 1970s and 1980s as a high quaity, if sometimes undependabe subcontractor for major French and British aerospace defence contractors. Attempts to expand into civiian markets by gaining contracts for the origina European Airbus were unsuccessfu, though today neary 30 per cent of Trianon s saes are through civiian contracts. Now, under new executive management, Trianon is focused on major navigationa dispay contracts for the next generation of Airbus production. Prior to joining Trianon, Aistair had worked in the ega department of a Scottish bank. European Union empoyment requirements had become his speciaity, and provided a springboard into his current position. His ce phone rings, and he receives an unexpected ca from his coeague Henri Genadry, Genera Director of Joint Ventures, Mergers and Acquisitions, Dispay Division. Henri informs him that the expected outright purchase of a scanner-cathode ray tube production faciity in Veceses, outside of Budapest, Hungary was not going ahead. Instead, the decision had been made at corporate headquarters in Marseies for a ten-year joint venture with a Hungarian government backed firm. Henri goes on to expain that the Hungarian contro and equity interests in this project are expected to make ministry officias in Budapest happy. Henri was hopefu the decision wi make executives and administrators at Maev, the state supported airine, friendy to Trianon in the ong term. We wi now need a Quaity Compiance Manager for a three-year assignment in Hungary. It is an important position as we wi need to keep tight contro on this joint venture operation. There wi be some trave to France and Germany at east in the first year unti we see how things are working out with these new partners. Aistair asks, When do you expect this Quaity Compiance manager to be avaiabe? There is a pause on the other end of the ine after which Henri bandy responds, Five or six weeks if we are to meet corporate timetabes. We expect the person to be in on the ground so to speak. We wi need a reaistic assessment of current processes for a start. The person wi need to be famiiar with the joint venture s objectives and targets. We have some detais through the due diigence process but skis audits were somewhat rushed. Aistair then asks that detais, incuding a job description, be emaied to his intranet address. We Henry admits, this is out first joint venture the firm has been invoved in outside of the UK, Germany or France. The job description wi be very precise on the technica quaity side, but vague on the administrative compiance side. You may need to fi in the missing pieces as you see fit. After a few more minutes of genera chatting, Henri finishes the phone ca. Aistair pugs his aptop into the teephone port on his room s desk, and after a few fase starts, ogs on to the secure corporate website and accesses three personne fies from a foder he had prepared some weeks ago in expectation that he woud be asked for a decision. Of course, he had expected the position to be that of Project Engineer in an operation that the firm woud have 100 per cent

305 288 CASE 2 QUALITY COMPLIANCE AT THE HAWTHORN ARMS ownership. Now he was ooking for a Quaity Compiance Manager in a joint venture. Aistair doesn t ike making these kinds of decisions when feeing so remote and disconnected from the firm. He considers caing his friend and mentor, Gunther Heinrich in Frankfurt Germany and asking him about the Hungarian project, as the German baseddivisions had more experience deaing with Hungarian issues. He ooks at his watch. It was Not a civiized time to ca anyone, et aone Gunther. Aistair knew that Gunter s wife Britt had presented them with a son three weeks ago, and they were having troube getting the chid to seep through the night. I wi ca him from the airport and set up a meeting. I wi have the job description by then. He is aso feeing uncomfortabe with the process he was going through. Surey we can do better than react ike this after the event. Why were we not part of the decision-making process on the Hungarian venture? * * * * * * * 1 Consider the three candidates in Exhibit A. If forced to make a decision tomorrow, which candidate shoud Aistair choose for the job? What major factors shoud determine his choice? 2 We are tod nothing of the process that Trianon uses to recruit candidates for this eve of fina seection. Given what you know about the firm from the case, outine a genera recruitment and seection process for Trianon. Describe how your proposed process fits with best seection practices as we as the strategic needs of this company. 3 Shoud HR staff be invoved in strategic decisions reating to internationa business operations such as finaising a joint venture agreement? EXHIBIT A Aistair Mackay s Short List of Possibe Candidates First Candidate: Marie Erten-Loiseau. Born in Prague, her famiy moved to Touon when Marie was 12 years od. Brought up in France, she was educated as an aeronautica engineer in France and Germany. Marie worked for Trianon for 13 years, in two divisions within France and Germany with increasing eves of project responsibiity. Her eadership of two projects over the ast three years in Lodz, Poand, and two sites in Czechosovakia has been marked by remarkabe success. Married, her husband is semi-retired. They have one chid in university. Second Candidate: Janos Gabor. Born in Gyor, Hungary, Janos was educated at University of Pécs, Hungary. He has a good background in the production of cathode ray tube and dispay systems technoogies, abeit from the centra European perspective. He has worked at Trianon for neary four years, and has just been transferred into the cathode ray tube division as a Senior Engineer. His famiy is reportedy very we connected with nationa government officias, particuary the od, ex-party members of mutipe ministeria bureaucracies. Janos is singe. Third Candidate: Sinead Marrinan-McGuire, a production engineer on oan to Trianon s London office for joint venture anayses and due diigence reviews on technica and ega grounds. She has spent three years in the R&D deveopment team in Dubin and London, working on the very technoogies to be appied in this Hungarian joint venture project. Aistair met and taked with her today in Limerick and was very impressed with her understanding of corporate eve concerns and strategic issues. Most of her career has been in Ireand and around London, with ony short, tactica trips to France. Married, her husband is a soicitor in Dubin. They have three chidren, ages 7, 9 and 13.

306 CASE 3 WOLFGANG S BALANCING ACT 289 CASE 3 WOLFGANG S BALANCING ACT: REWARDING HEALTHCARE EXECUTIVES IN A DISPERSED YET INTEGRATED FIRM 1 By Marion Festing and Aen D. Enge Heathcare a successfu goba payer in the pharmaceutica market Heathcare is one of the argest European pharmaceutica companies. The headquarters is situated in Hamburg, Germany, and today there are about 200 subsidiaries a over the word. In 2005, throughout the gobe peope were working for Heathcare. Net saes amounted to E5.9 biion, with a net profit ofe750m. The company was founded more than 100 years ago. It started in a sma shop in Emshorn, a itte town north of Hamburg. In the beginning, the main business was retaiing with ony a sma part of the product range resuting from in-house production. The founder himsef had a background in pharmaceutics. He was very dedicated to science and naturay interested in research and the deveopment of new drugs. Over the years in-house-production was expanded and soon the founder distributed his products a over Germany and ater on in many European countries. Overseas, the activities started in the USA with a sma affiiate in New York. Over time Heathcare acquired severa oca pharmaceutica companies, which ater became 100 per cent subsidiaries. Today, the US market is one of the core markets for Heathcare. However, the first affiiate in the USA was ony the beginning of the firm s gobaization. After this initia success, Heathcare began to enter other ucrative markets of the word such as Japan, China, Latin America and Austraia. Over time the headquarters in Germany grew dramaticay. Headquarters activities centered on research, and the production and distribution of pharmaceutica products that were now argey deveoped within the firm. Whie in the past the product range was highy differentiated, today Heathcare concentrates on a few business areas such as oncoogy or dermatoogy. Within these business areas the firm is now recognized gobay as one of the industry s eaders. The firm intends to continue to buid and extend this eading position in these wordwide speciaized markets. Discontinuous changes in the environment such as increasing costs for research and deveopment and increasing pressure on prices due to cost containment by nationa authorities, and generic competition have forced innovative pharmaceutica companies such as Heathcare to operate their key business processes gobay. The firm has deveoped a muti-centered company in order to ensure the effective utiization of the resources and provide nimbe market penetration and product ramp up. Critica capabiities incude corporatewide R&D processes, a concentration on a few production sites with wordwide suppy responsibiity and a fast penetration of the key markets. These capabiities wi aow Heathcare to ensure the faster and more costeffective deveopment of innovative products, reduce production costs and thereby provide for significant saes growth and increased profitabiity. In the past, Heathcare s situation was characterized by wordwide activities but mainy oca business processes (e.g. deveopment and production focusing on oca/regiona markets). Loca issues were aggregated to the four significant regions in which Heathcare has organized operations. These regions are Europe, USA/Canada, Latin America and Asia Pacific. Consequenty, the human resource management (HRM) processes were adapted to country or region-specific conditions, and goba integration was not a major issue. For exampe, executives and high potentias were recruited, seected, assessed and

307 290 CASE 3 WOLFGANG S BALANCING ACT compensated based on different regiona standards. Internationa human resource (HR) activities concentrated ony on a few internationa managers that acted as coordination agents. Wofgang Hansen: the new HR manager Wofgang Hansen has been recruited as a new HR manager at Heathcare. Wofgang hods a Master s degree in Internationa Management from the University of Hamburg. During his studies he has participated in a study-abroad program spending a year in London. He has speciaized in Human Resource Management and Compensation Strategies. Wofgang s initia assignment upon graduation was in the HR department of a medium-sized German technica company. However, he missed the internationa dimension in this job and decided to pursue an executive MBA with a transnationa orientation in order to prepare for this idea career. His first job after having competed his transnationa MBA program was at Heathcare. For one year Wofgang has been with Heathcare, beginning as an HR manager. Three months ago he was paced in charge of goba compensation poicies, with the newy created tite of Personareferent für gobae Vergütungsstrategien. His first project is reviewing existing poicies and practices. He has been asked to make a series of recommendations on further coordination of goba pay systems at the next meeting of the Board of Directors in Frankfurt in January. Preparing the Board meeting, Wofgang reviews a series of documents such as recent annua reports, the Leadership Competency Set, the new Goba Performance Management System and firminterna strategic documents on the deveopment of the corporate and HRM strategies. Each document set has been paced in its own foder. These six foders contain the foowing items: Foder one: the Heathcare Group In 2012, Heathcare again had a very successfu year and reached records for key financia ratios (see Tabe 1). Thus, the firm was we prepared for reaching new ambitious targets for The Heathcare Group s very positive business deveopment is based on the sustained growth of their top products in a important markets (see Tabe 2). Both the strategic reorientation and the improvement in operationa efficiency have contributed to the growth of their business. Heathcare s aim is to create a soid base in order to further improve the company s profitabiity by optimizing the cost structure. TABLE 1 Key data on the Heathcare Group Vaues expressed in Em Change Net saes þ 8% Gross profit þ 9% R&D costs þ 7% Operating profit þ 21% Net profit þ 23% Return on saes 12.5% 11.2% þ 1.3% Cash Fows from operating activities þ 40% Basic earnings per share (E) þ 23% Tota equity þ 15% Equity ratio 52.6% 47.5% þ 5.1% Personne costs þ 3% Number of empoyees (annua average) þ 2 7%

308 CASE 3 WOLFGANG S BALANCING ACT 291 TABLE 2 Net saes by region of the Heathcare Group in Em % of tota Europe % 44% USA/Canada % 34% Asia Pacific % 5% Latin America % 10% Other Activities % 6% Tota % 100% Foder two: personne structure of the Heathcare Group The Heathcare Group has empoyed peope wordwide as of 31 December, 2012, which is an increase of more than 10 per cent compared to the previous year (28 854). The number of empoyees working for the headquarters of Heathcare increased by 232 and now accounts for roughy 33 per cent of the Group s wordwide personne, whie the number of empoyees wordwide increased by 3331 empoyees (see Tabe 3). Personne costs have risen accordingy amounting to 1699 Em in 2012 (see Tabe 4). Foder three: the eadership competence set the Heathcare Group The corporate eadership competency set defines the critica competencies managers need to possess to master the future chaenges of the Heathcare Group. TABLE 3 Empoyees by region of the Heathcare Group in Heathcare Headquarters Europe USA/Canada Asia Pacific Latin America Other empoyees Tota TABLE 4 Personne costs of the Heathcare Group in Em Wages and saaries Socia security and support payments Pensions Tota

309 292 CASE 3 WOLFGANG S BALANCING ACT They have been deveoped based on an anaysis of the business needs and by asking key payers and HR peope in neary a ocations of the company wordwide for their contributions. They are the basis for a HR practices and poicies and are intended to ensure consistency across businesses and ocations. They are comprised of business-reated competencies, peope-reated competencies and persona competencies: Business-reated competencies incude: Achievement orientation. Sets and works towards achieving chaenging business objectives and targets and deivers outstanding resuts of the Heathcare Group. Innovation and change. Identifies the need for change and generates nove ideas to create or improve processes, systems, or products. Buids commitment to change. Decision-making. Makes sound, timey and courageous decisions whie baancing the risks and benefits to the Heathcare Group. Peope-reated competencies incude: Team eadership. Inspires team members to maximize team output by providing cear direction, empowering them, estabishing onesef as a eader and baancing team resources with assignments. Capabiity deveopment. Deveops peope and the organization to ensure that the Heathcare Group has the capabiities needed for future success. Reationship buiding. Estabishes mutuay trusting reationships with peope both inside and outside of the Heathcare Group in order to foster open communication and advance the goas and business. Impact and infuence. Infuences others to gain their support for driving the Heathcare Group s strategy and goas forward and enters conficts if necessary Persona competencies incude: Business understanding. Demonstrates an understanding of the impications of the Heathcare Group s strategies, industry dynamics, market trends, the competitive environment and one s function/profession in the accompishment of business objectives. Anaytica thinking. Approaches situations by identifying the best information avaiabe and systematicay assessing it for meaning and impact. Sef-deveopment. Maintains a critica awareness of one s own working stye and performance. Takes steps to buid strengths and addresses deveopment needs in ine with the strategic objectives of the Heathcare Group. Foder four: corporate human resource poicies The corporate human resource poicies, which center around these eadership competencies are outined in Tabe 5. These poicies have triggered changes in the structures and processes of HR as practiced across the firm s regions. Foder five: the goba performance system Within the context of the new strategic orientation Heathcare has aso impemented A goba performance system, comprised of common standards for individua performance management, as we as a bonus system common to a executives. With this new goba performance system Heathcare intends to strengthen the performance cuture within the company and faciitate a common orientation for a managers. The individua performance management system contains two eements: 1 Goa setting and appraisa. The new system ensures that every manager gets a precise orientation on expectations and priorities, cear feedback on individua achievements and contingent rewards. 2 Leadership feedback. In order to ensure a systematic deveopment of each manager the system envisages a differentiated feedback on eadership behavior (based on the corporate eadership competencies), identification of deveopment needs and a rea consensus buit for targeted deveopment activities.

310 CASE 3 WOLFGANG S BALANCING ACT 293 TABLE 5 HR poicies of the Heathcare Group HR area Recruitment of key taents Management deveopment Transfer/mobiity Executive compensation Pension system Organizationa deveopment Performance management Poicy direction Good recruitment practices Strategic workforce panning Corporate management deveopment system base on corporate eadership competency set Enhanced cross-functiona mobiity We-baanced cross-regiona mobiity Attractive and competitive compensation Aigned bonus system Move to a defined contribution systems Cear structures, efficient processes Corporate announcements on manageria and structura changes Baanced goa setting Measuring performance Cear feedback Linkage to variabe pay The individua performance management is based on consistent goa categories, a rating scae, a tempate and a performance management cyce which is standardized at a sites, and coordinated to critica corporate processes. To ensure equa appication, a managers beonging to the target group are trained on the system, its phiosophy, procedures and goas. Cosey inked to the individua performance system is the compensation poicy of the firm and the newy deveoped bonus system. The compensation poicy is characterized by a baance of corporate standards and oca appications for cash-reated compensation. Fringe benefits are organized soey on a oca or regiona eve. The most centraized compensation eement is ong-term incentives. Foowing traditiona industry practice, Heathcare grants share options to its managers. The size of the options is argey dependent on the eve of management the position hods in the hierarchy. For every eve a possibe range of options is defined. With respect to base pay and short-term incentives the situation is different. Goba standards define an orientation for the eve of tota cash (fixed pay pus variabe pay) to oca/regiona market standards. This means that the tota cash a manager receives depends mainy on his or her oca/regiona compensation eves. Corporate standards define the market standards (based on target benchmark firms and target quartie positions). Pay eve is argey defined according to oca standards, whie taking into consideration Heathcare s industry-specific positioning targets. The bonus of managers at Heathcare is based on three components: Individua component. Based on resuts of six to ten individua objectives in the respective area of responsibiity. The weight of this component is 50 per cent. My unit component for regions, countries, goba business units or regiona business units. Refects the performance of the organizationa unit a manager is responsibe for or working in. The weight of this component is 25 per cent. The goa achievement is measured by deviation between contribution margin and net saes goas and the actua numbers. Note that for Headquarter functions (e.g. controing or HR), which have no profit and oss account the my unit component is repaced by an additiona individua component, which accounts for 25 per cent as we.

311 294 CASE 3 WOLFGANG S BALANCING ACT Broader Context component. This refects the joint responsibiity for performance of a higher organizationa eve, i.e. the corporate eve. The weight of this component is 25 per cent. The evauation of goa achievement on corporate eve is based on the degree of corporate goa achievement. Corporate goas are decided by the Board each year, the eading parameter is corporate contribution margin. Both the broader context and the my unit components are everaged. As a consequence, a goa achievement of, e.g. 120 per cent wi ead to 200 per cent pay out for this component. On the other hand a goa achievement of ess than 100 per cent wi decrease the pay out for the respective component significanty. In this manner unit and broad context components have potentia variance in payoffs and/or shortfa that are disproportionate to their simpe weights. For every component a payout is cacuated, the sum of the three components is the tota bonus a manager receives Foder six: an overview of the corporate and HRM strategy As stated above, the competitive situation in the pharmaceutica industry has required Heathcare executives to redesign cross-border activities. Whie the company has aways been active in a high number of foreign markets, business processes were traditionay ocay oriented in the past. Wofgang recas a typoogy of internationa firms deveoped by Christopher Bartett and the ate Sumantra Ghosha. Thinking in student terms, reaigning or rebaancing Heathcare s pay system means increasing goba integration. In an abstract sense, Heathcare is attempting to deveop a transnationa strategy now by gobay integrating certain activities whie eaving room for oca responsiveness. Figure 1 shows the deveopments in Heathcare s cross-border strategy. This tendency is refected in the HR strategy. Whie recruitment, seection, performance management and compensation poicies for executives were designed according to oca standards in the past, these processes are repaced by new soutions. These soutions focus on furthering goba consistency of HR systems in order to respond to strategic changes on the corporate eve. The overa goa is to strengthen an aigned FIGURE 1 Recent deveopments in the internationaization strategy of Heathcare Coordination of company processes transnationa nationa Geographicay concentrated Configuration a Heathcare s past situation b Heathcare s current situation c Heathcare s future situation Geographicay dispersed performance orientation and to support goba coordination, which is essentia for gobay integrated business processes. Eements indicating a stronger goba integration incude the above-mentioned common set of eadership competencies. This concept has been deveoped by the headquarters HR department in cooperation with oca HR representatives and managers from different regions and business units. Bumps on the road to internationa coordination at Heathcare Group Some of his coeagues in the HR department have tod Wofgang about probems with a standardized compensation mode, which was supposed to be impemented two years ago. Heathcare s aim was to have the same compensation system in each country. They wanted to have the highest possibe degree of standardization in order to make transnationa processes easier and more efficient. They panned to spit the saary in two parts: 65 per cent fixed income and 35 per cent variabe income depending on individua performance. The pan was to introduce this system not ony for managers but for a empoyees. a b c

312 CASE 3 WOLFGANG S BALANCING ACT 295 Shorty after announcing the new pans, severa of Heathcare s regiona HR managers and empoyees vocay opposed the new system. In France, managers even caed for a strike. In Germany, the situation was difficut as we because the worker s counci (Betriebsrat) did not agree to the new system and many negotiations foowed. Many empoyees were frightened by the new risky system as they had become dependent on a high percentage of fixed (guaranteed) income. They panicked at the thought of osing neary haf of their income and were afraid that they woud never reach the 100 per cent they gained before. As a consequence the impementation of this system was never reaized. In designing the new compensation system, Heathcare s management board had ony considered economic issues, whie disregarding existing, yet unspoken cutura frames of reference and perceptions. Wofgang knew he had to be carefu to avoid oversimpification and an overstandardization, and deveop a more country-specific system which coud be adjusted to oca characteristics. From his internationa background Wofgang knew how important it is to incude his HR counterparts from the different countries and regions in the process of further deveoping the HR poicies and systems. This woud aow him to more accuratey understand the cutura and ega particuarities at hand as we as ensure him a higher eve of poitica support in Heathcare s regions and countries. For exampe, as a first step, Wofgang has been in cose contact with the HR representatives in the most important strategic markets, which currenty are the USA and Japan. Here, he has negotiated exceptions for the standardized currency base of performancebased pay eements. He has earned that the oca currency is most important because oca managers are not used to considering a foreign currency and woud not accept this as a major eement of the compensation system. Another issue for discussion was the percentage dedicated to fixed and variabe pay. Wofgang had probems understanding the Japanese opposition to the new goba performance management system. During Heathcare s yeary HR conference he fet that Mr. Okubayashi, the Japanese head of HR at Heathcare, was not happy with the goba performance system but did not reay engage in discussions about how to improve or adapt the system. Thus, one evening Wofgang invited him for dinner in a nice sushi bar in Düssedorf where Heathcare s yeary HR conference took pace. Over innumerabe cups of saki Okubayashi patienty outined traditiona compensation systems in Japan. Upon sobering up the next day Wofgang sowy reaized that given cuture and firm traditions it woud be very difficut to introduce a high eve of variabe pay based on individua performance in Japan. He attributed this to a higher eve of risk aversion characterizing the Japanese cuture as compared to many other cutures. From his studies he knew about the Hofstede s dimensions describing cutura differences. As he recaed one of them was uncertainty avoidance. This points out the extent to which peope are risk averse or are prepared to take risks. He thought that risk-taking managers were probaby ready to accept arge incentive payments whie risk-averse managers were not prepared to accept a high income variabiity, which may be invoved in performance-based pay. The atter may be the case in Japan. When Wofgang taked to the American head of HR at Heathcare, Thomas Mier, in a very ate afternoon video conference, he received a different message. Mier oudy and repeatedy asserted that, from an American perspective, the goba performance management system suggested by the headquarters was wimpy and woud not reward the outstanding achievements of franchise payer star managers. Compared to the big US pharmaceutica companies percentage of variabe pay for top managers, Thomas decared the monetary incentive system of Heathcare ridicuous and demanded a higher proportion of variabe pay. Wofgang had to turn the video ink sound down twice by the end of the web-enabed teeconference meeting. Was this a sign of a higher eve of risk taking as a resut of the underying cuture in the USA? Step-by-step Wofgang earned how important it is to ensure acceptance in the important strategic markets and to consider oca abor market reguations. He came to reaize that country-specific determinants such as cutura vaues or the ega environment of the firm must be considered if probems with cutura acceptance or ega conficts are to be minimized. This newy acquired awareness made his mandate even more compicated. He had some genera ideas about the contextua situation in some countries, yet he was unaware of the conditions in other countries. Impementing a new system aways runs the risk of osing poitica support and insuting the perspectives of the oca HR administrators and the business unit heads.

313 296 CASE 3 WOLFGANG S BALANCING ACT Thinking about the positive effects of the internationa HR conference as we as his individua discussions with Okubayashi and Mier, Wofgang took the opportunity of visiting some of Heathcare s subsidiaries and taking out the HR managers for unch. He diigenty tried to identify their reative positions as to the strengths and weaknesses of the current compensation system and coected ideas for his presentation to the board. Concusion: a not so happy Christmas It is Christmas Eve. Wofgang is sitting in a newy buit ski hote in Garmisch-Partenkirchen, overooking the snowy mountains and preparing the fina draft of his presentation for the management board meeting at the beginning of January. The six fie foders ay spread out across the arge bonde ash tabe and even across the oak foor as thick, heavy snowfakes sienty fa outside. He is thinking about reorganizing Heathcare s compensation system. His task is to find the right mixture of standardization and fexibiity. On the one hand, he has to impement a new compensation system in order to reduce costs. On the other hand he has to take into account the traditiona oca HR practices. As he considers a he has earned at Heathcare over the ast few months, he asks himsef a series of questions. A visua earner, Wofgang writes out a chart on a writing tabet that captures his sense of integration and oca responsiveness at Heathcare. We present his sketch as Figure 2. FIGURE 2 Baancing goba integration and oca responsiveness in Heathcare s compensation strategy Heathcare s transnationa Strategy Goba Integration Responsiveness Heathcare s Pay Strategy Goba consistency, according to MNE s strategic requirements Pay mix Pay eve Locaization, according to cutura and institutiona environment Goba consistent poicy for Compensation eements incuding variabe pay eements (refecting a rather risk-taking orientation) and fixed pay (refecting a rather risk-averse orientation) Short-term incentives Individua (refecting individua performance) and My Unit Component (refecting group performance) Standardized ong-term incentives (refecting corporate performance) Variabe pay through ranges within the bonus potentia Broader Context Component (refecting group or division performance), in case of regiona eve US and Japanese currency bases for cacuation of short-term incentives Fringe benefits Loca adaptation for

314 CASE 3 WOLFGANG S BALANCING ACT 297 Question bock A: standardization vs oca responsiveness of compensation systems Wofgang reconsiders the degree of goba standardization and oca responsiveness of the current goba compensation system. 1 Shoud he move some of the existing pay eements across the T account in Figure 2, shifting them from gobay standardized to ocay customized? 2 Shoud he add or deete some existing practices from the T account? 3 Shoud he change the weights or emphases (percentages) of existing eements of the pay system? Question bock B: job-based vs competency-based compensation It Heathcare s job-based pay dominated the existing system, whie other approaches such as competencybased compensation have not been pursued, then what advantages might a competency based system have for Heathcare? 1 How can the firm communicate to the geographicay dispersed executives the need to acquire and maintain those management competencies that have been defined in the competency set (in foder three)? 2 Woud a purey competency-based pay system be somehow more fexibe? 3 But then again, what about the standardization Heathcare has just achieved through standardizing the job descriptions across units? 4 How woud he take these three competency categories and use them to deveop a series of measurabe, behaviora indicators to be used to assess an executive s contributions to Heathcare? In what sense shoud these new behaviora indicators be customized to oca (regiona) contexts? How can Wofgang go about this process to ensure a baance of organizationa standardization and oca reevance? Frustrated with the compexities he is facing, Wofgang is panning a teephone conference with regiona compensation administrators and other executives in order to expand his anaysis with this group and to buid poitica support for a new poicy Does he have the time to dea with a the inevitabe differing perspectives that wi emerge, and can they together create a systematic set of recommendations before his report is due to the Heathcare board? As a member of Wofgang s teephone conference pease comment on the question bocks A and B. NOTE AND REFERENCE 1. The authors woud ike to thank Frank Kuak, Judith Eidems, Susanne Royer, Andrea Näge and Sinnet Lorenzen for support.

315 298 CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION: EXECUTIVE AND MANAGERIAL PLANNING FOR BOSCH-KAZAKHSTAN 1 By Marion Festing and Manfred Froehecke 2 Introduction Personne panning and staffing issues are critica success factors in foreign subsidiaries of mutinationa enterprises. They must be designed in the context of corporate goas and issues and the specific situation in the host country. From a firm-interna perspective, human capita/taent panning and staffing decisions are reated to a company s corporate strategy and embedded in the corporate human resource strategy. Thus, panning and staffing decisions must be coordinated with other HR activities within the MNE, such as human resource deveopment. This perspective must then be baanced with a carefu consideration of the particuarities in the host-country context and the avaiabiity of quaified individuas within the externa abor market. In this case study, we wi first outine the company background and then describe the situation in the country of interest, which is Kazakhstan. Based on this information it is your part to take the roe of a Bosch corporate HR manager. You are supposed to anayze both, the company and countryspecific context, and outine a proposed mode for personne panning and staffing of the Bosch subsidiary in Kazakhstan. By drawing on the Ethnocentric, Poycentric, Regiocentric, Geocentric (EPRG) Mode of Permutter (see Chapter 5), pease decide which staffing strategy woud be the best choice. Discuss on this basis how many expatriates and how many oca empoyees you woud pan in a short- or medium-term at the different hierarchica eves. If you shoud perceive any further information needs pease expicity define a reaistic set of supporting assumptions. Pease justify your decision. Which are the advantages and disadvantages of your decision? Company Background: Robert Bosch Group 3 The Bosch Group is a eading goba manufacturer of automotive and industria technoogy, consumer goods and buiding technoogy. It was founded in the year 1886 by Robert Bosch ( ) and was caed Workshop for Precision Mechanics and Eectrica Engineering. The Bosch Group today comprises a manufacturing, saes and after-saes service network of over 350 subsidiaries and regiona companies and more than Bosch service centers in roughy 150 countries. 4 One statement by the founder Robert Bosch is important to understand the HR phiosophy characterizing this MNE: It is my intention, apart from the aeviation of a kinds of suffering, to promote the mora, physica and inteectua deveopment of the peope. In fisca 2010, some empoyees generated saes of 47.3 biion Euros. 5 FIGURE 1 Bosch saes by region in 2010 Europe 59% 1 Incuding other countries Source: Robert Bosch GmbH (2011: 18) Americas 18% Asia Pacific 1 23%

316 CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION 299 TABLE 1 Bosch Empoyees by Region Wordwide Europe Of these in Germany Americas Asia-Pacific (incuding other regions) Source: Robert Bosch GmbH (2011: 19) Even if 77 per cent 6 of the business voume has been generated outside Germany (see Figure 1), about 40 per cent of the tota numbers of empoyees are working in Germany (see Tabe 1). Executive and Manageria Panning (EMP) The internationa executive and manageria panning (EMP) activity at Bosch is part of the Strategic Panning Process of the company. Once a year, the goba executive staffing needs for seected countries are derived from each division s ong-term strategic panning activities. Starting from the current oca structure, the required number of manageria positions is determined within the parameters of a roing eight-year forecast. Various measures are taken to meet the manageria staffing needs. They can be short-term (e.g. hiring of manageria staff from the externa abor market, assignment of expatriates) or rather medium/ ong-term (e.g. deveopment of high-potentia empoyees see the empoyee deveopment discussion beow) or specia programs ike Junior Managers Programs (JUMP). The EMP is carried out using a standardized too from the divisiona HR department in cooperation with the various regiona HR departments. Aggregated resuts are anayzed from division-, regiona- and Robert Bosch Word (corporate) eves. Continuous comparisons of the panned versus actua abor staffing situations provide feedback on those assignments which have to be initiated or redefined. The panning period of eight years consists of two parts: The input for the first four years stems from business pans and succession panning. Forecast for the ast four years is based on more goba-macro assumptions, e.g. changes in the eadership projected at a figure of 5 per cent. Therefore, EMP is inked to instruments of empoyee deveopment in the Bosch Group. Empoyee Deveopment in the Bosch Group Bosch understands that empoyee deveopment is a continuous process of maintaining and further deveoping those empoyeeś quaifications needed to cope with present and future chaenges. A major principe in this respect is the promotion of empoyees from within Bosch rather than the acquisition of new hires from outside. HR departments support empoyees and managers by providing toos and programs and giving guidance. The universay standardized systems and processes for empoyee deveopment are depicted in Figure 2. An important procedure for the deveopment of empoyees is the Management Potentia Review (MED, see Figure 2), 7, which is conducted on a wordwide eve. It pursues the foowing objectives: Fu utiization of the company s reserves of highpotentia empoyees without compromising performance standards. Staffing requirements and deveopment panning (midde and upper management) for the upcoming four years (succession panning see EMP above). Consistency in panning and a systematic tracking of empoyee deveopment and career advancement measures. Use of overseas assignments, project tasks, and cross-functiona moves as common deveopment measures. Empoyees who show an above-average deveopment potentia with regard to speciaist and management positions wi be systematicay prepared for the next management eve by way of the Manager Deveopment Pan (MDP). Besides outstanding performance, Bosch expects idea empoyees to meet a task or roereevant personaity profie, show a preparedness to take on new tasks and greater responsibiities, genera mobiity potentia as we as a wiingness to take on

317 300 CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION FIGURE 2 Instruments of Empoyee Deveopment Performance discussion with each associate Once a year between associate and supervisor Resuts Goa achievement over the past year Goa agreement for the coming year Feedback on performance Measures: maintaining/improving performance Individua deveopment discussion upon request of Associate, supervisor or HR department at greater intervas Resuts Associate s persona deveopment goas over the next three to five years Strengths and growth potentia Deveopmenta activities Management potentia review (MED) a associates Once a year between supervisors and HR department Resuts Evauating potentia Suppementa deveopment activities Panning for staffing needs Decision on admission to manager deveopment pan (MDP) Leadership deveopment center new members of MDP Resuts Potentia anaysis Advice on strength and growth potentia Suggestions for deveopment and career activities Career advancement discussion ony with members of MDP Subsequent to admission to MDP and (if possibe) Subsequent to participation in eadership deveopment center Resuts Agreement of career advancement goas and suitabe measures over a period of up to four years internationa assignments. MDP is a prerequisite for promotion into manageria ranks. The preparation of the MDP candidates is a mixture of on-the-job and off-the-job measures with the goa of bringing the empoyees into the next management eve in no more than four years. In many cases the achievement of the career advancement objective is connected with a transfer to a new assignment.

318 CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION 301 Taent Management As stated before, Bosch mainy reies on hiring and deveoping taent from within the firm. Consequenty, it is important to focus on the acquisition of quaified university graduates and professionas to meet a wider range of potentia future manageria requirements. Besides direct entries and oca programs, Bosch has a standardized Bosch-wide entry program for junior managers (JUMP). 8 The goa of the program is to recruit junior managers (master s degree with up to three years of professiona experience) with the potentia to assume a midde management position in six eight years. The program asts one and a haf to two years and is comprised of three to four stages, incuding a sixmonth stay abroad as we as a cross-divisiona assignment. This form of training emphasizes a common set of wordwide standards, experiences and activities, and is designed to permit more rigorous and systematic preparations for a range of management tasks. Expatriates Currenty more than 2200 expatriates 9 are working for Bosch wordwide. An expatriate, as defined by Bosch, is an empoyee working for more than 24 month outside his or her home country with specia contractua conditions (contract in the host country for a imited period of time normay three to five years specia aowances for hardship, cost of iving, etc.). Over 1100 Germans are working in more than 40 countries, approximatey 400 empoyees from Bosch subsidiaries are working in Germany (inpatriates) and roughy 400 Third Country Nationas (TCNs) are assigned to ocations outside their home countries for imited periods of time. A majority of these empoyees were assigned due to technica and process expertise, yet some assignments were made for career deveopment or training reasons. Two thirds of the expatriates are assigned in manageria ranks. Bosch requires a top managers, beside their other experiences, to have at east two years internationa working experience. This internationa experience is an expicit prerequisite for promotion. Country-specific features of Kazakhstan 10 Kazakhstan is ocated in Centra Asia with China, Russia, Kyrgyzstan, Turkmenistan, and Uzbekistan as neighbor states (as shown in Figure 3 beow). It covers a tota of sq. km. The popuation is 16.4m. inhabitants (January 1, 2011) incuding a wide ethnic diversity (with per cent Kazakhs, per cent Russians and Ukrainians, per cent other ethnic minorities) per cent ive in cities. 11 Main reigions are Isam (70.2 per cent) and Christianity (26.2 per cent). 12 The state anguage is Kazakh but Russian is used in everyday business by most of the peope and has a status of an officia anguage. Kazakhstan became independent from the former Soviet Union in 1991 and is now is a repubic characterized by an authoritarian presidentia rue. The capita is Astana. Economic data: The economic situation of the country can be described by a GDP of roughy biion US Doars in 2010 versus biion US Doars in The country has an unempoyment rate of 5.8 per cent (2010), an economicay active popuation of 8.6 miion persons and comparaby ow abor cost. The average saary equaed in 2010 to about 527 US Doars per month. The export voume in 2010 amounted to 59.8 biion US Doars. 13 Main exports incude oi, ferrous and nonferrous metas, machinery, chemicas, grain, woo, meat and coa. Education system: The education system is one of the major concerns of the country. However, this was not refected in the pubic expenses for education. Today, the education system consists to a high degree of private education institutions. Funding of research is ow and these institutions are dependent on foreign investments. However, a reform of the education system is one part of the strategic panning of the Kazakh Repubic. To date, the Universities have been restructured according to the guideines of the Boogna Reform. Even if a reativey high number of persons hod a University degree, companies have probems finding adequatey prepared personne that have skis sets which correspond to the company s needs.

319 302 CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION FIGURE 3 Kazakhstan s geographic ocation KAZAKHSTAN Your Task: Executive and Manageria Panning (EMP) for a subsidiary in Kazakhstan 14 The Board of Management of the Bosch Group has requested an EMP for Kazakhstan in ine with the yeary Strategic Long-term-panning (eight years forecast see the third section above). The pan shoud predict the demand for executive staffing at a eves and for a divisions. It shoud aso specify how the demand wi be met, incuding staffing sources such as the use of expatriates, oca management deveopment pans (MDPs), specia programs, e.g. JUMP or externa hires. As seen from Bosch s corporate perspective, the situation in Kazakhstan is as foows: There are four production sites in different rura ocations. Each one beongs to a different product division: Gasoine, Bosch-Rexroth, Security Systems and Diese motors. Organizations are characterized by different market/product maturity stages: Gasoine, Bosch-Rexroth, Security Systems are consoidated. Ony a sma or no growth in headcount is panned over the next ten years. In contrast, Diese is sti growing fast (present headcount pus 30 per cent estimated in the next three years).

320 1. Personne structure Actua 2007 Tota headcount 7632 Lower (#/as % of tota empoyees) Midde(#/as % of tota empoyees) Upper(#/as % of tota empoyees) 2. Staffing needs Headcount fuctuation Backfi Additiona needs from M&A projects Tota staffing needs 3. Staffing sources Expatriates Loca MDP members Deveopment programmes (DP,TP) Externa hires Staffing tota Case Study: Manageria Panning Kazakhstan ow / 1,50 % 54 / 0,71 % 3 / 0,04 % Forecast 2014* / 1,77 % 70/ 0,82 % 3/ 0,04 % midde upper ow midde upper Comments Lower 5 ower management Midde 5 midde management Upper 5 top management Comments 49 (24 %) 154 (76%) *01.01.FY Legende: MDP management deveopment programme; DG = deveopment group; IDP Internationa Deveopment Programme, TP = Trainee programme 2 0(0%) 203 CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION 303 FIGURE 4 Form for situation anaysis Case Study: Executive and Manageria Panning Kazakhstan 1. Describe the corporate phiosophy 2. Scan environmenta conditions 3. Evauate corporate strengths and constraints 4. Deveop objectives and goas 5. Deveop strategies The abor market for quaified managers and speciaists is very sma. Externa hires in Kazakhstan wi take much onger to begin work than in equivaent hiring processes operating in Germany. Loca candidates have very itte mobiity and argey ack broader nationa or internationa experiences. Bosch s major production sites are by and arge not attractive ocations to most quaified empoyees. The high numbers of expatriates were the resut of the rapid in-country growth especiay for the Diese site. Higher management positions are currenty a fied by expatriates. Taking the roe of HR manager at Bosch you must address the foowing three questions: 1 Considering the facts about Kazakhstan, pease discuss which staffing strategy according to the EPRG Mode by Permutter woud be the most suitabe for Kazakhstan. Pease justify your answer. Comment on advantages and disadvantages of your decision. 2 Anayze the company and country-specific situation by using the steps outined in Figure 4. Pan the number and nature of short/medium-term ( as we as ong-term ( ) staffing requirements for Bosch Kazakhstan in anaogy to the strategic company goas. The staffing pan shoud consider the sources of staffing (expatriates, empoyees of the oca Management Deveopment pan or specia programs such as the JMP program or externa oca staff). 3 Fi in your figures in the panning chart beow (see Figure 5). 4 Finay, prepare an action pan describing how you wi meet manageria staffing targets. Look especiay at information provided in the Empoyee deveopment and Taent management sections of the case for activities and timetabes. Write down your action pan. 15

321 304 CASE 4 STRATEGIC FORECASTS AND STAFFING FORMULATION FIGURE 5 Panning chart Staffing need Sources Expatriates Loca MDP attendents Deveopment Program (JMP) Externa hires Tota Staffing need Current Prognosis LM MM UM LM MM UM Tota 203 Source: List of Bosch-specific abbreviations and definitions: MDP/DG: Management-Deveoping-Program/Deveopment Group JMP ¼ Junior Managers Program LM ¼ Lower Management, MM ¼ Midde Management, UM ¼ Upper Management NOTES AND REFERENCES 1. The case study is imaginary. Bosch has no such activities in Kazakhstan. However, the described HR measures refect current practices within this MNE. 2. Marion Festing is Professor of Human Resource Management and Intercutura Leadership, ESCP Europe, Berin/Germany; Manfred Froehecke, Vice President, Corporate Department Human Resources Management Executives, Robert Bosch GmbH, Stuttgart/Germany. 3. See aso and Robert Bosch GmbH. (2011). Annua Report Retrieved October 10, 2011, from fashbook/gb2010_en.pdf. 4. Robert Bosch GmbH (2011: 41, 80). 5. Robert Bosch GmbH (2011: 19, 82). 6. Robert Bosch GmbH (2011: 139) 7. MED is the German abbreviation for Mitarbeiterentwickungs-Durchsprache or in Engish Management Potentia Review. 8. The standardized entry Program JUMP is sti in the impementation phase. Other comparabe programs, e.g., Management Trainee Programs, have been in pace for some time. 9. Robert Bosch GmbH (2011: 59) 10. This section is mainy based on Agency of Statistics of the Repubic of Kazakhstan (2011a). Demographic Yearbook of Kazakhstan [in Russian]. Retrieved November 18, 2011, from Dem2010.rar and Agency of Statistics of the Repubic of Kazakhstan (2011b). Kazakhstan in Retrieved November 18, 2011, from pubishing/doclib/2011/statyear2010.pdf. 11. Agency of Statistics of the Repubic of Kazakhstan (2011a: 8,25). 12. Agency of Statistics of the Repubic of Kazakhstan (2010) Popuation Census Resuts [in Russian]. Retrieved Retrieved November 18, 2011, from Agency of Statistics of the Repubic of Kazakhstan (2011b: 9,10,167,400). 14. The case study is imaginary. Bosch has no such activities in Kazakhstan. 15. The Case Study is simpified. A detaied panning of functiona areas is not the intent of this case exercise. The student shoud earn to ask the right questions about how to source manpower, what chaenges the company faces in a difficut environment and what measures must be taken to meet the future demands.

322 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS 305 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS 1 By Maike Andresen 2 Akiko Nishimura is upset and exhausted. She prepares a fresh juice and wants to reax a bit. It is three o cock in the afternoon and she just came back to her apartment situated in a suburb of New Dehi. Today she had an appointment with her HR manager, Mrs Puja Maik, that asted three hours. Akiko is more than upset about the offer the HR manager made and does not understand the word any more. Akiko is 40 years od and was born in Tokyo. After her studies in management at the University of Tokyo and Wharton Business Schoo in the USA she started her career with a German mutinationa manufacturing company in Tokyo in the controing department. Two years ago her boss offered her to go on an expatriate assignment to New Dehi, India, in order to gain internationa experience and deveop her taent further. Her husband Hiroshi and two daughters, at that time 12 and 10 years od, immediatey agreed to change ocations and foowed her. Hiroshi interrupted his career as a broker in a mutinationa bank. After two years in New Dehi, Hiroshi sti coud not find an adequate job. Athough the whoe famiy enjoyed iving in India and Akiko iked her job, Hiroshi became impatient and coud not stand his inactivity any more. Through a former cient he got to know about a chaenging job opportunity in Singapore and successfuy appied for the position. Akiko shared Hiroshi s happiness and fet that she wanted to foow him to Singapore. So she contacted her HR manager, Puja Maik, a few weeks ago and started to tak to various peope within the organization in her persona network, to find out what the options woud be and et peope know that she is ooking. Yesterday, Puja Maik caed her and asked for an appointment. They met today in order to tak about severa opportunities and the conditions. Whereas the positions were very appeaing to Akiko, the conditions were absoutey unreasonabe in her perspective. After two hours Akiko became angry, but her HR manager defended the offer with the restructuring of the company and new poicies that came up. As you know, Akiko, the company started up as a technoogy venture about 120 years ago with its production ocated in Germany. In order to be profitabe their production and saes needed to increase. Due to imitations in the home market, they expanded internationay in the 1920s starting with France and quicky foowed by severa other countries in each of the five continents. In the 1970s the company empoyed peope, with more than two-thirds of these outside Germany. Due to this extensive expansion wordwide as we as an increasingy diverse product ine, the idea of controing the entire organization from the German headquarters was seen as an impossibe task. There was a need to organize into smaer, more fexibe and more manageabe units. Hence, the decision was made to set up a nationa organization in every country where there were active enterprises. These nationa organizations were supported by the internationa organization at headquarters. In the course of the ast 20 years these nationa organizations grew to be very independent. The executive board saw the need to start focusing on a more user-oriented poicy of gobaization. In this reorganization process the product divisions gained a more prominent roe in the structure. Today, you sti see a cear roe of both the product divisions but aso the country organizations in the corporate structure. Puja Maik points a finger at the annua report and outines the organizationa chart. (see Figure 1.) Puja Maik continues: Athough the company wants to act as one company, it aways has to focus on the chaenge to work with three quite independent sectors. Today, the company is situated in around 60 countries wordwide with more than empoyees. The HR department is currenty invoved in a change process, moving toward offering more services from shared service centers. One reason for this is the request to be more effective and efficient in the

323 306 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS FIGURE 1 Executive board Product Division 1 Product Division 2 Product Division 3 Corporate Departments Country A Business Unit Business Unit Business Unit Corporate HR Country B Business Unit Business Unit Business Unit IT Country C Business Unit Business Unit Business Unit Goba Purchasing Design process especiay with the vision to be one company. Up to current time, when peope have been moving across countries through the company, the standard has been that peope mosty moved on a home-based expatriate contract. This rue aso appied to Akiko when she expatriated to New Dehi. However, her HR manager recenty informed her that there are new rues and that according to this new poicy her expatriate contract woud not be renewed when going to Singapore. Puja Maik argues: I think in terms of transfer, unti a few years, we were quite generous with our expat poicy. So when there was a need to, et s say, shift taent just ike you, Akiko, or peope with scarce knowedge around the gobe we just gave them an expat package. But I think peope in genera are more open for moving around the gobe, instead of going a few years and then wanting to come back. I can see that more peope are ooking for a career across borders. And this may not be in the form of fu expat packages in our company. Puja Maik obviousy sees the need to give a further expanation. She adds that after a ong upturn period, the company aso has to face the probems of the current economic crisis. This tendency is now forcing the company to rethink their strategy in regards to what they are providing for their empoyees who are going abroad in order to manage the costs invoved. Unti recenty handing internationa assignments mosty with expatriates seemed the right way of doing things. But the company is facing a new popuation, those who stay abroad for a onger term or even permanenty. You need to know, Akiko, Puja Maik goes on, we have empoyees that have been in the same country for eight years on an expat package. But they are not expats anymore! And then you have the gobetrotter, those who have had three or four different expat assignments. So they have eft their country for more than ten years and we don t know when and if they are coming back. What do you do with them? Puja emphasizes that this change was pacing the company in a position where they were forced to go through and anayze their current poicies in regards to internationa mobiity. The intention was to create a cost effective aternative for this new emerging popuation. Akiko s first expatriate assignment to New Dehi Akiko thinks back to her first move from Tokyo to New Dehi. Things were deat with differenty two years ago. She was part of the taent poo (and sti is) and

324 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS 307 received specia treatment. Today this expatriate popuation comprises about 750 peope. The company uses expatriation for two main reasons: First, as a career assignment for taent to gain internationa experience and, second, as a job assignment to transfer knowedge across borders. Whereas the company wishes to have 70 per cent of expatriates in a career assignment and 30 per cent on a job assignment, it is now eveny distributed. Moreover, to be abe to give an internationa assignment to as many empoyees as possibe, the company has impemented a poicy saying that assignments shoud be a maximum of three years, and that one empoyee shoud not cumuate too many different assignments. Athough originay Akiko asked for an assignment of five years in order to faciitate the change of jobs for her husband, this request was turned down. She remembers that she has been tod If you stay onger in a country, then you bock the career of someone ese. Akiko agreed and signed a contract for three years. Her expatriate package is home based. This means that she was meant to return home to Tokyo after the assignment, Akiko was kept under her home socia security, heath insurance and pension pan. The expatriate package comprises a the usua expatriate faciities and services. Akiko got to know that this expatriate package has additiona cost for the company of about three times the base saary. That is aso why the company wants to imit the extent of these expensive expatriate assignments ony to critica positions. Akiko, Puja Maik argues, the company has created different types of packages for different types of internationa work. When you move to Singapore, the baance between the business and the empoyee interest eans more in the direction of you. Hence, we offer a different contract and package to you that is caed oca internationa contract. Akiko knows what a this is about and she gets upset. She fees that the company wants to minimize a number of costs by making some of them optiona. She thinks that this is not fair as she is sti growing in her career and investing a ot into the company in terms of energy and working hours whie giving up her easy ife in Tokyo. It was the firm s idea to send her to New Dehi! Moreover, her husband risked his career and her two daughters had to change schoo and ost contact with their grandparents back in Tokyo. What is this new Loca Internationa Poicy about? Puja Maik expands on the new poicy: The oca internationa poicy came about ast year as a response to an emerging need especiay in Asia. We saw that owing to gobaization there were many foreigners coming here on an expatriate assignment, and many of these foreigners aso had a wish to stay. This resuted in a need for using a ocay based contract, but that woud sti attract foreigners to trave. As a pure oca contract woud not be abe to attract these empoyees, we decided to provide some extra benefits to these oca internationa hires. The oca internationa contract fits between an expatriate and a oca package. Even though these transfers are party empoyee initiated, we provide a sow anding into the new country. This means that the host country provides some kind of support. (see Figure 2.) FIGURE 2 The Loca Internationa Poicy Costs to be covered by the company: Individua host country based saary and incentives according to oca scheme. Setting-in aowance (to cover the incidenta misceaneous expenses of a move, e.g. temporary accommodation and meas on arriva, schoo uniforms and books for schoo-age chidren). Medica check up. Visa and permits (based on country standards). Trave costs (outward journey; one home trip during first year). Optiona: Aowance for housing and schoo ( 50% after year 1, 0% after year 2). Optiona: Retention bonus. Optiona: Aowances according to oca needs.

325 308 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS FIGURE 3 Interna Empoyment status Newy hired Loca contract No Taent Yes Yes Career or job assignment No 3 12 months Duration Permanent Up to 3 years Loca internationa contract Expatriate contract Akiko understands that the thought behind the oca internationa package is to provide an aternative to the expatriate package for those cases where it is a permanent reocation of an internationa manager. As the oca internationa package is reay a ocay based package, the saary is aso based on the oca saary system in the host country. Puja Maik adds: For the expat package, you know from your own experience, Akiko, that we have a baance sheet approach, where we want to ensure that the purchasing power from the home country is maintained in the host country...but for the oca internationa contract, we do not want to ink to the home country. Akiko sees a major probem in that and immediatey asks what woud happen if an internationa hire moves from a high income country to a ow income country and Puja Maik confirms that this woud ead to a owering of the saary athough the company is aware of the fact that under these conditions it might be difficut to attract foreigners on a purey oca saary. Akiko is irritated and concudes that she woud not accept a decrease in her income when going to Singapore. Sti she wants to understand why a this happens. Puja, apart from the saary eve, what do you mean by the sow anding that you mentioned before? Puja repies, This means that in addition to your saary, the company wi give you some extra benefits such as reocation support, setting-in aowance and one home trip during the first year. Puja points to her computer screen and shows Akiko what she can expect when moving to Singapore: Akiko becomes aware that in contrast to her current expatriate contract no pre-assignment visit is paid for, she needs to arrange the house hunting, negotiation, schoo search, etc. by hersef and a norma costs of iving, such as housing or schooing, are to be handed by hersef; any financia support ends after two years when she wi be on a norma oca contract. But, Puja, why does this new rue appy to me? I am currenty on an expatriate contract why shoud I opt out of it now? Akiko interjects. This is, repies Puja, due to our rues. The foowing eements justify a oca internationa contract: The person in question is an interna empoyee who is reocated. And the person is not what the company considers a taent or a top potentia empoyee. Your case, Akiko,

326 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS 309 is exceptiona as you are a taent or top potentia but, Puja Maik emphasizes, your reocation to Singapore is not a career or job assignment. You know, Akiko, your position in Singapore coud just as we be fied by a oca empoyee. In addition, we expect these empoyees to ocaize. Akiko intervenes resoutey: But things can change fast and I might want to make another move after three to five years if a great opportunity comes up! Puja Maik reacts: Yes, but for the time being we treat it ike a permanent reocation. And, finay, it is based more on your own initiative and decision to move. Look and see this is our decision tree. (see Figure 3.) Once again, Puja Maik points to her computer screen where she upoads the decision-making tree on assignment type. Puja Maik stresses that these decisions are not easy to make. She iustrates that first of a, in a constanty changing environment it is of key importance for the company to keep their empoyees mobie. Akiko understands that in a ocaization process it is therefore of great importance to think ahead whether the person that is to be put on a oca contract is ikey to get a new assignment in another country ater on in his or her career. If first a person is ocaized, the bonds to the new country may often be stronger as some might buy a house or send the chidren to oca schoo. So, you see, we have our idea and rues. However, Puja Maik adds, I have to admit that I and some of my coeagues in other countries ater the content of the package, and thereby aso the appicabiity, according to where one is coming from. We say that we have a oca internationa contract, but it might not be appicabe for Chinese or Indians to Singapore because these are ower saary countries. I mean, the high saary in Singapore shoud be abe to take care of your cost of iving without having to compensate it...the business unit in Singapore may just pay for the one way ticket and the shipment to get you there, but they wi not be giving you support for the housing and education. It seems Puja Maik is in her eement as she continues without drawing a breath: By the way, a major chaenge with the oca internationa contract appears to be its appicabiity in China! China has a ower income rate and a ower socia security system than other countries. A current soution to this issue is to provide some extra support for those on a oca internationa contract in China, ike extension of education support and housing. Nevertheess, there are sti some issues regarding socia security which needs to be addressed. With China having much ower socia security, the risk is that we might ose possibe empoyees as they fee they are sacrificing too much of their own security. This is aso the case for pension. In some countries, foreigners are not obiged to contribute to state pension, and in others they are not aowed. Loca internationa empoyees are therefore given a cash equivaent to the state pension and are encouraged to invest in a private fund. But this is a different story. In principe, we need for a more standardized practice when it comes to pension in the future... Do these new rues make sense? Akiko zones out at this point in the extensive conversation and does not foow Puja Maik s expanations as attentivey as she shoud do. She reaizes that some of the chaenges of her oca internationa package wi ony be apparent after the first year when the scaing down starts and the package becomes more ike a oca package. At that time she wi truy start to notice the difference. Before this point, the package is very simiar to her current expatriate package. I wi practicay be poorer after the scae down of the benefits, Akiko refects sienty. The ony way out woud be to start ooking for another oca internationa assignment esewhere to start on a fu oca internationa package again or to go on an expatriate assignment. But Hiroshi and the two girs wi not ike it. She starts to think about her famiy: The two girs wi perceive the anguage barrier to be very scary when going to Singapore. They wi need to attend the internationa schoo at east in a transition period. The company needs to reaize that it s not just about moving an empoyee, it s about moving a whoe famiy! Akiko sees the reocation of the famiy as the biggest hurde for her. We need to fee safe, and know that we are covered if anything happens. Akiko remembers her reocation to New Dehi two years ago. Just the practica things that needed to be taken care of when they moved seemed endess: where to ive, schooing, visa, etc., a the paperwork they needed to fi out. Meanwhie they had to dea with a new anguage and new customs. Akiko summarizes in her mind: These are very practica things that wi not be organized for me when going to Singapore. I wi have to do everything on my own. So that wi be a big chaenge and it is very time consuming, keeping me from doing my actua job!

327 310 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS She reaizes the difference between moving as an expatriate and moving on a oca contract. Moving on expatriate conditions means that more or ess everything is taken care of by the company, whereas going on a oca contract you need to take care of most things yoursef. Akiko is started out of her thoughts. Akiko? Puja Maik ooks directy into her eyes. Just et me be very honest. Of course, corporate has made it very cear that the number of peope put on expat contracts has to be reduced. The background for this is to cut down the costs for these very expensive expatriates. But it is aso about creating more equity with the oca empoyees. Put yoursef into the shoes of the oca empoyees. Woud you, as a oca person, accept that you ceaseessy earn ess than a foreigner athough you do the same job? Akiko murmurs: No, of course not. She thinks that this is an interesting and important aspect. She asks hersef which contract her husband woud get according to this system when going to Singapore. Akiko gazes at the decision tree on the computer screen. She reaizes that as Hiroshi is changing empoyers and woud therefore enter the company as a new empoyee, he woud automaticay get a oca contract without any extras. The famiy s situation woud be even worse! She asks hersef whether this new further distinction of different types of assignments is reay fair or whether it is about creating a second and third cass of expatriates. Akiko fees that she is not concentrated any more and is overoaded with information. And somehow she is aso overtaxed by these impications. She does not reay know what to do. She wants to finish the conversation but Puja Maik aready continues. I think that in these ocaization processes it is important that the pros and cons are expained carefuy to peope because things are difficut to compare. You need to understand that you wi maybe have to give up something, but in return get something ese. For exampe you might face a decrease in saary in return for a more favorabe pension mode, socia security system or ower cost of iving. It takes a ot of time and needs to be expained by someone who has a deep understanding of a the aspects that are part of a package. For a second Akiko wonders whether Puja Maik is fishing for compiments and is expecting her to admire her competence. Akiko decides not to react at a. Puja Maik continues to ecture about the poicies: For some it might be an attractive opportunity to organize themseves, but for others this wi definitey be something they expect the company to take care of. And of course we need to be sef-critica: Even if this approach seems more simpe it is uncear whether such a poicy corresponds with the present cuture of the company where it is an aim to take care and support peope in a moving process. We need to expain to peope what the consequences might be, Puja Maik repeats hersef. Akiko takes the chance to end the appointment and stresses that the most important factor with regards to the conversion in contracts has to do with communication. She fees that the oss of the benefits she wi receive on a oca internationa contract wi not affect her much if she receives adequate information about what a change in contract wi invove before the move. Akiko stresses that, It is more important to be cear on managing expectations, from both sides since the very beginning, than the actua amount in the end. She stands up, says goodbye to her HR manager Puja Maik and eaves the office sienty. She is confused and fees that she is not in the mood to continue her daiy work today. Akiko decides to go back home to her apartment situated in a suburb of New Dehi and to tak to her husband Hiroshi tonight about the situation in order to get an additiona perspective. Assignments 1 Describe the content of a traditiona expatriate package, and the reasons of the company to provide such benefits! What imitations do you see in this contract when it comes to handing the company s emerging needs? 2 Make a SWOT anaysis of the Loca Internationa poicy using information from the case study. 3 Compare the empoyers and empoyees needs regarding internationa mobiity on a oca internationa contract. What eements woud have to be incuded in a package if they were to answer to these needs? 4 To what extent do you beieve the distinction between the three groups of assignment packages (expatriate contract for expatriates, oca internationa contract for oca internationa hires and oca contract for externa internationa newrecruits) to be fair? To this end (a) refer to equity theory and determine the referent person in each of the three cases and (b) discuss the roe of procedura justice! What can the company do to

328 CASE 5 LOCAL AND INTERNATIONAL? MANAGING COMPLEX EMPLOYMENT EXPECTATIONS 311 provoke positive behaviora intentions in reaction to the packages? 5 What does the company need to take into consideration in order to make the Loca Internationa poicy for this new internationa empoyee popuation be appicabe on a goba basis? Formaize your arguments and propose a suggestion of a poicy framework. NOTES AND REFERENCES 1. Copyright Maike Andresen The case study is inspired by a project done by an internationa group of four students Camie Devautour, Tobias Fack, Christina Lindner, and Jenny Karine Sundsbø within the framework of the, Master Programme in European Human Resource Management (

329 312 CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH: COPING WITH MODERN MOBILITY CHALLENGES 1 By Ihar Sahakiants, Marion Festing, Manfred Froehecke I woud rather ose money than trust. Robert Bosch It was raining in Stuttgart. The new task which Kaus Meier, an empoyee of Robert Bosch GmbH s German headquarters centra Internationa Assignments department, received ast week from his direct supervisor Michae Stein was simutaneousy interesting and extremey chaenging: a new internationa assignment poicy had to be designed for the whoe Bosch Group. The importance of a new internationa assignment poicy is hard to overestimate. First it may be usefu to take a ook at some statistics for 2010 from the atest annua report of the Bosch Group. 2 The report, citing 2010 as a year of historic recovery after recession on a historic scae, highighted that Bosch Group saes had skyrocketed by about 24 per cent to 47.3 biion euros. About 41 per cent of the company s tota saes were made outside Europe. (see Figure 1.) Out of wordwide empoyees, or about 60 per cent of the tota headcount were ocated outside Germany, the home country of the corporation. Moreover, per cent of these personne were ocated outside Europe. (see Figure 2.) Statistics on the importance of internationa operations for Robert Bosch were indeed impressive, but the figures on internationa mobiity within the Bosch Group were even more so. In 2010, there were approximatey 2200 executives on internationa projects requiring reocation to a foreign country and asting over two years, whie the number of inpatriates from Asia, the Americas and Europe on assignments in Germany over the same two-year period reached 400 empoyees. Each new ocation and new market meant additiona fows of expatriate and inpatriate empoyees within the Bosch group. Kaus opened pages of the report, which described the highights of 2010 with respect to new markets, particuary noting: January 18. New presence in Southeast Asia: Bosch Communication Center opens branch in the Phiippine capita Mania; May 13. Bosch steps up its activities in Southeast Asia: new headquarters opened in Singapore; Juy 5. Indian software subsidiary expands its operations: Robert Bosch Engineering and Business Soutions opens ocation in Vietnam; September 13. Market entry in China. Bosch deivers start-stop systems to the automaker ChangAn; October 11. Bosch buids new pant in India: Packaging Technoogy invests four miion euros in a faciity near Goa; SB LiMotive opens a new production pant: in Usan, Korea, ithium-ion battery ces for hybrid and eectric vehices wi be manufactured; November 16. New proving ground in Japan: in the north of Hokkaido, an extended proving ground has been inaugurated twice as big as the predecessor. (Robert Bosch GmbH, 2011: 12 13) Athough a whoe range of issues reated to internationa mobiity needed to be addressed in the new internationa assignment poicy, Kaus wanted to start with the financia aspects of the operation. As an internationa mobiity professiona himsef, he knew ony too we about the high costs of expatriation. These costs incuded not ony expensive expatriate compensation packages, but aso huge administration expenses and the costs of expatriate faiure, e.g. the premature termination of an assignment. These tota costs had the potentia to make ong-term assignments prohibitivey expensive.

330 CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH 313 FIGURE 1 Bosch Group saes by region, 2010 Europe 59% Americas 23% FIGURE 2 Headcount at Bosch Group by region, as per January 1, 2011 Germany Rest of Europe Asia Pacific 1 18% 1 Incuding other countries Source: Robert Bosch GmbH (2011: 18) To gain an overview of the situation at Bosch, Kaus panned to study the detais of severa actua assignments in various ocations. First of a, he examined the personne fie of Hendryk van den Bosch, an od friend of his. He took the first and the ast baance sheet cacuations prepared for Hendryk s internationa assignments: an inpatriate assignment to Germany in 1999 and an expatriate assignment to Korea in Hendryk van den Bosch started his career at Robert Bosch BV, Noofddorp (Netherands) as a SAP project coordinator in In ony two years he became manager of the data processing department for the regiona subsidiary in Hoand. From 1997, he was responsibe for the whoe Beneux region (Begium, the Netherands and Luxemburg). In 1999, he accepted the position of system panning department manager at the company s headquarters in Stuttgart, Germany. The baance sheet cacuation for his new position in Germany was a standard one used for expatriate assignments within the Bosch Group. (see Figure 3.) At that time, there was no singe currency in Europe. Thus, according to the company rue, expatriate compensation had to be paid in the host country, athough cacuated both in Hoand Forins (HFL) and Deutsche Marks (DEM) the nationa currencies before the Euro. In doing so, 35 per cent of the net income was guaranteed in the home country currency in order to minimize any currency exchange risks for the expatriate empoyee. The host country currency portion of pay was adjusted at the end of each year to eiminate possibe negative effects arising from exchange rate fuctuations. Kaus knew about the importance of currency adjustment for expatriates. Athough the exchange rate between HFL and DEM had been reativey stabe over the years, it was a big issue in Asia Pacific Incuding other countries Source: Robert Bosch GmbH (2011: 19) America s many other countries, where the exchange rate of oca currencies fuctuated significanty in reation to the Deutsche Mark or Euro. The host country component of Hendry s net saary (65 per cent of the saary paid in host-country currency) was adjusted for cost-of-iving expenses, on top of which a foreign assignment bonus was provided. There were no further costs reated to the foreign assignment in the host country. It was Hendryk s decision to remain in the Dutch socia security system in accordance with Reguation (EEC) No. 1408/71, 3 whie housing expenses in Germany were covered by the empoyer. As the rent costs in the home country had been previousy borne by Hendryk from his net income, and woud not be incurred during his assignment in Germany, a housing expenses Rent in Home Country equivaent (i.e., an equivaent apartment rent in the home country to the amount of Hoand Forins [HFL]) was deducted from the benefits component. Hendryk s rent in the host country was therefore zero because, in ine with the assignments guideine, this amount was paid directy by Bosch. On September 1, 2003, Hendryk van den Bosch returned back to Stuttgart, Germany, as the Head of the Organization and Information Systems unit from his most recent assignment in Brazi. In 2009, he was expatriated again, this time to Korea as Regiona Saes Director.

331 314 CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH FIGURE 3 Baance sheet for the assignment to Germany 4 Remuneration for Internationa Assignments Surname: van den Bosch Surname: Hendryk Home country: Hoand Famiy status Married Home country annua saary Date: Key Date: Host country: HFL 1= Germany DEM Gross domestic saary equivaent saary (BIVE I) + Annua bonus = BIVE II work time factor 40.0 / = BIVE III Income Tax Empoyee s socia security contributions to pernsion insurance Empoyee s socia security contributions to unempoyment insurance Empoyee s socia security contributions to heath insurance = Net domestic equivaent Host country component 65% of net domestic equivaent Cost of iving index: Home country = 100, Host = Host country component 35% of net domestic equivaent (guaranteed in HFL) Benefits component + Foreing assignment bonus + Chid aownace +/ Company car Rent in home country + Rent in host country + Extra costs in host country Payment of Expatriate Saary (Tota guaranteed in HFL) Tota net remuneration + Empoyee s socia security contributions to pension insurance + Empoyee s socia security contributions to unempoyment insurance + Empoyee s socia security contributions to heath insurance Tota net remuneration incuding home country socia security Of which amount guaranteed in HFL

332 CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH 315 The pay cacuation for his assignment to Korea was more compex. (see Figure 4.) At that point, Hendryk had two chidren, which meant additiona expenses in the host country as we as the oss of chid aowance in Germany (then 1848 Euros per chid, per year). However, the atter was compensated by Robert Bosch GmbH in accordance with interna company poicy, whie housing expenses in the host country were again borne by the company. A coupe of years prior to that, severa changes were introduced in the assignment poicy, triggered initiay by increasingy refined market data comparisons. For instance, a change of the cost-of-iving data provider made it possibe to make a differentiated use of indices and technicay sophisticated and detaied cacuations. Athough this aso contributed to a reduction in assignment costs for the Bosch Group, the primary goa of these changes in the compensation poicy was to offer assignment conditions in ine with oca market conditions. According to the new poicy, the foreign assignment aowance was determined and frozen at the beginning of the assignment. As such, cost-of-iving cacuations were based on two indices: a more generous Standard Home Base Index and a so-caed Cost Effective Home Base (CEHB) Index. The Standard Home Base Index was used in the first and second years of the assignment whereas, ony starting from the third year, expatriate compensation was cacuated based on the CEHB Index. The decision to use the atter index was based on the assumption that costs of iving decreases during the course of an assignment. This ogic was based on the notion that, over time, an expatriate empoyee woud be expected to use ess expensive shopping opportunities and to refrain from expensive imports by increasingy using cheaper oca products. However, cacuations for the first year were aso based on the CEHB Index in order to indicate to the expatriate his future income and to make cear that using the Standard Home Base Index represented more generous support at the start of an internationa assignment. Therefore, the difference between CEHB-based and Standard Home Base Index-based income was compensated as a cost-of-iving suppement. Furthermore, ump sum payments were used in order to faciitate cost contro. Kaus knew a too we how a group discussion on ways to reduce expatriation costs might proceed. One of the proposed soutions was to use increasingy aternative forms of internationa assignments, incuding short-term internationa assignments asting up to one year, frequent fyer assignments, commuter and rotationa assignments, goba virtua teams, etc. Many of these forms became more and more popuar due to the rapid deveopment of teecommunication technoogies and transport, and they were used increasingy at Bosch. Moreover, one of the expicit goas of the Bosch Group was to increase the percentage of oca senior executives in its foreign ocations to at east 80 per cent. However, athough it was a strong cost-reducing factor, this measure coud not possiby hinder the rapid increase of standard expatriate assignments given the importance of internationa markets. Thus, Kaus had to consider first and foremost a number of cost reduction opportunities reated to standard expatriate assignments. Based on an anaysis of mutipe sources stemming from the academic iterature, as we as management consuting and practitioner pubications, Kaus made a ist of feasibe potentia cost-reducing soutions. In order to form an idea of the prevaence of these measures among eading internationa companies, he checked the atest Goba Assignment Poicies and Practices survey by KPMG. 5 He started his anaysis with the top five positions on the ist: Reocation aowance. A way to reduce costs reated to the reocation aowance is to provide ump sum payments at the beginning and at the end of an assignment. According to the KPMG survey about 54 per cent of a companies, incuding 47 per cent of European participants, impement this poicy. Ony 13 per cent of respondents wordwide do not provide any reocation aowance at a. Efficient cacuations of the cost-of-iving aowance. There is a cear trend among mutinationas to increasingy impement an efficient purchaser index in their cost-of-iving cacuations. According to the KPMG Survey, 32 per cent of a responding companies use this index, a 10 per cent increase since Cap on aowances. Capping expatriate aowances makes it possibe to reduce significanty the overa costs of foreign assignments. A aowances, incuding the costof-iving, hardship or other company-specific aowances can be frozen for expatriates with an expatriate income exceeding a certain eve. The KMPG survey shows that the majority of companies sti do not cap the major aowances.

333 316 CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH FIGURE 4 Baance sheet for the assignment to Korea Remuneration for Internationa Assignments 2009 Name Hendrik van den Bosch Reason for cacuation Start of assignment Personne number Vaid from 1/1/9 Job eve SL3 Start of assignment Sending unit Receiving unit Famiy status DS RBKR With spouse in Host Comment Foreign assignment aowance COL-factor CEHB 20.00% frozen at start of contract No of accompanying chidren Country 2.0 Exchange rate 1 EUR KRW Basic cacuation home country annua saary Comparative Gross domestic saary (BIVE I) BIVE II working time factor (40.0 > 40.0 hours) BIVE III (tota gross) Income Tax (III/2.0) Reunification surcharge Empoyee s socia security contributions to pension insurance Empoyee s socia security contributions to unempoyment insurance Empoyee s socia security contributions to heath insurance Empoyee s socia security contributions to nursing insurance Comparative net domestic saary Expatriate saary 65% of host country (spendabe) component Cost of iving suppement 35% of home country (savings) component (of net = guaranteed in home currency) Expatriate aowances + Foreign assignment aowance Chid aowance Compensation for Bosch Vorsorge Pan Additiona payments I Heath insurance Reimbursement minima contribution to heath insurance Reimbursement minima contribution to nursing care insurance 51 Standard deduction for home country housing costs Extra costs in host country Amount guaranteed in host currency Amount guaranteed in home currency Tota net remuneration in host currency + Empoyee s socia security contributions to pension insurance Empoyee s socia security contributions to unempoyment insurance Tota net remuneration in host currency incuding home socia security Amount guaranteed in home currency inc. socia security Payment of expatriate saary Payment of amount guaranteed in home currency annua Payment of amount guaranteed in home currency monthy Remaining amount paid in host currency annua Remaining amount paid in host currency monthy EUR KRW One time payments on beginning of assignment Reocation aowance Eectrica aowance

334 CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH 317 Housing aowance and/or costs. There are severa ways to reduce housing costs. One way is to seect residence areas comparabe to those used by oca empoyees in comparabe positions, thus avoiding expensive residence areas used mainy by expatriate empoyees. Another way is to foow the recommendations of housing data providers and to offer additiona incentives for finding housing ess expensive than the standard cost recommendations. However, as reported by KPMG, the overwheming majority of companies (82 per cent) sti do not provide this type of incentive. Trave expenses. There is a trend to provide economy cass traves to expatriate empoyees. About 56 per cent of companies surveyed by KMPG impement such a poicy, 3 per cent more than in Many of the above cost reduction measures were aready being impemented at Bosch. Apart from the aowances, yeary economy cass fights to the home country had become the standard option for company trave. However, onger fights for business reasons can sti be carried out using business cass. The chaenge, however, was to further improve existing poicies by comparing severa cost options, data providers and outsourcing aternatives. This woud be just the first step towards designing an a-encompassing assignment poicy, as further steps woud anayze tax-efficient ways of providing expatriate perquisites, as we as organize taxation and socia security coverage during internationa assignments in cooperation with a team of internationa ega advisors. Nevertheess, enthusiastic and confident of success as he was, Kaus knew that designing a new internationa assignment poicy was going to be a ong and drawn out process invoving mutipe cacuations as we as negotiations with coeagues and externa mobiity services providers. This was especiay the case because the cost issue was ony one aspect of the wider issue of the coordinated and strategicay effective use of internationa assignment. There were many more reated concerns such as motivating potentia expatriates, the impact of internationa assignments on professiona careers, repatriation management, dua-career issues, and famiy income. The more Kaus thought about it the more he saw the inkages and impications operating across mutipe HR practices and mutipe product and geographic units. The rain had passed through the city and shafts of sunight appeared through the grey couds. Kaus recaed the themes of courage, curiosity and change at the recent corporate meeting he had attended in Berin. The Berin conference was one of some 850 activities staged wordwide in 2011 to mark the 125th anniversary of the Bosch company and the 150th anniversary of Robert Bosch s birth. He returned to his desk and began working to appy these themes. Questions: 1 Why did Bosch state the cost-of-iving aowance amount as a CEHB-based sum and a separate cost-of-iving suppement in the first and the second years of the assignment in the baance sheet for Korea? 2 Which expatriate compensation eements at Bosch Group were aready based on cost reduction considerations isted in the case study? Pease suggest ways in which these coud be improved further. 3 What further cost-reduction measures coud be impemented? 4 Do you beieve it was possibe to design a Bosch Group internationa assignment poicy covering both expatriate and inpatriate empoyees at a internationa ocations? 5 One of the measures used to reduce the costs of expatriation was to outsource eements of the administration function to externa service providers. Pease discuss the advantages and disadvantages of such a poicy. 6 Do you beieve that aternative assignments can substitute for traditiona expatriate assignments in the ong run? Pease discuss the major opportunities and barriers. 7 What are the major barriers to the ocaization of expatriate managers? 8 Many internationa companies do not provide any additiona foreign assignment aowances (e.g. reocation or hardship aowance). Do you think it woud have been feasibe to impement this system at Bosch? What woud be the reated advantages and disadvantages?

335 318 CASE 6 EXPATRIATE COMPENSATION AT ROBERT BOSCH GMBH NOTES AND REFERENCES 1. Whie genera information about the Bosch Group and sheets for cacuating expatriate saaries refect rea Bosch exampes, the Kaus Meier story regarding his task to further deveop the organization s internationa assignment poicy has been invented for instructive reasons. 2. Robert Bosch GmbH. (2011). Annua Report Retrieved October 10, 2011, from wordsite_startpage/fashbook/gb2010_en.pdf. 3. Reguation (EEC) No 1408/71 of the Counci of 14 June 1971 on the appication of socia security schemes to empoyed persons and their famiies moving within the Community appies to the member states of the European Economic Area (currenty the 27 European Union [EU] member states as we as Iceand, Liechtenstein, and Norway) and Switzerand. According to the Reguation, a person is subject to the egisation of the member state he or she is currenty empoyed in. Exceptions to such provisions are stipuated in Artice 17 of the Reguation. Posted workers on temporary assignments in one of the member states coud be such an exception. 4. BIVE is a German-anguage abbreviation internay used within the Bosch Group and denoting comparative gross domestic saary. As no bonus was provided and the hours worked equaed to the predetermined pan, the same amounts were indicated under BIVE I, BIVE II, and BIVE III. 5. KPMG. (2011). Goba Assignment Poicies and Practices. Survey Retrieved October 12, 2011, from /pdf/gapp-survey-2011.pdf.

336 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA 319 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA By Martine Carde Gertsen and Mette Zøner ACT 1 Bangaore, October 17th 2012, 8.45 AM Amrita Chopra, a senior financia manager in Pharmaz India, is sitting in the back seat of one of the company cars whie the driver sowy but skifuy manoeuvres the car forward through Bangaore s dense traffic jam, using the horn diigenty. This morning, Amrita is on her way to a meeting with her new immediate superior, a recenty arrived expatriate, Nies Niesen. He has tod her that he wants them to discuss the aignment of oca work procedures with Pharmaz corporate vaues. Pharmaz India Pharmaz India in Bangaore is a subsidiary of mutinationa pharmaceutica company headquartered in Denmark. Pharmaz empoys around 6000 peope, 2500 work in Denmark, the rest in subsidiaries in more than 30 countries around the word. Pharmaz top management, and the CEO in particuar, ike to characterize the company as vaue-driven. At Pharmaz the corporate cuture is taken very seriousy, not east at the headquarters. It has deveoped sowy as the company has grown over the years, for the first many years primariy within the borders of Denmark. But now, as the company finds itsef in a process of rapid gobaization, the headquarters is making very conscious efforts to disseminate the corporate cuture across borders. Pharmaz is strongy focused on research, and this is refected in its corporate cuture and vaues. The company attempts to create a earning environment for a empoyees, not just those working in R&D. Pharmaz website and atest annua report state: New ideas are our business and what we ive from. Therefore our corporate cuture strongy encourages a our empoyees, regardess of their position, to earn continuousy and to work together creativey. In accordance with this idea, three corporate core vaues have been formuated: Empowerment, impying that a empoyees shoud be abe to make independent decisions within their respective areas of responsibiity. Equa opportunities for a empoyees to deveop their competences and advance in their careers. Openness in communication between empoyees at a eves in order to further free exchange of knowedge and ideas. Pharmaz India has been in existence since 1983, but unti 2005 it was a oca saes office with empoyees. The oca management was aowed considerabe atitude since the subsidiary s strategic importance to the company was imited. In 2005 this situation changed when Pharmaz estabished an offshore financia services center in Bangaore. This ocation, known as the Siicon Vaey of India, offers ow costs and quaified, Engish-speaking professionas in the reevant fieds. The process was initiated with two oca empoyees, and graduay, more empoyees were recruited to form teams responsibe for registration of invoices and various accounting and controing tasks. At first, the center ony performed tasks for the headquarters in Denmark. After a coupe of years, the center began expanding more rapidy, and tasks requiring coaboration with empoyees in other subsidiaries were graduay introduced. Today, the center empoys 50 peope and this number is expected to grow to more than 130 empoyees in the course of the next two years as more financia activities wi be transferred from other parts of Pharmaz to India. In 2007 Pharmaz acquired a part of a ocay owned Indian company in order to be abe to estabish its own production faciities, incuding some R&D activities, in

337 320 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA Bangaore. The acquisition added more than 100 empoyees to Pharmaz India s workforce. So today Pharmaz India comprises, in addition to various staff functions such as HR, a production unit, a R&D department, a saes department and a financia services center. The subsidiary empoys more than 200 and according to Pharmaz pans, a considerabe number of new peope wi be recruited in the years to come, not just in the services center. Thus, Pharmaz India has achieved crucia strategic importance and has become a center for growth. This increased focus on Pharmaz India means that the management at headquarters is very keen that the corporate vaues of empowerment, equa opportunities and openness are fuy impemented, or ived as the top managers ike to put it, in the subsidiary. The senior financia manager and the chaenges she is facing Amrita Chopra is 45 years od and she has worked for Pharmaz for three years. One of the company drivers takes her to the office in the morning around 8 am and picks her up in the evening around 6 pm. Athough she ives ony 20 km away the journey takes about an hour. She prefers not driving hersef on the bumpy and chaotic roads where hoes in the asphat, motorbikes, bikes, dogs, cows and pedestrians abound. Amrita aso appreciates the opportunity to arrive home without being too stressed, especiay because she has a famiy to take care of; she is married and has two sons who are 12 and 15 years od. The financia services center where Amrita works is divided in two sections: one providing financia services to the headquarters and subsidiaries in Europe, and one providing services to the Pharmaz subsidiaries Asia, the US and Latin America. Amrita heads the first section where currenty 20 peope work; they are divided into 4 teams. As for Amrita s background, she has a master s degree in finance from a reputabe Indian University and is a chartered accountant. She was born in Dehi where she ived unti she got married. Her husband is in the hi-tech business, and Bangaore seemed to be the best pace for him to be in terms of enhanced chances for career progress, so the coupe decided to move there. Unti Amrita got the job as a senior financia manager with Pharmaz, she worked in the finance department of a ocay owned IT company. She achieved good resuts in her former job, but she often fet that she had to strugge to obtain respect in the company that was very mae dominated and managed in a way she thinks of as traditionay Indian. She was the first empoyee ever in the company to take maternity eave and some of her mae coeagues seemed genuiney surprised when she came back to work after her eave. She did not receive any training, the pay was average, and her working hours were ong. Sti, she was not unhappy in her former job. Her work was interesting and she aways fet that she had the support of the CEO who did his best to hep her when probems occurred. By comparison, Pharmaz offers more advantageous working conditions. The saary is better, though admittedy not quite as good as in some other internationa companies in the area. Amrita has been on various types of training in Denmark and she appreciates that the company invests in her professiona deveopment in this way. At Pharmaz there is a ot of tak about work ife baance, especiay from the headquarters. The idea is that empoyees shoud be abe to have shorter working days and more fexibiity in their schedues because of more efficient organization of work. As a manager Amrita is rarey abe to eave very eary, but her working days are sti shorter than they used to be, which makes is possibe for her to spend more time with her famiy. Athough Amrita ikes her job, her famiy is her first priority. Her husband earns enough for a of them to ive comfortaby, and she has at times been tempted to stay at home and be a fu-time housewife. But it seems to her that it woud somehow be a waste, considering her education. Aso, since they ive with her in-aws, there is aways someone at home to ook after the chidren and the house. And they have a ive-in maid who does most of the housework. Like her own famiy, Amrita s in-aws are quite ibera in their attitudes to women s roe. When they moved in, they tod Amrita: You just go ahead and ook for a job; we wi take care of the chidren. Amrita is gad that they have given her this opportunity to continue her career. Sti, ife in Pharmaz is not uncompicated. Amrita finds that the corporate vaues are in ine with her own ideas of what management ought to be, at east ideay, but she finds them difficut to impement in an Indian context. As a midde manager she often fees squeezed between the headquarters wishes and the expectations of her empoyees. Visiting managers from headquarters have voiced that they find her

338 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA 321 management stye a itte too authoritarian and have encouraged her to act more ike a coach, deegate more and give fewer orders. Amrita argued that as the senior financia manager, the resuts of the section are her responsibiity. Therefore, she sees it as her job to te her subordinates what is good and what is not good enough so that they can improve their performance. The managers from headquarters answered that of course she shoud intervene if someone kept making mistakes, but in genera, they beieved the empoyees woud earn more from being empowered to work independenty. Amrita was and remains unconvinced, but as a manager in a subsidiary she fees compeed to foow directions from the headquarters. So she deegates more and gives fewer orders. Yet, her empoyees compain that she expects too much of them when she tries to adjust her behavior to the headquarters suggestions in this way. If she eaves it up to them how carry out their tasks and how to organize their work, some of them just keep coming back to her and ask for directions anyway. Others appear to interpret this approach as an indication that she does not find their work important and consequenty, they get very itte done. There are exceptions, of course a few of the most competent financia anaysts seem to thrive without manageria interference. Instiing and maintaining a coaborative spirit in the teams can be quite a chaenge, too. At the moment three of the teams function we, but the situation has become quite tense in the fourth team. Recenty, the team has made a few regrettabe mistakes that appeared to be due to interna misunderstandings and ack of communication. Amrita has been tod that this resuted in open quarres between the team members, but she did not witness this hersef. So far, no one has been wiing to te her exacty what the probem is and the team eader, Bavinder Singh, is evading her questions. It is cear to her, though, that communication has not fown easiy between the team members since the arriva of her section s newest empoyee, Shankar Savarkar, a competent chartered accountant. Shankar comes from a Brahmin famiy and thus beongs to the highest ranking caste according to the traditiona Indian view. Amrita is concerned that he tends to act in a rather standoffish manner with Bavinder and two other members of his team, and she has noticed that he never eats unch with them. She thinks that the team members different backgrounds may be at the root of the team s probems, even though she fees that this ought not to be so in a professiona working environment. It is a deicate issue. According to Indian egisation, the higher castes are not to enjoy any specia privieges in the workpace, and caste is never openy discussed in Pharmaz. Amrita is at a oss what to do to address the team s difficuties. The car arrives at Bangaore s argest technoogy park and stops at the entrance to wait whie the security guards check the vehices in front. Next to the ine of cars empoyees queue up and move sowy through the gates as the guards finish checking their entrance cards. As a senior manager and a famiiar face, Amrita simpy nods to the security guards and her car enters the technoogy park which offers quite a change of scenery compared to the buzzing, dusty road, ined with the shacks of the poor in front of the arger houses. In the park, a the buidings are ta and seek, constructed in gass and stee, and between them the green awns are dotted with we-kept fower beds. The company car ets Amrita off in front of the buiding where Pharmaz India is ocated, now occupying three fu foors. Amrita gets out of the car, habituay taking care not to disarrange her cothes in the process. She amost aways dresses in a traditiona Indian sari, and today she has chosen one of her best, a bright pink one, to fee as confident as possibe during the important meeting. She wears a bindi (a dot of coor, usuay red, appied in the center of the forehead) of a matching shade. Her hair stye is the same as aways: a ong back pait. Generay, the empoyees in Pharmaz dress smarty, but reativey informay. A few women wear jeans and Western-stye shirts or bouses, but the majority are dressed traditionay in either a sawar kameez (oose trousers and a ong tunic) or a sari. The men wear shirts with ong seeves and dark trousers, but normay, jackets and ties are ony worn for the occasions of important externa meetings. Amrita takes the ift to go to the 9th foor where the financia services center is ocated. On her way to the meeting she stops by to say heo to the regiona manager, Ganesh Karanth. The regiona manager has been in Pharmaz India since the subsidiary was founded and has worked his way to the top. His ong career in Pharmaz has given him a ot of insight into the company and Amrita ikes taking things through with him before important meetings such as the one she has today. She woud ike to get an idea of what the rest of the management in Pharmaz India thinks of Nies approach and pans. Aso, she woud ike to ask the regiona manager for advice on how to sove the probems in Bavinder s team. Athough

339 322 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA Ganesh has of course never said so, she knows that he is a Brahmin because of his name, his food preferences and his socia network of other Brahmins. Amrita woud not want to raise the topic of caste expicity with Ganesh. But she thinks that he wi understand without her having to spe it out. And she has seen him chatting with Shankar severa times, so he may aready be famiiar with the situation in the team. But unfortunatey, Ganesh is not in his office this morning. Nies texts her that he is deayed. Stuck in a traffic jam. Amrita asks the new chai waah to bring her a tea. He is a thin, quiet man of midde age, and as she expects him to speak poor Engish she addresses him in Hindi. She is sti not comfortabe with the oca anguage, Kannada, since she is not from Bangaore originay. Not that it matters very much in her daiy ife; otherwise, she woud probaby have earned it by now. But most peope in the fast-growing city of Bangaore seem to be from somewhere ese, especiay the professionas. Engish is Pharmaz officia corporate anguage and here, everybody, except the chai waahs and the janitors, speaks it fuenty and use it for a work-reated purposes. Amrita gets her hot tea, and as she sips at her cup absentmindedy she is getting increasingy impatient and nervous. The expatriate finance director and his pans Amrita is aways apprehensive before meeting with Nies, and she knows that today s discussion wi be difficut. His direct and demanding way of communicating was initiay a bit of a shock to Amrita and severa of her coeagues, and she sti finds it a chaenge. Nies urges and expects a free exchange of ideas, and Amrita finds that discussions with him can be quite inspirationa. He is good at showing his appreciation when he ikes the viewpoints and ideas presented. Sometimes, however, he can be difficut to convince. This, in Amrita s experience, is especiay the case when your arguments refer to the particuarities of the Indian context and the need to bend Pharmaz corporate vaues in order to put them into practice in a reaistic manner. Nies took up his position as finance director in Pharmaz India three months ago. He is Danish, 40 years od, and he aready has many years of experience in Pharmaz, not ony from headquarters, but aso from the subsidiaries in Mexico, China, and Spain. He insists that everybody shoud use his first name and disikes it when subordinates address him Sir. Amrita remembers when he first corrected her in this regard with the expanation that what counts and deserves respect is not a person s tite, but his or her skis and competences. Nies management stye is strongy embedded in the company s ideas about empowerment, equa opportunities and openness. And, in ine with Pharmaz headquarters aspirations, he never misses a chance to practice these vaues conspicuousy within the Indian organization. Though Nies knowedge of the organizationa context is imited after just three months in Bangaore, he has strong opinions about what to do and what not to do. He beieves in impementing the corporate cuture by managing expicity through the vaues, for instance with a view to speeding up decision-making processes by minimizing contro and bureaucracy. As far as practicay possibe, he beieves that decisions are to be made by the peope who wi carry them out and ive with them in their daiy work. Now, he finds that the time has come to reorganize the work processes in the financia services teams so that they refect Pharmaz business mode and vaues better. And he has decided to start with the four teams in Amrita s section. Amrita is not against changes being made in her teams, but she hopes to be abe to make Nies reaize that you cannot go a the way with Pharmaz management stye and vaues right away. Moreover, she woud aso ike to use the opportunity to suggest that a way of motivating empoyees to accept more responsibiity in their daiy work woud be promotions and prices. She has aready mentioned this idea briefy to Nies, but she is not sure what he thought about it. He seemed to find it a bit amusing, somehow, so maybe he just did not get the point. So this time, perhaps, she shoud aso emphasize that promotions and prices can be important instruments for Pharmaz to use in order to retain their quaified empoyees in the competitive and dynamic Bangaorian abor market for financia experts. Question: Identify the main issues raised and discuss how they may be expained in terms of the cutura and institutiona contexts of Pharmaz in genera and Pharmaz India in particuar.

340 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA 323 ACT 2 Pharmaz India s office in Bangaore, October 17th 2012, 9.30 AM Amrita and Nies meet to discuss chaenges and possibe courses of action Nies arrives 30 minutes ate. He is dressed in jeans, a short-seeved bue shirt and sandas. Amrita refects that with his aidback attire, one coud amost mistake him for one of the American tourists she saw in Goa ast month when she spent a ong weekend there with her famiy. He apoogizes so profusey for having kept her waiting that it amost makes Amrita fee as if he is the subordinate and she the superior. Athough it makes her sighty uncomfortabe, it aso makes her fee that he respects her as a person. So she is a itte more at ease when Nies comes straight to the point and addresses the issues he woud ike to see soved. Nies begins by showing her a ong e-mai sent to him by Sebastian Skram, the corporate finance director. It is in Danish (and Amrita is tempted to remind him that the corporate anguage is Engish, but she checks hersef), so Nies transates for her. The mai reads: Dear Nies, [Some initia sma tak about the beak weather in Copenhagen and inquiries about the webeing of Nies famiy; he eaves this part out when transating to Amrita.] As you no doubt remember, we took some measures ast year here in the corporate finance department at headquarters to make sure that our corporate vaues of empowerment and open knowedge sharing are impemented as fuy as possibe. Among other things we redefined the team eaders job descriptions so that they now spend ess time on supervision and more time on deveopment of new services and procedures in diaogue with our coeagues from the departments invoved. They do, of course, sti invove themseves in the teams task, especiay the more compex ones, but they spend ess time foowing up and checking the team members work. Athough this means that an occasiona minor error sips through from time to time, we have found that it has freed a ot of resources for more creative purposes. In addition, we have aso introduced a team bonus to promote the coaborative spirit. It is a very minor part of the empoyees pay, so the psychoogica aspect of the incentive has probaby been more important than the money in itsef. The team eaders as we as the team members find that the changes have made their jobs more interesting as ceary refected in our atest empoyee satisfaction survey. I mentioned this to Emi [Emi Bistrup, the corporate CEO of Pharmaz] when we had unch together yesterday, and he was very enthusiastic about it you know how much weight he attaches to our corporate vaues. He suggested that simiar efforts are made in the financia services center in Bangaore; with the pans for its growth it wi soon be more important to the company that our corporate finance department here. I promised to take it up with you, but I reaize that other measures may be more appropriate in Bangaore, so I eave that up to your judgement entirey. What matters is the resut: the best possibe impementation of our corporate vaues. If you beieve it wi be hepfu I m sure we can find the means in the budget to put the center s empoyees through a more eaborate course in our corporate vaues. Anyway, think about it and et me know what you pan to do and how I can assist you. Best regards, Sebastian The mai makes it cear to Amrita that the financia services center has the attention of the top management, and athough this may be an advantage in her future career, she cannot hep feeing a itte apprehensive about it. Aso, she finds it puzzing that the corporate finance director appears to say in his mai that he does not see an occasiona error as a probem. She thinks that is a risky attitude in a finance department, but she decides not to mention this to Nies as she does not wish to appear overy critica of her superiors. She asks Nies what he intends to do, and he says that the mai ony underines the need for changes that woud be necessary anyway. He eaborates: The growth pans for the financia services center mean that the future and present empoyees need to be empowered to work out more soutions independenty or together in their teams, but without constant manageria input and foow-up. As ong as the center s tasks primariy consisted in invoicing for the headquarters and

341 324 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA other reativey routine oriented tasks, this was ess important. But now the center is expected to carry out more and more compicated tasks, not just for the headquarters, but aso for many different subsidiaries. Coeagues from a over the word ca the center when they need hep to sove a wide variety of financia issues. And Nies has received some compaints that athough everybody is very friendy on the phone, it sometimes takes severa days to get an answer to a fairy straightforward question. Nies knows that the center s empoyees have a been very carefuy seected and as he sees it, their technica quaifications as financia experts cannot be questioned. So the probem, he says, is not that they are unabe to respond, but rather that their work procedures are too bureaucratic and that the empoyees do not fee empowered to do much without the expicit approva of their team eader. In many cases they wi aso wait for the approva of their senior financia manager, Amrita. He woud ike her to spend ess of her time exercising micromanagement and more time on activey empowering her subordinates. In addition, Nies goes on, it has been mentioned by severa of the center s users that the team members do not seem to know very much about each other s work, so when the person they have taked to previousy is off or at a meeting, no one ese on the team seems to be abe to hep them or to know anything about the issue. He concudes that more knowedge sharing is caed for in ine with Pharmaz corporate principes. As aways, Nies Niesen asks Amrita for her opinion and feedback on his thoughts. The question is how he and Amrita can ensure that the empoyees get the corporate vaues under their skin and act accordingy, ideay without even thinking about it? Amrita fees embarrassed because her management stye has been criticised, and she finds it difficut to come up with soutions right away. She tes him that in principe, she agrees, the vaues are not impemented fuy, and some changes may be caed for. She does not, however, beieve that another course in the corporate vaues which the empoyees have been tod about so often that they know the exact wordings from the annua report by heart wi change very much. Nies agrees; something ese is needed to teach the empoyees how to ive the vaues. Amrita tes Nies that she has actuay done her best to put the corporate vaues, especiay the vaue of empowerment, into practice in her deaings with her subordinates. She has eft a ot up to them and given fewer orders. But so far, it has not been a success. Indeed, the atest anonymous empoyee satisfaction survey in her section showed, as Nies aready knows, that she was rated poory as a manager. Naturay, this worries and frustrates Amrita. Previousy, she was rated much better, and she thinks that her ow score can be attributed to the attempts she has made to empower her subordinates. With some exceptions, Amrita does not beieve that the empoyees in her section share Pharmaz ideas of what a boss shoud be ike. She suspects that they expect a good boss to know a the answers and not wait for the empoyees to come up with good ideas. He or she shoud take on the responsibiity for everything, give expicit orders and foow them up. When Amrita thinks back of her own experiences in the Indian educationa system, she tes Nies, she does not find their attitude very surprising. She beieves it may be different in some educationa institutions today, but the way she remembers it, she was not rewarded for being critica or coming up with new approaches when doing her assignments, on the contrary. The easiest way to get good grades was to stick as cosey as possibe to the teachers or professors exact instructions, maybe even repeating their wordings where appropriate. Amrita is not convinced that a her subordinates are eager to take on more responsibiity in daiy work. Nies refects on this. Her interpretation of her ow score surprises him. He finds it strange that empoyees shoud compain about a boss who gives them too much freedom, but on the other hand, what she says may make sense here in India. He thinks to himsef that he has probaby been too optimistic the impementation of Pharmaz corporate cuture wi take time and hard work. Nies says to Amrita that he appreciates that she has taken headquarters wish to practice empowerment seriousy and that she shoud not be discouraged; they must expect the process to take some time. And maybe she went about it too abrupty so that her subordinates fet suddeny eft to their own devices? Amrita nods, this coud we have been the case. Nies specifies that empowerment does not impy that the empoyees are expected right away to be abe to figure everything out entirey on their own, but he woud ike her to coach the empoyees so that they understand why things are done in certain ways. The idea is to expain the background and the reasoning behind Pharmaz business mode, financia guideines and principes for coaboration so

342 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA 325 that they wi, eventuay, be abe to reason in the same way themseves and make more independent decisions. Amrita is sti hesitant, but says that maybe, after a phase of very cose manageria monitoring to hep empoyees understand how to adapt to the new demands, Nies ideas might work, eventuay. Amrita has given ess thought to the vaue of open communication and knowedge sharing, but she tes Nies that sometimes it is a itte difficut to motivate team members to share what they know. A her subordinates have good credentias and experiences from other off-shore centers. As she and Nies both know, the abor market for professionas in Bangaore is highy competitive, and generay, her empoyees are eager to advance their individua careers. This may ead some of them to view knowedge as a stricty persona resource that can be depeted if it is shared with coeagues. Amrita reaizes that this is not the way Pharmaz woud see it, but in a sense, she understands her empoyees concerns in this respect. After a, coeagues are competitors, too, since not everyone is ikey to get promoted to head a team, for instance. Another probem, as Amrita sees it, is that the organization is very fat compared to most Indian companies. There, it is cear who refers to whom in the hierarchy, and when you make progress in your work, you are promoted to the next eve on the career adder. At Pharmaz, her empoyees are a officiay financia anaysts, even the team eaders, athough their wages are higher. Amrita beieves that it woud have a motivating effect to introduce more tites. It woud give peope something to work towards and it woud make them fee appreciated, in a manner visibe to a, aso to their famiy and friends outside the company, when they reach a goa. Why shoud the team eaders not be caed financia managers, for instance? And the best of the team members senior financia anaysts? She has suggested this to headquarters before, but was tod that her idea did not fit into Pharmaz tite structure. Amrita aso suggests that they coud nominate an empoyee of the quarter in the services center and give him or her a sma symboic prize, maybe a sma amount of money, as we as a certificate to frame and hang on the wa in his or her cubice. She beieves that her empoyees woud appreciate such a gesture, and she aso knows that they woud probaby ike to be abe to attach such a certificate to their CVs to document that they have done we. Nies ventures a remark there is no tradition for prices at Pharmaz headquarters and that there, most peope woud find it presumptuous or even sighty ridicuous to faunt such a certificate on their wa. Otherwise, he istens carefuy without interrupting. Finay, he says that he finds her ideas interesting, aso considering that a coupe of the center s most quaified and ambitious financia anaysts have recenty handed in their resignations and accepted positions with major US-owned companies. Then Nies asks Amrita to come back the foowing week with a proposa for integrating Pharmaz vaues, especiay empowerment and knowedge sharing, in a more expicit manner in her section. Aso, he asks her to eaborate on her ideas about how to motivate and retain empoyees. Question: Imagine yoursef in Amrita s position. Which proposa woud you make to Nies Niesen and how woud you argue in order to convince him? ACT 3 Pharmaz India s office in Bangaore, January 17th 2013, 2.00 PM Amrita and Nies meet to evauate the process so far Amrita and Nies are seated at the meeting tabe in Nies office. They have been tod to expect a visit from Sebastian, the corporate finance director, next week. In preparation, he has asked them to evauate the ast three months deveopments in the center so that they can discuss the progress made, especiay as to the impementation of the corporate vaues, and decide what ese needs to be done. Amrita has worked very hard to change the way in which her section works. She suggested in her proposa that new job descriptions woud have to be written for everyone, specifying exacty their areas of responsibiity and expaining the types of decisions they woud be expected to make on their own. Aso, each team is to hod a short meeting every morning to inform each other of what they are doing, and everyone is expected to contribute. Other than that, Amrita suggested that as a first step, most of the focus shoud be concentrated on the team eaders to make sure that they understand what empowerment and

343 326 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA knowedge sharing means and that they practice it in their teams. They have a read about the vaues and attended severa presentations of them, so the chaenge is the daiy practice, not the theory. Therefore, Amrita suggested in her proposa that she shoud dedicate some days each week to foow a team eader, observe his or her work, and afterwards discuss with him or her how the corporate vaues can be promoted more. Nies accepted Amrita s suggestions in these respects and tod her to go ahead. This afternoon Amrita tes Nies that she is satisfied with the resuts. The empoyees appear to be much happier now that it has been made cearer to them what Pharmaz expects from them. Some sti ask their team eaders or Amrita for approva before they make decisions or send their reports to the center s users, but most do it ess frequenty now. And a the team eaders try hard to foow Amrita s new directions. Nies repies that Amrita has done a good job, but adds that when he saw the many pages with job descriptions she has produced he coud not hep worrying that they are creating more bureaucracy instead of reducing it. Amrita argues that they are necessary: if empowerment is to make sense to her subordinates, they must know exacty what they are empowered to do. Otherwise, it is just an abstract notion. Aso, when Nies comes to visit Amrita s section he has noted that she monitors the team eaders very cosey indeed and gives them detaied instructions on how to pan their days and how to deegate tasks to different team members, for instance. To Nies, this cose monitoring does not seem ike empowerment, and he knows that Sebastian woud probaby agree. But after six months in Bangaore, Nies begins to fee that it may not be worthwhie insisting on impementing the corporate vaues in competey the same manner as at headquarters. Maybe different versions of empowerment, equa opportunities and knowedge sharing are possibe and even necessary? He shares these thoughts with Amrita who is ceary peased that he finay understands this. Nies is not so sure that Sebastian wi agree, though. It may not fit his vision of Pharmaz as a goba, vaue-driven company they wi have to discuss it next week. In accordance with Amrita s suggestion, Nies introduced a more differentiated tite structure for the center in ate October. He is not personay enthusiastic about it, and he finds that in principe, peope ought to pay more attention to the content of their job than to the tite it entais. This is aso an opinion he has frequenty heard expressed by his coeagues at headquarters. But he decided to be pragmatic in this matter. After some months in the center he was aready we aware of the oca empoyees impatience to advance visiby in the company hierarchy, so he did not doubt that Amrita was right in assuming that new tites woud have a motivationa effect and probaby resut in more wiingness to take on responsibiity. But at the same time, he was wary of creating tites that woud be incompatibe with the company s overa goba tite structure and create misunderstandings in other parts of the organization. Now, the team eaders have been promoted to financia managers, and the best of the team members have been encouraged to appy for positions as senior financia anaysts. Severa oca empoyees, incuding a the team eaders, have expressed their satisfaction with this decision, and athough it is too eary to judge the effect for sure, Amrita tes Nies that the team eaders are eager to prove that they have earned their promotions. So Nies beieves it was the right thing to do, athough some of his coeagues at headquarters have been joking a bit about the apparent infation in tites in Pharmaz India. Nies was very surprised, however, when he was approached the other day by Pavan Surin, one of the team eaders in Amrita s section, who suggested that the tite structure shoud be expanded further. He fet that he needed an additiona category between financia anayst and senior financia anayst in order to be abe to reward a team member who was very good, but not quite at the senior financia anayst eve. Franky, Nies found this sighty udicrous how many hierarchica eves are necessary in a team of five peope? One for each individua? But since he knows Pavan to be competent and respected by his coeagues, he woud ike to discuss it with Amrita before dismissing it atogether. And since he has consistenty tod a his subordinates to fee free to approach him any time with any ideas they might come up with as to how the center s work can be improved, he thanked Pavan for his suggestion and promised him that he woud give it some thought. Amrita is not very peased that Pavan chose to discuss this directy with Nies instead of taking it up with her first. She knows better than to mention this to Nies, however. She knows that he sets great store by the corporate vaue of openness in communication between empoyees at a eves, and she does not fee ike being ectured about it. She hesitates to take a very firm stand regarding Pavan s suggestion, but as

344 CASE 7 BALANCING VALUES AN INDIAN PERSPECTIVE ON CORPORATE VALUES FROM SCANDINAVIA 327 she says to Nies, he is probaby right that the introduction of an additiona step on the career woud motivate some team members. In her proposa to Nies, Amrita suggested the introduction of a reward system where empoyees are rated for their performance by their immediate superiors in order give a bonus prize to the empoyee with the highest score each quarter. In this matter, Nies did not quite foow her suggestion. He fet that a reward system woud indeed be appreciated by the oca empoyees, and he had been tod that it is customary in most companies in Bangaore. He worried, however, that Amrita idea woud not be conducive to team work. Therefore, he has devised a system where peope are not ony rated by their superiors for their individua performance, but aso by their coeagues for their abiity to share knowedge and coaborate. In this way the reward system can serve not just to motivate hard work, but to promote Pharmaz vaues of openness and knowedge sharing, too. The system was introduced recenty so no one has received a bonus prize yet. When it was presented he fet it was we received, but Nies is eager to hear Amrita s opinion on whether or not it has had any impact yet. Amrita tes him that she beieves the empoyees are genuiney happy with the introduction of a bonus prize, something which they had ong found to be missing in Pharmaz. But she proceeds to te him of a probematic recent episode: Bavinder s team has been given a specia assignment by headquarters. It consists in a thorough, critica financia anaysis of a business unit in Germany that is experiencing some severe difficuties. The financia report wi form part of the basis of the strategic decision as to whether or not to cose the unit down. Because of his exceent quaifications, Shankar has been asked to take on the main responsibiity for this task, and he has very happiy accepted. The probem is that he has become very possessive of this task and discoses next to nothing about it at the team s daiy morning meetings. Bavinder finds and Amrita agrees that everyone on the team coud earn something about Pharmaz business from this important, strategic assignment. Therefore, he asked Shankar ast week to invove his coeagues and deegate some of the ess compicated tasks invoved. This, however, did not happen. When the team eader took it up with Shankar again after some days, he seemed rather annoyed. Amrita, who overheard their conversation as she passed Shankar s cubice, was shocked to hear Shankar te Bavinder that he intends to rate him as poory as possibe and te Shivesh [one of his coeagues on the team] to do the same if he keeps nagging him. Bavinder has not brought the issue up with Amrita, but she woud ike to do something about it. When she raised the issue during an informa chat with Ganesh this morning, he defended Shankar. He pointed out that he has exceptiona quaifications and is very hardworking, so he wi be abe to do the job better and faster on his own without spending time on invoving the others. Amrita had to agree, this is probaby true, but somehow she finds it beside the point. Nies says that they have to find a way to dea with the probems in Bavinder s team, but he needs some time to think about it. Right now, they have to decide what to te Sebastian about their progress, the issues that remain to be soved and their suggestions for future action. Questions: Step out of Amrita s roe and answer the foowing: 1 Do you fee that the measures taken to impement the corporate vaues and reorganize work in the financia services center have been appropriate? 2 Woud you have done anything differenty? 3 How shoud one proceed now to achieve the best possibe resut for Pharmaz India s financia services center?

345 328 CASE 8 JUST ANOTHER MOVE TO CHINA? CASE 8 JUST ANOTHER MOVE TO CHINA? THE IMPACT OF INTERNATIONAL ASSIGNMENTS ON EXPATRIATE FAMILIES By Yvonne McNuty Lisa MacDouga ooked at her desk caendar and reaized it was the first year anniversary of her empoyment at John Campbe Coege. How ironic, she thought, that I might resign today, exacty one year after I started here. As her coeagues dropped by her office throughout the morning to discuss a new research project that she was eading, Lisa fet both eated and sad. She was excited to be embarking on a new chapter in her career, but upset to be eaving behind her first fu-time job in neary a decade. To ease her mind, she took a morning tea break at the campus cafeteria and ordered a atte. Then her ce phone beeped to aert an incoming message from her husband, Lachan. As she nervousy picked up the phone and read the four-word message it s done, go ahead she reaized in that instant that there was no going back now: Lachan had just signed a two-year contract with his empoyer to move their famiy to China, and it was happening in six weeks time. Taking a deep breath as she waked back to her office, the first task was to write a resignation etter, after which Lisa emaied her boss to request an immediate meeting to te him she was eaving. Athough he took the news in his stride, Lisa knew her boss was upset to be osing her after ony a year. The coege was buiding up its research agenda and Lisa, aong with a coupe of other eary career researchers, had been empoyed as an integra part of that pan. Lisa knew that her eaving woud ikey disrupt those pans a itte but, she reminded hersef, if her boss had ever reay understood what made her tick, he perhaps coud have seen it coming. Athough it had been roughy six months in the panning to move to China, the decision to go had not been an easy one to make for the MacDougas. This surprised Lachan and Lisa given that they were seasoned expatriates who had moved internationay, as a married coupe, at east twice before first, from Sydney to Chicago and then Phiadephia, and six years ater a second internationa move to Singapore, their current home. After 12 straight years on the road and two successfu internationa moves on two continents under their bet, the anticipation of a third move to China no ess seemed simpe enough, and in many ways it was. Good for Lachan s career? Check yes. Good for their two young daughters? Check yes. A wonderfu, perhaps ife-changing cutura experience for the whoe famiy? Check definitey, yes. Yet in many ways this move was anything but simpe; there were so many issues to consider, and so many important decisions to be made that woud ikey impact their famiy for years to come, if not for the rest of their ives. Foremost in Lisa s mind was whether she coud work in China. The mere thought of being a stay-athome traiing spouse again was out of the question. Another concern was going back to the transience of iving in rented housing again; needing permission from a andord to put up a picture or paint the was woud be hard to get used to after having ived in their own home in Singapore for the past four years. Then there was the chidren s education and the change to a new schoo. This woud be the MacDouga s first internationa move with schoo-aged chidren and Lisa had no idea whether internationa schoos in China offered the types of music and sports programs her chidren enjoyed. As she mued over the China decision, Lisa aso refected on what had drawn their famiy into the expatriate ife to begin with. Doing so, she hoped, might hep her to understand how their past might now be drawing them to a new adventure in Shanghai. A expatriate journeys start somewhere, and some even in chidhood To many of their friends, Lachan and Lisa seemed to be made for each other. That they married quite soon

346 CASE 8 JUST ANOTHER MOVE TO CHINA? 329 after they met, and very soon after that eft on their first internationa assignment to Chicago, came as no surprise to anyone. Lisa was born and raised in Mebourne as the daughter of European migrants and, after an eight-year commission in the Roya Austraian Navy iving and working on nava estabishments a over Austraia, she setted in Sydney at the age of 26 to pursue a career in management consuting. She met Lachan on a rather ordinary Saturday morning at a café in Mosman, when he poitey asked if he coud borrow the Internationa Herad Tribune when she was done reading it. Lachan wasn t born in Austraia; he d come to Sydney some seven years earier as a UK backpacker on a three-month hoiday that turned into a year-ong sojourn, then permanent residency, and finay citizenship. Born and raised mosty in Scotand as the edest son of a secondgeneration property deveoper, Lachan was an architect by trade with a Bacheor s degree and an MBA from Heriot Watt University. He d had an interesting chidhood, having moved house (and schoo) a dozen or more times around Scotand and Ireand as his father bought and sod various properties to expand the famiy business. Athough his father had hoped he woud take over the business one day, Lachan had other ideas. When exacty does a goba career begin? Their first move to Chicago was a competey out of the bue opportunity but one that Lisa and Lachan accepted immediatey and without hesitation. They were newy married, had no famiy ties in Sydney, and shared a mutua ove of trave. Lachan had changed careers a year earier into the IT industry and now worked for a arge American technoogy company with offices around the gobe. Athough the Chicago job was on oca terms no expat package the company was wiing to pay reocation expenses, and US saaries were much higher than those in Austraia. With an expensive mortgage and ooking to kick-start a second career, Lachan knew the opportunity was too good to pass up. Lisa needed no convincing moving to the US was the fufiment of a ife-ong ambition to ive and work overseas and she didn t reay care where that was. So, they rented out their house and waved goodbye to friends with the promise to be back in two years. It didn t take ong once in Chicago for the MacDouga s to reaize that their two year pan wasn t going to happen. Lachan was an instant success in his new roe, whie Lisa reished in her newfound status as traiing spouse. Despite that Lisa was not permitted to work in the US (they had not known nor thought to ask about the avaiabiity of work permits for accompanying partners when they accepted the job), she nonetheess found hersef oving the freedom to expore a new city without the constraints of a busy, a-consuming and demanding job. They didn t need her saary anyway; Lachan s career was fourishing, so much so that within 18 months of arriving in Chicago, he was promoted into a regiona US roe and offered the opportunity to move to Phiadephia. They gady accepted the move even though, again, it was on oca terms with ony reocation expenses paid by the company. By the time they arrived in Phiadephia, Lisa knew that something had changed for her and Lachan. Their expected return to Sydney in a few months time was no onger something they taked about. Instead of renting an apartment they bought a house on the main ine in eafy, midde cass Montgomery County about 30 minutes drive from downtown Phiy. They repaced their IKEA househod goods with more expensive, onger asting pieces of furniture, bought two cars and adopted a dog. Rather than seek out an expatriate community, they joined Bryn Mawr Country Cub where they made many American friends and became active in gof and saiing. Because Lachan s saary was on oca terms, they ived and acted ike ocas, and immersed themseves in the oca community with a mindset that they were here to stay. Of course, that woud never be the case, given that their H1B visa restricted them to a maximum of six years residency in the US. But they had another four-and-a-haf years unti the visa expired, and they intended to stay in Phiadephia unti the very ast month. Their move to Asia four years ater was, of course, necessary as their US visa was about to expire with no opportunity to renew. By now the MacDouga s had an 11-month od daughter, Ameia, who had been born in Phiadephia. Leaving the US was hard for Lisa; their famiy had put down so many roots over the past six years and made so many American friends, and athough they did have the opportunity to appy for a green card which coud provide permanent residency, to the surprise of their friends the MacDouga s

347 330 CASE 8 JUST ANOTHER MOVE TO CHINA? rejected this option in favor of another internationa move. They chose Asia because it woud be good for both their careers and yet sti cose enough to Austraia to maintain famiy and professiona ties without having to repatriate. Lachan approached his company about an interna transfer, and secured a new roe in Singapore. Singapore had been everything Lachan and Lisa had hoped for and they had ived there again, on a oca package much ike they had ived in the US: they bought a condo, secured permanent residency, sent their daughter to a oca pre-schoo, hired a maid and joined a oca saiing cub. Work permits for spouses were easy to get in Singapore so Lisa had been abe to secure part-time empoyment. Because he had Permanent Resident status, Lachan had been abe to change empoyers three years after moving there and was now a regiona expert in his fied, being routiney approached by headhunters trying to poach him to accept other job offers. The expatriate community was very we estabished, so the MacDouga s enjoyed a thriving socia ife. And it was here, in Singapore, that their second daughter, Emiy, was born. Now, a third move to China was ooming, and as Lisa refected on their expatriate ife so far, she knew that this move, more than any before, was a game changer for her, for Lachan, and most importanty, for their famiy. They didn t have to eave Singapore; they were permanent residents and they owned their own home, so they coud stay as ong as they wished and ife there was very good. It became abundanty cear that moving to China was a choice unike any other they had had before. Lachan s empoyer had asked him to consider a transfer to Shanghai on a oca-pus package no ess, with housing and schooing but if he did not wish to go the company maintained there woud be no repercussions, as he was their most senior Asia executive and they didn t want to ose him. China was, nonetheess, a key strategic market for the company and Lachan was, by a accounts, perfect for the job. Lisa considered that her husband s career woud undoubtedy fourish if they went to China, but she was struck by the fact that, his career aside, there was no other compeing reason to eave Singapore. With this in mind, she knew that if they were to move again, it woud need to benefit everyone in the famiy and not just one person. Being a dua-career traiing spouse is harder than you think In the months eading up to the China decision, Lisa spent a ot of time refecting on her traiing spouse journey, trying to piece together what it a meant and what it coud mean in a new city ike Shanghai. She knew now that without a doubt she was, and probaby aways woud be, the traiing spouse in their famiy, the person whose job woud not take them to their next destination, and whose career woud require more compromises than Lachan woud need to make in his. After a, he was now a Regiona Vice President for an SME technoogy firm in Singapore and earning more money than she coud ever hope to even as a tenured Professor, and that was ok with both of them; his career supported their ifestye, and she supported their growing famiy. She was surprised that her traiing spouse status didn t seem to bother her anymore, whereas even a year earier it had been a she coud think about. Since marrying Lachan and moving to Chicago, Lisa had not worked fu-time for over a decade. The first six years they had spent in the US had been chaenging. Chicago had been easy, amost ike a ong hoiday, but that had changed once they moved to Phiadephia and committed to staying in the US for the fu duration of their visa. The career she had put on hod back in Sydney, with the intention that she woud return to it in a coupe of years, was now a thing of the past. With no prospects to egay work in Phiy, a husband frequenty away on regiona business trips, and a waning interest in charity work (which she stereotyped as something od adies did), Lisa found hersef increasingy frustrated and constrained by a traiing spouse ife that she had once so wiingy embraced. She was bored. Life seemed du, meaningess and oppressive and she hadn t yet reached the age of 35! Without a business card and a job tite, she fet invisibe at the many functions she attended as Lachan s wife. Instinctivey she knew that their decision to move to Phiadephia had resuted in a major oss of her identity, much of which Lisa painfuy reaized had been tied up in a career that was now impossibe for her to continue. She had two choices commit to a ife of resigned acceptance as Mrs Nobody unti they repatriated, or do something about it.

348 CASE 8 JUST ANOTHER MOVE TO CHINA? 331 Like many traiing spouses often do, Lisa resoved her boredom by turning a negative situation into a ifeaffirming achievement: she went back to schoo and obtained a doctorate. On the advice of her doctora supervisor, she chose a fied of research she knew something about expatriates. As it turned out, Lisa oved research and was quite good at it. Being an insider to the expatriate community had many advantages invitations to speak at internationa conferences, opportunities to write about her research for industry periodicas, and the chance to start a goba mobiity website. Sowy, year by year, as her research progressed and her expatriate journey continued, Lisa buit a new career for hersef and, as she woud soon discover, a reativey portabe one at that. It was teing that when the move to Singapore arose she was the one pushing them to go, rather than repatriating to Sydney as Lachan had thought they woud do. As a goba mobiity academic, she perceived there woud be few negatives personay or professionay if they undertook another internationa assignment, and she had been right: In Singapore she had easy access to a work permit and so was abe to do part-time consuting for major corporations as we as adjunct teaching. When she graduated with her PhD, Lisa took a tenure-track position at John Campbe Coege with the intention that she woud spend between three and five years there before considering a move esewhere. It had been important that she re-enter the fu-time workforce, not ony professionay but aso for her sef-esteem and confidence. She fet a deep obigation to financiay contribute to the famiy again, to regain some baance and equaity in her marriage, and to be a strong roe mode as a working mother for her two young daughters. Like many traiing spouses before her, Lisa beieved that the onger she remained a supportive non-working wife, the harder it woud be for her to have a voice in major famiy decisions where financia considerations woud be an over-riding concern. Now a her thoughts turned to Shanghai. It seemed quite remarkabe that in itte more than a decade both she and Lachan had somehow turned their expatriate adventure into thriving goba careers and they weren t done yet. She aready had two job offers to consider at oca Universities in China, having interviewed with institutions when the famiy went on their famiiarization trip a coupe of months earier, but these were predominanty teaching jobs much ike the one at John Campbe had turned out to be. Getting a spouse work permit in China woud be reativey simpe so she found out, but her passion was research and, if she stood any chance of buiding an academic career, she needed to be in a job that aowed her to pubish in good journas. As a foreigner in China with ony hobby mandarin to get her by, how quicky coud she estabish a new network of contacts to find such a job? And what empoyment stereotypes and barriers woud she face as an expat wife? Athough another internationa move woud certainy deepen Lisa s mobiity knowedge and experience, moving to China was a career risk and one that she wasn t sure she needed to take. Raising third cuture kids The chidren were aso a major source of concern to Lisa. Their daughters, Ameia and Emiy, were now six and seven years of age and had been born overseas. Athough they had dua-citizenship (Austraian and British), the girs had never reay known a home other than Singapore and had been attending rea schoo there for neary two years. In fact, it had taken neary two years on a wait-ist to get the girs into their schoo United Word Coege of South East Asia (UWCSEA) given it was the best internationa schoo in the region. As parents, Lisa and Lachan were drawn to UWC because it was we known for striking a baance between a privieged chidhood and a focus on service to the goba community. UWC aso paid specia attention to the needs and interests of third cuture kids (TCKs). Athough Lisa didn t consider hersef a schoo snob, the reaity was that there was ony one UWC in Asia, and it wasn t in Shanghai. Given her deep theoretica knowedge about TCKs, aong with the fact that she and Lachan were raising two of their own, Lisa knew that Singapore meant a ot to her chidren and that they had incorporated its cuture into their everyday ife and sense of who they were. But Ameia and Emiy had simutaneousy deveoped a sense of reationship to a of the cutures they identified with where they were born, where their extended famiies ived and they frequenty vacationed, where mum and dad came from and they didn t reay have fu ownership in any. In reaity, their sense of beonging was mosty in reationship to others of an experience simiar to theirs mum and dad, each other, schoo friends, teachers a specia kind of in-group. Was this a good or a bad thing? On the one hand, Ameia and Emiy were constructing and reconstructing their identity during the

349 332 CASE 8 JUST ANOTHER MOVE TO CHINA? formative fragie years of their chidhood and at the same time across various foreign cutures. Lisa recognized that home for her chidren woud ikey be an emotiona pace that coudn t be found on a map, and that the question where am I from? woud require a response from an atas, not an anatomy book! She aso recognized that chidren don t move by choice and they aren t trained for it; they experience the same osses as aduts but very often cannot articuate their feeings. Having been a istening ear to a number of expatriate friends over the years whose own chidren had experienced unresoved issues of grief resuting from the reentessness of frequent goodbyes, Lisa was keeny aware that her girs woud ikey have simiar experiences, and it was a distressing thought. Was it fair to impose these sorts of stressors on her chidren and at such a young age? What ong asting impact woud it have on their emotiona and psychoogica we-being as they moved into aduthood? On the other hand, Ameia and Emiy seemed to possess more than a text-book understanding of goba cuture; they were iving it every day. With frequent internationa trave, access to foreign anguages, and exposure to transition and change, they had a rare opportunity to see the word in a way that was cosed to most peope their age. Lisa was proud that her chidren integrated we in their community, but she knew that they woud never fuy penetrate the oca cuture because it woud never be their passport country. She aso knew that her chidren were ikey deveoping a deep sense of rootessness and possiby a migratory instinct that woud be exacerbated by each and every subsequent internationa move. These weren t negatives per se, as Lachan had grown up much the same in Scotand and Ireand, and it coud we be that in these formative years, Lachan and Lisa were aready setting up their chidren for their own goba careers, which by a accounts they perceived to be a positive outcome. Sti, did they have the right to be making decisions for their chidren that coud impact their adut ife in such unimaginabe ways? Woud their chidren s ives be better if the famiy ived in one neighbourhood, in one city, cose to their reatives and friends, and never moved? Yes, Money Does Actuay Matter Lisa s ast remaining concern about moving to China centered on their financia situation. The reocation package offered to Lachan incuded a housing aowance, schoo fees, and tax equaization benefits as part of a oca-pus arrangement. For a intents and purposes the compensation package for the China move was attractive given that for the past 12 years Lisa and Lachan had been expatriates on oca terms, with no additiona benefits. Tax equaization was especiay beneficia given that China s income tax rate was approximatey 50 per cent compared to 20 per cent in Singapore; for this reason Lachan had nominated Singapore as his home-country and purposey retained his and Lisa s Singapore permanent residency (PR) status. But, in doing so, the MacDouga s soon discovered that departing Singapore as PR s was a more compicated process than they had anticipated. Because they were non-citizens of Singapore, the MacDouga s woud be required, by aw, to sette their tax bi with the Singapore government in advance of their temporary two-year absence, incuding taxabe income on stocks and shares offered as part of Lachan s pay-for-performance saary scheme that woud be accrued over the ensuing two years. This incuded existing as we as anticipated stocks and shares. Athough the technica detais of Singapore s tax aws were compicated and for the most part beyond Lisa s basic understanding, the fina outcome for the MacDouga s was that their tax bi prior to departure was significanty arge, taking into account both their taxabe earnings. Additionay, Singapore aw dictated that Lachan s existing and anticipated company shares and stocks woud need to be frozen during their two-year absence (i.e. they coud not se them) in order to mitigate any financia windfa he might otherwise accrue. In theory it sounded reasonabe enough, but the reaity was that the MacDouga s coud emerge from their China assignment in two years time with shares worth ony haf the vaue, without any opportunity to stem the oss by seing them. As a senior vice president, Lachan s share portfoio was substantia; about 20 per cent of the MacDouga s overa net worth consisted of company shares. Given the ongoing economic crises in Europe and the United States, and their impending retirement in 15 years time, Lisa wasn t sure it was worth the financia risk to ock in their company share portfoio at the existing share price and to possiby suffer a oss that coud be difficut to recover.

350 CASE 8 JUST ANOTHER MOVE TO CHINA? 333 Coming Fu Circe to Embrace Shanghai As Lisa drove home from John Campbe Coege having resigned from her job earier that day, she turned on the car radio and istened to a BBC Word Service program in which we-known author and pubisher, Robin Pascoe, was being interviewed about her newy reeased book on Goba Nomads. As Ms. Pascoe recaed her ife as a foreign service spouse, raising two chidren in four Asian countries during the 1980s and 1990s, and spoke of the many times she had reinvented her career as a journaist, author, pubic speaker, and now pubisher, Lisa was struck by how common goba careers had become, and by women no ess. Athough she hersef had at times fet somewhat aone in her own journey as a traiing spouse, Lisa nonetheess knew that internationa mobiity was inevitabe for many empoyees as taent management became critica for mutinationa firms. She and Lachan were no exception to this phenomenon: they may not have intentionay set out to pursue goba careers a decade earier, but once they had arrived on the internationa abor market it made sense that they remain there. They had benefited immensey by doing so, despite the many persona and professiona hurdes she had overcome, and even though repatriation to Austraia had been an ongoing taking point for years over the dinner tabe, somehow it just never seemed to factor into any of their pans. Lisa now ceary saw for the first time that moving to China signaed an important change in their famiy dynamic: the MacDouga s had acquired the reativey rare ski of famiy mobiity and she instinctivey knew that it was a skiset ikey to be highy sought after by many goba companies. Their united nations goba famiy was, in reaity, a vauabe commodity. Athough she had aways had the opportunity to return to a reativey comfortabe and stabe north shore ife in Sydney had she wanted to, Lisa had never reay seriousy considered it an option; instead, she knew now that she and Lachan woud probaby pursue goba careers in one form or another for the rest of their ives, as woud their chidren. As Ms Pascoe continued to te her story on the radio, Lisa began to sowy et go of her fears and to once and for a embrace the Shanghai opportunity. And then she began to wonder... retaining their Singapore permanent residency status might not have been necessary after a, given that there were so many other cities they coud move to when the Shanghai assignment was compete. Questions: 1 In what ways does the MacDouga famiy represent a rare and vauabe resource to a mutinationa firm? 2 Refecting on Lisa s dua-career traiing spouse journey, how woud you have approached the situation differenty? 3 What probems do you foresee for Ameia and Emiy if the MacDouga famiy undertakes another move after Shanghai? 4 Athough not discussed, what impact do you think internationa mobiity has had on the MacDouga s marriage?

351 Gossary Achievement cuture focuses on status achievement, peope are judged based on what they have achieved, in other words the goas they have fufied recenty. (p36) Acquisition occurs when one company buys another company with the interest of controing the activities of the combined operations. (p84) Ad hoc see Tax, ad hoc Affective dimension refers to intercutura competence refecting the emotiona attitude towards a foreign cuture. (p130) Agents of sociaization approach is based on assumptions that appropriate behavior wi have been instied in the oca workforce through training programs and hiring practices, and that the mutinationa s way of operating has been accepted by the oca staff in the manner intended. In this way, the mutinationa s corporate cuture wi operate as a subte, informa contro mechanism a substitution of direct supervision. (p48) Artifacts are described as visibe organization structures and processes. (p38) Ascriptive cuture the status is ascribed from birth by characteristics such as origin, seniority, and gender. (p37) Assertiveness is the degree to which individuas are assertive, confrontationa, and aggressive in their reationship with others. (p36) Assertiveness, GLOBE study is The degree to which individuas are assertive, confrontationa, and aggressive in their reationship with others. (p35) Asymmetric events have been described as threats that our poitica, strategic and miitary cutures regard as unusua. (p16) Baance Sheet Approach The basic objective is to keep the expatriate whoe (that is, maintaining reativity to PCN coeagues and compensating for the costs of an internationa assignment1) through maintenance of home-country iving standard pus a financia inducement to make the package attractive. This approach inks the base saary for expatriates to the saary structure of the reevant home country. (p221) Base saary In a domestic context, base saary denotes the amount of cash compensation serving as a benchmark for other compensation eements (such as bonuses and benefits). For expatriates, it is the primary component of a package of aowances, many of which are directy reated to base saary (e.g. foreign service premium, costof-iving aowance, housing aowance) as we as the basis for in-service benefits and pension contributions. The base saary is the foundation bock for internationa compensation whether the empoyee is a PCN or TCN. (p217) Best practice A method or technique that has consistenty shown resuts superior to those achieved with other means, and that is used as a benchmark (Businessdictionary.com). (p121) Boundary spanning refers to activities, such as gathering information, that bridge interna and externa organizationa contexts. Expatriates are considered boundary spanners because they can coect host country information, act as representatives of their firms in the host country, and can infuence agents. (p121) Boundaryess careerist is the highy quaified mobie professiona who buids his or her career competencies and abor market vaue through transfers across boundaries. (p201) Bribery invoves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage. Bribery can be distinguished from so-caed gifts and faciitating or grease payments. (p270) Bureaucratic contro system Contro of an organization and the individuas that make up the organization through systems of standardized rues, methods and verification procedures. Bureaucratic contro is used to ensure efficient operation of arge organizations, where face-to-face communication is not possibe or practica and informa methods of enforcing compiance may not be sufficient (Businessdictionary.com). (p154) Centraized.... (p51) Centraized practice Management practice in which a or most decision-makers (who have the authority, contro and responsibiity for the entire organization) are ocated in one centra office (Businessdictionery.com). Chaebos Korean congomerates. (p69) Change faciitator.... (p93) Chief Executive Officer or subsidiary manager, who oversees and directs the entire foreign operation. (p156) Cognitive ayer reates to cuture-specific knowedge. (p130) Coaborator.... (p93) Coective bargaining process between an organization s management and a trade union representing its empoyees, for negotiating wages, working hours, working conditions and other matters of mutua interest. To the management, this process presents (usuay) one set of peope to negotiate with; to the empoyees, it gives greaty enhanced bargaining-power. Coective bargaining is the 334

352 GLOSSARY 335 fundamenta principe on which the trade union system is based (Businessdictionary.com). (p161) Coectivism, Hofstede study persona or socia orientation that emphasizes the good of the group, community, or society over and above individua gain (Businessdictionary.com). (p31) Communication medium A medium through which a message is transmitted to its intended audience, such as print media or broadcast (eectronic) media (Businessdictionary.com). (p166) Communitarianism is about the rights of the group or society. It seeks to put the famiy, group, company and country before the individua. It sees individuaism as sefish and short-sighted. (p36) Commuter assignments specia arrangements where the empoyee commutes from the home country on a weeky or bi-weeky basis to the pace of work in another country. Cross-border workers or daiy commuters are not incuded. Usuay the famiy of the assignee stays in the home country. (p118) Compensation Sum of direct benefits (such as saary, aowances, bonus, commission) and indirect benefits (such as insurance, pension pans, vacations) that an empoyee receives from an empoyer (Businessdictionary.com). (p60) Competency base saary compensation given on the basis of an empoyee acquiring a critica ski or knowedge (Businessdictionary.com). Competency-based assessment.... (p161) Confucianism dynamics, Hofstede study this dimension essentiay refects a basic orientation in the ife of peope, which can be either more ong-term or short-term in nature. (p29) Contextua goas attempt to take into consideration factors that resut from the situation in which performance occurs. (p163) Contractua assignments used in situations where empoyees with specific skis vita to an internationa project are assigned for a imited duration of six to tweve months. (p119) Corporate cuture or organizationa cuture, is the sum tota of an organization s past and current assumptions, experiences, phiosophy and vaues that hod it together, and is expressed in its sef-image, inner workings, interactions with the outside word, and future expectations. It is based on shared attitudes, beiefs, customs, express or impied contracts, and written and unwritten rues that the organization deveops over time and that have worked we enough to be considered vaid (Businessdictionary.com). (p48) Cost-of-iving aowance the cost-of-iving aowance (COLA), which typicay receives the most attention, invoves a payment to compensate for differences in expenditures between the home country and the foreign country. COLA payments are intended to compensate for cost differentias between an expatriate s home and host country, for exampe, the costs of transportation, furniture and appiances, medica, acoho and tobacco, automobie maintenance, and domestic hep. (p218) Country-of-origin effect refers to the extent to which mutinationas are shaped by institutions existing in their country of origin. (p51) Cross-cutura management studies aim to describe and compare the working behavior in various cutures. (p23) Cutura awareness training program seeks to foster an appreciation of the host country s cuture so that expatriates can behave accordingy, or at east deveop appropriate coping patterns. (p176) Cutura inteigence is a specific form of inteigence focused on capabiities to grasp, reason and behave effectivey in situations characterised by cutura diversity. (p130) Cuture consists in patterned ways of thinking, feeing, and reacting, acquired and transmitted mainy by symbos, constituting the distinctive achievements of human groups..., incuding their embodiments in artefacts; the essentia core of cuture consists of traditiona [...] ideas and especiay their attached vaues... (Kuckhohn and Kroeber, 1952: 181). (p22) Cuture shock a phenomenon experienced by peope who move across cutures. The new environment requires many adjustments in a reativey short period of time, chaenging peope s frames of reference to such an extent that their sense of sef, especiay in terms of nationaity, comes into question. Peope, in effect, experience a shock reaction to new cutura experiences that cause psychoogica disorientation because they misunderstand or do not recognize important cues. (p190) Cyber-terrorism hardware, software and human systems to dea with hacking, information theft, interna sabotage, the sabotage of software systems and the deveopment and maintenance of an architecture of backup systems and mutipe independent operations for information systems. (p275) Decentraized practice subsidiaries have decision-making power and are assigned accountabiity and responsibiity for resuts. It is accompanied by deegation of commensurate authority to individuas or units at a eves of an organization even those far removed from headquarters or other centers of power (Businessdictionery.com). (p65) Deveopment aims to increase abiities in reation to some future position or job. (pp92, 174) Deveopmenta assignments focuses on focusing on in-country performance and the acquisition of oca or regiona understanding by the assignee. (p156) Diffuse cuture is characterized by: a arge private ife that incudes a reativey arge number of peope; sma pubic space that is difficut to enter (e.g. an outsider needs a forma introduction from a mutua friend in order to do business with a particuar manager); indirect communication does not aways say what is reay meant; no cear distinction between work and private ife. (p36) Direct costs of expat faiure incude airfares and associated reocation expenses, and saary and training. The precise amount varies according to the eve of the position concerned, country of destination, exchange rates, and whether the faied manager is repaced by another expatriate. (p128)

353 336 GLOSSARY Disaster protocos Panned steps taken to minimize the effects of a disaster, and to be abe to proceed to business continuity stage (Businessdictionary.com). (p275) Domestic Human Resources Management is invoved with empoyees within ony one nationa boundary. (p3) Education aowances provision of education aowances for the chidren of expatriates is frequenty an integra part of an internationa compensation poicy. Aowances for education can cover items such as tuition (incuding anguage casses), appication and enroment fees, books and suppies, meas, transportation, excursions and extra-curricuar activities, parent association fees, schoo uniforms and, if appicabe, room and board. (p219) Emic refers to cuture-specific aspects of concepts or behavior. (p10) Emotiona cuture In affective cutures, an emotiona basis is accepted as a part of business ife and emotions are freey expressed across many socia contexts. (p36) Equity.... (p6) Equity mode invoves a foreign direct investor s purchase of shares of an enterprise in a country other than its own. (p83) Equity, compensation Degree to which the actua pay of an empoyee matches what he or she thinks to deserve. High pay equity means high empoyee satisfaction with his or her job, ow pay equity increases the potentia for absenteeism, grievances, strikes and turnover (Businessdictionary.com). (p217) Ethica absoutist beieves that when in Rome, one shoud do what one woud do at home, regardess of what the Romans do. (p270) Ethica reativist there are no universa or internationa rights and wrongs, it a depends on a particuar cuture s vaues and beiefs. For the ethica reativist, when in Rome, one shoud do as the Romans do. (p270) Ethica universaist beieves there are fundamenta principes of right and wrong which transcend cutura boundaries, and that MNEs must adhere to these fundamenta principes or goba vaues. (p270) Ethics The basic concepts and fundamenta principes of right human conduct. It incudes study of universa vaues such as the essentia equaity of a men and women, human or natura rights, obedience to the aw of and, concern for heath and safety and, increasingy, aso for the natura environment (Businessdictionary.com). (p268) Ethnocentric Staffing key positions in domestic and foreign operations are hed by managers from headquarters (PCN Parent Country Nationas). Subsidiaries are managed by staff from the home country. (p110) Ethnoreativism An acquired abiity to see many vaues and behaviors as cutura rather than universa. It is characterized by adjustment to foreign cutures and integration. (p135) Etic refers to cuture-common aspects. (p10) ETUC European Trade Union Confederation. (p249) EU the European Union. (p249) Expatriate is an empoyee who is working and temporariy residing in a foreign country. (p3) Experientia market knowedge is knowedge gained through experience operating in the chosen market. (p96) Extended internationa assignment up to one year. These may invove simiar activities as that for short-term assignments. (p110) Externa contro, Concept of nature This dimension describes the concept of nature and refers to the extent to which societies try to contro nature. These societies beieve they can infuence their environment and others to achieve their goas. (p36) Externa Recruitment The assessment of the current avaiabe poo of job candidates, other than existing staff, to ascertain if any are sufficienty skied or quaified to fi and perform existing job vacancies. When a business engages in externa recruitment, a head hunter might be used to faciitate the search, contact and recruitment process (Businessdictionary.com). (p124) Extrinsic rewards A reward that is expected by an empoyee and does not ead to his or her greater satisfaction (Businessdictionary.com). (p50) Feedback In an organizationa context, feedback is the information sent to an entity (individua or a group) about its prior behavior so that the entity may adjust its current and future behavior to achieve the desired resut (Businessdictionary.com). (p164) Feminine orientation, Hofstede study is based on the assumption that vaues can be distinguished as more mascuine or more feminine. The feminine orientation contains preferences for ife quaity, modesty and interpersona reationships. (p27) Fied experience see preiminary visit. Foreign service inducement Parent-country nationas often receive a saary premium as an inducement to accept a foreign assignment. (p218) Foreign subsidiary A partiay or whoy owned company that is part of a arger corporation with headquarters in another country (Businessdictionary.com). (p154) Functiona assignments described as more enduring assignments with oca empoyees that invove the twoway transfer of existing processes and practices. (p156) Genchigenbutsu stressing that production probems can ony be anayzed and soved at the source and not behind a desk. Gender Egaitarianism, GLOBE study is the degree to which a coective minimizes gender inequaity. (p35) Geocentric Staffing approach, the MNE is taking a goba approach to its operations, recognizing that each part (subsidiaries and headquarters) makes a unique contribution with its unique competence. Subsidiaries are usuay managed by TCN Third Country Nationas. (p115) Goba industry one in which a firm s competitive position in one country is significanty infuenced by its position in other countries. Exampes incude commercia aircraft, semiconductors and copiers. (p11) Goba innovator provides significant knowedge for other units. (pp54) Goba mindset requires a HR manager to think gobay and to formuate and impement HR poicies that faciitate the deveopment of gobay oriented staff. (p15)

354 GLOSSARY 337 Going Rate Approach with this approach, the base saary for the internationa transfer is inked to the saary structure in the host country. (p221) Greenfied A type of venture where finances are empoyed to create a new physica faciity for a business in a ocation where no existing faciities are currenty present. (p68) Guanxi dyadic persona reationships between peope in China. (p257) Hard goas are objective, quantifiabe and can be directy measured such as return-on-investment (ROI), market share, etc. (p163) Hardship premium to compensate for chaenging ocations. (p218) Heterarchy is a structura form in which a MNC may have a number of different kinds of centers apart from that traditionay referred to as headquarters. (p64) High context communication in high context cutures, a more indirect form of expression is common, where the receiver must decipher the content of the message from its context. (p37) Home eave aowances a provision for home eave aowances where empoyers cover the expense of one or more trips back to the home country each year. (p219) Home-country effects refers to the extent to which management practices in mutinationa companies subsidiaries are infuenced by the home-country environment. (p52) Honeymoon or tourist phase refers to an upswing of mood upon arriva in the assignment country that produces what has been referred to as the. (p130) Host country Is the country where MNC is operating in and has estabished a foreign subsidiary. (p2) Host-country effect refers to the extent to which management practices in mutinationa companies subsidiaries are impacted by the host-country context. (p51) Host country nationas (HCNs).... (p47) Housing aowance the provision of a housing aowance impies that empoyees shoud be entited to maintain their home-country iving standards (or, in some cases, receive accommodation that is equivaent to that provided for simiar foreign empoyees and peers). (p218) Human resource refers to the accumuated stock of knowedge, skis and abiities that the individuas possess, which the firm has buit up over time into an identifiabe expertise. (p2) Human Resources Management refers to those activities undertaken by an organization to effectivey utiize its human resources. These activities woud incude at east the foowing: human resource panning, staffing (recruitment, seection, pacement), performance management, training and deveopment, compensation (remuneration) and benefits, and Industria reations. (p1) Humane Orientation incudes the degree to which a coective encourages and rewards individuas for being fair, atruistic, generous, caring and kind to others. (p35) Humane Orientation, GLOBE study incudes the degree to which a coective encourages and rewards individuas for being fair, atruistic, generous, caring, and kind to others. (p35) ILO Internationa Labor Organization. (p249) Impementer reies heaviy on knowedge from the parent or peer subsidiaries and create a reativey sma amount of knowedge themseves. (p55) In-faciity security comprised of perimeter security, search protocos into and out of faciities (truck inspections, deiveries, etc.), interna search protocos (ockers, etc.), bomb threat procedures, risk contro for vioence in the faciity and threats to management (incuding training on warning signs, protection of property and equipment and safeguarding executives), protection and ighting in parking areas and the use of cameras in the workpace. (p275) In-Group Coectivism is the degree to which individuas express pride, oyaty and cohesiveness in their organizations or famiies. (p35) In-house security The prevention of and protection against assaut, damage, fire, fraud, invasion of privacy, theft, unawfu entry and other such occurrences caused by deiberate action. (p275) Index of transnationaity is an average of ratios of foreign assets to tota assets; foreign saes to tota saes; and foreign empoyment to tota empoyment. (p12) Indirect costs of expat faiure or invisibe costs are harder to quantify in money terms but can prove to be more expensive for firms. (p128) Individuaism is about the rights of the individua. It seeks to et each person grow or fai on their own, and sees group-focus as denuding the individua of their inaienabe rights. (p26) Individuaism, Hofstede study describes the extent to which individua initiative and caring for onesef and the nearest reatives is preferred by a society. (p26) Industria espionage theft and sabotage activities to secure interna communications (emais, teephones, etc.), open records protection, empoyee privacy reguations, ceary defined physica inspections and search processes. (p275) Industria theft Crimina act of dishonest assumption of the rights of the true owner of a tangibe or intangibe property by treating it as one s own, whether or not taking it away with the intent of depriving the true owner of it (Businessdictionary.com). (p275) Information speed This dimension focuses on whether information fow in groups is high or ow during communication. (p37) Innovator.... (p92) Inpatriate refers to the transfer of subsidiary staff into the parent country (headquarters) operations. (p3) Institutiona coectivism, GLOBE study describes the degree to which organizationa and societa institutiona practices encourage and reward coective distribution of resources and coective action. (p35)

355 338 GLOSSARY Institutionaism perspective indicates that institutiona pressures may be powerfu infuences on human resource practices. Eements which are reevant to HRM are, for exampe, the characteristics of the education system or the industria reations system. (p50) Integrated payer creates knowedge but at the same time is recipient of knowedge fows. (p54) Inteectua capita coective knowedge (whether or not documented) of the individuas in an organization or society. This knowedge can be used to produce weath, mutipy output of physica assets, gain competitive advantage, and/or to enhance vaue of other types of capita (Businessdictionary.com). (p161) Intercutura.... (p130) Intercutura competence is defined as the abiity to function effectivey in another cuture. (p129) Interna contro, Concept of nature This dimension describes the concept of nature and refers to the extent to which one accepts they can ony contro themseves and accepts they have no contro over their environment. For exampe in the reigion of Isam, they have a saying If it s Aah s wi. (p37) Interna Recruitment The assessment of an empoyer s current staff to ascertain if any current empoyees are sufficienty skied or quaified to perform required job vacancies. When a business engages in interna recruitment, a current empoyee might be reassigned to the new position by giving them either a promotion or an interna transfer (Businessdictionary.com). (p124) Internationa base pay for key managers, regardess of nationaity, that is paid in a major reserve currency such as the US doar or the Euro. This system aows MNEs to dea with considerabe variations in base saaries for managers. (p232) Internationa cadre usuay refers to a group of high potentia empoyees who have been seected for speciaized management training to enabe the MNE to continue to expand its internationa operations. (p187) Internationa Human Resources Management covers a issues reated to managing the goba workforce and its contribution to firm outcomes and incudes comparative anayses of HRM in different countries. (p1) Internationa joint venture is a separate ega organizationa entity representing the partia hodings of two or more parent firms, in which the headquarters of at east one is ocated outside the country of operation of the joint venture. This entity is subject to the joint contro of its parent firms, each of which is economicay and egay independent of the other. (p91) Internationaization process theory which is derived from the behaviora mode of uncertainty avoidance, suggests that specific features of the owner or founder of an SME have an impact on the internationaization process of this particuar enterprise. (p96) Intrinsic rewards An outcome that gives an individua persona satisfaction such as that derived from a job we done (Businessdictionary.com). (p50) Investment strike refers to the act of some mutinationas whereby, the mutinationa refuses to invest any additiona funds in a pant, thus ensuring that the pant wi become obsoete and economicay non-competitive. (p248) Iron rice bow guaranteed continuation of empoyment, aong with various wefare and benefits offered to empoyees, such as accommodation, medica treatment, chidcare and pensions. (p257) Kaizen the continuous improvement phiosophy. (p72) Knowedge in an organizationa context, knowedge is the sum of what is known and resides in the inteigence and the competence of peope (Businessdictionary.com). (p89) Laissez-faire see Tax, Laissez-faire Lobbying The act of attempting to infuence business and government eaders to create egisation or conduct an activity that wi hep a particuar organization. Peope who do obbying are caed obbyists (Businessdictionary.com). (p247) Loca innovator subsidiaries engage in the creation of reevant country/region-specific knowedge in a key functiona areas because they have compete oca responsibiity. (p55) Loca pus approach is one in which expatriate empoyees are paid according to the prevaiing saary eves, structure, and administration guideines of the host ocation, pus provided expatriate-type benefits such as assistance with transportation, housing, and dependents education in recognition of the empoyee s foreign status. (p224) Loca responsiveness is to respect oca cutura vaues, traditions, egisation or other institutiona constraints such as government poicy and/or education systems regarding HRM and work practices. (p52) Loca staff or Host Country Nationa (HCN) is an empoyee who is a citizen of a country in which an organization s branch or pant is ocated, but the organization is headquartered in another country (usega.com). (p47) Long-term internationa assignment varies from one to five years, invoving a ceary defined roe in the receiving operation (eg. a senior management roe in a subsidiary). The ong-term assignment has aso been referred to as a traditiona expatriate assignment. (p226) Long-term, Confucianism dynamics in this dimension are characterized by great endurance and/or persistence in pursuing goas, position of ranking based on status, adaptation of traditions to modern conditions, respect of socia and status obigations within certain imits, high savings rates and high investment activity, readiness to subordinate onesef to a purpose, and the feeing of shame. (p29) Low context communication the payers tend to communicate more to the point and verbaize a-important information. (p37) Macro eve terrorist threats are threats of a terrorist attack on the goba environment. (p276) Mascuinity, Hofstede study is based on the assumption that vaues can be distinguished as more mascuine or more feminine. The mascuine orientation comprises the

356 GLOSSARY 339 pursuit of financia success, heroism and strong performance approach. (p26) Matrix Structure an organizationa structure that faciitates the horizonta fow of skis and information. It is used mainy in the management of arge projects or product deveopment processes, drawing empoyees from different functiona discipines for assignment to a team without removing them from their respective positions. Empoyees in a matrix organization report on day-to-day performance to the project or product manager whose authority fows sideways (horizontay) across departmenta boundaries. They aso continue to report on their overa performance to the head of their department whose authority fows downwards (verticay) within his or her department. (p62) Menta programs.... (p24) Mentor is usuay in a more senior position than the expatriate, from the sending work unit, and often knows the expatriate personay. The rationae behind the use of a mentor is to aeviate the out-of-sight, out-of-mind feeing discussed earier through the provision of information (such as, workpace changes) on a reguar basis, so that the expatriate is more prepared for conditions faced upon re-entry. (p191) Merger is the resut of an agreement between two companies to join their operations together. (p84) Merit base basing an empoyee s saary on his or her performance, over a predetermined period and according to an agreed upon criteria (Businessdictionary.com). (p160) Micro eve terrorist threats are threats at specific regions, industries or eves in internationa vaue chains. (p276) Monochrome concept of time A monochrome concept of time is dominated by processes, where one thing is done after the other. (p37) Muticutura Ceebrating human diversity by wiingy promoting ega, poitica, and socia recognition of cutura, ethnic, inguistic and reigious differences. (p93) Mutidomestic industry one in which competition in each country is essentiay independent of competition in other countries. Traditiona exampes incude retaiing, distribution and insurance. (p4) Neutra cuture tends to express itte emotion; business is transacted as objectivey and functionay as possibe. (p36) Non-equity cross-border aiance is an investment vehice in which profits and other responsibiities are assigned to each party according to a contract. (p83) Non-expatriates peope who trave internationay but are not considered expatriates, as they do not reocate to another country. Popuar terms for these empoyees incude road warriors, gobetrotters, frequent fiers and fexpatriates (p122) OECD the Organization for Economic Cooperation and Deveopment. (p249) Offshoring of abor work done for a company by peope in another country that it typicay done at a much cheaper cost (Businessdictionary.com). (p243) Operative is the individua whose assignment is to perform functiona job tasks in an existing operationa structure, in generay ower eve, supervisory positions. (p156) Organizationa cuture is defined as the sense of common identity and purpose across the whoe organization. (p17) Parent-country nationas (PCN) (see Expatriate). (p3) Particuarism pays more attention to individua cases, deciding what is good and correct depending on reationship and specia friendship arrangements. (p36) Partnership roe.... (p92) Pay strategy defined in terms of a series of interocking strategic choices on the basis of pay (job versus ski, performance versus seniority), unit of aggregation. (paying individuas, groups, organizations, short- versus ong-term orientation to pay), patterns of variation in pay (variabiity or risk in pay, hierarchica versus egaitarian pay orientation) and an overa focus on interna equity as captured by job evauation systems as opposed to externa equity as captured by market surveys. (p232) Performance management is a process that enabes company to evauate and continuousy improve individua, unit and corporate performance, against ceary defined, pre-set goas and targets. (p150) Performance Orientation is defined as the degree to which a coective encourages and rewards group members for performance improvement and exceence. (p35) Performance Orientation, GLOBE study is defined as the degree to which a coective encourages and rewards group members for performance improvement and exceence. (p35) Performance reated-pay is a financia reward system for empoyees where some or a of their monetary compensation is reated to how their performance is assessed reative to stated criteria (Businessdictionary.com). (p90) Poycentric Staffing approach invoves the MNE treating each subsidiary as a distinct nationa entity with some decision-making autonomy. Subsidiaries are usuay managed by oca nationas (HCN Host Country Nationas), who are sedom promoted to positions at headquarters, and PCNs are rarey transferred to foreign subsidiary operations. (p110) Poychrome concept of time processes actions occur at the same time. (p37) Power Distance, GLOBE study is defined as the degree to which members of a coective expect power to be distributed equay. (p26) Power distance, Hofstede study represents the scae on which the members of a cuture accept that power is not distributed equay in institutions. It expresses the emotiona distance between empoyees and superiors. Power inequaity exists in many cutures, but may be more or ess pronounced from cuture to cuture. (p26) Pre-departure training A set of training programmes provided before expatriate depart for their overseas assignment, designed to increase the success of expatriate s in their internationa assignments; training

357 340 GLOSSARY might incude, cross cutura and anguage training, business etiquettes, etc (Referencebusiness.com). (p60) Preiminary visit to the host country is a we-panned visit for the candidate and spouse provides a preview that aows them to assess their suitabiity for and interest in the assignment. Such a visit aso serves to introduce expatriate candidates to the business context in the host ocation and heps encourage more informed pre-departure preparation. (p180) Primary terrorist threats are threats at the eve of the individua person and firm. (p285) Processes refer to activities that firms use to convert the resources into vauabe goods and services. (p89) Psychoogica contract The unwritten understandings and informa obigations between an empoyer and its empoyees regarding their mutua expectations of how each wi perform their respective roes. Within a typica business, the psychoogica contract might incude such things as the eves of empoyee commitment, job satisfaction and the quaity of working conditions (Businessdictionary.com). (p7) Recruitment is defined as searching for and obtaining potentia job candidates in sufficient numbers and quaity so that the organization can seect the most appropriate peope to fi its job needs. (p92) Redundancy Eimination of jobs or job categories caused by downsizing, rightsizing or outsourcing (Businessdictionary.com). (p247) Regiocentric Staffing approach refects the geographic strategy and structure of the MNE. Like the geocentric approach, it utiizes a wider poo of managers but in a imited way. Staff may move outside their home countries but ony within the particuar geographic region. (p114) Reocation aowances Items typicay covered by reocation aowances incude moving, shipping and storage charges; temporary iving expenses; subsidies regarding appiance or car purchases (or saes); and down payments or ease-reated charges. (p219) Remuneration reward for empoyment in the form of pay, saary or wage, incuding aowances, benefits (such as company car, medica pan, pension pan), bonuses, cash incentives and monetary vaue of the noncash incentives (Businessdictionary.com). (p155) Repatriation the activity of bringing the expatriate back to the home country. (p189) Resources are defined as tangibe assets such as money and peope, and intangibe assets, such as brands and reationships. (p89) Reverse diffusion the transfer of management practices from foreign ocations to the headquarters. (p52) Risk management the identification, anaysis, assessment, contro, and avoidance, minimization or eimination of unacceptabe risks. An organization may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events (Businessdictionary.com). (p275) Roe pays acting out a roe payer s actions in a simuated situation such as a training program (Businessdictionary.com). (p179) Rotationa assignments empoyees commute from the home country to a pace of work in another country for a short, set period foowed by a break in the home country. The empoyee s famiy usuay remains in the home country. (p118) Seection is the process of gathering information for the purposes of evauating and deciding who shoud be empoyed in particuar jobs. (p124) Seection criteria List of knowedge, abiities, experience and skis one must have in order to perform the job successfuy. (pp110, 129) Sef-initiated assignments Whie standard expatriations are usuay initiated by the organization, sef-initiated assignments are initiated by the individua. (p119) Sensitivity training training designed to make peope more aware of group dynamics and their own behavior, interpersona traits, and roe within a group (Businessdictionary.com). (p179) Short-term internationa assignment up to three months. These are usuay for troubeshooting, project supervision or a stopgap measure unti a more permanent arrangement can be found. (p118) Short-term, Confucianism dynamics are characterized by: persona candour and stabiity, avoiding oss of face, respect of socia and status obigations without the consideration of costs, ow savings rates and ow investment activity, expectations of quick profit respect for traditions, and greetings, presents and courtesies based on reciprocity. (p29) Six Sigma quaity contro Originay deveoped in 1986 by Motoroa, the business management strategy is now used in many different industries in an effort to improve the quaity of products or services produced by the business through the remova of defects and errors. The strategy invoves creating groups of peope within the business or organization who have expert status in various methods, and then each project is carried out according to a set of steps in an effort to reach specific financia miestones. (p54) Socia dumping the movement of work from one region to another and its effect on empoyment eves; and the need for trade union soidarity to prevent workers in one region from accepting pay cuts to attract investment, at the expense of workers in another region. (p252) Soft goas tend to be reationship or trait-based, such as eadership stye or interpersona skis. (p163) Software of the mind.... (p24) Spatia orientation The focus of this dimension is on the distance between peope of various cutures when communicating. Distance that is adequate for members of one cuture, may fee intrusive for members of another cuture. (p37) Specific cuture is characterized by: a sma private ife that is kept private; arge socia/pubic ife that is very open to others; extroversion; no nonsense direct in

358 GLOSSARY 341 communications; cear distinction between work and persona ife. (p36) Spouse assistance hep guard against or offset income ost by an expatriate s spouse as a resut of reocating abroad. (p220) Standardization-ocaization A system of processes and procedures that operates effectivey in mutipe countries by expoiting oca differences and interdependencies and at the same time sustaining goba consistency. (p53) Strategic assignments refers to high-profie activities that focus on deveoping a baanced goba perspective. (p156) Strategy impementer.... (p93) Strikes coective, organized, cessation or sowdown of work by empoyees, to force acceptance of their demands by the empoyer (Businessdictionary.com). (p246) Structure reproducer carries the assignment of buiding or reproducing in a foreign subsidiary a structure simiar to that which he or she knows from another part of the company. (p156) Sub-optimizing Knowingy accepting ess than the best possibe outcome or output, in order to avoid unintended adverse effects of trying harder (Businessdictionary.com). (p247) Tacit knowedge Unwritten, unspoken and hidden vast storehouse of knowedge hed by practicay every norma human being, based on his or her emotions, experiences, insights, intuition, observations and internaized information. Tacit knowedge is integra to the entirety of a person s consciousness, is acquired argey through association with other peope, and requires joint or shared activities to be imparted from on to another. (p121) Tacitness.... (p121) Tax equaization firms withhod an amount equa to the home-country tax obigation of the expatriate, and pay a taxes in the host country. (p5) Tax protection the empoyee pays up to the amount of taxes he or she woud pay on compensation in the home country. (p228) Tax, ad hoc each expatriate is handed differenty, depending upon the individua package agreed to with the MNE. (p228) Tax, aissez-faire empoyees are on their own in conforming to host-country and home-country taxation aws and practices. (p228) Technica assignments refers to -short-term knowedge transference activities, (p156) The costs of expatriate faiure can be both direct and indirect. (p128) Third country nationas (TCNs).... (p47) Trade Unions An organization whose membership consists of workers and union eaders, united to protect and promote their common interests. The principa purposes of a abor union are to (1) negotiate wages and working condition terms, (2) reguate reations between workers (its members) and the empoyer, (3) take coective action to enforce the terms of coective bargaining, (4) raise new demands on behaf of its members and (5) hep sette their grievances. (p241) Traditiona expatriate assignment.... (p117) Training aims to improve empoyees current work skis and behavior. (pp92, 174) Transnationa is an organizationa form that is characterized by an interdependence of resources and responsibiities across a business units regardess of nationa boundaries. The term has aso become a descriptor of a particuar type of mutinationa, one that tries to cope with the arge fows of components, products, resources, peope and information among its subsidiaries, whie simutaneousy recognizing distributed speciaized resources and capabiities. (pp54, 64) Transnationa corporate is a commercia enterprise that operates substantia faciities, does business in more than one country and does not consider any particuar country its nationa home (Businessdictionary.com). (p49) Troubeshooter is the individua who is sent to a foreign subsidiary to anayze and sove a particuar operationa probem. (p156) Turnover rates A human resources metric which expresses the number of empoyees ost through firing, attrition and other means compared to the tota number of empoyees in the company (Businessdictionary.com). (p256) Uncertainty avoidance, GLOBE study incudes the extent to which a society, organization, or group reies on socia norms, rues, and procedures to aeviate unpredictabiity of future events. (p35) Uncertainty avoidance, Hofstede study represents the extent to which the members of a cuture fee threatened by uncertain, ambiguous and/or unstructured situations and try to avoid them. Cutures with strong uncertainty avoidance are characterized by strict beiefs and behaviora codes and do not toerate peope and ideas that deviate from these. In cutures with weak uncertainty avoidance, the significance of practice exceeds the significance of principes and there is high toerance for deviations. (p26) UNCTAD the United Nations Conference on Trade and Deveopment. (p249) Universaism is characterized by the ogic: What is good and right can be defined and aways appies. (p36) Vaues are the way in which empoyees think about what they do and why they do it. Vaues shape empoyee s priorities and decision-making. (p89) Virtua assignees monitoring and evauating a physicay and geographicay distant group of empoyees. (p161) Virtua assignments where the empoyee does not reocate to a host ocation but manages, from home-base, various internationa responsibiities for a part of the organization in another country. In this case, the manager reies heaviy on communications technoogies such as teephone, emai or video conferences. Visits to the host country are aso necessary. (p119) Workpace vioence Expression of physica or verba force against other peope in the workpace. Workpace vioence activities range from threats and verba abuse to actua physica contact and assauts that cause physica harm to other peope (Businessdictionary.com). (p275)

359 INDEX 360-degree feedback 164 Accor 69 Ader, N.J. 138 affective dimension 130 agents of sociaization 40 Aguiera, R.V. 88 AIDS testing 6 aowances see compensation Avesson, M. 71 Anderson, V. 98 artifacts 38 As-Saber, S.N. 51 ascriptive cuture 36 Asea Brown Boveri (ABB) 63 Asia Pacific Economic Cooperation (APEC) 259 asymmetric events 16 Auer, P. 249 Badger case 247, Baker, J.C. 181 Baance Sheet approach Baga, G. 181 Barnevik, Percy 63 Bartett, C.A. 63, 65, 66 base saary Bean, R. 244 benefits see aso compensation Bennett, R. 17 Berg, P.O. 71 best practice 121 Bhagat, R.S. 10 Big Mac Index 230, 231 Bird, A. 130 Birkinshaw, J. 55, 56, 87 Back, J.S. 132, 157, 158, 186, 196 Bakeney, R. 204 Banpain, R. 250 Boom, M. 217 Bok, D. 246 Boino, M.C. 122 Boorcock, G. 98 boundary spanners 121 boundaryess careerist 201 Brewster, C. 134, 180, 197 bribery Brookfied Reports 116, 127, 128, 137 8, 164, 177, 184, 194 5, 200, 206 Buckey, P.J. 53, 123 Budhwar, P.S. 256 bureaucratic contro system 154 business process outsourcing (BPO) 256 Caigiuri, P. 129, 138, 196, 205 Campbe, D.C. 250 career impacts of internationa assignments repatriation anxiety Cascio, W. 139 centraized HR companies 67 chaebos 68 chief executive officer 156 Chid, J.D. 10, 90 China Chinese bamboo network 68 famiy business 27, 68 Hitachi and 54 MNEs 68 9 Motoroa and 53 4 offshoring in skis shortages in 257 Chinese Vaue Survey 29 Christensen, C. 127 CIPD survey 258 coaching 161 codes of conduct 251, cognitive ayer 130 coective bargaining 161 Coings, D. 116, 124 communication medium 166 commuter assignments 118 compensation 60 approaches/strategies for ong-term internationa assignments background 216 baance sheet approach base saary benefits compexity, chaenges, choices 216, cost-of-iving aowance 218 differentiation between PCNs and TCNs 232 education aowance 219 foreign service inducement and hardship premium 217 going rate approach home eave aowance 219 housing aowance 218 internationa iving costs data Loca Pus approach objectives 217 performance management reocation aowance spouse assistance 220 summary 235 taxation competence transfer competency-based assessment 161 Confucianism dynamics 29 contextua goas 163 contractua assignments 119 contro mechanisms corporate cuture 71 performance management persona reationships 71 convergence hypothesis 10 Cooke, F.L. 249, 258 corporate anguage 182 Corruption Perceptions Index 271 cost-of-iving aowances (COLA) 218 costs of expatriate faiure 128 counterterrorism country-of-origin effect 51 Cranet Survey 15 Cranfied Studies on Internationa Human Resource Management (CRANET) 88 cross-border aiances 83 4 equity 83 mergers and acquisitions non-equity 83 cross-cutura management 93 cross-cutura performance management cross-cutura research 9 11, 23, 25 6 Ha and Ha