Review for Chapters 8-11 • Address questions • Brief review for Test #3
Chapter 8 HRM in the Host Country Context
Major issues and concepts • To balance the need for standardization (consistency) and the need for adaptation • Factors that influence standardization and adaptation of work practices and the role of HR, including • Host-country culture and workplace environment • Mode of operation • Firm size, maturity and international experience, and • Subsidiary mandate. • Retaining, developing, and retrenching local staff • HR implications of language standardization: HCN selection, training and promotion on the basis of language skills. • Monitoring HR practices used by foreign subcontractors.
Subsidiary Issues • The nature of the relationship between the units and ‘parent’, e.g. • Long- or short-term • The role of the subsidiary in the broader context • Mode of Entry • The level of equity involved, e.g. • Mode of operation • Factors within host-country environments, e.g. • Government regulations • Social norms
Three Cultures Interact to Influence Standardization and Adaptation • National culture of the parent company • National culture of the subsidiary unit • Corporate culture as a potential unifier • Standardization can be achieved through • Staffing procedure and standards • Training and development programs • Staff rotation • Rewards and promotion • Corporate code of conduct
Factors Influencing Standardization • Host-country culture and workplace environment • Mode of operation involved • Size and maturity of the firm • Motorola in China • Subsidiary mandate • Relative importance of the subsidiary • GE’s Center of Excellence in Hungary
Host-country Culture • Work behavior is culturally determined • Contained in role definition and expectations • Often, what is meant by corporate culture translates into universal work practices – standardization of work practices • Common practices rather than common values
Mode of Operation • Mode of operation impacts standardization of work practices • Ownership and control are important factors: • Acquisition may constrain ability to transfer technical knowledge, management know-how, systems, and HR practices • Wholly owned subsidiaries provide greater opportunities for transferring work practices than in IJV • Management contracts provide skills, expertise and training to HCNs, without carrying equity or risks associated with FDI, and may have HC government support. • Mode of entry influences the number of expatriates needed.
Work Standardization • The size of the firm, maturity, and international experience are important firm level factors. • Motorola in China is a case in point: • Large size • Wealth of international experience • Centralized IHR programs • Management could draw on these aspects when entering China
Global or Local Work Practices? • Not a case of “either-or”, but more of a constraint for both • Global convergence versus divergence • The best IHRM practices ought to be the ones bestadapted to cultural and national differences. • More western HR practices being introduced to China • Japanese firms such as Nissan and Honda train HCNs in US, UK and other European subsidiaries. • Movements in France against capitalist cultural invasion.
Retaining Local Staff • The paradox – “the expense of cheap labor” • The amount and quality of training is an important consideration • Technical • Language • Decision-making • Management
Developing Staff • Investing in human capital • Providing training and career development can assist in retaining good local staff • Improved benefits, work and living conditions, and fair management practices are important factors: • A fair environment and good management practices play an important role in countries such as China • Job-hopping behavior in Singapore, Russia, and China
Retrenching Staff • The reverse of the employment ‘coin’ • May affect domestic jobs – e.g., transferring call centres from UK and US to India • Labor law may allow corporate freedom or constrain retrenchment, e.g. • U.S. • India • Germany
Language Standardization • Adopting a common corporate language puts pressure on employees to become competent in the corporate language • Assists informal communication and network building • May affect career opportunities and differentiate power and influence • Promotion • Ability to attend corporate programs and meetings • Availability for international assignments
How many people speak English? • World total – 10% of the world population • Surveyed employees in Europe: • The Netherlands – 80% • Germany – 55% • France – 40% • Italy – 39% • Spain – 36% • Impact of language competence: • Higher level positions • Higher salaries
Monitoring Host Country Subcontractors • Outsourcing activities to host-country subcontracting firms requires some monitoring of HR practices • Further contracting is likely to occur. • Vocal groups have accused multinationals of condoning work practices that would not be permitted in their home countries, regarding: • Child labor • Minimum pay • Work hours • Work conditions and safety • Environmental issues • Similar issues in different countries, but more complex
Role of HR in Managing Ethical Issues • Drawing up and reviewing code of conduct • Conducting a cost-benefit analysis to justify an expatriate as a monitor • Championing local operators as monitors • Being a member of the team who conducts periodic “checking” visits • Overseeing external monitors and auditors where used • Checking that rewards and performance systems take into consideration compliance to code of conduct • Being knowledgeable about and sensitive to local law and regulations
Chapter 9 Industrial Relations
Key Issues and Concepts • Cross-cultural difference in industrial relations (IR) and collective bargaining • The concept • Level of negotiations • Objectives • Ideology • Structures • Rules and regulations • Trends and developments • Global • Regional
Factors Influencing International Industrial Relations • Degree of inter-subsidiary production integration • Nationality of ownership of the subsidiary • IHR management approachs • MNE prior experience in industrial relations • Subsidiary characteristics • Characteristics of the home product market • Management attitudes towards unions
Degree of Inter-subsidiary Production Integration • High degree of integration was found to be the most important factor leading to the centralization of the IR function within the firms studied. • Industrial relations throughout a system become of direct importance to corporate headquarters when transnational sourcing patterns have been developed, that is, when a subsidiary in one country relies on another foreign subsidiary as a source of components or as a user of its output. • In this context, a coordinated industrial relations policy is one of the key factors in a successful global production strategy.
Nationality of Ownership of the Subsidiary • Foreign-owned multinationals in Britain prefer single-employer bargaining (rather than involving an employer association), and are more likely than British firms to assert managerial prerogative on matters of labor utilization. • US-owned subsidiaries are much more centralized in labor relations decision making than the British-owned or other European firms, attributed to: • More integrated nature of US firms • Greater divergence between British and US labor relations systems than between British and other European systems, • More ethnocentric managerial style of US firms
IHR Management Approach • An ethnocentric predisposition is more likely to be associated with various forms of industrial relations conflict. • Conversely, more geocentric firms will bear more influence on host-country industrial relations systems, owing to their greater propensity to participate in local events.
Prior Experience in Industrial Relations • European firms tend to deal with industrial unions at industry level (frequently via employer associations) rather than at the firm level. • The opposite is more typical for U.S. firms • In the U.S., employer associations have not played a key role in the industrial relations system, and firm-based industrial relations policies are the norm.
Characteristics of the Home Product Market • Lack of a large home market is a strong incentive to adapt to host-country institutions and norms. • If domestic sales are large relative to overseas operations (as is the case with many US firms), it is more likely that overseas operations will be regarded as an extension of domestic operations. • For European firms, international operations are more like to represent the major part of their business. • Since the implementation of the Single European Market, there has been growth in large European-scale companies (formed via acquisition or joint ventures) that centralize management organization and strategic decision-making. • However, processes of operational decentralization with regard to industrial relations are also evident.
Management Attitudes towards Unions • Management attitudes or ideology concerning unions and industrial relations • Competitive/confrontational • Cooperative • Codetermination • Works council • Union density in western industrial societies • Denmark has the highest level of union membership • U.S. has the second lowest • France has the lowest in the western world.
Industrial Disputes and Strikes • Hamill examined strike-proneness of multinational subsidiaries and indigenous firms in Britain across three industries. • Strike proneness was measured via three variables: • Strike frequency • Strike size • Strike duration • There was no difference across the two groups of firms with regard to strike frequency. • But multinational subsidiaries experienced larger and longer strikes than local firms. • Foreign-owned firms may be under less financial pressure to settle a strike quickly than local firms – possibly because they can switch production out of the country.
Trade Unions and International Industrial Relations • Trade unions may limit the strategic choices of multinationals in three ways: • By influencing wage levels • By constraining the ability of multinationals to vary employment levels at will; and • By hindering or preventing global integration of the operations of multinationals.
Hindering Global Integration of MNE Operations • Many multinationals make a conscious decision not to integrate and rationalize their operations to the most efficient degree, because to do so could cause industrial and political problems. • General Motors as an example of “sub-optimization of integration’. • GM was alleged in the early 1980s to have undertaken substantial investments in Germany at the demand of the German metalworkers’ union (one of the largest industrial unions in the Western world) in order to foster good industrial relations in Germany. • Cost of ignorance, e.g., recent wild cat strike in Germany
Trade Unions’ Response to Multinationals • The growth of multinationals as a threat to the bargaining power of labor • Multinationals are not uniformly anti-union • But their potential lobbying power and flexibility across national borders creates difficulties for employees and trade unions to develop countervailing power.
Seven Characteristics as the Source of Trade Union Concern about Multinationals • Formidable financial resources • Alternative sources of supply • The ability to move production facilities to other countries • A remote locus of authority • Production facilities in many industries • Superior knowledge and expertise in industrial relations • The capacity to stage an ‘investment strike,’ whereby the multinational refuses to invest any additional funds in a plant, thus ensuring that the plant will become obsolete and economically non-competitive.
The Response of Trade Unions to Multinationals • The response of labor unions to multinationals has been threefold: • Form international trade secretariats (ITSs) • Lobby for restrictive national legislation, and • Try to achieve regulation of multinationals by international organizations. • International trade secretariats (ITSs). • There are 15 ITSs, which function as loose confederations to provide worldwide links for the national unions in a particular trade or industry (e.g. metals, transport and chemicals). • The secretariats have mainly operated to facilitate the exchange of information.
The Goal of the ITSs • The long-term goal of ITSs is to achieve transnational bargaining through a similar program, involving: • Research and information • Calling company conferences • Establishing company councils • Company-wide union–management discussions • Coordinated bargaining
Limited Success of ITSs • Overall, the ITSs have limited success, due to several reasons: • Generally good wages and working conditions offered by multinationals • Strong resistance from multinational firm management • Conflicts within the labor movement, and • Differing laws and customs in the industrial relations field
Lobbying for Restrictive National Legislation. • On a political level, trade unions have for many years lobbied for restrictive national legislation in the U.S. and Europe. • The motivation for trade unions to pursue restrictive national legislation is based on a desire to prevent the export of jobs via multinational investment policies.
Regulation of Multinationals by International Organizations • Attempts by trade unions to exert influence over multinationals via international organizations • The International Labor Organization ILO has identified a number of workplace-related principles that should be respected by all nations: • Freedom of association • The right to organize and collectively bargain • Abolition of forced labor, and • Non-discrimination in employment
Regional Integration: the EU Social Dimension • Regional integration such as the development of the EU has brought significant implications for industrial relations. • In the Treaty of Rome (1957), some consideration was given to social policy issues related to the creation of the European Community. • The terms ‘social policy’ or ‘social dimension’ are used to cover a number of issues, such as: • labor law and working conditions, • Aspects of employment and vocational training • Social security and pensions. • The social dimension aims to achieve a large labor market by eliminating the barriers that restrict the freedom of movement and the right of domicile within the SEM.
The EU Directorates • The EU has introduced a range of Directives related to the social dimension. • The most contentious Directive is the Seventh, which requirement of disclosure of company information to unions. • The European Works Councils (EWC) Directive was approved on 22 September 1994 and implemented 2 years later.
Difficulty in Implementing the EU Social Policy • Taxation differences among Member States • Many Member countries’ tax laws do not recognize contributions to foreign pension plans. • This creates unfavourable tax circumstances for employees working outside their home countries and contributing to pension plans in their host countries. • The issue of “social dumping” • The impact of SEM on jobs – Member States that have relatively low social security costs would have a competitive edge and that firms would locate in those Member States that have lower labor costs. • The counter-alarm was that states with low-cost labor would have to increase their labor costs, to the detriment of their competitiveness. • There are two industrial relations issues here: the movement of work from one region to another, and its effect on employment levels; and the need for trade union solidarity to prevent workers in one region from accepting pay cuts to attract investment, at the expense of workers in another region.
The Impact of the Digital Economy • Knowledge acquisition used by MNEs are an emerging issue in the U.S., where newly trained professionals from overseas replace their trainers (expatriates or domestic workers), e.g. • U.S. non-immigrant visa programme – particularly the L-1 classification allows companies to transfer workers from overseas offices to the U.S. for as long as 7 years. • Importantly, this visa classification allows companies to pay these workers their home-country wage.
The Digital Divide • “The digital divide exists not only between societies but within societies.” • Only 15 per cent of the world’s population (living mostly in industrialized countries) has access to information and communication technologies. • A majority of the world’s population is technologically disconnected. • Internet usage is stratified and is much more common among • Younger rather than older people • Men rather than women • Urban rather than rural dwellers, and • People with higher levels of education and income.
Chapter 10 Performance Management
Key Issues and Concepts • Multinational performance management at the global and local level: Considering aspects such as non-comparable data, the volatility of the global environment, the effect of distance and level of subsidiary maturity • Factors associated with expatriate performance, including compensation package, task and role, headquarters’ support, host environment factors and cultural adjustment • Performance management of expatriates and non-expatriates, and for those on non-standard assignments such as commuter and virtual • Issues related to the performance appraisal of international employees. • The contextual model
Performance Management • A process that enables the multinational to evaluate and continuously improve individual, subsidiary unit, and corporate performance, against clearly defined, pre-set goals and targets
Evaluating Subsidiary Performance • Factors to consider: • Whole versus part • Non-comparable data • Volatility of the global environment • Separation by time and distance • Variable levels of maturity
Control and Performance Management • Performance management is part of the multinational’s control system. • Performance targets are part of formal control. • Performance management contributes to shaping corporate culture, e.g. • Who conducts performance appraisal • Tangible versus intangible criteria • Individual versus team based appraisal • How results linked to HR decisions, e.g., compensation and promotion
Variables Affecting Expatriate Performance Cultural adjustment – self and family Host environment Headquarters’ support Task Compensation package Expatriate Performance