Chap 20
Chap 20
Chap 20
CHAPTER 20
International
Human Resource Management and
Labor relations
After studying this chapter, students should be able to:
LECTURE OUTLINE
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.
• 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 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.
Case Questions
Most students will probably agree that there are two specific groups of qualities that
are essential for all Toyota employees. First, an employee must be able to conform
to the traditional Japanese use of teamwork, be very loyal to the company, and
demonstrate versatility on the production line. Second, an employee must be
physically capable of performing production line jobs. Most students will probably
conclude that the first set of qualities appear to be more important than the second
set of qualities.
2. How might the role of unions in the U.S. affect Toyota’s staffing decisions?
The relationship between unions and management in the U.S. tends to be fairly
adversarial. Toyota, like most Japanese firms, appears to have a very cordial
relationship with its employees. Hence, the company is likely to avoid American
individuals who have strong sentiments toward unions.
CHAPTER SUMMARY
Teaching Note:
Students often find it interesting to learn about the
international HRM practices of local firms. Instructors may
wish to ask students that work for international firms to describe how their
companies recruit, select, and train individuals for foreign assignments.
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.
Scope of Internationalization
Teaching Note:
Instructors may want to review the evolution of organizational
structure (see Chapter 13) before discussing issues related to
recruiting, training, and retaining managers.
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• 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
firm’s international transactions. Later when the firm establishes an international
department, subsidiary managers (usually host country citizens) report to the vice-
president 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 firm’s product lines, necessary functional skills,
individual country markets, and the firm’s global strategy is usually assembled.
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 business’s 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 whom 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 firm’s 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 of neither the firm’s 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).
• 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 individual’s nationality, follow the geocentric staffing model.
International Human Resource Management and Labor Relations > 62
• 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.
• 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
Selection of Managers
Teaching Note:
Prior to discussing the material on compensation, instructors may
wish to develop a scenario in which a manager from a developed
country with a high cost of living is transferred to a lesser-developed country. Students
can be asked to determine what the expatriate manager’s compensation should be--
what the manager made at home, what the expatriate’s counterpart in the lesser-
developed country receives, and so forth.
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.
• A country’s 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 U.S., membership in unions has been steadily decreasing,
but over half the world’s workforce outside the U.S. belong 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
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“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
• 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.
• 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 view point 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?
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 U.S. as compared to Germany. Many students may
see the restriction faced by German workers regarding second jobs as being an
intrusion in an individual’s 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?
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.
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.
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1. What is human resource management?
2. 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.
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.
4. 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.
A primary concern of firms with expatriate mangers is culture shock. Culture shock may
affect employees who are working in and coping with a foreign culture and may reduce an
employee’s 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.
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A firm assesses its training needs by examining the difference between what its employees
can do and what the firm feels they need to be able to do. This assessment should
highlight areas that need to be incorporated into a training and/or development program.
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, 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
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
differential compensation. In addition, because home country nationals frequently receive
larger compensation packages than their host country counterparts, firms must deal with
equity issues.
9. How does international HRM for nonmanagerial employees differ from that for managerial
employees?
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 firm’s internationalization effort affect its HRM practices?
A firm’s 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.
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,
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.
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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
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.
10. Do you think codetermination would work in the United States? Why or why not?
Most students will probably suggest that codetermination would not work in the U.S.
because it appears to require a greater amount of government involvement in the business
sector than currently exists. Students taking this perspective are likely to point to the anti-
government sentiment that is shared by a large group of Americans. Other students
however, may see codetermination as a means of reducing the conflict that frequently
exists between management and labor in the U.S., and might, therefore, suggest that the
concept could attract a strong following.
International Human Resource Management and Labor Relations > 74
11. Given South Korea’s current financial difficulties, would you recommend that Samsung end
its program of sending young managers on foreign assignments early in their careers?
Students will probably approach this question in different ways. Some might argue that
Samsung could save a lot of money by keeping its younger managers at home, and that its
senior managers could be more productive on foreign assignments than their younger
counterparts. Other students, however, might suggest that the program should be
continued because it is representative of a proactive strategy that will set Samsung apart
from its competitors in the future. Students taking this perspective will probably agree that
having a cadre of managers well versed in foreign cultures and business practices can only
help the firm’s competitive advantage in the future.
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Essence of the exercise
This exercise requires students to assume the role of a manager for a growing international
firm that has recently been asked to take a position in the firm’s London office. Using the
Internet, students should find out about issues and questions related to the move such as
London housing costs, career options for spouses, the tax implications of the move, and so
forth.
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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 Henderson’s 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 Moin’s international experience sets him apart from the pack,
but other students may feel that he is overqualified for the position.
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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.
Other Applications
This exercise involves a scenario in which a manager has been asked to select a
replacement from a pack of well-qualified individuals. Each candidate has both strengths
and weaknesses. Students can be asked to chart out an ideal career path that indicates
when and why foreign assignments would be most appropriate.