BINTER Chapter 15

CHAPTER 15
International Staffing and Labor Issues
CHAPTER OBJECTIVES
This chapter will:
• Identify common organizational structures used by multinational
corporations.
• Discuss how MNCs recruit, select, train, and motivate management
staffs.
• Describe the cultural and economic forces that influence the
international manager’s performance.
• Consider the problems of repatriating international managers and
other ethical issues.
• Identify the trade-offs between localized and centralized manage-
ment of labor.
• Discuss the major labor issues of wages and benefits, job security,
and productivity as they relate to MNC operations.
• Present how international labor movements and codetermination
are influencing MNC operations.
ORGANIZING A cording to function, for example, marketing

and finance, and the head of each division is
MULTINATIONAL CORPORATION responsible for the conduct of that function in-
International firms can organize their operations in a ternationally. This strategy is efficient if there is a
number of different ways. Four of the most common standardized product line; it permits coordination
organizing strategies are the functional structure, of all aspects of a function in one department.
the regional structure, the product structure, and On the downside, this strategy encourages a
the matrix structure.
narrow viewpoint, is inflexible, and can be time-
consuming. It is hard to adapt this centralized ap-
FUNCTIONAL STRUCTURE proach to changing local conditions, and overall
Under the functional structure organization, international integration of the various functions
responsibilities at headquarters are divided ac- is very difficult to achieve.
323
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324 Functional Operations in International Business
REGIONAL STRUCTURE tion of the right person to fill a job available in a

foreign setting.
In an MNC that uses the regional structure orga-
nizing strategy, headquarters retains responsibility
for overall global strategy and control, but area RECRUITMENT
managers have responsibility for all the operations Recruitment is the process of attracting people
and functions of their assigned regions. The regions to apply for job vacancies. There are two main
should be organized on the basis of similar charac- sources of recruitment for international positions:
teristics with less emphasis on functional categories. internal and external. Internal sources consist of
This structure integrates the separate functions very promotion from within the company and employee
well throughout each region, but its drawback is
referrals. Promotion from within is a very low-cost
that each function must be standardized in order to
method for the firm. It has the added benefit of
integrate across all the regions.
increasing employee morale because employees
are made aware of opportunities for advancement.
PRODUCT STRUCTURE Uncertainty about an applicant and training costs
As with the regional structure, under the product are reduced because employees are already famil-
structure organizing strategy, corporate headquarters iar with the objectives and procedures of the firm.
has control of overall global strategy. Within the Employee referrals involve the recommendation by
guidelines established by headquarters, a manager has a present employee of a family member or friend.
international control over all the operations related to The benefits of an employee referral are the low
a single product. A major advantage of this structure cost to the firm and the fact that the referrals will
is that all functions relating to a single product are probably be fairly well informed about the various
integrated and perform as a whole internationally.
aspects of the firm.
The major drawback is that it is difficult to coordinate
External sources of recruitment include
policies and strategies across product lines.
newspaper, radio, and Internet advertising, trade
schools, employment agencies, job fairs, and
MATRIX STRUCTURE labor unions. There is a difference, however,
The matrix structure involves dual lines of author- between recruitment in industrialized countries
ity in which managers may report to two or more and recruitment in the less-developed countries.
superiors. For example, they may have to report In the less-developed countries, there is an over-
to the head of the product line and to the chief of abundance of unskilled workers because of high
a geographical region. This structure provides for unemployment and deficiencies in education and
coordination of the various departments, while still training levels. Internet and newspaper advertis-
recognizing differences, leads to standardization of ing may not be effective in LDCs because much of
functions and overall control, and imparts flexibility the population may not have access to the Internet
to respond to environmental differences.
and may be illiterate, and there are usually very
few employment agencies in these countries.
INTERNATIONAL STAFFING In industrialized countries, the problems are
International staffing involves the four basic stages reversed; there are too many skilled workers and
of recruitment, selection, training, and motiva- too few unskilled workers.
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International Staffing and Labor Issues 325
SELECTION guage is an intractable problem. Often companies

train bilingual local employees, who in turn pass
Employee selection involves choosing from an on the training to those local employees who do
available pool of applicants that the firm considers not understand the language used by the MNC.
best able to meet the requirements of the position. Because most workers at the plant-floor level are
In industrialized countries the firm considers people not involved in significant amounts of theoretical
through standardized procedures, such as applica- work, this problem is mitigated to a large extent as
tion forms, personal interviews, and possibly physi- long as they are able to understand the operating
cal or psychological exams. The selection process in instructions for their specific tasks.
LDCs is less formal and involves less testing; such
considerations as family ties, social status or caste, MOTIVATION
language, and common origin tend to influence the
selection process. Motivating overseas employees also presents com-
plex problems. Employees, especially at the lower
TRAINING levels, are relatively ethnocentric in their views,
and their priorities and goals often differ from those
For an MNC, training of its overseas employees is of their counterparts in Western countries. While
an extremely important issue. Employees in overseas mobility, compensation, challenges in the work
locations come from a different society and culture, environment, and independence in functioning
which means that they have varying attitudes toward are important motivating factors for employees in
work, conduct, and other behavioral aspects that may Western industrialized countries, workers in LDCs
be quite different from the MNC’s expectations and tend to attach greater value to job security, number
standards. It is therefore critical for an MNC to train of holidays, working hours, social benefits, and
its overseas employees regarding its work ethic, dis- the like. An MNC, therefore, must judge the local
cipline, efficiency standards, operating procedures, climate and expectations very carefully and come
and, of course, the necessary operational skills. up with an appropriate mix of incentives to motivate
One major limitation in many countries is that employees without being unduly expensive.
adequate training resources, including instructors, Compare, for example, workers in a developed
experienced personnel, and training facilities, may country and those in a developing country. The
not be available. Generally, MNCs fly in large num- worker in the developed country is consumption
bers of key technical personnel, who lead training oriented and wants compensation in terms of money.
sessions for both theoretical and on-the-job training, While vacation days are desirable, the employee
to train newly hired employees in foreign locations. tends to work more days of the year to increase the
Some personnel in charge of sensitive and complex compensation package. The employee is interested
industrial operations have to remain at the overseas in moving up the ladder to better jobs, but not neces-
locations until the local trainees are considered sarily in the same company.
adequately trained and have enough experience to A worker in a developing country, in contrast,
run the operations themselves. wants job security because industrial jobs are scarce.
For lower-level employees, typically factory If the worker loses his or her job, there may not be
workers, language is another important barrier to any other means of livelihood, especially because
overcome. Companies take different approaches there is ordinarily no social security or unemploy-
to this problem. Interpreters are used where lan- ment insurance in developing countries.
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There are a number of religious festivals in societies signments carry the glamour of widening horizons,
where the hold of traditional socioreligious practices is enriching experiences, and an excitingly different
still strong, and workers in developing countries like to lifestyle.1 Nevertheless, one out of every three expa-
be certain that they have those days off. Historically, triate workers from the United States finds that the
many workers in developing countries expect their assignment has gone wrong. In a study by Rosalie
employers to provide them with housing assistance or Tung, it was found that “incidences where expatri-
similar benefits that are not readily available to them. ates had to be recalled to corporate headquarters
Thus, an MNC may have to create a compensation or dismissed from the company because of their
package that relies less on salary and more on other inability to perform effectively in a foreign country
benefits for its workers in developing countries. Salary were numerous.”2 More than half of the 80 compa-
levels, however, also must be a little higher than the nies Tung surveyed reported failure rates between
local going rate to guard against allegations that the 10 and 20 percent. Some estimates hold that failure
MNC is exploiting local workers. rates for poorly trained expatriate managers and
personnel, based on location, are more in the range
MANAGERIAL STAFFING of 33 to 66 percent.3
The solution to minimizing failures in deploying
VALUE TO FIRM personnel abroad lies in planning the management
Choosing a manager for an overseas operation is an of a global corporation and carefully selecting and
important task because this choice can profoundly af- training these global managers. Managers with
fect overseas growth and operations. The subsidiary the aptitude, ability, and willingness to serve in
manager will have a great deal of responsibility—more international assignments must be identified by the
than a counterpart in a home production facility. The corporation and trained extensively. Appropriate
overseas manager must be multicultural and sensitive financial and career incentives have to be created to
to business practices and customs of the host country, attract managers to international assignments and
while being responsible for following the global objec- to reward those who accept them.
tives of the MNC and being able to put these objectives
ahead of the local operation’s well-being. BRANCH MANAGER VERSUS HOME
The success of its overseas managers is particularly OFFICE: WHO IS IN CHARGE?
important to MNCs for a number of reasons. A failure
in the overseas assignment leads to large corporate Overseas managers of MNCs face several challenges
costs in time and resources in the replacement of the that arise from their unique position not only between
expatriate, the lost productivity of the manager, and two parts of a company (the parent corporation and
productivity slowdowns at the overseas plant. Bereft the subsidiary) but also between two countries and
of skillful management, the overseas operation is more two cultures. In addition, there is always a consider-
likely to experience such problems as increases in labor able physical distance between overseas managers
strikes, employee problems, government relations and the corporate office. Consequently, overseas
problems, and legal suits, because backup management managers have a much greater degree of autonomy
resources may not be easily forthcoming. than their peers at the corporate office. As heads of
To motivate their overseas managers, MNCs local operations, they are fully responsible for their
provide huge employment incentives in the form of performance and must make a variety of executive
large increases in salary and benefits, and most as- decisions. Greater decision-making authority de-
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volves both by design and by circumstance. The costs Thus, the adaptability of both manager and family
and delays associated with overseas communication is crucial to success in an overseas assignment.
encourage the parent corporation to give substantial
leeway to the local manager. Even in areas where the BRANCH MANAGERS: WHOM
decision making is reserved by the parent office, the
local manager may have to exercise discretionary
SHOULD FIRMS CHOOSE?
authority in emergency situations, when there is a A major issue for an MNC in staffing overseas fa-
breakdown in the communication channels, espe- cilities is whether to use a home-country national, a
cially when decisions are needed immediately and host-country national, or a third-country national.
cannot wait for a response from the head office. Home-country nationals are citizens of the coun-
Many parent offices delegate substantial author- try where the headquarters are located. Home-coun-
ity to on-the-spot local managers in the belief that try nationals who live and work in foreign countries
they will be able to make better-informed decisions. are called expatriates. Host-country nationals are
Generally, day-to-day operational decisions are citizens of the country where the subsidiary is. They
vested with the local managers, while the overall are local employees. Third-country nationals are
global strategic decisions are made by the corpo- citizens of neither the country of the subsidiary nor
rate office. Overseas managers have to adjust their the country of the headquarters. For example, a Ger-
decision making to corporate policy and maintain man working in Brazil for a U.S.-based company is
the fine balance needed for exercising just the right a third-country national.
degree of discretionary authority at the local level. Home-country nationals offer several advantages
Overseas managers have the effective responsibili- as overseas managers of a foreign subsidiary. Home-
ties, in many ways, of corporate CEOs. Therefore, they country managers are well trained and familiar with
must have an overall perspective of their operations, the company’s operating requirements and practices.
the internal and external environments, and the trends Thus, they have a better perception of corporate goals,
in the local political and economic situations, and a policies, and strategies and can design their local op-
clear perception of the opportunities for and threats to erations accordingly. Overseas assignments broaden
the local operations. As the head of a local operation, the perspectives of home-country managers, and
the overseas manager represents the MNC to the local these managers can begin to factor in the worldwide
government, other firms, customers, and suppliers. implications of their decisions, which is essential for
It is essential that the manager deal effectively with all the firm’s top executives. The overseas assignment
each of these entities, all of whom are important for of home-country executives thus provides valuable
the success of any business operation. training for the company’s future senior management.
Adaptability is probably one of the most impor- A home-country national in an overseas location
tant qualities required of an overseas manager. Man- provides headquarters with a presence in the foreign
agers sent to different countries land in professional environment and enables the firm to stay abreast of
and cultural environments completely different from developments firsthand. A home-country national
their own. In addition, there are the problems of ad- also can represent the firm’s interests with the host
justment by spouses and families, which have to be government more easily than a host-country national,
addressed. A large number of expatriate managers who might encounter a conflict if asked to handle a
have failed in their assignments because their fami- confrontation with the host government.
lies had difficulty adjusting to the new environment. Host-country nationals also have several advantages
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as local managers. They know the local language, the country are important factors in deciding on the
culture, and the customs and may have valuable con- overseas assignment. If the local labor pool is un-
tacts in the local business world. Costs associated with able to provide managers with the required quali-
hiring a local manager are usually lower because there fications, a home-country national will have to be
are no relocation costs. Training costs can sometimes sent abroad.
be higher, because the manager may need to be trained
in the home country, but, in the long run, these costs CORPORATE POLICIES
generally are not significant. Hiring a host-country na-
tional may ease tensions with the host government and The corporate objectives and policies of a firm affect
may in fact serve to comply with local requirements. its choice of an overseas manager. If the firm wants
The local manager may also be able to deal better with to maintain a high level of control of the subsidiary
local employees, and especially with unions. operations and ensure that they are run strictly
There are also disadvantages in using host- according to the policies of headquarters, it will
country nationals. These managers may be unfa- choose to send home-country nationals to overseas
miliar with home-country cultures and the MNC’s posts. Also, the MNC may want to promote man-
policies and practices and may have attitudes and agement development of headquarters personnel
values different from those of the people at head- by expanding their perspectives to include global
quarters. Occasionally, these employees are hired considerations and exposing them to the overall
away from the MNC by local competitors after the corporate system.
MNC has spent considerable time and money in Environmental constraints, costs, and the legal
training, and local mangers may experience conflicts and cultural environments of the host country also
in loyalty between their country and the MNC. affect the courses of action available to the firm. If
Third-country nationals may be hired for several the cost of relocating and compensating a headquar-
reasons. They may possess skills lacking in both ters employee is prohibitive, a host-country national
home- and host-country nationals. They may be may be chosen. Also, there may be legal restric-
more familiar with the language and culture of the tions requiring the use of host-country nationals or
host country than a home-country national, and they restricting the number of foreign personnel allowed
may appease the host government by being a third- into the country. If foreign personnel are allowed
country national. Many times there is the natural into the country, permission from the host govern-
progression from one post to another. For example, ment may be slow and difficult to obtain.
a French national in charge of a French subsidiary
may be relocated to head a Mexican subsidiary. DESIRED LOCAL IMAGE
The type of local image the firm portrays is very
CHOOSING BRANCH important. Most MNCs want to have a favorable
MANAGERS: SELECTION local image to attract and retain employees and to
CRITERIA smooth governmental relations. Choosing a host-
country national may reduce tensions with the host
LABOR POOL government and can result in considerable goodwill
The labor pool has a direct effect on the MNC’s that may be of use later. In addition, the image of
choice of a manager. The availability, quality, and the firm with the local population may be enhanced,
technical competence of managers in the host which may increase sales and employee morale.
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LOCAL EMPLOYEE INCENTIVES is often followed by a period of disillusionment

and negative feelings toward the culture. This disil-
The hiring of host-country nationals for manage- lusionment may be because of the employee’s in-
ment positions may give current local employees ability to adapt or, alternatively, because of a firm’s
an incentive to remain with the firm and to work lack of knowledge of a situation and the employee’s
harder because they can see a possible future with resulting lack of preparedness for possible difficul-
the firm through advancement. For this reason, the ties. Culture shock can result in extreme bitterness
multinational enterprise may limit the management toward the foreign country and its culture, and
positions filled by expatriates. even in physical illness. There may also be reverse
culture shock when an expatriate is repatriated to
EXISTING METHODS OF SELECTION the home culture.
Two factors may help to lessen the effects of
An MNC may find personnel for overseas assign-
culture shock: empathy and the avoidance of ste-
ments through a number of methods. If it acquires
reotypes. Empathy is the ability to understand what
a local, ongoing business, the MNC may select
another person is feeling; in essence, to be able to
managers for the local operation from the personnel
see the world through another person’s eyes. If the
resources of the acquired entity. If the local opera-
expatriate is able to expand this ability to encom-
tion is in the form of a joint venture, the partner in
pass the whole culture, to achieve cultural empathy,
the venture may contribute management expertise
that person will go a long way to understanding the
and personnel to the project. This may not always be
views and actions of the members of the foreign
the best alternative, however, because the partner’s
culture. Stereotypes can be avoided by thoroughly
personnel may lack the necessary technical knowl-
researching the foreign country prior to relocating in
edge, be unfamiliar with the parent firm’s practices,
the area. There are various online sources that help
and be difficult to control because of an allegiance
educate future expatriates concerning differences
to the MNC’s partner and not the MNC itself.
that they might encounter while working abroad.
Home-country records can be used as a tool in There are also books that help ease the transition,
selecting management personnel. Personnel records such as the Culture Shock! series of books, which
for each employee can include information on tech- discuss cultural characteristics in specific countries
nical knowledge, language abilities, willingness to such as France, Denmark, New Zealand, Argentina,
relocate, and the results of any adaptability tests. Morocco, the United States, and many others.
It is extremely important to consider the spouse of
a potential candidate, because it is usually more
stressful for an employee’s spouse to relocate to a TRAINING BRANCH MANAGERS
foreign country than it is for an employee. ALTERNATIVE MODELS
Training is necessary to avoid problems in sending
POTENTIAL FOR CULTURE SHOCK people to work abroad and to ensure project comple-
Culture shock is a pronounced reaction to the tion. In general, the depth of cross-cultural training
psychological disorientation caused by moving to for an overseas manager ranges from reading up on
a totally different environment. When a person is the assignment locale to ad hoc corporate training
relocated to a different country, an initial phase of and in-depth immersion programs. A variety of
excitement and enchantment with the new culture resources are available for training, from how-to
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books for conducting business abroad to videotapes The objective of the BCIU Institute is not to just
and orientation programs. The effectiveness of this brief managers and family members but to provide
training correlates with the amount of preparation them with the tools to ensure their ability to adapt
engaged in prior to a manager’s departure for an to, or cope with, difficulties encountered abroad.
overseas assignment. The highest degree of expatri- The orientation strives to portray the situation as
ate success is experienced by managers who have realistically as possible, which means discussing the
had individual training tailored to their assignment negative as well as the positive aspects of overseas
in a specific country. assignments.
One categorization of cross-cultural training The program at the institute includes five spe-
programs lists four different training models.4 The cific components: language studies, intercultural
intellectual model consists of readings and lectures communications, area and country studies, practi-
about the host culture and assumes that an exchange cal training tailored to the specific country and the
of information about another culture is effective manager’s functional area, and addressing spousal
preparation for living or working in that culture. The and family needs.
area simulation model is a culture-specific training While the global manager learns some of the
program based on the belief that an individual must practicalities of doing business in the assignment
be prepared and trained to enter a specific culture. country, family members receive concurrent train-
It involves the simulation of future experiences and ing on problems to be expected and on alternatives
practice functioning in the new culture. to their current lifestyles. For example, spouses of
The self-awareness model is based on the as- managers going abroad may have to deal with the
sumption that understanding and accepting oneself issue of trying to find employment in the foreign
is critical to understanding a person from another country or coping with a change from working out-
culture. Sensitivity training is a main component of side to working inside the home. In some Middle
this method. The cultural awareness model, which is Eastern countries, for example, female spouses
are not allowed to work officially but can find jobs
practiced in current progressive training programs,
through informal channels. Other issues dealt with
assumes that to function successfully in another
include managing a domestic staff, raising a family
culture, an individual must learn the principles of
abroad, and transferring activities and interests to a
behavior that exist across cultures. Understand-
new environment.
ing intercultural communication by recognizing
that one’s own culture influences personal values,
behaviors, and cognitions is expected to result in COMPENSATING
an enhancement of a person’s skill at diagnosing BRANCH MANAGERS
difficulties in intercultural communication.
WAGES
BUSINESS COUNCIL FOR There are many problems associated with decid-
ing on the amount of compensation to be given to
INTERNATIONAL UNDERSTANDING an overseas manager. The local rate may be above
One example of a comprehensive cross-cultural or below the person’s current salary, thus causing
training program for overseas managers and their pay differentials between home- and host-country
families is the program given by the Business nationals performing the same job. An expatriate is
Council for International Understanding (BCIU). usually paid an allowance and bonuses above the lo-
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cal rate. Problems arise when a person is transferred can be credited against the amount of owed U.S.
to another post or back to headquarters. What salary taxes. To get a foreign tax credit on earned income
does the firm pay? Does the firm lower the salary to (salaries), expatriates must prove that they have been
the old level or keep it elevated? There is also the residents in a foreign country for at least a year and
problem of which currency to use to pay a salary that the assignment to the foreign location is for at
because of fluctuating exchange rates. Compensa- least two years.
tion is usually paid in some combination of both
currencies, thereby allowing tax breaks as well as REPATRIATING
the ability to save money in the home country.
Allowances are paid to cover the additional
BRANCH MANAGERS
costs of living overseas. They are meant to keep REVERSE CULTURE SHOCK
the manager’s standard of living approximately the
same in the foreign country as it was in the home There are three problem areas associated with the
country. Allowances cover the differing costs of repatriation of employees: personal finances, re-
housing, food, utilities, transportation, clothing, adjustment to home-country corporate structure,
personal and medical services, and education for any and reacclimatization to life in the home country. On
children. In addition, the firm always covers the cost reentry into the home country, an expatriate loses all
of additional taxes incurred in a foreign country. the allowances and bonuses that make foreign assign-
Bonuses, though rare, are paid to compensate ments appealing. For many, this means a substantial
an employee for any hardships, sacrifices, and decrease in salary. Also, repatriated employees may
inconveniences incurred as a result of the move. find that consumer prices and housing costs have
Bonuses are usually given only if the manager is greatly increased during their time abroad.
assigned to a particularly underdeveloped, violent, Once back at headquarters, managers may find
or dangerous country. that peers have been promoted and that they have
In addition to allowances and bonuses, a firm less decision-making autonomy and fewer respon-
usually provides home leaves for expatriates and sibilities. A manager also may feel left out of the
their families and pay for periodic trips home. Home corporate information loop. To attract candidates,
travel is considered essential for expatriate manag- the corporation should make foreign assignments as
ers and their families to alleviate the pressures and prestigious and important as possible in the corpo-
tensions of overseas assignments. rate framework, which will help to ease the transi-
tion back into the corporate scheme by increasing
the esteem a manager is given at headquarters by
TAXES his or her peers.
Tax laws vary greatly from country to country. In The family of an expatriate may find that their
some countries, foreign workers are taxed only on comparative social status has dropped when they
the income they receive in the country. In the United return to their home country. In many countries,
States, current tax law allows a U.S. citizen to ex- subsidiary managers are thought of as corporate
empt the first US$80,000 of income earned abroad big wheels representing the entire company and, as
from U.S. taxes. The rest is taxed at the regular such, receive club memberships and invitations to
rate. If the United States has a tax treaty with the important government and social functions. Once at
foreign country in question, the amount of foreign home, however, the situation changes and they are
taxes paid on unearned income (interest, dividends) no longer the center of such attention. Children must
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adjust to new schools and lifestyles, and spouses Adler found confirmation of the second belief that
who have grown accustomed to domestic help may corporations are indeed hesitant to assign women
find themselves on their own again. overseas. The reasons cited by respondents in her
To help with the problems associated with study were the prejudices of foreigners, dual-career
repatriation, several steps can be taken while an marriages, a scarcity of women willing to go abroad,
employee is still at the overseas assignment. The and concerns regarding the possible dangers to per-
earlier the employee is notified of his or her return, sonnel based overseas from isolation and hardship. In
the longer he or she has for adjustment. Headquar- addressing the third point, that corporations assume
ters should provide the expatriate with the maximum that women will have reduced effectiveness overseas
amount of information available about the new job because of the prejudice of foreigners against women
to allay fears of a demotion. The firm also should in the work world, Adler asserts that while there “are
bring the employee back to headquarters periodi- genuine barriers in many Middle Eastern nations,
cally so that the employee will not feel isolated and most countries make a distinction between American
forgotten. A mentor might also be assigned to look women professionals and local women.” Since this
out for the interests of the expatriate and to help study was first published, there has been progress in
with readjustment. The firm can also provide hous- the area of gender equality in the workplace, but there
ing assistance and an orientation program once the is still room for improvement.
family is back.
OVERSEAS ASSIGNMENTS AS
ETHICAL ISSUES DUMPING GROUNDS
FEMALE MANAGERS OVERSEAS One important issue that an MNC faces in making
There is a definite lack of consideration of women decisions on selecting personnel for overseas as-
as candidates for expatriate assignments. Accord- signments is the possible use of these assignments
ing to a classic study by Nancy Adler of McGill to remove undesirable or inefficient executives.
University, only 3 percent of expatriate managers This is a dangerous trend, however, that could harm
from 686 North American firms were women.5 the interests of the corporation in the long run. For
Adler attributes this scarcity to three beliefs held example, the demands of an overseas assignment
by MNC executives: are usually much more complex and intense than
those of a domestic assignment, and an executive
1. Women do not want foreign assignments. who is regarded as a failure in a home country could
2. Corporations resist sending women be an even bigger failure overseas. The failure of
abroad. local operations in one country may not affect the
3. Women would not be effective because of overall bottom line of a large MNC significantly,
the prejudices of foreigners. but it could prove damaging to its global image.
Another problem associated with this approach is
Adler refutes the first point, having found that there that the company is not likely to find good personnel
is no difference between men and women MBAs in in the future willing to take overseas assignments,
attitudes toward overseas assignments. Rather than once it is known within the corporation that these
differences, she found that males and females showed postings have been used to ease out inefficient or
equal interest in pursuing international careers. difficult personnel.
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INTERNATIONAL LABOR ISSUES with workers and union representatives, which is

essential to the smooth functioning of any opera-
International labor issues are important consid- tion and for the building of a basic understanding
erations for multinational corporations operating between management and labor.
manufacturing or service facilities in different Most corporations, however, do insist on a certain
countries. Managing a labor force that comprises level of control by the parent company over the
different nationalities, has different work ethics industrial relations policies subsidiaries follow. On
and cultures, is governed by a variety of local laws, most occasions, however, this control simply takes
and has different traditions of union activities is the form of coordination, in which the overall policy
an extremely complex and often a very difficult is determined by the parent office and local issues
proposition. are left to the subsidiary managers.
Some major corporations have a tendency to
MANAGING AN create an industrial relations arrangement in which
INTERNATIONAL WORKFORCE unions are not a part of the scene. While this could
work in certain countries, it may not in others. It is
Given the differences in union-management rela- clear that while coordination is workable, central
tions around the world and the need to maintain control is not practical in organizing and managing
a uniform industrial relations policy throughout a industrial relations in a multinational corporation.
corporation, MNCs are invariably faced with the de- Some multinationals use their multiple sourcing
cision of to whom to give the responsibility for han- and labor-transfer capabilities to exercise leverage
dling overall industrial relations. The approach that against unions in particular countries. For example,
an MNC takes generally depends on its worldview, if a plant in one country is closed by striking union
whether it is ethnocentric, polycentric, or geocentric. members, an MNC can shift production to a plant
Although MNCs are found to be widely different in in a different country and maintain its stance against
their overall management policies from these three the striking workers in the first country.
standpoints, some do take an ethnocentric view,
where the parent office exercises substantial control
over the local subsidiaries. When it comes to deal-
WAGES AND BENEFITS
ing with industrial relations in different countries, Wages and benefits vary around the world. The dif-
however, most companies give substantial freedom ferences in the levels of wages and benefits workers
to their local managers to deal with local industrial enjoy are particularly pronounced when those of
relations problems. industrialized countries are compared with those
Different social and political structures, dif- of developing countries. There are also substantial
ferent local laws, varying labor psychology, and differences within the industrial countries and de-
unique traditions that influence industrial rela- veloping countries themselves.
tions are the primary factors that help to justify There are several reasons for these important
this policy, which places substantial responsibility differences. First, wages are determined by the lo-
on local managers to deal with industrial rela- cal cost of living, which may be determined by a
tions problems as they arise. Moreover, the active comparative index. This general determination is
and continuous involvement of local managers influenced by the existing wages in some industries
in handling local issues provides them with the or comparative industry sectors for comparative
opportunity to develop an ongoing relationship jobs. Government legislation or intervention is also
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a determinant. Many countries have minimum-wage during a particular time period, typically a year. In
legislation, and some have legislation on maximum Japan a certain group of unions, which are seen as
wages. Tax issues also influence wage levels, be- role models for a particular industry, lead the way for
cause in high-tax countries companies must pay wage negotiation, which takes into account, among
higher wages or provide additional benefits to offset other things, the increase in the cost of living since
the impact of higher taxation levels. The level and the last wage settlement.
militancy of union organizations and the capacity Once agreements have been reached with the
for collective bargaining are often important deter- leading unions in a particular industry, other unions
minants of wage levels. in the same industry come to an agreement with their
Patterns of fringe benefits also differ widely. In managements, more or less on the same basis. Wage
countries with a strong welfare or socialist socio- increases in Great Britain are somewhat less stable
political orientation, greater emphasis is placed on and can be demanded by individual groups of work-
fringe benefits as a part of the overall compensation ers within a particular company, and the demands
package, unlike some industrial nations, where com- often may not be related to the compensation being
pensation is almost entirely in the form of monetary paid to workers in different companies in the same
income. In many countries companies are required industry, or, for that matter, other groups of work-
by government legislation to pay certain fringe ers within the same company. Industrywide wages
benefits. Thus, the percentage of fringe benefits in are generally standard in Germany, however, and
the total compensation package varies considerably strikes that demand wage increases outside the scope
in different countries. of industrywide agreements are not recognized. In
Workers in Europe have historically received most developing countries, collective bargaining by
additional compensation according to the number unions and intervention by the government are the
of family members they support, or if they work in main determinants of wage increases.
unpleasant conditions. In Belgium and the Nether- Usually MNCs have to pay a relatively higher
lands, commuting costs have also been reimbursed wage to their employees in developing countries, in
comparison to wages being paid for similar work in
to workers. One of the most comprehensive fringe
the industry by domestic companies. This differen-
benefits systems is in Japan, under which Japanese
tial wage policy is necessitated by the need for an
workers have received a family allowance, hous-
MNC to counter and prevent criticism from the host
ing subsidies, free lunches, free education for their
government, local politicians, the media, and trade
children, and subsidized vacations.
union organizations that it is an agent of foreign
Procedures for increasing levels of compensation
exploitation of the country. Foreign exploitation is
also vary considerably. In the United States, the num-
a particularly sensitive issue in most newly indepen-
ber of union workers has dropped precipitously over
dent developing countries, given these countries’
the last two decades. Where unions exist, wages are
colonial legacy during which they were subjected
governed usually by labor-management contracts that to substantial economic exploitation by their rulers
have a particular life span, customarily three years, and by companies from the ruling countries.
after which they have to be renegotiated. Increases are
often determined on the basis of a mutually agreed
formula that links wage increases to a cost-of-living
JOB SECURITY AND LAYOFFS
index. There is room within the general formula for Emphasis on job security varies widely from
individual wage increases on the basis of performance country to country, and MNCs must take into con-
Ajami1780.indb 334 8/3/2006 5:04:55 PM

sideration local laws, practices, and socioeconomic petitiveness an enterprise can hope to achieve in the
conditions while formulating policies and proce- local and international markets. Labor productivity
dures for layoffs, suspensions, and termination of varies greatly in different countries, but this variance
employee services. The emphasis on job security is is not only because of differences in labor quality.
perhaps the highest in developing countries, where In fact, eight factors that are crucial to improvement
jobs are scarce and there is no system of social of labor productivity can be identified:
security to take care of employees who cannot find
other employment. In such countries, layoffs and 1. Government’s active role. Laissez-faire at-
retrenchments are difficult to implement, because titudes tend to keep productivity at current
both union and government pressures tend to be levels rather than increasing it.
strongly against them. Moreover, industry practices 2. Worker quality and skills. The labor force
in developing countries do not permit layoffs, es- must be constantly upgraded through
pecially of the type witnessed in the United States, training in the latest methods and tech-
where companies routinely lay off thousands of nologies.
employees to improve profitability, to restructure the 3. Research and development. A high level of
organization, or because demand for the products R & D is needed to remain abreast of and
has fallen off. In fact, to prevent worker hardship, preferably ahead of the competition. New
many governments have in the past nationalized products and information must continue in
operations of MNCs that have decided to lay off a steady stream.
large numbers of workers. In developed countries 4. Business savings and investment are a major
job security is important, although not quite to the source of capital, R & D, and training.
same extent as in developing countries. Among the 5. Personal savings and investment provide a
industrialized countries, Japan and Germany place pool of funds to be used for investments by
a particularly strong emphasis on job security. Japa- commercial banks, which in turn stimulate
nese industry has been long noted for its tradition of the economy’s growth.
lifetime employment. Although this is no longer true
6. Natural resource development and sub-
of a large number of companies in Japan, substantial
stitution. Obviously, there is a limit on the
benefits are available to Japanese workers who lose
amount of natural resources that can be uti-
their jobs, especially because of corporate policies.
lized. Thus, new sources must be developed
These benefits include salary payments, retraining,
to provide for the needs of business.
assistance in finding alternative employment, and
7. Production techniques and systems must
relocation assistance. Similarly, in Germany as-
be constantly upgraded and changed
sistance is provided to workers who lose their jobs
because of the high rate of obsolescence.
because of corporate decisions. In many instances
The personal computer industry is a good
companies must seek approval from the government
and come to an understanding with unions before example.
effecting any significant employee layoffs. 8. Management techniques and philoso-
phy. Management must take a long-term
view of the future. Short-term goals have
LABOR PRODUCTIVITY proved to be ineffective and costly, and
Labor productivity is a critical issue for MNCs. It productivity can be increased only over
determines, to a significant degree, the level of com- the long term.
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Table 15.1
Manufacturing Productivity, Compensation, Unit Labor Costs, and Unemployment Rate

(average annual rates of change)
Productivity Labor Compensation (U.S. dollar basis)

1973–87 1982–87 1993–2003 1973–87 1982–87 1993–2003
United States 2.5 4.5 5.0 7.4 3.5 4.3
Canada 2.1 4.3 2.6 7.2 3.3 1.3
Japan 5.3 4.8 3.5 12.9 15.2 3.3
France 3.9 3.0 4.3 10.5 9.2 2.7
Germany 3.3 3.3 2.7 10.2 11.4 3.2
United Kingdom 3.2 5.5 2.7 10.8 6.0 3.8
Unit Labor Costs (U.S. dollar basis) Unemployment Rate (in percent annually)
1973–87 1982–87 1993–2003 1983 1993 2003
United States 4.8 –1.0 –0.7 9.6 6.9 6.0
Canada 5.0 –1.0 1.3 11.5 10.8 6.9
Japan 7.3 10.0 0.3 2.7 2.5 5.3
France 6.4 6.0 –1.4 8.6 11.3 9.3
Germany 6.7 7.8 0.5 6.9 8.0 9.3
United Kingdom 7.4 0.5 1.1 11.8 10.4 5.0
Source: U.S. Department of Labor, Bureau of Labor Statistics.
Table 15.1 provides indexes of manufacturing As a result, in many instances MNCs have to use
productivity and other measures for some of the technology that is relatively less advanced to meet
industrialized countries.6 host-country requirements of providing greater job
opportunities. Thus, a certain amount of productiv-
TECHNOLOGY ity and efficiency has to be sacrificed to gain entry
into a new market.
Of the many issues that affect labor productivity,
technology is one of the most important and presents
major problems to MNCs seeking overseas locations
LABOR UNIONS
for their plants. Many LDCs have major unemploy- The concept of collective bargaining is central to the
ment problems and are eager to develop industries functioning of labor unions. After a union is certified
that are labor intensive and provide maximum job by workers and recognized by management, it is the
opportunities. Modern technology is often capital sole representative of those workers. It represents
intensive, however, and relies on reducing the role all the workers collectively when negotiating with
of human effort in accomplishing production goals management for compensation and working con-
with minimum costs and maximum efficiency. ditions, and signs agreements into legally binding
Ajami1780.indb 336 8/3/2006 5:04:56 PM

labor contracts. The contracts cover such issues as to work. Lockouts occur when the employer closes
wages, fringe benefits, holidays, vacations, promo- or locks the plant and bars workers from entering.
tion policies, layoff policies, job-security provisions, Fans of professional hockey will recall the lockout
stipulations regarding working conditions and during the 2004–5 season, when the owners and the
safety, administration of the contract, and grievance players could not agree on an appropriate salary cap;
and dispute settlement. the entire season was canceled. Strikes are gener-
In the end, the future of trade unions rests largely ally more frequent than lockouts. A wildcat strike
in their own hands. A few pioneers, notably in the occurs when workers strike during the life of an
Netherlands, have shown that a willingness to ad- existing contract and give little or no notice. There
dress their own organizational weaknesses (and an are relatively few strikes in the United States, but
acceptance that some social reforms are inevitable) they tend to last a long time. The emphasis in labor
can translate into a much greater degree of influence. relations in the United States is on keeping the firm
Noisy, colorful demonstrations attract media atten- operating and profitable.
tion and raise the unions’ profile. But they are not
symptomatic of what influential unions do today, Great Britain
or of what they want to do tomorrow.
Labor-management relations in Great Britain are
much more political and contentious than in the
United States United States. Unions see the negotiation process
Labor-management relations in the United States as more of a class struggle and striking as an
are relatively nonpolitical, in that the government exercisable right. The unions are guided by the
is not a part of the collective bargaining process, principle of voluntarism, which states that workers
but legislation does establish and enforce rules alone define and pursue their self-interest, which
regarding the framework of collective bargaining makes them militant and abrasive with authority,
(for example, both parties must bargain in good and they have very little regard for the welfare of
faith). The labor contract is enforceable through the the enterprise. They are also a powerful political
courts, and either side can be sued for any breach force, in that a major political party, the Labor
of contract. For the most part, collective bargaining Party, espouses this class-struggle mentality, but
takes place at the company or plant level, that is, the situation has been changing through the Tory
on a company-by-company basis. Some exceptions Party, which is trying to institute legal restraints
include the trucking and construction industries, on the unions, based on the belief that too many
which have regional contracts, and the steel industry, strikes are destroying the very jobs they are trying
which has a national contract. to protect by forcing firms into bankruptcy. Great
The contract agreed on is usually very extensive Britain’s unions have been subject to new legal
and covers almost every contingency. Its terms apply constraints and have lost much of their erstwhile
to all workers in the bargaining units, and individual unity, while membership has dwindled.
workers cannot negotiate individually with manage- Another problem in Great Britain is the dualism
ment to obtain better terms. During the life of the of labor representation. Generally, unions are or-
contract, strikes and lockouts are usually banned, ganized on a geographic basis, but there are also
but if an old contract expires and a new one is still councils of stewards that represent only workers at
being negotiated, strikes and lockouts are allowed. a single company or plant, which results in serious
Strikes occur when the workers walk out and refuse conflicts between the union for the area and the
Ajami1780.indb 337 8/3/2006 5:04:56 PM

steward’s council. For example, the union may reject groups, so they never ask for too much. This attitude
an agreement that has already been reached between is diametrically opposed to the attitude of the unions
the stewards and the management of a company. The in Great Britain. Shunto is an effort by the unions
problems resulting from dualism, coupled with the to raise wages across the country, so that no single
philosophy of voluntarism, lead to numerous strikes. firm becomes less competitive than another. There
Although unions and workers strike frequently, the are very few strikes in Japan, and what strikes there
strikes are usually not of very long duration. are usually take place during shunto. The strikes are
for very short periods of time, sometimes only half
Germany a day, and merely demonstrate worker support for
the unions. Japanese union workers also promote a
In Germany union membership is purely voluntary. company’s well-being and profitability because its
There is typically only one union for all workers in a success benefits the whole group.
single industry. Labor agreements cover only major Given the recession, deflation, and fall in union
issues such as wages. All the other issues, such as membership in Japan in recent years, the shunto has
vacations and shifts, are negotiated at the plant level. not been as successful in achieving wage increases
Legally established work councils are able to codeter- on an annual basis. In fact, the recent focus has been
mine issues involving safety and plant practices with on maintaining the existing structure and level of
management. Members of the work council are elected wages, rather than pushing for annual increases as
by the firm’s workers. Strikes and lockouts during the has been done in the past.
life of an existing contract are illegal, regardless of the
contract’s provisions. They are legal when the existing MNC TACTICS
contract has expired or is being renegotiated. A unique
feature of German labor relations is that an individual Over the past several years, the AFL-CIO has main-
worker can negotiate individually with management tained that MNCs have several detrimental effects
to try to obtain better terms. on U.S. industry. First, MNCs use capital resources
for foreign investment that are needed for domestic
Japan investment and expansion. Second, MNCs export
U.S. technology to other countries to take advantage
Japanese unions are usually organized by enterprise. of low-cost foreign labor, which denies American
A union is made up of employees within a single workers the rewards of using the technology. Third,
company or single operational unit, regardless of oc- MNCs replace U.S. exports with foreign-produced
cupation or position. Legislation in Japan determines goods, which worsens the trade balance and de-
minimum wages, working hours per week, overtime, creases domestic employment. Fourth, MNCs use
vacation, sick leave, sanitary conditions, and layoff imports from their subsidiaries in low-wage coun-
policies and procedures, which leaves little for col- tries instead of using domestically produced goods.7
lective bargaining to accomplish. Thus, negotiations Finally, many MNCs have outsourced jobs to areas
are limited mostly to wages, but wages, positions, and of the world with much lower wage rates, such as
promotions are usually determined through senior- India and China.
ity. Every spring all the unions from every company Unions feel threatened by the rising power of
embark on shunto, or the spring wage offensive, MNCs and the advantages they have because of
when the few negotiations take place. Unions want multiple production locales. When a firm decides to
companies to remain profitable for the good of the locate operations abroad, it is no longer dependent
Ajami1780.indb 338 8/3/2006 5:04:56 PM

on only domestic plants, and the domestic union It is now affiliated with the United Nations and
has no control over what happens half a world is composed of government, industry, and union
away. Most union concerns are in part because of representatives. Its premise is that the failure of any
the huge amount of resources MNCs have at their country to promote humane working conditions is
command. More important, an MNC’s power and an obstacle to nations that want to improve condi-
decision-making capabilities are exercised outside tions in their own countries. The ILO tries to define
every country in which the MNC operates except and promote international standards regarding
the home country.8 Some of the specific concerns safety, health, and other working conditions.
unions have regarding MNCs include:
Organisation for Economic
• MNCs’ ability to relocate facilities if a contract Cooperation and Development
is not agreeable to them. The Organisation for Economic Cooperation and
• Restricted access to data by unions, especially Development (OECD) also consists of government,
financial data, to combat MNCs. For example, industry, and union representatives. It has developed
if an MNC says it is losing money on overseas a set of voluntary guidelines for MNCs and for host
operations and thus needs to cut labor costs, the countries regarding labor conditions and fair prac-
union cannot confirm or deny this statement. tices. The organization is based in Paris but does not
• An MNC’s ability to choose where to locate have any enforcement mechanisms in international
and thus take advantage of differences in the jurisdictions.
amount and level of benefits they are required
to provide by law. The European Union
• An MNC’s ability to withstand strikes by
threatening to close the facility and relocate. The European Union also attempts to coordinate the
Because that factory is only one part of the evolution of industrial relations standards within its
corporation, the MNC is able to obtain cash member countries by issuing directives on issues of
and production from other plants. common concern. These directives are approved by
the council of ministers before they become effective.
Wal-Mart recently closed a store location in Que- Existing directives cover such issues as employee
bec, Canada, when workers attempted to create the participation on company boards, the safeguarding
of employee interests, and the right of employee
first unionized Wal-Mart store in North America.
representatives to information and consultation in
the event of a change in the ownership of a business.
COUNTERTACTICS BY LABOR Some of the EU directives, once accepted by the
Unions only hope for competing with MNCs lies in council of ministers, are incorporated into member
international rules and regulations and international states’ national laws. The impact of EU directives
cooperation. Two main international labor organiza- on member states’ national labor laws is increasing,
tions make efforts in this direction. especially as integration becomes closer.
The International Labor Organization INTERNATIONAL UNIONS

The International Labor Organization (ILO) was The prospect of international unions sounds very
established in 1919 under the Treaty of Versailles. promising for solving many problems. International
Ajami1780.indb 339 8/3/2006 5:04:57 PM

unions could employ transnational bargaining, which International staffing may involve filling the
would mean a centralized and coordinated collective management position with expatriates, host-country
bargaining strategy between an employer and a union nationals, or third-country nationals; each selection
or group of unions for employees in facilities located offers different advantages and disadvantages. Staff
in two or more nations.9 In other words, one union selection is affected by the availability of trained
could negotiate for all the plants that a single firm has candidates in the host-country location, corporate
around the world, thus guaranteeing equal treatment policies regarding local versus corporate control, a
for all workers and restoring the power of the unions. candidate’s knowledge of the local environment,
In the real world, this is much easier said than done. the local image the MNC wants to project, and
The few international unions that exist are in similar employment incentives. Also, the candidate’s tech-
countries, such as the United States and Canada. nical skills, language abilities, and adaptability must
be evaluated. Adaptability assessment through an
CODETERMINATION early-identification program test is important to min-
imize the effects of management, culture shock, and
One final possibility of increasing the impact of
ineffectiveness on local operations. Cross-cultural
workers on firms is the concept of codetermination.
training techniques are useful in reducing candidate
Codetermination means employee participation in
failure rates and help ensure their success.
management. An early example of codetermination
Specialized compensation arrangements for
was in the German coal and steel industries in 1951.
international managers make these positions very
By law, codetermination gave the representatives
attractive. Income taxes and repatriation, however,
of workers and shareholders each 50 percent of the
can be problematic for an international manager.
directorships, with one neutral director to break
Gender biases in many countries may slow foreign
any ties. Codetermination has gained importance in
assignments for female managers. The dumping of
many other countries as the emphasis of collective
inefficient personnel in international positions may
bargaining shifts, little by little, to agreements and
occur but can harm an MNC’s long-term interests.
counterbalancing of labor-management interests.
International managers are faced with a diversity
of nationalities, languages, cultures, and work ethics,
SUMMARY which can complicate motivation and management
The four most common structures used by MNCs of the local labor force. To develop management-
to organize and manage operations are functional, labor relations essential for efficient operations,
regional, product line, and matrix structures. Staff- local managers must have sufficient authority and
ing is crucial for MNCs because of technological flexibility. Centralized corporate control, through
advances, worldwide competition for skilled labor, industrial relations policy, however, is required to
and the constant need to increase productivity, achieve MNC-wide cohesion. Host-country laws
reduce costs, and increase intracompany communi- and practices also may limit local management
cation and information flows. International staffing flexibility.
involves recruitment, selection, training, and moti- Wage and fringe benefit systems should reflect
vation and requires a bicultural sensitivity toward local costs of living and the extent of existing so-
the host-country environment. High failure rates cial welfare benefits. Further, to prevent criticism
among expatriate managers have caused MNCs to from host governments, local media, and trade
carefully select and train global managers. unions, MNCs must be careful not to exploit lesser-
Ajami1780.indb 340 8/3/2006 5:04:57 PM

developed countries in terms of wages and benefits. 6. Before investing in a production plant in
Policies and procedures for employee layoffs, a foreign country, what are some of the
suspensions, and terminations must also reflect the questions concerning labor management
traditions and practices of the host country. that an MNC should address?
Labor productivity can vary in different countries. 7. What is collective bargaining? How does
Improvements in productivity are a function of gov- collective bargaining differ in the United
ernment support, worker quality and skill, research States, Great Britain, Germany, and Japan?
and development, innovation, business savings and 8. How is productivity affected by a shortage
investment, personal savings and investment, natural of skilled labor?
resources, production systems, and management
techniques and philosophies. Because modern tech- NOTES
nology is capital intensive and may be unavailable 1. Harris and Moran, Managing Cultural Differences.
in a host country, MNCs can sacrifice productivity 2. Tung, “Strategic Management of Human Resources
and efficiency for low labor costs when expanding in the Multinational Enterprise.”
production into new markets. Labor relations and 3. Harris and Moran, Managing Cultural Differences.
4. Ibid.
the role of unions also differ among nations, with 5. Adler, “Expecting International Success: Female
some having a stronger union presence than others. Managers Overseas.”
International unions are seeking greater coopera- 6. U.S. Department of Labor, Bureau of Labor Statistics.
7. Levine, “Labor Movements and the Multinational
tion across national boundaries, but nationalistic Corporation: A Future for Collective Bargaining?”
attitudes, different goals, and physical distance may 8. Ibid.
impede their growth. Codetermination is a recent 9. Ibid.
development that attempts to increase worker influ-
ence and responsibilities in MNC operations. BIBLIOGRAPHY
Adler, Nancy. “Expecting International Success: Female
DISCUSSION QUESTIONS Managers Overseas.” Columbia Journal of World Busi-
ness, Fall 1984, 82.
1. When staffing an MNC for positions Campbell, Duncan C. “Multinational Labor Relations in the
European Community.” ILR Report, Fall 1989, 7–14.
outside the home country, what are some Charnovitz, Steve. “The Influence of International Labor
advantages and disadvantages of hiring Standards on the World Trading Regime.” International
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Clarke, Christopher J., and K. Breenan. “Building Synergy
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3. Why do expatriate managers frequently 1990, 9–16.
receive additional compensation over their Daniels, J.D. “Approaches to European Regional Manage-
ment by Large U.S. Multinational Firms.” Management
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more complicated than packages provided Business.” Syracuse Journal of International Law and
Commerce, Winter 1987, 255–71.
to domestic employees? ———. “Hot Issues Overseas.” Personnel Administrator,
4. What problems do expatriates face at the January 1989, 66–72.
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5. What obstacles do female executives February 1985, 45, 47.
Fanning, W.R., and A.F. Arvin. “National or Global? Control
encounter when seeking international Versus Flexibility.” Long Range Planning, October 1986,
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Gellerman, Saul W. “In Organizations, As in Architecture, ing, 1960–88.” National Institute Economic Review, May
Form Follows Function.” Organizational Dynamics, 1990, 67–70.
Winter 1990, 57–68. Savich, R.S., and W. Rodgers. “Assignment Overseas: Eas-
Harris, Phillip R., and Robert T. Moran. Managing Cultural Dif- ing the Transition Before and After.” Personnel, August
ferences. Houston, TX: Gulf Publishing Company, 1987. 1988, 44–48.
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Ajami1780.indb 342 8/3/2006 5:04:58 PM

CASE STUDY 15.1

REMAGEN BROTHERS LTD.
The protest meeting at the locked gates of Rema- remittances out of Trivana were freely allowed,
gen Brothers Ltd. was getting increasingly turbu- although periodic reports had to be filed with the
lent. More than 2,000 unionized workers of the central bank.
Weranpura factory were demanding a 26 percent Attracted by these incentives, Remagen’s
increase in wages and an increase in the number senior management had made the decision to
of paid holidays to 21. The management’s offer establish a large plant to manufacture soaps and
of a 9 percent pay increase led to a fairly quick detergents to be marketed primarily in Southeast
breakdown in negotiations. The workers had Asia. Trivana’s labor costs were even lower than
gone on an indefinite strike that was now in its those of Southeast Asia, and Remagen’s products
nineteenth day, with no chance of settlement. were expected to have the edge needed to pen-
Remagen’s Weranpura plant had a history of etrate that highly competitive market.
troubled industrial relations from its outset. The Although Remagen’s planners focused on
plant was located in an industrial park set up by the economics provided by Trivana’s labor,
the government of Trivana, a small island country other aspects of the local labor force were not
in South Asia. Remagen Brothers was a leading studied in detail. Weranpura was located in
cosmetics, toiletries, and detergent manufacturer the southeastern part of Trivana, which had a
based in the Netherlands, with factories and other predominantly Marxist political orientation.
operations in 82 countries around the world. With All plants in the Weranpura industrial zone
sales revenues exceeding US$2 billion annually, were unionized, and almost all the unions were
Remagen was a leading multinational in the in- affiliated with the People’s Movement for La-
dustry, and its products had a well-differentiated bor Rights (PMLR), an avowed Marxist labor
brand image and enjoyed considerable brand federation that continually advocated militant
loyalty worldwide. Remagen’s decision to invest action on the part of its affiliated unions to
in Weranpura was motivated primarily by the secure labor rights.
attractive incentives offered by the Trivanian gov- Remagen’s managers began to sense the dif-
ernment in the special industrial zone. Remagen ficulties that lay ahead when the commissioning
was allowed to import all its plant equipment as of the plant was delayed by a month because of a
well as raw materials and intermediate products sudden strike by the workers of the plant’s pack-
free of customs duties. The government provided aging unit. Top management, however, eager to
excellent infrastructural facilities to the company, start production, decided to lay off all the striking
including banking and financial services within employees and hire new ones in their place. The
the industrial park zone. Remagen’s income view at that point was that the company should
from its Weranpura factory also was free from not be cowed by the union and should adopt a
Trivanian taxes for five years and after that was strong stance. This view was based on the fact
to be taxed at a special rate. Profits and other continued
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Case 15.1 (continued)
that Remagen was paying at least 10 percent that with this support they could carry on the
higher wages than any other employer in the strike indefinitely.
Weranpura industrial zone and could hire new The local manager of Remagen’s personnel
workers whenever it wanted. division, Vijaya Ratnapure, was of the opinion
This view did not prove to be an effective that this time the company should negotiate with
strategy in dealing with labor issues. Once the the striking workers and raise the level of com-
workers were fully unionized, it became difficult pensation it was willing to offer in order to bring
to terminate the services of employees. it nearer to union demands. He reasoned that the
The union provided excellent legal help for company’s image in Weranpura was at stake, and
all its members, and an employee could involve the PMLR had successfully carried out a cam-
the company in a long, fractious, and expensive paign against it by branding Remagen a “foreign
litigation process. Labor laws in Trivana heavily exploiter.” The government, although somewhat
favored employees over employers, and Rema- centrist in its political inclinations, was sensitive
gen had no financial advantage it could leverage to the views of the PMLR, because the next pro-
in the litigation process. vincial elections were in six months, and there was
Further, the workers were now governed more talk of an alliance between the ruling party and
by the orders of union leaders than by the edicts the Marxists in this region. Therefore, if matters
of the personnel department. The union’s man- came to a head, Remagen could, at best, expect
agement was prone to ordering strikes even if a the government to be a mute bystander, caught
single employee was to be replaced. between its political priorities and eagerness to
During its first two years, the company had, attract overseas investment in special industrial
therefore, adversarial industrial relations, and zones. Perhaps it would be better, argued Rat-
87 workdays had been lost because of strikes. napure, to involve the leaders of the PMLR in the
The management’s policy continued to be based talks, as the union leaders had been demanding,
on maintaining a strong posture against the which would be viewed as a major concession and
militant trade unions and refusing to give in to perhaps could lead to a moderation of the worker
their demands. In the early strikes, although the demands on the compensation package.
company did lose workdays, the unions were not Johann Michuft, the general manager of the
able to make much headway. The personnel de- plant, was initially taken aback by Ratnapure’s
partment of Remagen’s head office was pleased suggestion, which seemed to go almost directly
with the record of the Weranpura management, against the company’s global industrial relations
and the personnel manager had received two management policy. The company had a standard
letters of commendation. This strike, however, policy to make a firm and final offer, in line with
was different. The workers and their leaders industry wages (or better), in terms of compen-
were apparently bent upon getting the company sation. Further, management’s policy was not to
to agree to their demands. Further, it was also negotiate with any party other than the bona fide
clear that the PMLR federation was providing representatives of the plant’s unions.
financial support to the striking employees and continued
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Talking to PMLR’s representatives would company’s image as an employer would suffer in

clearly violate this policy. The company was do- many countries of the region, where it was plan-
ing quite well, and it could afford to give a raise ning to establish other manufacturing facilities.
to the workers that would be in line with what As he pondered these issues, Michuft typed a
they were demanding, but that amount would be confidential memorandum to send to headquar-
way ahead of the industry average in Weranpura
ters in the Netherlands, seeking instructions on
(although much lower than wages paid to workers
whether company policy could be modified in
for similar jobs in the company’s plants in Europe
and North America). Further, dealing with the Weranpura.
PMLR would be seen as a sign of weakness on
the part of the company’s management and could DISCUSSION QUESTION
lead to another set of demands.
On the other hand, if the company did not 1. What would be your instructions to
negotiate with the unions and the representatives Michuft if you were the director of in-
of the PMLR, it faced the possibility of a long- ternational human resource management
drawn-out strike that could result in the closure at Remagen’s world headquarters in the
of this highly profitable plant. Moreover, the Netherlands?
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CASE STUDY 15.2

AIR AMERICA
Herbert Manning, general manager of Air this area and as a hub location for the airline. In
America’s Qamran office, had been with the three years, Manning’s region had become an
company for 12 years. Manning had an un- important source of revenue from international
dergraduate degree in economics and business operations for Air America. Apart from an ag-
and had worked for a leading travel agency in gressive and well-targeted sales policy, overall
San Francisco, California, before joining Air increase in passenger traffic arising out of the
America as a sales executive. With his earlier oil price boom helped to boost ticket sales.
experience and his enthusiasm and energy on Toward the end of the third year, however, Air
the job, Manning had made a favorable impres- America, like many other airlines operating in the
sion within the company very quickly. Within region, was suddenly hit with a sharp decline in
two years he had been promoted to the rank of demand as oil prices rose sharply and the world
area sales manager and had been elected vice economy went into a deep recession. As the mar-
president of Air America’s worldwide sales ket shrank, competition intensified, and it became
club, having had the second highest amount of increasingly difficult to hold on to market share.
sales among all of Air America’s sales execu- By 2004 Air America’s share of the Persian Gulf
tives worldwide. Manning continued to perform market had dropped by 7 percent and, combined
well as area sales manager, and three years with a sharp decline in overall market size, led to
later he was moved to the company’s corporate a steep reduction in total revenues.
headquarters in Dallas, Texas. His headquarters Concerned with the difficult situation in the re-
assignment was a major move upward; he was gion, Air America’s senior management decided
named vice president of international market- that an aggressive strategy had to be adopted to
ing and sales with responsibility for planning recapture market share and rebuild the airline’s
and implementing the company’s marketing and image as a dominant force in the region. A key
sales strategies in the Middle East, Africa, and element of the strategy was to appoint Manning
southern Asia. Air America, though a major as the regional manager of the Middle East and
international airline, was not very strong in North Africa.
these markets, which it perceived would become It was a big promotion for Manning. Regional
increasingly important in the future. Manning managers were considered to be senior manage-
took up the challenge with his well-known drive ment in the company and were responsible for
and energy, and during the next three years, participating in the formulation of global strategy.
Air America succeeded in negotiating air route Moreover, Air America’s corporate policy was
agreements with four countries in North Africa, one of considerable delegation and decentraliza-
three in the Middle East, and three in southern tion. Regional managers were, therefore almost
Asia. Qamran, a small sheikdom in the Middle completely independent in their local opera-
East, was designated as the regional base for continued
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tions and were primarily responsible for their Results started to decline in the third year,
own results. Manning was elated when his boss however. Market share gains slid back by 2
told him the news. He had wanted to go back percent and revenues showed a slight decline.
to the field for some time now, and the position Manning seemed to have lost the drive and ini-
apparently offered all that he was looking for. tiative that had characterized his work just a few
In addition, relocation as a regional manager in months before, and some of Manning’s subor-
Qamran meant that he would have several liberal dinates seemed unhappy with his behavior and
fringe benefits given to Air America’s expatriate left the company. Gilbert Wyles, Air America’s
managers: a large, furnished company house, a senior vice president of human resources, was
chauffeur-driven car, at least four servants, and quick to guess that the problem was Manning
additional allowances, including a large enter- and decided that a meeting would be useful to
tainment budget. discuss the whole issue. Manning was after all a
Manning’s first year was extremely suc- star performer, and if he was facing any problems
cessful. He brought a new level of drive and the company was fully prepared to help him.
enthusiasm to his job, which was infused The meeting lasted three hours. Manning
throughout the local office, because he set a was initially hesitant to state the real problem
good example by his own untiring efforts. His and hedged around the issue, in vague terms,
years in the marketing division had provided calling the difficulties personal matters. When
him with considerable background knowledge asked to be more specific, however, and realizing
of the operations, and he used that knowledge that he had a sympathetic audience, Manning
to seek and implement new ways to fight off came out with it. The real problem, he said,
Air America’s competitors. Market share began was his wife’s difficulties in adjusting to life in
to inch back upward and the revenue drop was Qamran. Back in the United States, she was a
reversed. Although the revenues were helped client relations executive in a small advertising
by a slight improvement in market conditions, company. It was not a very high position, but it
there was no doubt that Manning’s arrival had was important to her. She liked the job; it enabled
been a key factor in the reversal of Air America’s her to keep busy and do something every day,
fortunes in the region. and allowed her to use her skills at dealing with
The second year was good, too, although not people constructively. She had developed a fairly
as good as the first. Market share increased, as close network of good friends and a large circle
did the revenues by smaller degrees. One sig- of pleasant acquaintances through her job. Her
nificant explanation for the slowing of increases decision to leave the job and accompany Man-
offered by Manning was that other airlines had ning to Qamran had not been easy, but she had
initiated equally aggressive counterstrategies, been sporting about it and had decided to make
and it was not possible to improve the rate of the best of a new lifestyle that awaited her in
America’s gains without seriously compromis- their new overseas home. She did make a sincere
ing profitability.
continued
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effort at adjustment, but Qamran’s society was Meanwhile, Wyles, in his well-appointed
governed by strict Islamic tenets, which meant office, got busy, putting together a confidential
that social freedoms for women were severely memo to the international human resources
restricted. Although the Mannings had a nice policy group, a small set of top Air America
social life, with a number of social activities executives in charge of framing company poli-
involving diplomats and other expatriates, there cies in international human resources manage-
was nothing much she could do during the day. ment. The memo explained the background and
Women were not allowed to work in Qamran, circumstances of the situation and placed three
and they were granted special work permits only options before the members:
in exceptional cases. Even then women had to
dress in a particular fashion prescribed by the 1. The option suggested by Manning, to
authorities. give Mrs. Manning a job in his office in
After the first year, Mrs. Manning grew increas- Qamran as a public relations officer. This
ingly restless about her new situation. Her prob- was possible, if the group were to modify
lems were accentuated by the long absences of her the company policy on employment of
husband, who went on frequent business trips that spouses and enough pressure was exerted
were essential to the success of his assignment. on the Qamran government.
Mrs. Manning thought of various solutions and 2. Replace Manning with another expatri-
different ways in which her life could be made ate executive, which could be easily
more interesting, but nothing worked, and the done, but there might be similar prob-
mental discomfort of Mrs. Manning continued to lems for the replacement.
increase. In the past few months, Mrs. Manning 3. Appoint a local national as regional man-
had had long periods of depression and was not ager or bring in a third-country national
responding very well to treatment, which caused from its other overseas offices.
Manning tremendous anxiety and had adversely
affected his professional performance.
Gilbert Wyles suggested that Manning take
DISCUSSION QUESTIONS
a vacation quickly, at the place of his choice, 1. Which of the three options would you
and that by the time he returned the company recommend to Air America and why?
would have an answer to his problem. Manning What would be the problems with the
was somewhat relieved, but at the same time he other options?
was skeptical of the company’s intentions. As 2. Is there a need for Air America to change
he walked out of the corporate headquarters to its international staffing policies to avoid
catch a cab for his hotel, he wondered whether sending expatriate managers to overseas
he had done the right thing. locations?
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CHAPTER 15

International Stafﬁng and Labor Issues

ORGANIZING A cording to function, for example, marketing

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REGIONAL STRUCTURE tion of the right person to ﬁll a job available in a

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SELECTION guage is an intractable problem. Often companies

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LOCAL EMPLOYEE INCENTIVES is often followed by a period of disillusionment

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INTERNATIONAL LABOR ISSUES with workers and union representatives, which is

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Manufacturing Productivity, Compensation, Unit Labor Costs, and Unemployment Rate

Productivity Labor Compensation (U.S. dollar basis)

Source: U.S. Department of Labor, Bureau of Labor Statistics.

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The International Labor Organization INTERNATIONAL UNIONS

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CASE STUDY 15.1

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Case 15.1 (continued)

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Case 15.1 (continued)

Talking to PMLR’s representatives would company’s image as an employer would suffer in

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CASE STUDY 15.2

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Case 15.2 (continued)

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Case 15.2 (continued)

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