CHAPTER-THREE

MANAGEMENT OF HUMAN RESOURCES

 Management of Qualifications and
Characteristics
• A company’s international human resources efforts should
complement its level of international development and grow
with its international commitment .
• The need to have highly qualified people to staff the
organization can not be overemphasized.
• Any company must determine its personnel needs, hire
people to meet those needs, motivate them to perform well,
and upgrade their skills so that they can move to more
demanding tasks.
 Headquarters – Subsidiary Relationship
• International staffing is two-tiered:
– First, the subsidiary level must employ persons
who are equipped to conduct the activities within
the countries in which the company is operating
– Second, people at corporate and/or regional
headquarters must be equipped to coordinate and
control the company’s various world wide and
regional operations
• These two staffing dimensions are closely related,
particularly since headquarters personnel usually
choose and evaluate those who direct the
subsidiaries.
• Both headquarters and subsidiary personnel must be
sufficiently aware of and willing to accept trade-offs
between the need to adapt to local environmental
differences and the need to gain global efficiencies.
– i.e, managers must consider country and global needs
• The balance of power for these trade-offs is complex and
depends on such factors as the
– Company’s philosophy (for example, polycentric versus
ethnocentric) and
– On how much its operations in different countries may
benefit from independence as opposed to
interdependence.
  Much less effort is needed to impose standard practices
or a corporate culture abroad when a company’s
philosophy is polycentric and its foreign subsidiaries are
a federation of highly independent operations than when
its philosophy is ethnocentric and its foreign operations
are internationally interdependent.
• Regardless of where between these extremes the company
lies, it may face dilemmas because the technology, policy,
and managerial style it has developed in one place may be
only partially applicable elsewhere.
– i.e., head quarters-subsidiary relationships are affected
by polycentrism and ethnocentrism
– Benefits of independence
 Top Level Duties Abroad
• Subsidiary management-
– Although foreign subsidiaries usually are much smaller
than their parents, their top managers often have to
perform top level management duties.
– This usually means
• being more of a generalist than a specialist and more
of a leader than a follower,
• having responsibility for a wide variety of functions,
and spending more time on the job, on external
relations with the community, government, and
general public, and on outside business meetings.
• Managers with comparable profit or cost
responsibility in the home country may be performing
middle-management tasks there and lack the breadth
of experience necessary for a top level management
position in a foreign subsidiary.
• Headquarters travel –
– The corporate staff charged with responsibility for
international business functions must interact frequently
with very high level authorities in foreign countries, for
example, in negotiations for new or expanded plants, in
the sale of technology, and in the assessment of monetary
conditions.
– Their tasks are in many ways even more difficult than
those of the subsidiary managers since they must be
away from home for extended and indefinite periods
while seeking the confidence and rapport of officials in
many foreign countries rather than just in one.
– Further, they suffer jet lag, a condition in which one’s
biological clock (located in the bottom middle of the
brain) tells the body the wrong time to sleep, eat and feel
alert or drowsy; this clock can adjust by only one or two
hours a day.
– Even if headquarters personnel are not faced with the
rigors of foreign travel, they may be ill at ease with the
foreign aspects of their responsibilities if their rise to the
corporate level has been entirely through work in
domestic divisions.
 Communication Problems
• Interpretation – international managers must communicate
well to ensure that the intent of messages between
headquarters and subsidiary operations is understood.
• Accomplishing this is somewhat complicated by the cost of
overseas calls and faxes, the different time zones involved,
and the longer time for international mail delivery.
• Communication difficulties are further compounded when
managers’ native languages differ.
• Corporate communications, directives, and manuals may be
translated, which takes time and expense.
• If they are not, the content may understood perfectly
abroad, but the comprehension time may be longer because
people read more slowly in a second language.
• Likewise, communication problems may force a manager
working abroad to work harder to do the same quality work
as home-country counterparts.
• Although these inherent inefficiencies are often overlooked
by the parent, subsidiary management is held responsible.
• Cultural differences, colour intents and perceptions of what
is transmitted and received in formal communications;
• thus international managers may assume erroneously that
foreigners will react the same way as their compatriots to
such things as decision-making and leadership styles.
• This is a particular problem when various nationalities are
grouped, such as on a team project.
• Some of these differences may be lessened through the
development of a common corporate culture.
• A corporate culture may help little, however, when
managers must work internationally in the growing number
of cooperative business activities that include not just
different nationalities but also different companies, such as
joint ventures and licensing agreements.
• Use of English –
– Today, English is the international language of business
because so much international business is conducted by
companies from and in English-speaking countries.
– Further, when people learn a second language, English
has become the most common choice worldwide.
– Managers can not be expected to learn all the languages
in every country in which their companies operate.
– Thus business between, for example, Mexico and Brazil
or between Italy and Saudi Arabia may be conducted in
English.
– Even some MNEs from non-English speaking countries
have adopted English as their official language.
– A working knowledge of the host country’s language
nevertheless can help transplanted managers of a
subsidiary adapt to the country as well as gain acceptance
by its people.
– It also helps them assess potential changes in the external
environment because they can read local news papers and
talk to nationals about politics and other conditions.
– Further English may be spoken by upper level managers
but not necessarily by the staff, customers, and suppliers
with whom the transplanted manager comes in contact.
– However, even those who are fully fluent in a local or
common language should consider employing good
interpreters when attempting serious discussions, such as
negotiations with government officials.
• Isolation – a foreign-subsidiary manager must be able to
work independently because many staff functions are
eliminated abroad to reduce the costs of duplication.
– At head quarters, a manager can get advice from
specialists by walking to the next office or floor or
making a few telephone calls.
– The subsidiary manager, however, ends up relying much
more heavily on his or her personal judgment.
– Headquarters personnel traveling abroad also can face
problems of isolation, with the added element of being
isolated in their personal lives.
– Further, international trips are apt to be longer than
domestic trips are because of the greater distances and
the difficulty of returning home for weekends.
– As one international executive commented humorously:
– “ Often you will not be able to plan in advance when you
are leaving on business or when you will return.
– Being present at birth days, school plays, anniversaries,
family reunions, and other events may become the
exception instead of the rule.
– While you are away, mortgage payments will probably
be due, the MasterCard bill will arrive, the furnace will
fail, your child will get chicken pox, the family car will
be totaled, and your spouse will sue for divorce.”
 International Development of Managers
• The Needs:
– To carry out global operations, companies need people with a
variety of specialized skills;
– therefore, programs to develop managers internationally
must be tailored to some extent to specific individuals and
situations.
– In some companies, operations are handled in a multi-
domestic manner, and there is a cadre of international
specialists who go from country to country and perhaps
never work in their home countries.
– The primary need in these situations is to develop competent
specialists.
– In other companies, the primary need is to develop
generalized international attitudes and skills so that the
organization as a whole will move toward achieving its
global objectives.
– Conclusions from recent studies conflict as to whether
companies are utilizing primarily the specialized or the
generalized development of international skills.
– There is, however, agreement on two development needs:
1.Top executives must have a global mind set that is
sufficiently free of national prejudices and sufficient
knowledge about the global environment that they can
exert the leadership necessary to attain a global mission.
2.Operating personnel, particularly those with direct
international responsibility, must be able to effect a
proper balance in well-being between corporate and
national operations.
• Pre-employment Training:
– Managers need to be trained to understand how operating
differences are brought about by international business
activities.
– Managers with direct international responsibilities need
specialized skills; those with indirect responsibilities
need generalized skills.
– Business schools are increasing their international
offerings and requirements, but there is no consensus as
to what students should learn to help prepare them for
international responsibilities.
– Two distinct approaches are to convey specific
knowledge about foreign environments and international
operating adjustments and to train in interpersonal
awareness and adaptability
 – The former may tend to remove some of the fear and
aggression that are aroused when dealing with the
unknown.
– However, the understanding of a difference does not
necessarily imply a willingness to adapt to it, particularly
to a cultural difference
– Although either approach generally helps a person adjust
relative to those who lack training, there appears to be no
significant difference in the effectiveness of the two
approaches
• Post-employment Training
– Many employees may continue to place domestic
performance objectives above global ones or feel ill-
equipped to handle worldwide responsibilities as they
move up in their organizations.
• To counter this, a company can train those people who are
about to take a foreign assignment, such as through
language and orientation programs.
• Or it could include international business components in
external or internal programs for employees that may or
may not work abroad.
• Examples of internal programs are those at PepsiCo
international and Raychem, which bring foreign nationals to
U.S. divisions for periods of six months to a year;
• IBM’s regional training centers, in which managers from
several countries are gathered for specific topics;
• P&G’s training on globalization issues; and
• GE’s and Honda of America’s programs to teach foreign
languages and cultural sensitivity.
• Sometimes a company will train employees and families from
an unaffiliated company, including those from abroad, as a
means of amortizing training costs and broadening
backgrounds of attendees.
• Transferees may find it difficult even to know which questions
to ask; thus the most common pre-departure training takes the
form of an informational briefing.
• Topics covered typically include job design, compensation,
housing, climate, education, health conditions, home sales,
taxes, transport of goods, job openings after repatriation, and
salary distribution.
– But such things as the foreign social structure,
communications links, kidnapping precautions, and legal
advice on the law of domicile are seldom considered
before settlement abroad.
– A suggestion is to follow pre-departure training with
cultural training about six months after arrival in a
foreign country so that expatriates may relate better to
issues covered.
 Factors Affecting International
•
HRM
The following are some of the important factors which
make international HRM complex and challenging.
1. Differences in Labour Market Characteristics
2. Cultural Differences
3. Differences in Regulatory Environment
4. Attitude Towards Employment
5. Difference in Conditions of Employment
 1. Differences in Labour Market Characteristics
• The skill levels, the demand and supply conditions and the behaviour
characteristics of labour vary widely between countries.
• While some countries experience human resource shortage in certain
sectors, many countries have abundance.
• In the past, developing countries were regarded, generally, as pools of
unskilled labour.
• Today, however, many developing countries have abundance of
skilled and scientific manpower as well as unskilled and semiskilled
labour.
• This changing trend is causing significant shift of location of business
activities.
• Hard disk drive manufacturers are reported to be shifting their
production base from Singapore to cheaper locations like Malaysia,
Thailand and China.
• While in the past unskilled and semiskilled labour intensive
activities tended to be located in the developing countries,
today sophisticated activities also find favour with
developing countries.
• The changing quality attributes of human resources in the
developing countries and wage differentials are causing a
locational shift in business activities, resulting in new trends
in the global supply chain management.
• India is reported to be emerging as a global R&D hub. India
and several other developing countries are large sources of
IT personnel.
• In short, the labour and the changing labour market
characteristics have been causing global restructuring of
business processes and industries.
• And this causes a great challenge for strategic HRM.
 2. Cultural Differences
• Cultural differences cause a great challenge to HRM.
• The behavioural attitude of workers, the social environment,
values, beliefs, outlooks, etc., are important factors, which
affect industrial relations, loyalty, productivity, etc.
• There are also significant differences in aspects related to
labour mobility.
• Cultural factors are very relevant in inter personal behaviour
also.
• In some countries it is common to address the boss Mr. so
and so but in countries like India addressing the boss by
name would not be welcome.
• In countries like India people attach great value to
designations and hierarchical levels.
• This makes delayering and organizational restructuring
difficult.
 3. Differences in Regulatory Environment
• A firm operating in different countries is confronted with
different environments with respect to government policies
and regulations regarding labour
 4. Attitude Towards Employment
• The attitude of employers and employees towards
employment of people show great variations among
different nations.
• In some countries hire and fire is the common thing whereas
in a number of countries the ideal norm has been life time
employment.
• In some developing countries workers generally felt that
while they have the right to change organizations as they
preferred, they had a right to lifetime employment in the
organization they were employed with.
• In such situations it is very difficult to get rid of inefficient
or surplus manpower.
• The situation, however, is changing in many countries,
including developing countries
 5. Difference in Conditions of Employment
• Besides the tenancy of employment, there are several
conditions of employment, the differences of which cause
significant challenge to international HRM.
• The system of rewards, promotion, incentives and
motivation, system of labour welfare and social security,
etc., vary significantly between countries.
 STAFFING POLICY
• With reference to the choice of the nationality of the people
recruited for key management positions, there are three
types of staffing policies in international business, viz.,
– the ethnocentric approach,
– the polycentric approach and
– the geocentric approach.
 The salient features of these business orientations have
been described under the sub heading International
Orientations
 Ethnocentric Approach
• Under the ethnocentric staffing policy, all key management
positions in the company are filled by parent (home)
country nationals.
• This approach is regarded appropriate where the
organisational mode of the company is international.
• The practice was very widespread among American and
European corporations (such as Procter & Gamble and
Philips) at one time.
• In many Japanese and South Korean firms today, such as
Toyota, Matsushita, and Samsung, Key positions in
international operations are still often held by home country
nationals.
• According to the Japanese Overseas Enterprise Association,
in 1996 only 29 percent of foreign subsidiaries of Japanese
companies had presidents who were not Japanese.
• In contrast, 66 per cent of the Japanese subsidiaries of
foreign companies had Japanese presidents.
Firms pursue an ethnocentric staffing policy for three reasons:
• First, the firm may believe the host country lacks qualified
individuals to fill senior management positions.
• This argument is heard most often when the firm has
operations in less developed countries.
• Second, the firm may see an ethnocentric staffing policy as
the best way to maintain a unified corporate culture.
• Many Japanese firms, for example, prefer their foreign
operations to be headed by expatriate Japanese managers
because these managers have been socialized into the firm’s
culture while employed in Japan.
• Procter and Gamble until recently preferred to staff
important management positions in its foreign subsidiaries
with US operations.
• Such reasoning tends to predominate when a firm places a
high value on its corporate culture.
• Third, if the firm is trying to create value by transferring
core competencies to a foreign operation, as firms pursuing
international strategy are, it may believe that the best way to
do this is to transfer parent-country nationals who have
knowledge of that competency to the foreign operation.
• Imagine what might occur if a firm tried to transfer a core
competency in marketing to a foreign subsidiary without
supporting the transfer with a corresponding transfer of
home country marketing management personnel.
• The transfer would probably fail to produce the anticipated
benefits because the knowledge underlying a core
competency cannot easily be articulated and written down.
• Such knowledge often has a significant tacit dimension:
• it is acquired through experience.
• Just like the great tennis player who cannot instruct others
how to become great tennis players simply by writing a
handbook, the firm that has a core competency in marketing
– or anything else – cannot just write a handbook that tells a
foreign subsidiary how to build the firm’s core competency
anew in a foreign setting.
• It must also transfer management personnel to the foreign
operation to show foreign managers how to become good
marketers, for example.
• The need to transfer managers overseas arises because the
knowledge that underlies the firm’s core competency
resides in the heads of its domestic managers and was
acquired through years of experience, not by reading a
handbook.
• Thus if a firm is to transfer a core competency to a foreign
subsidiary, it must also transfer the appropriate managers.
• Despite this rationale for pursuing an ethnocentric staffing
policy, the policy is now on the wane in most international
business for two reasons.
• First, an ethnocentric staffing policy limits advancement
opportunities for host country nationals.
• This can lead to resentment, lower productivity, and
increased turnover among that group.
• Resentment can be greater still if, as often occurs, expatriate
managers are paid significantly more than host-country
nationals.
• Second, an ethnocentric policy can lead to “cultural
myopia,” the firm’s failure to understand host-country
cultural differences that require different approaches to
marketing and management.
• The adaptation of expatriate managers can take a long time,
during which they make major mistakes.
• For example, expatriate managers may fail to appreciate
how product attributes, distribution strategy,
communication strategy, and pricing strategy should be
adopted to host-country conditions.
• The result may be costly blunders.
• They may also make decisions that are ethically suspected
simply because they do not understand the culture in which
they are managing
• In one highly publicized case in the United States,
Mitsubishi Motors was sued by the federal Equal
Employment Commission for tolerating extensive and
systematic sexual harassment in a plant in Illinois.
• The plant’s top management, all Japanese expatriates,
denied the charges.
• The Japanese managers may have failed to realize that
behavour that would be viewed acceptable in Japan was not
acceptable in the United States.
Polycentric Approach
• A company with a polycentric staffing policy
recruits host country nationals to manage
subsidiaries while the key positions at the corporate
headquarters are occupied by parent country
nationals.
• This approach is regarded appropriate for
multinational corporations.
• In many respects, a poly centric approach is a
response to the shortcomings of an ethnocentric
approach.
• One advantage of adopting polycentric approach is that the firm
is less likely to suffer from a cultural myopia.
• Host country managers are unlikely to make mistakes arising
from cultural misunderstandings to which expatriate managers
are vulnerable.
• A second advantage is that a polycentric approach may be less
expensive to implement, reducing the costs of value creation.
• Expatriate managers can be very expensive to maintain.
• A polycentric approach also has its drawbacks.
• Host country nationals have limited opportunities to gain
experience outside their own country and thus cannot progress
beyond senior positions in their own subsidiary.
• As in the case of an ethnocentric policy, this may cause
resentment.
• Perhaps the major drawback with a polycentric approach,
however, is the gap that can form between host-country
managers and parent-country managers.
• Language barriers, national loyalties, and a range of cultural
differences may isolate the corporate headquarters staff
from the various foreign subsidiaries.
• The lack of management transfers from home to host
countries, and vice-versa, can exacerbate this isolation and
lead to a lack of integration between corporate head quarters
and foreign subsidiaries.
• The result can be a “federation” of largely independent
national units with only nominal links to the corporate
headquarters.
• Within such a federation, the coordination required to transfer core
competencies or to pursue experience curve and location economies
may be difficult to achieve.
• Thus although a polycentric approach may be effective for firms
pursuing a localization strategy, it is inappropriate for other strategies.
• The federation that may result from a polycentric approach can also
be a force for inertia within the firm.
• After decades of pursuing a polycentric staffing policy, food and
detergents giant Unilever found that shifting from a strategic posture
that emphasized localization to a transnational posture was very
difficult.
• Unilever’s foreign subsidiaries had evolved into quasi autonomous
operation, each with its own strong national identity.
• These “little kingdoms” objected strenuously to corporate
headquarters’ attempts to limit their autonomy and to rationalize
global manufacturing.
 Geocentric Approach
• Geocentric staffing policy connotes seeking the best people
from anywhere in the world for managing the organisation.
• This strategy is regarded appropriate for global and
transnational corporations.
• This policy has a number of advantages.
• First, it enables the firm to make the best use of its human
resources.
• Second, and perhaps more important, a geocentric policy
enables the firm to build a cadre of international executives
who feel at home working in a number of cultures.
• Creation of such a cadre may be a critical first step toward building a
strong unifying corporate culture and an informal management
network, both of which are required for global standardization and
transnational strategies.
• Firms pursuing a geocentric staffing policy may be better able to
create value from the pursuit of experience curve and location
economies and from the multidirectional transfer of core
competencies than firms pursuing other staffing policies.
• In addition, the multinational composition of the management team
that results from geocentric staffing tends to reduce cultural myopia
and to enhance local representativeness.
• Thus, other things being equal, a geocentric staffing policy seems the
most attractive.
• A number of problems limit the firm’s ability to pursue a geocentric
policy.
• Many countries want foreign subsidiaries to employ their
citizens.
• To achieve this goal, they use immigration laws to require
the employment of host-country nationals if they are
available in adequate numbers and have the necessary skills.
• Most countries (including United States) require firms to
provide extensive documentation if they wish to hire a
foreign national instead of a local national.
• This documentation can be time consuming, expensive, and
at times futile.
• A geocentric staffing policy also can be very expensive to
implement.
• Training and relocation costs increase when transferring
managers from country to country.
• The company may also need a compensation structure with
a standardized international base pay level higher than
national levels in many countries.
• In addition, the higher pay enjoyed by managers placed on
an international “fast track” may be a source of resentment
within a firm.
 Table: Comparison of Staffing Approaches

Staffing Strategic Advantages Disadvantages

Approach Appropriateness
Ethnocentric International Overcomes lack of qualified Produces resentment
managers in host nation in host country
Unified culture Can lead to cultural
Helps transfer core myopia
competencies

Polycentric Localization Alleviates cultural myopia Limits career

mobility
Inexpensive to implement Isolates headquarters
from foreign
subsidiaries
Geocentric Global Uses human resources National
Standardization efficiently immigration
And Helps build strong culture policies may limit
Transnational and informal management implementation
networks Expensive
 Expatriate Managers
• Two of the three staffing policies we have discussed -
ethnocentric and the geocentric – rely on extensive use of
expatriate managers.
• Expatriates are citizens of one country who are working in
another country.
• Sometimes inpatriates is used to identify a subset of
expatriates who are citizens of a foreign country working in
the home country of their multinational employer.
• Thus, a citizen of Japan who moves to the United States to
work at Microsoft would be classified as an inpatriate.
• A prominent issue in the international staffing literature is
expatriate failure – the premature return of an expatriate
manager to his or her home country.
• The reasons of failure as per a survey conducted in order of
importance are as follows:
• For US multinationals the reasons of expatriate
failure are:
1. Inability of spouse to adjust
2. manager’s inability to adjust
3. Other family problems
4. Manager’s personal or emotional maturity
5. Inability to cope with larger overseas responsibility
• For European firms gave only one reason consistently to explain
expatriate failure:
– the inability of the spouse to adjust to a new environment.
• For Japanes firms the reasons of expatriate failure
are:
1.Inability to cope with larger overseas responsibility
2.Difficulties with new environment
3.Personal or emotional problems
4.Lack of technical competence
5.Inability of spouse to adjust
 Expatriate selection
• One way to reduce expatriate failure rates is by improving
selection procedures to screen out inappropriate candidates.
• In a review of the search on this issue Mendenhall and
Oddou state that a major problem in many firms is that
HRM managers tend to equate domestic performance with
overseas performance potential.
• Domestic performance and overseas performance potential
are not the same thing.
• An executive who performs well in a domestic setting may
not be able to adapt to managing in a different cultural
setting.
• From their view of the research, Mendenhall and Oddou
identified four dimensions that seem to predict success in a
foreign posting:
– self-orientation,
– others-orientation,
– perceptual ability, and
– cultural toughness.
Self-orientation:
• The attributes of this dimension strengthen the expatriate’s
self esteem, self confidence, and mental well-being.
• Expatriates with high self-esteem, self confidence, and
mental well-being were more likely to succeed in foreign
postings.
• Mendenhall and Odduo concluded that such individuals
were able to adapt their interests in food, sport, and music;
had interests outside of work that could be pursued (e.g.,
hobbies); and were technically competent.
Others – orientation:
• The attributes of this dimension enhance the expatriate’s
ability to interact effectively with host-country nationals.
• The more effectively the expatriate interacts with host-
country nationals, the more likely he/she is to succeed.
• Two factors seem to be particularly important here:
– Relationship development and
– Willingness to communicate
• Relationship development – refers to the ability to develop
long-lasting friendship with host country nationals.
• Willingness to communicate – refers the expatriate’s
willingness to use the hos-country language.
• Although language fluency helps, an expatriate need not be
fluent to show willingness to communicate.
• Making the effort to use the language is what is important.
Such gestures tend to be rewarded with greater cooperation
by host-country nationals.
Perceptual ability:
• This is the ability to understand why people of other
countries behave the way they do; that is, the ability to
empathize.
• This dimension seems critical for managing host-country
nationals.
• Expatriate managers who lack this ability tend to treat
foreign nationals as if they were home-country nationals.
• As a result, they may experience significant management
problems and considerable frustration.
• As one expatriate executive from Hawlett-Packard
observed, “it took me six months to accept the fact that my
staff meetings would start 30 minutes late, and that it would
bother no one but me.”
• According to Mendenhall and Odduo, well adjusted
expatriates tend to be nonjudgmental and non evaluative in
interpreting the behaviour of host-country nationals and
willing to be flexible in their management style, adjusting it
as cultural conditions warrant.
Cultural toughness:
•This dimension refers to the relationship between the country
of assignment and how well an expatriate adjusts to a
particular posting.
•Some countries are much tougher postings than others
because their cultures are more unfamiliar and uncomfortable.
•For example, many Americans regard Great Britain as a
relatively easy foreign posting, and for good reason – the two
cultures have much in common.
•But many Americans find postings in non-Western cultures,
such as India, Southeast Asia, and the Middle East, to be much
tougher.
• The reasons are many, including
– poor health care and housing standards,
– inhospitable climate,
– lack of Western entertainment, and language difficulties.
• Also, many cultures are extremely male dominated and may
be particularly difficult for female Western managers.
• Standard psychological tests can be used to assess the first
three of these dimensions, where as a comparison of
cultures can give managers a feeling for the fourth
dimension.
 STAFFING POLICY DETERMINANTS
• AS Taggart and M.C. McDermott point out, the important
factors influencing the staffing policy are the following.
1. The Cultural Dimension
2. Subsidiary Characteristics
3. Parent Company Characteristics
4. Country Characteristics
5. Costs
 1. The Cultural Dimension
• It should be pointed out, however, that, given the need to
co-ordinate activities world-wide, and therefore the
necessary ability of foreign subsidiary top executives to
communicate directly with corporate headquarters, MNCs
from some countries (e.g. Japan, South Korea, Taiwan) may
need to depend more heavily upon home-country nationals
because relatively few foreigners are fluent in the mother
tongue of the home country.
• In contrast, language is less likely to prove a major
restricting influence on the staffing policies of MNCs where
English is the mother tongue.
• Japanese MNCs have been accused of adopting very
ethnocentric staffing policies, and limiting job opportunities
for non-Japanese nationals.
 2. Subsidiary Characteristics
• When the MNC establishes a new subsidiary or plant, it is
likely to ensure that someone already very familiar with
corporate culture heads the operation.
• Thus, initially the staffing policy is likely to be ethnocentric
but become less so as host- country nationals are
‘socialised’ into corporate culture.’
 3. Parent Company Characteristics
• As indicated under the sub-section Staffing Policy, the
strategic predisposition of the MNC, in terms of its EPRG
(ethnocentric, the polycentric, regiocentric, geocentric)
profile, will influence staffing policy.
4. Country Characteristics
• Host country characteristics like the social
environment, government policies, host country
human resource characteristics, government
policies, etc.
• also may influence the staffing policy
 5. Costs
• The cost is also an important consideration in formulating
the staffing policy when there are significant variations
between nations’ salary levels.
International Labor Relations
• The HRM function of an international business is
typically responsible for international labor
relations.
• From a strategic perspective, the key issue in
international labor relations is the degree to which
organized labor can limit the choices of an
international business.
• A firm’s ability to integrate and consolidate its global
operations to realize experience curve and location
economies can be limited by organized labor.
• Labor unions can constrain a firm’s ability to pursue a
transnational or global strategy.
• Example:
– Prahalad and Doz give the example of General Motors, which
bought peace with labor unions by agreeing not to integrate and
consolidate their operations in the most efficient manner.’
– In the early 1980s General Motors made substantial investments in
Germany— matching its new investments in Austria and Spain—
at the demand of the German metal workers’ unions.
 One task of the HRM function is to foster harmony and minimize
conflict between the firm and organized labor. With this in mind,
this section is divided into three parts.
 – First, we review the concerns of organized labor about
multinational enterprises.
– Second, we look at how organized labor has tried to deal with
these concerns. And
– Third, we look at how international businesses manage their labor
relations to minimize labor disputes.
1. The Concerns of Organized Labor
• Labor unions generally try to get
– better pay,
– greater job security, and
– better working conditions for their members through collective
bargaining with management.
• The unions’ bargaining power is derived largely from their ability to
threaten to disrupt production, either by a strike or some other form
of work protest (e.g., refusing to work overtime).
• This threat is credible, however, only if management has no
alternative but to employ union labor.
• A principal concern of domestic unions about multinational
firms is that the multinational can counter their bargaining
power with the power to move production to another
country.
– Ford, for example, very clearly threatened British unions
with a plan to move manufacturing to Continental Europe
unless British workers abandoned work rules that limited
productivity, showed restraint in negotiating for wage
increases, and curtailed strikes and other work
disruptions.
– Another concern of organized labor is that an
international business will keep highly skilled tasks in its
home country and farm out only low-skilled tasks to
foreign plants.
• Such a practice makes it relatively easy for an international
business to switch production from one location to another as
economic conditions warrant.
• Consequently, the bargaining power of organized labor is once
more reduced.
• A final union concern arises when an international business
attempts to import employment practices and contractual
agreements from its home country.
• When these practices are alien to those traditional in the host
country, organized labor fears the change will reduce its
influence and power.
• This concern has surfaced in response to Japanese multinationals
that have been trying to export their style of labor relations to
other countries.
• For example, much to the annoyance of the United Auto
Workers (UAW), most Japanese auto plants in the United States
are not unionized.
• As a result, union influence in the auto industry is on the
decline.
2. The Strategy of Organized Labor
• Organized labor has responded to the increased bargaining
power of multinational corporations by taking three actions:
(1) trying to establish international labor organizations,
(2) lobbying for national legislation to restrict
multinationals, and
(3) trying to achieve international regulations on
multinationals through such organizations as the United
Nations.
These efforts have not been very successful.
• In the 1960s organized labor began to establish a number of
International Trade Secretariats (ITSs) to provide
worldwide links for national unions.
• The long-term goal was to be able to bargain transnationally
with multinational firms.
• Organized labor believed that by coordinating union action
across countries through an ITS, it could effectively counter
the power of a multinational corporation by threatening to
disrupt production on an international scale.
– For example, Ford’s threat to move production from
Great Britain to other European locations would not have
been credible if the unions in various European countries
had united to oppose it.
• In practice, however, the ITSs have had virtually no
real success.
• Although national unions may want to cooperate,
they also compete with each other to attract
investment from international businesses, and hence
jobs for their members.
– For example, in attempting to gain new jobs for
their members, national unions in the auto industry
often court auto firms that are seeking locations for
new plants.
– One reason Nissan chose to build its European
production facilities in Great Britain rather than
Spain was that the British unions agreed to greater
concessions than the Spanish unions did.
– As a result of such competition between national
unions, cooperation is difficult to establish.
• A further impediment to cooperation has been the variation
in union structure.
• Trade unions developed independently in each country.
• As a result, the structure and ideology of unions tends to
vary significantly from country to country, as does the
nature of collective bargaining.
• For example, in Great Britain, France, and Italy many
unions are controlled by left-wing socialists, who view
collective bargaining through the lens of “class conflict” In
contrast, most union leaders in Germany, the Netherlands,
Scandinavia, and Switzerland are far more moderate
politically.
• Such divergent ideologies are reflected in radically different
views about the role of a union in society and the stance
unions should take toward multinationals, making
cooperation difficult.
• Organized labor has also met with only limited success in its efforts to
get national and international bodies to regulate multinationals.
• Such international organizations as the International Labor
Organization (ILO) and the Organization for Economic Cooperation
and Development (OECD) have adopted codes of conduct for
multinational firms to follow in labor relations.
• However, these guidelines are not as far-reaching as many unions
would like.
• They also do not provide any enforcement mechanisms.
• Not surprisingly, many researchers report that such guidelines are of
only limited effectiveness
 3. Approaches to Labor Relations
• International businesses differ markedly in their approaches
to international labor relations.
• The main difference is the degree to which labor relations
activities are centralized or decentralized.
• Historically, most international businesses have
decentralized international labor relations activities to their
foreign subsidiaries because labor laws, union power, and
the nature of collective bargaining varied so much from
country to country.
• It made sense to decentralize the labor relations function to
local managers because central management could not
effectively handle the complexity of simultaneously
managing labor relations in a number of different
environments.
• Although this logic still holds, there is now a trend toward
greater centralized control over international labor relations
in international businesses.
• This trend reflects international firms’ attempts to
rationalize their global operations.
• The general rise in competitive pressure in industry after
industry has made it more important for firms to control
their costs.
• Because labor costs account for such a large percentage of
total costs, many firms are now using the threat to move
production to another country in their negotiations with
unions to change work rules and limit wage increases (as
Ford did in Europe).
• Because such a move would involve major new investments
and plant closures, this bargaining tactic requires the input
of headquarters management. Thus, the level of centralized
input into labor relations is increasing.
• In addition, there is growing realization that the way work is
organized within a plant can be a major source of competitive
advantage.
• Much of the competitive advantage of Japanese automakers, for
example, has been attributed to the use of self- managing teams, job
rotation, cross-training, and the like in their Japanese plants.
• To re-create their domestic performance in foreign plants, the
Japanese firms have tried to replicate their work practices there.
• This often brings them into direct conflict with traditional work
practices in those countries, as sanctioned by the local labor unions,
so the Japanese firms have often made their foreign investments
contingent on the local union accepting a radical change in work
practices.
• To achieve this, the headquarters of many Japanese firms
bargains directly with local unions to get union agreement
to changes in work rules before committing to an
investment.
• For example, before Nissan decided to invest in northern
England, it got a commitment from British unions to agree
to a change in traditional work practices.
• Pursuing such a strategy requires centralized control over
the labor relations function