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International Business by Daniels and Radebaugh. Chapter 21. Human Resource Management. Objectives To illustrate the importance of human resources in international business relations To explain the unique qualifications of international managers

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International Business


Daniels and Radebaugh


Human Resource


©2001 Prentice Hall

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  • Objectives

    • To illustrate the importance of human resources in international business relations

    • To explain the unique qualifications of international managers

    • To evaluate the issues that arise when companies transfer managers abroad

    • To examine companies’ alternatives for recruitment, selection, compensation, and development of international managers

    • To discuss how national labor markets can affect companies’ optimum methods of production

    • To describe country differences in labor policies and practices

    • To highlight international pressures on MNEs’ relations with labor worldwide

    • To examine the effect of international operations on collective bargaining

©2001 Prentice Hall

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Human Resources in International Business





  • Functions

  • Marketing

  • Exporting and

  • importing

  • Global manufacturing

  • Supply chain

  • management

  • Accounting

  • Finance



©2001 Prentice Hall

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  • Introduction

    • International Human Resource Management (HRM)

      • MNEs agree on the importance of having qualified personnel

    • Several factors make international HRM different from domestic management

      • Different labor markets

      • International worker mobility problems

      • National management styles and practices

      • National orientations

      • Strategy and control

©2001 Prentice Hall

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  • Management Qualifications and Characteristics

    • Headquarters-subsidiary relationship

      • International staffing is two-tiered

        • subsidiaries need people who can manage well locally

        • headquarters needs people who can effectively coordinate and control worldwide and regional operations

      • Headquarters-subsidiary relations affected by:

        • company philosophy

        • benefits of independence and interdependence

      • Headquarters and subsidiary managers must communicate well

        • rely on written communications

        • language and cultural differences complicate communications

          • English becoming the international language of business

©2001 Prentice Hall

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  • Management Qualifications and Characteristics (cont.)

    • Matching style to operations

      • Cross-border integration more likely with feeling-type than thinking-type managers

      • Corporate strategy influences HRM policy

        • little need for transfer of HR competencies when MNE pursues a multidomestic strategy

        • global strategy requires transfer of headquarters’ HR policies and practices

    • Qualifications specific to headquarters management

      • Interact with high-level authorities abroad

      • Must be away from home for extended periods

        • face personal problems such as isolation

    • Qualifications of subsidiary management

      • Responsible for a variety of business functions

        • lack support of many staff functions

©2001 Prentice Hall

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  • International Managerial Transfers

    • Reasons for staffing with locals

      • Most managerial positions in both headquarters and foreign subsidiaries are filled by locals

      • Foreign managerial slots are difficult to fill with expatriates because:

        • many people are not inclined to move

          • perception of a negative effect on family life and career

          • managers view fixed-term and open-ended assignments differently

        • legal impediments to using expatriates

          • licensing requirements

      • Local managers more useful when operations require local adaptations

      • Hard to recruit locals if expatriates hired into most of the better jobs

      • Local managers cost less

©2001 Prentice Hall

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  • International Managerial Transfers (cont.)

    • Reasons for using expatriates

      • Shortage of competent local managers

        • determined by country’s level of development

        • determined by the need to transfer technology

      • Managers learn foreign operations

        • acquire understanding of overall corporate system

        • people transferred to headquarters learn the headquarters way

    • Home-country versus third-country nationals

      • Third-country nationals sometimes might have more compatible technical and personal adaptive qualifications than do home-country expatriates

      • Language

        • operating adjustments

©2001 Prentice Hall

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  • Some Individual Considerations for Transfers

    • Technical competence—indicated by past domestic or foreign job performance

      • Most important determinant of success in foreign assignments

    • Adaptiveness

      • Characteristics important for expatriate success include:

        • those needed for self-maintenance

        • those related to the development of satisfactory relationships

        • cognitive skills that help one to perceive what is occurring within the host society

      • Hard to assess adaptiveness accurately

      • Less than 10% of expatriates fail to complete their assignments abroad

        • failures attributed to family’s inability to adjust

©2001 Prentice Hall

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  • Some Individual Considerations for Transfers (cont.)

    • Local acceptance—expatriates may meet with local prejudice

      • Locals may be perceived as being overpaid

      • Expatriates may have to make unpopular decisions

      • Negative stereotypes of expatriates

        • MNEs seldom give women foreign assignments

    • Securing a successful foreign assignment

      • Most expatriate assignments are successful

      • Assignments generally given to experienced managers

      • Foreign assignment may boost prospects of managers

        • provide opportunity to demonstrate a knowledge of the language and environment of a foreign assignment

©2001 Prentice Hall

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  • Postexpatriate Situations

    • Problems with repatriation

      • Loss of compensation premium for service abroad

      • Readjustment to life at home

        • loss of foreign lifestyle

      • Readjustment to job

        • changed relationships with coworkers

        • less autonomy in the old work setting

      • Overseas assignment has varied effects on managers’ careers

        • positive effect in companies with substantial global operation

        • foreign assignments carry high career risk in some firms

          • few provisions for dealing with problems of repatriation

          • “out of sight, out of mind”

©2001 Prentice Hall

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  • Expatriate Compensation

    • MNEs must pay enough to entice people to move, but must not overpay

      • Difficult to provide appropriate pay levels, benefits, and perks for international workforce

      • Compensation required varies by company, person, and locale

    • Cost of living—difficult to duplicate accustomed way of life in a new environment

      • Habits difficult to change

      • People don’t know how and where to buy

      • Most companies provide a “goods-and-services differential”

        • few firms reduce compensation when employee moves to an area with lower cost of living

      • Cost-of-living differential eliminated when manager is repatriated

©2001 Prentice Hall

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Typical First-Year Cost for a U.S. Expatriate

(Married, Two Children) in Tokyo, Japan

Direct compensation costs

Base salary $100,000

Foreign-service premium 15,000

Goods and services differential 73.600

Less: U.S. housing norm


U.S. hypothetical taxes


Company-paid costs

Schooling (two children) 15,000

Annual home leave 4,800

Housing 150,000

Japanese income taxes 84,000

Transfer/moving costs 38,000

Total company costs $447,800

©2001 Prentice Hall

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  • Expatriate Compensation (cont.)

    • Foreign-service premiums and hardship allowances

      • Employees may encounter living problems for which the company provides extra compensation

      • Expatriates receive foreign-service premiums for being posted in foreign locations

        • practice decreasing as hardships from foreign assignments are decreasing

        • living conditions still harsh in some locales

          • political risks give rise to ransom insurance, safety programs, and home alarm systems

    • Remote areas—often require additional benefits to recreate home environment

    • Complications of nationality differences

      • Salaries and methods of payment differ

      • Nearly a consensus about maintaining expatriates on home-country retirement system

©2001 Prentice Hall

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Over the four-year period

where the attacks occurred

Latin America 318

Europe 50

Africa 15

Western Europe 13

Middle East 12

Near East/South Asia 8

Eurasia 7

Asia 7

East Asia and Pacific 5

North America 4






Total attacks against U.S. citizens and U.S.

facilities abroad









Attacks on U.S. Citizens, 1999

©2001 Prentice Hall

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South Korea














Hong Kong







Total Compensation of CEOs by Country

©2001 Prentice Hall

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  • Management Recruitment and Selection

    • Personnel record systems at headquarters

      • Include technical and demographic data

      • Include information on adaptive capabilities

        • personality tests

        • interviews with spouses and children

      • May not encompass complete data on foreign personnel

    • Can secure staff for foreign operations by:

      • Buying existing foreign companies

      • Forming joint ventures

        • foreign staff may be inefficient or hard to control

©2001 Prentice Hall

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  • International Development of Managers

    • Three developmental needs

      • Top managers must have a global mind-set

      • Managers must effect proper balance between corporate and national operations

      • Managers must understand the importance of international competition for firm’s well being

    • Business schools are increasing international courses

      • Convey specific knowledge about foreign environments and international operations

      • Develop interpersonal awareness and adaptability

    • Information briefing most common predeparture training

    • Managers on foreign assignment challenged to develop dual allegiance

      • Four types of expatriate managers, only one of which is a “dual Citizen”

©2001 Prentice Hall

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Allegiance to parent company


Allegiance of Expatriate Managers

“Free agent”

“Going native”

“Heart at home”

“Dual citizen”



Allegiance to local operation

©2001 Prentice Hall

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  • Labor-Market Differences

    • HRM activities vary from country to country

    • MNEs may shift labor or capital intensities if costs differ in foreign labor markets

      • Labor-saving devices economically justified where wage rates are high

      • Labor-intensive methods ingratiate firm with governmental officials

  • International Labor Mobility

    • Emigration from areas of high unemployment and low wages to areas with labor shortages and high wages

      • Companies hire immigrant labor because it accepts lower wages than domestic workers

      • Migrant laborers have work permits for limited periods of time

    • Hiring foreign laborers is risky because:

      • Workers return home

      • Turnover necessitates more training

©2001 Prentice Hall

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  • Labor Compensation Differences

    • Reasons for country differences in compensation

      • Both the amount and method of payment affected by a country’s culture

      • MNEs pay slightly better than local firms

        • attract high-level local workers

    • Differing costs of benefits

      • Customary types of benefits vary by country

      • In some countries it is impossible or expensive to lay off workers

      • Compensation costs on per-worker basis may bear little relationship to total employment expenses

        • relative costs change so MNEs must consider:

          • productivity change

          • labor-rate change

          • conversion of labor rate to competitor’s currency

©2001 Prentice Hall

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  • Comparative Labor Relations

    • Sociopolitical environment

      • Affects attitudes of parties toward each other and how labor will try to improve its lot

      • Labor demands may be met by political action that affects labor legislation

      • Labor demands may be met by collective bargaining or collective action

      • Reliance on mediation by impartial third party differs by country

      • Falling percent of union membership because:

        • increased percentage of white-collar jobs

        • increased percentage of service sector work

        • rising portion of women in workforce

        • rising portion of part-time/temporary workers

        • trend toward smaller average plant size

        • decline in belief in collectivism among young

©2001 Prentice Hall

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% of workforce in trade unions

Trade Union Decline in Industrialized Countries

©2001 Prentice Hall

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  • Comparative Labor Relations (cont.)

    • Union structure—one type of structure is most prevalent within most countries

      • Can be local

      • Can be industry or company

      • Can be one or several for same company

    • Protection from closures and redundancy

      • Plant closing an important issue in some areas

        • prior notification has been legislated in some countries

      • Lifetime employment in Japan is a dual system

        • helps institute certain efficiency measures

    • Codetermination—labor represented on the board of directors of some companies

      • Most existing examples mandated by legislation

      • Has had little effect on companies’ international business decisions

©2001 Prentice Hall

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  • Comparative Labor Relations (cont.)

    • Team efforts—firms in some countries emphasize work teams to foster cohesiveness

      • Involves workers in multiple tasks

        • reduces boredom and develops replacements

        • workers control quality and do repairs

      • Teams are not successful everywhere

  • International Pressures on National Practices

    • International Labor Organization (ILO)—monitors labor conditions worldwide

      • Works in conjunction with International Confederation of Free Trade Unions and international trade secretariats

      • Makes harsh conditions known and pressures for change through economic and political sanctions

    • Codes of conduct—ILO and OECD voluntary codes for industrial relations practices of MNEs

©2001 Prentice Hall

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  • Multinational Ownership and Collective Bargaining

    • MNE advantages

      • Product and resource flows—country bargaining unit is only a small part of MNE’s activities

        • MNE may continue serving customers with foreign production or resources

          • MNE must have excess capacity and produce identical goods elsewhere

        • MNE stockholders may balk at work stoppages

      • Production switching—MNE may threaten to move production abroad

        • tactic to reduce labor costs by threatening job security

      • Size and complexity of MNEs—disadvantage labor

        • MNE decision making may be far away

        • hard to get complete data on MNE’s global operations

©2001 Prentice Hall

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  • Multinational Ownership and Collective Bargaining (cont.)

    • Labor initiatives—cross-national cooperation

      • Information sharing—most common type of international cooperation

      • Assistance to foreign bargaining units—job actions and financial support

      • Simultaneous actions—least common to coordinate negotiations and strikes

        • union priorities and structure interfere with this type of coordinated activity

          • workers’ wages and preferences differ

      • National approaches—most initiatives against MNEs conducted at national level

        • workers in different countries often perceive one another as competitors

        • national labor legislation provides context for labor actions

©2001 Prentice Hall