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International Human Resource Management and Labor Relations

After studying this chapter, students should be able to: > > > > > > > Describe the nature of human resource management in international business. Detail how firms recruit and select managers for international assignments. Explain how international businesses train and develop expatriate managers. Discuss how international firms conduct performance appraisals and determine compensation for their expatriate managers. Analyze retention and turnover issues in international business. Explain basic human resource issues involving nonmanagerial employees. Describe labor relations in international business.

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LECTURE OUTLINE OPENING CASE: Training for the World The opening case examines the process many Japanese companies use to staff their American operations. Key Points All firms that open new facilities in foreign countries must determine how many employees they will need to run the operation, what skills they should have, where they will be hired, how they will be compensated, and so forth. Japanese companies are thought to be the most careful and thorough companies in the world when it comes to staffing foreign operations. For example, when Toyota staffed its plant in Kentucky, it wanted to hire individuals that would conform to the Japanese tradition of company loyalty, teamwork, and flexibility along the production line. To ensure that the right type of employees were found, Toyota subjected applicants to a battery of tests, simulation exercises, and still more tests. Individuals who

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made it through the process were invited for an interview. Finally, prospects were required to take a physical exam and a drug test. The hiring process is so extensive that by the time an individual is hired, the company has spent $13,000. Mazda and Mitsubishi also invest heavily in their hiring process. Nissan even requires applicants to go through 40 hours of non-paid pre-employment training.

CHAPTER SUMMARY Chapter Twenty explores international human resource management. The chapter begins by discussing the strategic significance of human resource management, and then goes on to consider staffing needs, recruitment and selection, training and development, performance appraisal and compensation, and retention and turnover. The chapter concludes with a discussion of issues related to nonmanagerial employees. I. THE NATURE OF HUMAN RESOURCE MANAGEMENT Human resource management (HRM) is the set of activities directed at attracting, developing, and maintaining the effective workforce necessary to achieve a firms objectives. Recruiting and selecting employees, providing training and development, appraising performance, and providing compensation and benefits are all part of HRM. International HR managers face a more complex task than their domestic counterparts because differing cultures, levels of economic development, and legal systems among countries may require companies to adapt their hiring, firing, training, and compensation programs to each country. Firms must decide whether managers will be selected from the home country, from the host country, or from third countries. Training and development in an international firm may be more complex than in a domestic firm. Finally, compensation systems must be adapted to meet the needs of each countrys labor market.

Strategic Significance of HRM The international HRM process involves understanding the strategic context of HRM within the firms overall strategy, recruiting and selecting appropriate managerial personnel, providing necessary training and development, assessing performance, providing compensation, and evaluating managerial retention and turnover. Show Figure 20.1 here. II. INTERNATIONAL MANAGERIAL STAFFING NEEDS There are two broad categories of staffing needs facing international human resource managers: (1) recruiting, training, and retaining managerial and executive employees; and (2) recruiting, training, and retaining nonmanagerial employees such as blue-collar production workers and white-collar office staff.

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Scope of Internationalization As noted in Chapter 14, organizational structure usually evolves along the following lines: export department, international division, global organization. As the organization evolves, so do the staffing needs. Most firms begin their international expansion with small-scale exporting. Thus, during a firm's initial foray into foreign markets, a home-country citizen, who may or may not have special training in working in foreign markets, usually manages the firms international transactions. Later, when the firm establishes an international department, subsidiary managers (usually host country citizens) report to the vicepresident of the international division (usually a home country citizen). As a firm further expands its operations in a global organization, a team of managers with expertise in the firms product lines, necessary functional skills, individual country markets, and the firms global strategy is usually assembled.

Centralization versus Decentralization of Control Firms that centralize decision making at headquarters typically favor home-country managers while firms that decentralize decision making to the subsidiary level often employ host country nationals. Since most companies do not fall at one extreme or the other, most companies have a combination of both home and host country managers.

Staffing Philosophy Managers can be hired from three groups: parent country nationals; host country nationals; and third country nationals. Parent country nationals (PCNs) are residents of the international businesss home country who are transferred to one of its foreign operations. Communications and coordination with corporate headquarters is typically facilitated when PCNs are employed because they normally share a common culture and education background with headquarters staff. PCNs may, however, lack knowledge of local laws, culture, economic conditions, social structure, and political processes. Moreover, they may be expensive to relocate and maintain in the host country. In addition, because a host country may impose restrictions on the number of employees that can be transferred, a company may not have the freedom to hire who it wants. Host country nationals (HCNs) are residents of the host country, and are the most common choice for mid-level and lower-level jobs. Employing HCNs is popular because they are already familiar with local laws, culture, and economic conditions. Furthermore, HCNs may be cheaper than PCNs because a firm can avoid the costs, such as relocation expenses, that are associated with PCNs. However, because an HCN may not be familiar with the firms corporate culture nor its business practices, a company could lose out on opportunities. The text provides an example of how Andersen Consulting attempts to minimize this problem. Third country nationals (TCNs) are citizens neither of the firms home country nor of the host country. TCNs are most likely to be employed in upper-level or technical positions. TCNs and PCNs are collectively known as expatriates (people working and residing in countries other than their native country).

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III.

An ethnocentric staffing model may be used to help a firm choose among HCNs, PCNs, and TCNs for various positions. The model indicates that PCNs staff most higher-level positions. Other firms may follow a polycentric staffing model where, based upon the belief that HCNs know the local market best, the use of HCNs is high. Finally, firms that want to hire the most qualified person for the job, regardless of the individuals nationality, follow the geocentric staffing model. European firms are more likely to use the geocentric model than either U.S. or Japanese companies. In fact, Japanese companies prefer the ethnocentric model.

RECRUITMENT AND SELECTION The skills and abilities needed by international managers fall into two general categories: those needed to do the job; and those needed to work in a foreign location. Show Figure 20.2 here . Recruitment of Managers Recruitment of Experienced Managers. Experienced managers can be recruited from within the firm itself or from other firms. In some cases, headhunters (recruiting firms that actively seek qualified managers and other professionals for possible placement in positions in other organizations) may be called on to assist in the process. Today, as businesses globalize, the market for executive talent is also globalizing. The text notes, for example, that at Britains Imperial Chemical Industries, PLC, fewer than half of the 150 highest ranking executives are British. Recruitment of Younger Managers. While most MNCs do not hire new college graduates for foreign positions, many hire graduates with the intention of sending them abroad in the future. The text provides examples of how Coca-Cola and Colgate-Palmolive follow this strategy.

Selection of Managers When selecting from a pool of prospective managers, HR managers typically look for those individuals who are competent managers, have appropriate training, and can adapt to new situations. The selection process in international firms is particularly important because of the high cost of expatriate failure. Expatriate failure is the early return of an expatriate manager to his or her country because of an inability to perform in the overseas assignment. The cost of expatriate failure ranges between $40,000 and $250,000. Expatriate failure rates may be as high as 20-50 percent in many U.S. companies, higher than for either European or Japanese companies. In most cases, expatriates fail to complete their foreign assignments because of an inability of the expatriate manager, or his or her spouse and family, to adapt to the new location. Firms often spend both time and money selecting and training managers for foreign assignments in an effort to avoid expatriate failure. The text provides an example of how AT&T selects and prepares its managers for foreign positions. Show Table 20.1 here.

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Expatriation and Repatriation Issues Managers sent on foreign assignments may experience culture shock, a psychological phenomenon that may lead to feelings of fear, helplessness, irritability, and disorientation. Acculturation typically proceeds through four phases. Discuss Figure 20.3 here. Because an expatriate suffering from culture shock may be less effective and productive, companies typically take measures to limit its effects such as providing pre-departure language and cultural training. Firms are now beginning to pay more attention to repatriation bringing a manager back home after a foreign assignment has been completed. Individuals that successfully adapted to the foreign environment may experience culture shock upon returning to their own country. Firms can minimize problems associated with expatriation and repatriation by providing organizational career development programs for managers. Managers tend to be more successful in foreign assignments if they can freely decide whether or not to accept a foreign assignment, if they have a realistic understanding of the new job and assignment, if they have a realistic expectation of a repatriation assignment, if they have a mentor in the parent firm who will look out for their careers, and if there is a clear link between the foreign assignment and the managers long-term career path.

IV.

TRAINING AND DEVELOPMENT Training is instruction directed at enhancing specific job-related skills and abilities. Development is general education concerned with preparing managers for new assignments and/or higher-level positions. Assessing Training Needs Firms assess training and development needs by determining the difference between what managers and employees can do and what the firm feels they ought to do. This assessment should take place before training or development programs are implemented. The text notes that firms that underestimate the need for training can run into serious problems in foreign markets. Discuss Figure 20.4 here . Basic Training Methods and Procedures Firms must decide whether to use standardized training and development programs, such as language courses, or to develop their own programs. Developing a customized program, although more expensive than using a standardized program, may better meet the needs of the firm.

Developing Younger International Managers Most MNCs now recognize the importance of internationalizing their managers early in their careers. The text provides several examples of how various firms including GE, American Express, and Samsung are handling this process.

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V.

PERFORMANCE APPRAISAL AND COMPENSATION Assessing Performance in International Business Performance appraisal is the process of assessing how effectively a person is performing his or her job. Performance appraisal has several important objectives. It is a source of feedback to individuals as to their performance, it provides a basis by which top performers can be rewarded, it highlights areas where additional training and development may be required, and it identifies problem areas that may require changes. In many cases, firms must employ different standards when evaluating the performance of subsidiaries and their employees because each subsidiary is likely to have a unique set of circumstances and outcomes. Performance appraisals in international firms may not be conducted as frequently as in a domestic firm.

Determining Compensation in International Business Competitive international firms provide prevailing compensation packages for their managers in each market. The text provides examples of common components in a compensation package in Germany, Japan, Britain, and the United States. Compensating Expatriate Managers. Compensating expatriate managers can be a complex process because factors such as differences in currency valuation, standards of living, lifestyle norms, and so forth must be taken into consideration. Show Table 20.2 here . A cost-of-living allowance may be given to managers to offset differences in the cost-of-living in the home and host countries. A hardship premium (also known as a foreign service premium) may be paid to managers that accept assignments in relatively unattractive locations. Seeing Opportunity in Security Employees on foreign assignment often face security risks. Foreign employees have been kidnapped in Colombia, and political instability in places such as China, Indonesia, and the Middle East have put expatriate workers at risk. Air Partner, a British company, specializes in evacuating people when trouble erupts unexpectedly. Air Partner has gotten MNC employees out of Chechnya, Kuwait, Saudi Arabia, Albania, the West Indies, and Indonesia. A tax-equalization program is a means of ensuring that the expatriates after-tax income in the host country is similar to what the persons after-tax income would be in the home country. The text illustrates this concept with a discussion of how Amoco creates compensation packages for its expatriates. Show Figure 20.5 here. Benefits Packages for Expatriate Managers . Special benefits packages that may be provided to expatriate managers include housing, education, medical treatment, travel to the home country, and club memberships. The text provides specific examples of how and why firms provide these benefits.

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Equity in Compensation. In many cases, the total compensation package offered to an expatriate is much more lucrative than the package offered to his or her local counterpart.

VI.

RETENTION AND TURNOVER Retention is the extent to which a firm is able to retain employees. Turnover, the opposite, is the rate at which people leave a firm. Turnover can be controlled by reducing expatriate failure and repatriate failure. An exit interview is an interview with an employee who is leaving a firm. Exit interviews can be a source of important information as to why an individual decided to leave the firm. Such information can be used to minimize future employee departures.

VII.

HUMAN RESOURCE ISSUES FOR NONMANAGERIAL EMPLOYEES Recruitment and Selection In most MNCs, nonmanagerial employees are HCNs. Employing HCNs is cheaper than employing PCNs or TCNs, and may enable firms to avoid laws limiting opportunities for PCNs or TCNs. Firms hiring HCNs must adapt to laws in the host country. The text notes that Toyota had to select and hire its U.S. workers in accordance with U.S. law.

American-Style Management Comes to Global-Dining This section describes non-traditional management practices being adopted by Global-Dining, a new Japanese restaurant corporation. It has adopted a U.S.-style pay-for-performance system. The system goes against the Japanese emphasis on consensus, seniority-based pay, and loyalty. For the most part, the new style of management seems to be working even in Japan. Training and Development Training and development required by a host countrys workforce depends in part on the location of the foreign operation. For example, training needs are typically higher in underdeveloped regions, and lower in developed country locations. The text provides an example of how Quality Colis, Inc. handles this complex issue.

Compensation and Performance Appraisal International firms normally adapt their compensation and performance appraisal systems to local laws, customs, and cultures. The text notes, for example, that while U.S. workers appreciate feedback from an appraisal system, German workers are resentful of feedback. Firms must make their wage skills consistent with local norms if they expect to attract workers. In most cases, firms must not only pay wages, but also provide incentive programs and/or benefits packages. The text notes that depending on the

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country in question, wages may make up between 56 and 85 percent of workers total compensation packages.

Not Everything can be Exported Lincoln Electric, a firm headquartered in Cleveland, Ohio, is known for the success of its incentive system at its Cleveland plant. However, Lincoln found that its incentive system did not work when it expanded into Venezuela, Brazil, and Japan. Cultural differences required that Lincoln adapt its incentive system to each country. VIII. LABOR RELATIONS In many companies, a separate organizational function is established for labor relations. Comparative Labor Relations A countrys laws, culture, social structure, and economic conditions may impact labor relations. The text notes, for example, that the role of unions varies greatly among countries. In the United States, membership in unions has been steadily decreasing, but over half the worlds workforce outside the United States belongs to unions. Unions in the European countries tend to be aligned with political parties, but in Japan are created and run by the firms themselves. In fact, labor relations in Japan are so cordial that strikes are rare.

Collective Bargaining Collective bargaining is the process used to make agreements between management and labor unions. The text notes that while collective bargaining in the United States is highly regulated, the government plays a relatively benign role in establishing labor agreements. In contrast, government officials take a much more active role in the process in some European countries.

Union Influence and Codetermination The premise of industrial democracy the belief that workers should have a voice in how businesses are run is an important influence in labor unions in Europe. In fact, in Germany, an approach called codetermination provides for cooperation between management and labor in running a business. The EU has advocated codetermination for all members, but at this point in time, most member countries are unlikely to adopt it. In fact, some countries have little or no mandated labor participation. The EUs implementation of its social charter (or social policy), whereby employment conditions and practices will be standardized throughout the community is addressing issues such as maternity leave, job training, and pension benefits.

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CHAPTER REVIEW
1. Along what dimensions does domestic HRM differ from international HRM? International HRM differs from domestic HRM in several ways. First, firms may have to adapt hiring, firing, training, and compensation practices on a country-by-country basis to fit with local cultures, levels of economic development, and legal systems. Second, firms must decide whether employees will be recruited locally, from the home country, or globally. Third, training and development may be more complex for international firms as compared to domestic firms. 2. How does the degree of centralization or decentralization affect international staffing? Firms that are highly centralized (decision making is mainly done at corporate headquarters) typically hire home country managers, while firms that are very decentralized (decision making is delegated to subsidiaries) tend to favor hiring host country employees. 3. What are the basic issues involved in recruiting and selecting managers for foreign assignments? When recruiting and selecting managers for foreign assignments, firms must initially identify a pool of employees with the necessary skills and abilities for the assignment. Potential employees may be identified within or outside the firm. Firms must then decide which candidate is best qualified for the position. Key considerations in the selection process include managerial competence, appropriate training, and adaptability to new situations. 4. What issues are at the core of expatriation and repatriation problems? A primary concern of firms with expatriate managers is culture shock. Culture shock may affect employees who are working in and coping with a foreign culture and may reduce an employees effectiveness and productivity. In some cases, culture shock may result in a failure to complete a foreign assignment. Employees who have grown comfortable with a foreign culture may encounter culture shock when they return to their home country at the end of their foreign assignment. In fact, the repatriation period can be as troublesome for some individuals as the expatriation period. 5. Why is performance appraisal important for international firms? Performance appraisal is important for international firms because it indicates how well an individual is performing his or her job. The process not only identifies areas where additional training and/or development is needed, but it is also a source of feedback for individuals. In addition, performance appraisal identifies problem areas that require attention, and provides a basis for rewarding outstanding employees. 6. What special compensation and benefits issues arise in international HRM? There are several special compensation and benefits issues in international HRM. For example, because of differences in standards of living, currency valuations, lifestyle norms, and so on, most firms find that it is necessary to provide international managers with

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differential compensation. In addition, because home country nationals frequently receive larger compensation packages than their host country counterparts, firms must deal with equity issues. 7. How does international HRM for nonmanagerial employees differ from that for managerial employees? A primary difference between international HRM for managerial employees and international HRM for nonmanagerial employees is the fact that nonmanagerial employees are typically recruited on a local basis. Thus, firms must comply with local regulations regarding hiring and firing and so on. In addition, compensation and performance appraisal practices for nonmanagerial employees are typically conducted on a country-bycountry basis.

QUESTIONS FOR DISCUSSION

1. How does HRM relate to other functional areas such as marketing, finance, and operations management? Most students will probably recognize that HRM is strongly interrelated with other functional areas such as marketing, finance, and operations management. Each of the other functional areas will be directly impacted by the overall strategy followed by the firm. In turn, the HRM strategy will be affected by the strategies followed in each functional area. For example, if the firm were to follow an overall strategy of product differentiation, the HR manager may hire an individual from the foreign market to provide input on the likes or dislikes of consumers in the foreign location. 2. Why and how does the scope of a firms internationalization effort affect its HRM practices? A firms internationalization effort affects its HRM process in several ways. When a firm initially begins its internationalization effort, a citizen of the home country typically handles international activities. However, as the firm continues its foreign expansion and becomes a global organization, a team of managers may be assembled to handle international sales. 3. How are the different approaches to recruiting and selecting managers for foreign assignments similar and dissimilar? Managers for foreign assignments can be recruited in several ways. Potential managers may be found within the firm, at another firm, or with the assistance of a headhunter. Regardless of where potential managers are found, a pool of managers will probably share certain characteristics, including managerial competence, appropriate training, and adaptability to new situations. In some cases, inexperienced managers may be selected; however, at the present time, most managers that are recruited and selected for a foreign assignment have experience. 4. Which are easier to assess, business skills or international skills? Why? Most students will probably agree that it is far easier to assess business skills as compared to international skills. Business skills refer to technical knowledge, marketing knowledge,

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and so forth. International skills refer to the ability to work and function effectively in a foreign culture. As such, business skills are much more definable than international skills, and therefore can probably be more easily measured. 5. If you were being assigned to a foreign position, what specific training requests would you make of your employer? Most students will probably suggest that foreign language skills and information on the foreign country would be helpful. Some students will probably suggest that a program that focuses on how to conduct business in the foreign country would be invaluable. Still other students may suggest that language and culture training be extended to their spouse and family. 6. Do you agree or disagree with the idea that some international assignments require special compensation? Most students will probably agree that in some cases, a hardship payment is necessary, but might be rather vague about what constitutes hardship. Instructors should try to get students to nail down exactly which situations require special compensation and which do not, and what form the special compensation should take. 7. How easy or difficult do you think it is to handle the equity issue in international compensation? The equity issue in international compensation refers to whether expatriate managers and HCN managers with the same responsibilities should receive the same compensation. Most students will probably agree that the issue is a complicated one, with no clear solution. 8. What does the high cost of replacing an international manager suggest regarding staffing philosophy? Most students will probably agree that the high cost of replacing an international manager suggests that the recruiting and selection process be done very carefully, and that the firm should devote resources to ensuring that management turnover is minimized. Students may note that turnover is frequently associated with expatriation, and could cost a firm between $40,000 and $250,000. Programs devoted to reducing expatriate failure, such as career development counseling or cross-cultural training, could help to minimize turnover as a result of expatriation or repatriation. 9. Which do you think is easier, HRM for managerial employees or HRM for nonmanagerial employees? Why? Most students will probably suggest that HRM for managerial employees is more difficult than HRM for nonmanagerial employees. Students taking this perspective are likely to point out that HRM for managerial employees involves recruiting, selecting, and training an individual to work in another country (except when a local manager is hired). Whereas, HRM for nonmanagerial employees involves recruiting, selecting, and training nonmanagers to work in their own country. While the latter case does require a firm to adapt to local practices, there is much more potential for problems in the former case since

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it involves an individual working in a foreign country who may have problems speaking the local language, adapting to the local culture, and so forth.

BUILDING GLOBAL SKILLS

Essence of the exercise This exercise asks students to assume the role of a top human resource manager for an international firm. The manager must make a quick decision as to who might best fill the position of head of the Japanese operations. Answers to the follow-up questions: 1. Working alone, carefully consider the strengths and weaknesses of each of the four leading candidates for the job. Select the individual that you think is the best qualified candidate. Students will probably have differences of opinion regarding who is the best qualified individual. For example, some might suggest that Hendersons long and distinguished tenure with the firm clearly puts him ahead of the other candidates, while others may suggest that his plans to retire shortly make him an unsuitable replacement. Similarly, some students will argue that Moins international experience sets him apart from the pack, but other students may feel that he is overqualified for the position. 2. Form small groups of four. Share with each other your individual choices for the job in Japan, along with the reasons for making those choices. Students will probably get involved in considerable debate as they share their views of who should be selected for the post in Japan. Professors may encourage each group to come to a conclusion as to who should be offered the position.

CLOSING CASE
You Americans Work Too Hard The closing case examines the differences in work ethic between a German department store employee and an American department store employee. Key Points Andreas Drauschke and Angie Clark hold positions at similar levels in department stores, and receive similar pay. However, Drauschke, who works in Germany, works far fewer hours than Clark who works in the United States. In fact, Drauschke works just 37 hours a week, and receives six weeks vacation each year, while Clark works at least 44 hours a week, and takes off only a week at a time. Clark notes that Germans see leisure time as being more important than work time.

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The difference between the German work style and the American work style extends into other areas. For example, turnover at the German store is all but nonexistent, while at the American store, it is 40 percent a year. In addition, German employees receive extensive training, while workers at the American store receive minimal instruction. Many employees at the American store also have a second job; however, Drauschke values his free time, and works no longer than absolutely necessary. His viewpoint is shared by other Germans, who fiercely protested the recent mandate that department stores would stay open one evening each week. Germany also prohibits working second jobs during vacation time.

Case Questions 1. How does HRM in the United States differ from HRM in Germany? HRM refers to the activities directed at attracting, developing, and maintaining an effective workforce to achieve an organizations objectives. Students will probably conclude that at least in the retailing industry, American HR managers spend less time both in recruiting and selecting managers, and preparing them for their jobs than their German counterparts. As a result, turnover is very high in the United States as compared to Germany. While the case does not provide information regarding how employees in either country are evaluated, the total compensation package received by Germans seems to be preferable to that which American workers receive. 2. What do you see as the basic advantages and disadvantages of each system? Most students will probably suggest that the extensive effort that appears to go into selecting and training German workers is a clear advantage of the German system. Students taking this perspective are likely to support their contention by pointing to the high turnover rate in the United States as compared to Germany. Many students may see the restriction faced by German workers regarding second jobs as being an intrusion in an individuals private life, and therefore see it as a disadvantage. Finally, most students will probably agree that the compensation package received by German workers is far more likely to improve employee morale than the package received by American workers. 3. If you were the top HRM executive for an international department store chain with stores in both Germany and the United States, what basic issues would you need to address regarding corporate HR policies? A primary issue that would have to be addressed is the difference in compensation packages between the United States and Germany. German workers have shorter work weeks and far more vacation time than their American counterparts, yet receive similar pay. A second issue that would have to be addressed is the difference in worker training and development. German department stores may spend two or three years preparing employees, while American stores might spend just two or three days. Furthermore, recruiting and selection issues would have to be addressed, not only because German employees frequently complete an apprentice program prior to becoming full-time employees, and thus require very

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careful selection, but also because turnover is much higher in the United States than in Germany.

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4. Are the issues more or less acute in the retailing industry versus other industries? Most students will probably suggest that the issues outlined in question 3 above are probably important in all industries. One area that might be different is the issue of turnover. While turnover is very high in U.S. retailing, it is likely to be less of a problem in industries where workers receive extensive training and/or belong to unions. 5. Under which system would you prefer to work? Most students will probably suggest that the German work system is far more preferable than the American work system. Students taking this perspective will probably point out that American workers frequently appear to be stressed out on the job, and do not have enough time with family. Other students, however, might object to some of the constraints of the German system, such as the prohibition of second jobs during vacation time. Students taking this perspective are likely to suggest that there should be no limits to working as hard as possible in order to get ahead.

SOUTH AFRICA: MANAGING IN THE MIDST OF RADICAL CHANGE

Chapter 20: International Human Resources Management and Labor Relations Suggestions on incorporating the Multimedia exploration into the lesson plan The key objectives of Chapter 20 are: Understanding the role of human resource management in international business Learning about how firms recruit, train, motivate and develop expatriate managers Understanding how firms review, compensate and retain expatriate managers Assessing labor relations in international business

The following are some suggestions on how best to utilize the CultureQuest materials to achieve these objectives. 1. The chapter includes three active media hangers, called CultureQuest Insight Into, on the three key topic areas: culture, business, geography & history. In this chapter all three focus on South Africa. For each Active Media lesson, assign your students to review the online materials that include additional video and discussion of the respective topic. They will need to review this online material in order to answer the test questions as well as participate in suggested activities and discussion noted later in this section.

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2.

Review the case in the text at the end of the chapter and use it as an example to initiate additional discussion and activities

Additional Exercises 1. Student Activity and Discussion: After the students have read the chapter end case and reviewed the online materials, discuss the following questions and statements. Discuss the cultural nuances of managing in South Africa What would you advise a new expatriate manager relocating to Johannesburg about the local business culture; how it might impact his or her job; and, how local employees may perceive them?

2. Team Activity and Discussion: Activity 1: Group students into teams of 2-3. Assign each team to advise a hypothetical company establishing operations in South Africa. Develop a human resources policy document outlining on how to best manage and motivate local employees in the country. Activity 2: Group students into teams of 2-3. Each team as been assigned by the local human resources office to design a cross-cultural training program for new expatriates to South Africa. What topics would you include? Additional test questions on this information can be found in the Test Item File. Chapter 20: Test Questions 1. True or False. Apartheid is still prevalent in South Africa False. Apartheid, the system of keeping people of different races separated, has been legally abolished. Race remains a key issue in the country. 2. Which of the following is not a city in South Africa/ a. b. c. d. Johannesburg Cape Town Nairobi Durban

C. Nairobi is in Kenya .

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3. True or False. Since the end of apartheid, the South African government has liberalized the economy and sought to attract foreign investment. True. Since the end of apartheid, corporate life in South Africa has changed dramatically, and the business scene is now evolving at a fast pace. The government is committed to liberalizing the countrys economy in fundamental ways, and corporate culture is changing in response. Programs to encourage economic growth and globalization have attracted new companies from abroad and introduced new approaches to doing business. 4. List two issues that foreign managers may face when managing in South Africa. 1. Negative attitudes -- Expatriates and short-term assignees also report that some South Africans seem withdrawn. Others say that they harbor feelings of superiority in the workplace. These feelings emanate from two basic sources. First, jobs are precious in South Africa, and foreigners are often perceived as "taking " jobs from locals. The reality is that theres a shortage of skilled managers. Nonetheless, assumptions are often made, sometimes bolstered by the popular press. Second, South Africans tend to be protective of all things South African and feel threatened by outsiders with different opinions. Even if old ways of doing things are clearly not working, South Africans are often reluctant to adopt new systems brought in from overseas. Theres a growing perception that the people must find their own path if they hope to solve their problems. Attempts at Westernization are sometimes seen as an imposition of an inappropriate approach. 2. Brain drain - Attracting and retaining qualified and experienced top-level staff is both a priority and a challenge for South African businesses. The country has a high unemployment rate, but it also has an acute shortage of skilled employees. This is particularly true in the technical and professional disciplines of computing and medicine. 3. Power of unions -- its important to remember that every employee in South Africa has the right to belong to a union. The labor movement has a history of militancy, and while the number of days lost to strikes is falling, its still high by international standards. 4. Race -- Management decisions may be interpreted from a racial perspective. Managers and staff may assume, for instance, that an employee was disciplined because he or she belonged to a certain racial group. 5. Communication challenges -- Having a foreign accent can complicate workers understanding. Further, lower-paid workers may speak English as a third or fourth language and therefore may not be fluent. 6. Safety There is widespread crime in the major cities. 7. Education and training many older South Africans lack basic education and job skills training.

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PART FOUR COMPREHENSIVE CASES

CASE ONE: Carvel Ice Cream -- Developing the Beijing Market Steven Wang, working for Carvel since 1997, has a mandate to increase Carvel's ice cream sales in Beijing, China. A variety of pricing and marketing options are presented in the case. Key Points Dairy products are not very popular in China. Health concerns and a large lactose intolerant population are obstacles Wang must consider. Carvel has a very limited ($20,000) advertising budget for the year. Radio and television advertising are ruled out by the low budget. Several segments of the Beijing population are potentially promising to Carvel. The three most attractive segments are (1) middle and upper class Chinese professionals, (2) "little emperors" (children in one-child homes, who tend to be spoiled by parents and grandparents), and (3) expatriate residents. Costs of Carvel products could be reduced by 5% by whipping more air into the ice cream, but this might compromise Carvel's image for quality products. Wang is considering introducing a new product, the "Piece of Cake" (a small, single slice of ice cream cake) to provide an inexpensive introduction to Carvel's cakes to Chinese consumers. Carvel's products are available in Carvel retail stores (4 full-service and 6 scaleddown outlets), high-end supermarkets (25 accounts), local supermarkets (25 accounts), bakeries (40 accounts), and restaurants and bars (60 accounts).

Case Questions 1. Carvel's new Beijing manager, Steven Wang, has not yet formulated his pricing and product policies. What advice would you give him? Should Wang reduce Carvel's prices, perhaps by reducing product quality? Wang needs to carefully consider the position of Carvel's products vis a vis BaskinRobbins and Haagen-Dazs products. This is key, developing appropriate product and pricing policies. Also, Wang needs to consider longer term implications of product and pricing decisions. If Carvel is committed to the Chinese market (as it seems to be) the product and pricing decisions Mr. Wang makes need to build for the future and not simply maximize current year sales.

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2. Do you agree with Wang's deemphasizing sales to Beijing's expatriate community? Given the small percentage of expatriates as part of Beijing's overall population, allocating too much of the limited advertising budget to target such a small group may be short-sighted. Furthermore, there would be little or no spillover from advertising to expatriates into the rest of the Beijing population. In the long run, it probably makes sense to build product awareness among the Chinese population of Beijing. 3. What changes would you make as to how Carvel distributes its products in Beijing? Should it emphasize sales through Carvel retail outlets? Should it shift to bakeries or wholesalers? Defend your answer. Given the somewhat limited information on the profitability of each of the outlets, students will find it hard to give a "definitive" answer to this question. Following are some points that should come out in the discussion: Retail stores are a means of achieving all retail segments and should provide the fullest picture of what Carvel stands for. This suggests retail stores should all carry a complete (or very wide) range of Carvel's products. High-end supermarkets tend to concentrate on the expatriate market and probably would not need to carry products (such as Piece of Cake) geared to other market segments. Bars and restaurants may be the most suited for the smallest sized product offerings (Piece of Cake and Little Love), since they will tend to be consumed on the spot. Regardless of other distribution decisions made, Carvel needs to restructure the way its representatives are compensated for signing on new accounts. Premiums should be paid for accounts that will be more profitable and easy to manage. 4. Carvel's advertising budget is extremely limited. Where should Carvel advertise? The Shopper's Guide, leaflet, and Entertainment Guide all could help boost Carvel's sales. Since each option reaches a different target market, Mr. Wang may find it necessary to spread his spending across the alternatives. The message should be specifically tailored to each communication medium. Spending should reflect which segments Mr. Wang feels are the most important to Carvel's long-term profitability in Beijing/China. Given that no decisions have actually been made, this question provides an opportunity to encourage students to think creatively and come up with alternatives that go beyond who is included in the case. Any suggestions should be very low cost.

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CASE TWO: Target Micronics in China: Disarray in Finance Target Micronics, a Canadian microelectronics company, is facing significant operational problems in their Hong Kong office. The office carries out financial operations for the Greater China Region and is experiencing high turnover and an inability to process various financial duties in a timely and appropriate manner. Target's internal audit rated the finance operations in Taiwan "Unsatisfactory," and Kim Knight, the Hong Kong office manager, has 9 months to fix the problems before an external audit is scheduled. Key Points: Target Micronics' Asian sales and operations (comprising China, Hong Kong, Taiwan, and Korea) have grown significantly over the last two decades. The financial transactions relating to the Greater China Region have grown both in number and in complexity. The finance system originally designed to handle $10 million in business was now handling over $80 million. The workload in the finance office was very heavy, turnover of employees in the finance area of the Hong Kong office was very high. The turnover rate at the time of the case was roughly 40 percent per year. Many job positions went unfilled because of the tight labor market in Hong Kong. This understaffing meant that managers had to help "in the trenches," leaving managerial responsibilities unfulfilled. The lack of leadership made it almost impossible to fix operational problems or redesign the financial processing systems. Two areas required immediate attention: bringing account reconciliation up to date; and designing and implementing systems to streamline various activities, such as accounts payable and accounts receivable.

Case Questions: 1. Diagnose the problems facing Target Micronics' Greater China Office. Why did these problems arise? The problems facing Target Micronics' Greater China office stem from relying on obsolete systems that cannot handle the changed environment in which the office is now operating. The inadequate systems have contributed to high levels of turnover (employee dissatisfaction) as well as to the "unsatisfactory" rating by the internal auditors. The problems in the finance office are compounded by inappropriate HR systems, given the labor market in Hong Kong. The turnover problem is the result of poor pay, long hours, lack of overtime pay, poor titling, little training and development, and limited career paths.

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2. Put yourself in the shoes of Kim Knight, the manager of this office. What could she have done differently? What would you recommend she do prior to the arrival of the external auditors in nine months? In order to have averted these problems, it is clear the office needed to hire and retain more staff. Kim could have aggressively pursued policies that would have lowered the turnover rate in the finance area. She immediately needs to deal with the two most pressing underlying problems. First, she needs more qualified workers. Second, she needs a new system for processing transactions that is able to handle the volume and complexity of Target Micronics' Greater China transactions. 3. Put yourself in the shoes of her boss, the regional chairman for Target Micronics' Greater China Operations. What should the regional chairman do? The unsatisfactory rating reflects poorly on Kim Knight's boss. The regional chairman needs to provide the resources necessary to make sure that Target Micronics' Hong Kong office can hire and retain qualified people. If more resources (for salaries, increased staff, training, and so on) are not made available to Kim Knight, it is unlikely that the unsatisfactory performance can be reversed before the external auditors arrive. 4. Put yourself in the shoes of the chief financial officer of the parent company. What should the CFO do? In a broad sense, it is clear that operations in the Greater China region are becoming more and more important to the overall corporation. Sales and production levels are growing quickly, leading to the problems the Hong Kong office is facing. From a strategic perspective, it is clear that the parent company needs to invest in expanding the capability and performance of the Hong Kong office. To do otherwise would jeopardize Target Micronics' competitiveness in this important region.

Resources for additional information

http://www.intracen.org/index.htm The International Trade Centre (ITC) is the technical cooperation agency of the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organization (WTO) for operational, enterprise-oriented aspects of trade development. http://www.worldbank.org/search.htm search by country www.imf.org search by country www.economist.com search by country and foreign direct investment http://www.gov.za/ South African government online http://www.ananzi.co.za/ South African search engine

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http://www.statssa.gov.za/default3.asp Statistics on South Africa http://www.jse.co.za/ website of the JSE Stock Exchange of South Africa http://www.iccwbo.org World business organization search by country or topic www.worldinformation.com overview per continent/region; current events; trade, etc. www.nationsonline.org general information on countries/regions/continents; history, business and finance information www.executiveplanet.com information on business etiquettes/protocols per country www.nationbynation.com information on geography, history and people of each country http://www.countrybriefings.com/?showPage&PAGE=atmaGlobal.tml&RID=4196 current economic information on major economies around the world www.culture-quest.com business and cultural information on countries and regions around the world